—— J Group Co., Ltd. v. the Insurance Co., Ltd. Qingdao Branch et al.

Key Word：Warehouse-to-warehouse clause; Insurance coverage period; Auction mitigation; Duty to mitigate; Terminal storage fees 

Facts：

J Group Co., Ltd. (hereinafter “J Company”) insured its tapioca chips imported from Thailand under marine cargo transportation “all risks” insurance. The tapioca chips were transported by the M/V S, which arrived at the discharge port, Lianyungang, China, on May 22, 2021. On June 11, 2021, J Company received a notice from the shipowner that the tapioca chips that had not been unloaded from cargo hold No.7 had been soaked due to water ingress into the hold, resulting in partial damage to the goods. J Company immediately filed a claim against Insurance Co., Ltd. Qingdao Branch (hereinafter “Insurance Company”), but the two parties failed to reach an agreement on the amount of goods damage. To mitigate the losses, J Company opted to auction the damaged tapioca chips. The auction was organized and conducted by the Insurance Company. The damaged tapioca chips were successfully bid on by a third-party company, a Guangzhou Company. However, due to the continuous deterioration of the goods’ quality, the Guangzhou Company refused to take delivery. Consequently, the damaged tapioca chips remained stranded at the port yard until the initiation of the present lawsuit, ultimately resulting in the total destruction of the goods. J Company filed a lawsuit regarding the losses and damages involved in the case, demanding that the Insurance Company compensate for losses and damages including the value of the goods and terminal storage fees, totaling over RMB 860,000.

Judgment：

The duration of liability under the marine cargo insurance policy in this case is “Warehouse to Warehouse.” Accurately determining the “Warehouse to Warehouse” clause is the key to dividing insurance liability. The Court, after comprehensively considering the evidence such as the involved insurance contract clauses, the parties’ email correspondence, and industry practices, rendered a judgment in accordance with the law that the date of auction of the damaged tapioca chips shall be deemed as the date of arrival at the destination for distribution or allocation. At this point, the insurance coverage period shall terminate, and the Insurance Company shall not be liable for compensation for any cargo damages occurring after the auction. Meanwhile, the judgment clarified that following the occurrence of an insured event, the owner of the goods has a duty to promptly take reasonable measures to mitigate losses based on the characteristics of the damaged goods. This duty to mitigate losses does not transfer to the Insurance Company by virtue of its participation in the disposal of the goods. After the judgment was issued, both parties accepted it and did not appeal. The parties involved in the two related maritime cargo transportation cases therefore also reached settlements concurrently.

Typical Significance：

Due to the numerous uncertainties inherent in maritime transportation, goods damage occurs frequently. Owners of the goods can transfer this risk by purchasing marine cargo transportation insurance. Upon the occurrence of an insured event, the insurance company is obligated to provide compensation based on the value of the damaged goods and may assist the owner of the goods in organizing an auction of the goods to mitigate losses. This case accurately determines the period of coverage under “Warehouse to Warehouse” clause and clarifies that after an insured event occurs, the cargo owner must promptly take reasonable measures to mitigate losses based on the characteristics of the damaged goods. Furthermore, the cargo owner’s duty to mitigate losses remains unchanged even if the insurer participates in the disposal of the goods.This adjudication reasonably determines the scope of the insurer’s liability, effectively safeguards the order of the marine insurance market, and establishes a guiding precedent with significant referential value for the judiciary. This case has been selected for inclusion in the Case Database of People’s Courts and published in the Chinese Maritime and Commercial Law Reports (Vol. 4, 2023).