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Insurance Company was Obliged to Indemnify Freight Forwarder’s Settlement Costs

by Aage Krogh (IUNO)

A shipping company and a freight forwarder agreed to settle a claim concerning nacelles which had been damaged during transportation. Thus, the freight forwarder paid 95.000 USD to the shipping company. The Maritime and Commercial High Court ruled that the insurance company of the freight forwarder was obliged to cover the settlement amount - among other reasons because the insurance company had handled the case for one and a half years.

A German company had engaged a Danish freight forwarder to arrange for the carriage by sea of nacelles for wind turbines from Portugal to England. The freight forwarder contracted with a Danish shipping company which should carry out the carriage by sea.
During the carriage to England in February 2013 five of the ten nacelles got detached. The detached nacelles caused damage to both the remaining cargo and the ship. The captain berthed the ship in France, since there was a risk of further damages on the cargo and the ship.

The Shipping Company Claimed Compensation for a Time Loss

The freight forwarder was immediately informed of the damages and on the following Monday he reported the incident under his liability insurance as a freight forwarder. The Danish shipping company raised a claim against the freight forwarder for costs due to the delayed voyage.

The insurance company processed the case during the following year. During this process, the insurance company obtained opinions of a Danish lawyer and an English lawyer. The Danish lawyer was also given authority to enter into negotiations with the shipping company.

Later, there was some disagreement about which of the parties who had taken the initiative to involve the lawyers. The insurance company believed that they had involved the lawyers in mutual understanding with the freight forwarder. However, the freight forwarder maintained that he had not been involved in the decision to involve the lawyers.

The Insurance Company Rejected Coverage of the Claim Regarding Delay

The Danish lawyer negotiated with the shipping company about an amicable solution. However, on 8 September 2014 - three days before the expiry of the settlement deadline which had been given by the shipping company - the insurance company rejected to cover the claim regarding time loss. The freight forwarder continued the negotiations with the shipping company and the case was settled against payment of 95.000 USD from the freight forwarder to the shipping company.

Hereafter, the freight forwarder initiated legal action against the insurance company and claimed coverage of the settlement amount of 95.000 USD. The insurance company argued that the shipping company’s claim was a damage that was not covered by the insurance, since the liability insurance only covered the freight forwarder’s civil liability towards the party placing the order with the freight forwarder. The freight forwarder argued that the shipping company’s claim was preventive measures. Thus, the freight forwarder argued that preventive measures were covered by the insurance. Furthermore, it was emphasized that the insurance company had covered similar claims in two previous cases.

The Maritime and Commercial High Court: The Insurance Company had Established a Legitimate Expectation of Coverage

The court ruled that the insurance company had to cover the settlement amount of 95.000 USD. First, the court based its decision on the fact that the insurance company had undertaken to process the reported incident from the freight forwarder. Hereafter, the court stated that the insurance company itself had taken the initiative to involve external lawyers and had paid the costs hereof.

The court emphasized that it had not been proven that the insurance company clearly had expressed to the freight forwarder that the damage would not be covered by the insurance. Simultaneously, the handling of the case had been going on for one and a half years which made the court to determine that the insurance company had established a legitimate expectation of coverage.

The court emphasized that it was not unreasonable for the freight forwarder to assume that the damage would be covered by the insurance since the claim regarding the delay was raised in order to minimize the risks of several damages on the goods and the ship.

IUNO’s opinion

The judgment shows that an insurance company can be ordered to cover damages, when the freight forwarder himself has made a settlement and paid the claim. The decision is very specific – for instance the court did not decide whether or not this category of claim should be covered by the certain type of insurance.

However, in any event the case shows that it is important to include a very clear and distinct expression form towards clients when acting within your profession. In some cases, lack of a clear accept or rejection of coverage can give rise to legitimate expectations with the insured party.

The case has been appealed to the Danish Eastern High Court, and we will comment further on the case when the final decision has been handed down.

December 18, 2016

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