Forward, Summer 2016 Issue

airforwarders.org

Summer 2016

Forward Magazine

Given the mixed messages that the US

Coast Guard has sent regarding their role in

enforcement and the interpretation by some

stakeholders that non-compliance of the

SOLAS Verified Gross Mass (VGM) rule has

little or no consequence, a concern by some

is that non-compliance and any resulting

bodily injury, physical damage or financial

loss will not be recoverable by insurance.

Most ports and steamship lines are eager to

accept the VGM rules as they are the main

drivers behind the creation of the rule, but

apprehension lies with those parties that

may seek to exploit the lack of enforcement

and those parties that fail to understand the

consequences of non-compliance. Beneficial

Cargo Owners (BCOs) and Transportation

Intermediaries along with their employees

tasked with VGM compliance may not have

adequate incentive to follow the VGM rules

for the following reasons:

1. Smaller and mid-sized BCO’s and

Transportation Intermediaries may

simply lack the manpower, guidance,

or expertise to follow new export

rules and regulations. As with many

industries, exporters are making due

with less manpower while the number

import and export regulations have

increased. ‘Regulatory Overload’ may be

overwhelming companies of this size and

rules like the SOLAS VGM are simply

not understood.

[1]

2. BCO’s shipping heavy cargo may be

motivated to continue to load and ship

overweight containers to save money

on freight or keep certain shipments

unitized into fewer containers.

3. Transportation Intermediaries may be

complicit in the BCO’s non-compliance of

the VGM rule for fear that the BCO may

seek an alternate transportation provider if

VMG Compliance is questioned.

4. The industries’ focus on the transmission

of a VGM ‘document’ and the process

of data transmission may undermine the

intent of the rule.

5. Management within BCO’s and

Transportation Intermediaries may view the

VGM rules solely as a compliance task and

fail to recognize the liability to shareholders.

The SOLAS VGM Rule has focused safety

issues on ports, vessel stability and the

international leg of container transport

however the visibility of the issue will

likely create additional focus on overweight

containers following accidents involving

trucks and freight trains.

Should overweight containers be the cause

of an accident, it’s likely that investigators

and those representing injured parties will

climb the ladder of responsibility and both

BCO’s and Transportation Intermediaries

will be included in such claims. A wrongful

death suit in 2010 involving an overweight

import container did include the importer

(BCO), the customs broker, the owner of

the customs exam site, and the trucking

company as defendants with plaintiff’s

counsel arguing each of the defendants had

a duty to advise the next defendant of the

weight of the container

[2]

Non-compliance to the SOLAS VGM

could lead to uncovered claims for BCOs

and Transportation Intermediaries.

While not law, intentional deviation from

SOLAS VGM compliance may be viewed as

a dishonest, knowingly wrongful, fraudulent,

and possibly malicious act and as a result

most insurance policies could deny coverage

using any one of these exclusions.

Under a Commercial General Liability

(CGL) policy it’s doubtful the Expected

or Intended Injury Exclusion could

be invoked as a Bodily Injury (BI) or

Property Damage (PD) loss stemming

from misdeclared container weights would

likely not be considered ‘expected or

intended’, but there could be argument as

to whether intentional container weight

misdeclaration would be considered a

covered ‘occurrence’

Coverage A of the insuring agreement of

the CGL requires that BI or PD be caused

by an ‘occurrence’ and case law indicates

some degree of fortuity must be established

to constitute an occurrence.

For those courts that may decide the ‘act’

must be the fortuitous event, would the

act of misdeclaring container weights be

considered fortuitous and unintentional

or intentional? Or for those courts that

take the view of the result being the

‘fortuitous event’, would the result of the

misdeclaration be considered?

The following scenarios are possible

areas in which BCO or Transportation

Safety of Life at Sea Verified Gross Mass

(Overweight Container) Rule considerations

for Beneficial Cargo Owners, Transportation

Intermediaries and Cargo or Transportation

Liability Insurers. The SOLAS Verified Gross

Mass Rule is not law yet and lack of unified

implementation has created confusion.