Act of God - Claims Handling in the Wake Hurricane Irma


The latest in the world of insurance



Posted 2017-09-14

Hurricane Irma is estimated to cost insurers, in the region, some 65 billion US dollars while the economic cost is expected to exceed over 300 billion US dollars. Photo evidence shows that a vast majority of inland areas are under water meaning that a large proportion of cargo losses will be from flooding. This means physical damage, delay, and consequential losses as well.

If you are a freight forwarder, there is a good chance you’ve been or will be affected by Hurricane Irma. Damages will continue to disrupt shipping and airline routes, worldwide, making it imperative that forwarders work closely with their cargo and liability providers.

In an event like this, the term “Act of God” will be commonly tossed around making it important for freight forwarders to understand what exactly an “Act of God” is. By definition, an “Act of God” is any natural cause, like a hurricane or earthquake, outside of human control.

When your clients send claims for water damage or delay, you are probably likely to pass these on to your master carriers, cross your fingers, and hope they deal with it quickly. In such a terrible event, you expect reputable carriers to offer compensation quickly in order to save face and avoid adverse publicity. If you’re a more skeptical forwarder, you may even expect to receive a repudiation due to an act “Act of God” as the carries defense.   

In reality, the probable response from a carrier will simply state that the matter is under review and to notify the cargo insurers immediately. Carriers and their insurers tend to filter out claimants who are not willing to invest time and energy pursing a claim. Those who continue to push will typically be met with the standard “Act of God” argument and filtered into a group of claimants who believe they have a watertight defense.

This is where things get tricky. An “Act of God” is outside of human control making it, by definition, something that could not have been guarded against by reasonable care. Therefore, if a vessel sailed into the storm knowingly, or if the warehouse/goods were not properly guarded against flooding, damages do not fall under “Act of God”. This hurricane was predicted and widely broadcasted for many days giving authorities time to evacuate people who had already taken measures to protect their property.

So, the question is, what could the carrier or even the forwarder do to better protect their cargo?

If the question to the above is “nothing” the “Act of God” defense should stand but this is where the shipper can start questioning the carriers or forwarders decisions. If the warehouse or quay was flooded, why were containers not loaded onto empties or moved to a different location? If the vessel suffered from heavy weather or jettison, why didn’t the vessel try to avoid the storm or stay in port?

Forwarders who have adequate cargo and liability insurance should be well protected from all manner of claims against them. Liability and E&O policies are primarily for defense so they will look at ways of passing these claims onto the carriers or protecting their positions under an “Act of God”. All Risk Cargo Insurance covers hurricanes and other natural disasters including named policies such as P&C which covers flooding in storage or discharge at the port of distress, respectively.

This year will be extremely costly for insurers - possibly one of the worst years on record. With Irma and Harvey in the rear view and two more threatening storms brewing in the Atlantic, adequate insurance a must. All shippers, receivers, and forwarders will feel the impact this hurricane season but not all will suffer from financial disruption. Those who rely on top tier insurance coverage will find that damages due to “Acts of God” are easily managed. Which forwarder are you?