War in Ukraine: Cargo insurance and political risks

The dangers of war and strike are excluded in the “all risks” coverage, but they are usually included in the individual policies with additional clauses.

Trading companies and manufacturers of goods have their deliveries insured in a global transport insurance policy based on turnover. The scope of coverage is usually “all risks” according to the Institute Cargo Clauses or similar wordings.

The current situation in Ukraine is classified as war since Russia has occupied Ukrainian territory with a regular army.

Insurance in case of war and strike

Basically, the dangers of war and strike are excluded in the “all risks” coverage, but they are usually included in the individual policies with additional clauses. This extension of cover for these political risks follows the definitions from the insurance conditions of the English insurance market, like the general conditions.

The insured risks of “war” include for instance war, civil war, revolution, rebellion, insurrection, civil strife and confiscation resulting therefrom. The insured perils “strike” include damage to the transported goods caused by strikers, locked-out workers or persons taking part in industrial disturbances, riots or civil commotion, terrorists or persons acting with political motives. Material damage to the goods that occurs directly as a result of the above-mentioned risks is insured.

The additional clauses mentioned can be used to cover the risks of “war” in sea transport and international air freight (“airborne” and “seaborne”), but never in the case of land transport, due to the accumulation risk for the insurer.

The risks of strikes are insured by the relevant clause for carriage by any means of transport, including land.

Termination by insurer possible

However, insurers have a special right of termination in zthe policies for political risks. According to this, the insurer can terminate the contract with a notice period of 48 hours or 7 days depending on the applicable clause in the current contract. However, for deliveries that began prior to the effective date of termination, political risk coverage will remain in place for the entire shipment.

To date, cancellations of political risks have been declared as follows:

  • Transportation within Ukraine, Russia, Belarus as well as land and sea areas bordering Ukraine within a range of 200 km from the land/sea border with Ukraine or;
  • For all transports worldwide, but, after the notice period, with the re-inclusion of worldwide transports, excluding, however, the Ukraine region and the area less than 200 km from the country border with Ukraine and the whole of Russia.

Due to the current situation, insurers are canceling the additional clauses for war and strike both for international contracts and for policies existing in Ukraine and Russia itself.

If the insurer terminates the risks of war and strike, GrECo will, if required, negotiate with the insurer of the policy or try to find a solution for the re-inclusion of maritime and airborne transport (e.g. for sea journeys in the Black Sea and the Sea of Azov) on the international insurance market. Depending on the war situation in the respective transport relation, coverage will be possible, as things stand at present, with additional premiums determined by reinsurers.

If the political risks are terminated, does the coverage from the insurance contract remain in effect for the remaining insured risks?

Yes. If the goods are damaged e.g. in a normal traffic accident of the means of transport, there is cover. However, the policyholder must provide the insurer with proof that the damage was caused by the accident and not by a war event.

In the current situation, are rail transports from Asia to Europe – via the Silk Road – still insured?

Yes, they are insured; but without cover for “war risk on land”; if the insurer terminates the risk of strike, the protection for these losses also ceases.

We recommend that the policyholder immediately informs GrECo if his forwarding agent reports an out-of-hours stopover during transport. We bring this to the attention of the insurer and thus fulfill the contractual obligation.

Damage or additional costs that occur due to delays in the journey as consequence of war events (e.g. the truck is not allowed to cross the border and therefore cannot continue the journey) are not insured.

The sanction clauses of the insurers for deliveries apply unchanged, according to which there is no cover in the event of a violation of sanctions and embargoes; due to the tightening or expansion of sanctions (EU, USA, UK) as consequence of the Ukraine war, this circumstance must be given special consideration.

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Herbert Mayerhofer

Competence Center Manager Transport

T +43 5 04 04 – 276

Be aware: Macron law in transport & logistics!

Independently from new regulations Transport & Logistics companies are liable for the cargo

After a long-lasting debate in EU the so-called Macron law was put in force after several local implementations were applied on national level. Firstly, Belgium and France followed by other countries banned the opportunity for truck drivers to sleep in the truck cabin, although all manufacturers applied all necessary conditions for a comfortable rest in the vehicle.

The law is seen in the majority of CEE countries as a discriminating enforcement by Western European governments who made their best to decrease the aggressive competition of Eastern European transport companies dominating the transport and logistics market in the last decades especially after the EU expansion in Poland, Baltics, Romania and Bulgaria. Besides it brings many problems for the insurance industry, due to compulsory absence of drivers out of the vehicles in certain cases especially when regulating their resting slots.

This article focuses on the special hot topic directly or indirectly connected with the new regulations on the market – robbery of cargoes or total theft of vehicles increased in numbers as a logical tendency to above legislation changes!

From theoretically good intentions to chaos in practice

A problem with many unforeseeable aspects as a ticking time bomb was initiated on May 31, 2017, when the EU Commission published a large “Mobility Package” that aims, among other things, to make a number of changes to Regulation (EC) 561/2006 with regard to travel and rest times. For example, a change was proposed to the effect that the weekly 45-hour rest period or any other longer rest period must be spent in appropriate accommodation with adequate sleeping and sanitary facilities. So, sleeping in driver’s cabs should therefore be impossible across the EU for the longer compulsory resting time.

After many months of discussions, disputes, strikes by transport and logistics business also directly in Brussels regarding the above changes and other restrictions mainly on more frequent trips back to and from homeland, the law was practically put in force. One of the major consequence of this is that drivers will either spend their weekly rest periods in accommodation provided by or paid for by the employer or – if it can be arranged – at home and the trucks will therefore have to be left alone. And here it comes to the major point for the insurance industry: What if a truck and its goods are stolen from a trailer during this period?

But let us firstly look at the major insurance problem: It is not a secret that theft and robbery have been major risks in the transport and logistics industry for many years already (more than 15.000 theft/robbery cases p.a. in Europe!). In addition, the illegal immigrants are also an issue! Based on data from Transported Asset Protection Association (TAPA) we see a significant increase of cases within last years – a special focus is given on the fact that more than 65% of cases of theft happen on unsecured parking (TAPA latest report December 2020).

Source: TAPA website, latest report 01.2021 Tapa Global

We should also not forget that nevertheless of EU efforts to work on providing more and more secure parking lots their number is still insufficient to the increased traffic and the demand on industry side to use such facilities especially after new regulations are being implemented. A critical issue is that even if a transport company makes its best to plan, choose and try to use secured/guarded parking lot, the number of all fully compliant to the insurer`s requirements locations is very limited and often fully booked and impossible to make use of. And who does and how actually define what a secured/guarded parking lot means? There is no exact and common definition for this!

Source: LUTZ presentation

A Pandora box opened for unforeseeable increased risk cases!

The above then clearly describes the challenging development of the industry on one side and the dilemma of how to protect against the theft/robbery risk while at the same time a transport/logistics company is liable (also unlimited in case of gross negligence equal to willful misconduct of its drivers – Art. 29 CMR!) for damages and theft of the cargo and when at the same time drivers are not allowed to stay with their vehicles in certain cases for a longer period of time. However, an important question arises out of above: Where is the role of the respective insurance cover – a carrier`s and freight forwarder`s liability insurance should be enough, shouldn`t it?!

The answer is very tricky from Insurance industry’s point of view as in many of the cases, especially in CEE insurers simply apply restrictive coverages for keeping up the loss ratios low without taking into consideration that long term relationships with customers cannot be built by only increasing exclusions in wordings. Many CMR insurance policies contain provisions that can be extremely sensitive for carriers; the conditions vary from insurer to insurer and can include, for example, the following clauses:

  • Theft is generally excluded;
  • The theft of goods that are transported with a truck that is not parked in a guarded parking lot and / or does not have two independently functioning anti-theft devices is excluded;
  • The theft of vehicles including their loads or loads from vehicles that are manned by only one driver, although a crew of two would have been appropriate / necessary;
  • Thefts due to poor route planning are excluded;
  • The theft of high-quality goods that are not transported by trucks with box bodies fitted with security locks is excluded;
  • Theft from parked vehicles that are not guarded by certified personnel is exclude10

As you can see, there is no limit to the imagination of insurers when it comes to exclusions. Some policies also provide for deductibles, sometimes in the event of theft of up to 25% of the total value of the goods. Of course, a Cargo policy could partially solve the problem, but the general practice shows that normally transport and freight forwarding companies do not have as prerogative the responsibility for insuring the cargoes on first party principle as they are simply not owner of the good.

Check your policies – we can help!

Thus, having above situation, a professional transport and logistics company should make its choice for appropriate provider of insurance solution with broadest possible covers incl. coverage of Willful misconduct (in regards to the critical Art. 29 of CMR) as well as highest possible sums insured depending on the types of cargoes. But not only the wording is critical! The customers must choose out of the several insurance service providers, if possible, a respective so called Assekuradeur like W DROEGE or LUTZ, who are well known for their extensive and profound specialization in Transport & Logistics LoI.

These organisations do not only underwrite the business up to certain limits authorised by risk carriers, they also manage risks and claims to the benefit of the client by involving their loss adjusting partners, lawyer networks and other specialists. A risk carrier is only involved in very high claim and critical cases. They provide trainings and instructions for a better and optimized planning of transport schemes and advise on most critical potential risks.

Be aware and rely on your Transport & Logistics Specialty team!

The tendency of implementing steadily critical regulations is by far not yet over and for this, the industry is rather to be concentrated on actively fitting to new legislation and not passively waiting for insurers to protect them. The transport and logistics companies will further be “squeezed” between new and harder legislation on one side and the creativity of thieves and fraudulent acts within continuous market openness. Together with increased pressure of the ordering parties on our customers this means that we as broker must also act more energetic and steadily improve our offering finding the right insurance and risk solution.

The text is prepared with the special support of former General Manager Otmar Tuma from LUTZ Assekuranz team with excerpts from the Article in „blickpunkt lkw + bus“ Edition 51.

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Hristo Charkov

Practice Leader Transportation & Logistics

T +359 888 810 100