Institute Bulk Clauses: Definition and Guaranteed Outturn

A large ship on fire at a port with thick black smoke rising into the sky, surrounded by smaller boats on the water.

The Institute Bulk Clauses (IBC) provide standardized terms and conditions for insurance coverage in maritime trade, particularly for the transportation of liquid bulk cargoes, generally products such as crude oil and palm oil. Institute Bulk Oil Clauses is in accordance with English Law, which is often the governing law for marine insurance policies.

The IBC are developed by the Institute of London Underwriters (ILU) and are used worldwide to standardize the insurance coverage for bulk cargo.

These clauses are incorporated into marine insurance policies to cover bulk cargo shipments against various risks, including damage, loss, and liability during transit. They offer to cargo owners, insurance companies, and any company involved in transportation and sale contracts within the liquid bulk trade market, guidelines that simplify and expedite contract negotiations and drafting.

As the maritime liquid bulk traffic continues to grow, the importance of these clauses in mitigating risks and protecting the interests of all parties involved cannot be overstated.

This article delves into these clauses and their extensions, with a focus on the Guaranteed Outturn Extension (GOE).

Structure and Content of Institute Bulk Clauses

The clauses include defining covered perils, exclusions, conditions, and warranties precisely. A well-structured policy will delineate the scope of coverage, the obligations of the assured, and the procedures for claims.

The structure and content of the IBC typically include the following sections:

1. Introduction

The introduction sets the stage for the clauses, providing a brief overview of the purpose and scope of the insurance coverage. It may include definitions of key terms used throughout the document.

2. Coverage Scope

The Institute Bulk Clauses provide comprehensive coverage for various risks associated with liquid bulk cargo shipments. These include:
  • Physical Damage: Coverage for any physical damage to the cargo during transit.
  • Contamination: Protection against contamination of the liquid cargo, which can significantly impact its value.
  • Shortage: Coverage for any shortages in the cargo delivered compared to the quantity stated in the shipping documents.

3. General Average and Salvage

The clauses often include provisions for general average (shared loss among all parties) and salvage (compensation for rescuing a ship or its cargo).

4. Duration & Transit

This insurance attaches from the moment the insured subject matter is loaded on board the vessel for the purpose of the insured voyage. Additionally, the risk commences from the time the consignment leaves the tanks for loading at the place named in the policy for the commencement of transit.

The insurance continues during the ordinary course of transit.

This means the coverage remains active while the goods are in transit from the point of origin to the final destination, including any necessary transshipments.

The insurance terminates upon the first of the following events:

  • Entry into storage tanks at the destination, when the insured subject matter is discharged into storage tanks or a storage vessel at the destination named in the policy.
  • 30 days after arrival at the destination. Alternatively, the coverage ceases 30 days after the vessel arrives at the destination named in the policy.

5. Exclusions

The IBC explicitly list certain exclusions to prevent ambiguity and manage risk effectively, including:

  • Willful misconduct of the assured.
  • Ordinary leakage and wear and tear.
  • Insufficient or unsuitable packing or preparation.
  • Inherent vice or nature of the insured subject matter.
  • Loss due to delay.
  • Financial default of the vessel’s operators.
  • War and nuclear risks.
  • Unseaworthiness of the vessel.

Specific warranties and conditions must be adhered to, such as the seaworthiness of the vessel and the legality of the voyage.
Understanding the detailed terms and conditions of the Institute Bulk.

6. Claims Process and Subrogation Recovery

The claims process under the Institute Bulk Clauses requires insurers and reinsurers to adhere to strict protocols for notification, documentation, and assessment of claims.

Prompt notification of loss or damage by the assured is crucial, and insurers must ensure that all necessary documentation, including survey reports and evidence of loss, is provided.

Insurers need to conduct thorough and impartial assessments to determine the validity of claims and the appropriate indemnification.

Effective communication and documentation are essential to managing claims efficiently and mitigating the risk of disputes.

Additionally, insurers must consider the process of recovery after subrogation. Subrogation rights allow the insurer to recover losses from third parties responsible for the damage. This section outlines:

  • Insurer’s Rights: The process by which the insurer steps into the shoes of the assured to pursue recovery from liable third parties.
  • Recovery Process: Legal strategies to maximize recoveries and offset the losses paid out under the policy.

7. Dispute Resolution

The IBC often include clauses related to dispute resolution, specifying the mechanisms through which disputes should be resolved, such as arbitration or court proceedings.

Policies often include arbitration clauses specifying the preferred method of resolving disputes outside of court, which can be faster and more cost-effective. Insurers must ensure that dispute resolution provisions are clear and enforceable, and they should be prepared to engage in arbitration or litigation if necessary. It’s vital to choose arbitration institutions and rules that align with the nature of maritime disputes and ensure fair and efficient outcomes.

Guaranteed Outturn Extension under Institute Bulk Clauses for Liquid Bulk Cargo Insurance

The Guaranteed Outturn Extension (GOE) is an additional coverage option under the IBC, designed to address measurement inaccuracies during the loading and unloading of liquid bulk cargo, which can lead to disputes and claims.

The GOE ensures compensation for any shortfall between the quantity of cargo loaded and discharged at the destination, provided the shortfall exceeds a specified percentage or amount defined in the policy. Accurate documentation and measurement at both loading and discharge ports are crucial for validating the claim.

The loss is calculated based on the difference between the BL quantity and the outturn quantity. Financial compensation is determined by the market value of the shortfall at the destination port.

Case Study: National Oilwell Varco Norway AS v. Keppel FELS Ltd

Court: Singapore International Commercial Court

A shipment of machinery parts for oil drilling was found to be short upon arrival at the discharge port. The Bill of Lading indicated 1,000 metric tons loaded, but only 950 metric tons were received. 

Application of GOE
The shipper invoked the Guaranteed Outturn Extension under the Institute Bulk Clauses, claiming the shortfall exceeded the threshold specified in the policy. Accurate documentation was provided from both the loading and discharge ports.

The court upheld the claim under the GOE, and the insurer was ordered to compensate the shipper for the 50 metric ton shortfall. This case demonstrated the effectiveness of the GOE in providing financial protection against quantity discrepancies during transit.

Legal Advice

For detailed legal advice on how these clauses can be effectively utilized in your contracts, contact us.

Our team of experts is ready to provide the guidance you need to navigate the complexities of bulk cargo insurance and ensure that your interests are fully protected.

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