Stuck in the Muck: Looking to Insurance to Cover Billions of Dollars in Suez Canal Losses

It may have taken 10 years and more than a million workers to build the 120-mile-long Suez Canal,1 but as the world recently learned it only takes 1 ship to block it.  After nearly a week with the forced shut down of this critical artery to maritime commerce, hundreds of ships intending to traverse the Suez Canal lay waiting with cargo, some incurring considerable late fees for undelivered cargo.2  Still others abandoned this traditional short cut and made the long journey around the tip of Africa, adding weeks to their original journeys and incurring up to $26,000 a day in added fuel costs.3  The effect of this crisis is broad and deep, choking off the supply of fundamental items like microchips and oil and disrupting any company subscribing to the “just-in-time” inventory model.4  In assessing the potential fall out to supply chains and product cycles due to delayed cargo deliveries, companies should check to see if they have insurance coverage for losses due to the Suez Canal blockage. They might.

Marine Cargo Insurance Could Cover Cargo-Related Losses Due to the Suez Canal Blockage

One of the first places a company should look for insurance coverage for cargo-related losses due to the Suez Canal blockage is its Marine Cargo Insurance policies.  The modern version of these policies dates back to the 1700s when Lloyd’s of London insured the shipping of myriad commercial ventures against losses.5  Today, there are various sub-lines of marine cargo insurance applicable to different types of perils, including so-called P&I insurance which covers third party liability for property damage and bodily injury.  More generally, policies come in two flavors: limited peril policies following the traditional Lloyd’s model that cover losses due to the “seas, fires, assailing thieves, jettison, barratry, and other like perils, losses and misfortunes” and the increasingly common “all-risk” policies that, as their name suggests, cover “all fortuitous, physical damage or loss due to any external cause.”6  These policies call to mind two coverages that could apply to the Suez Canal blockage.

First, such policies could have endorsements extending coverage for lost sales resulting from goods that were damaged due to shipping delays.  One common endorsement covers “loss in sales caused by a delay in the arrival of the goods insured . . . provided the delay is a direct result of a Free of Particular Average peril.”  In marine insurance speak, this means that coverage will extend to loss of sales caused by the partial loss of/damage to cargo caused by a peril covered by the policy.  One such peril applicable to the Suez Canal blockage is “stranding,” i.e. when an insured ship runs aground.  Coverage of this type could apply in the Suez Canal blockage context to perishable cargo or to cargo that was damaged due to the freeing of the ship.  

Second, some policies have a “financial loss clause,” which covers losses due to shipping delay without the cargo itself having been damaged.  Typically, these clauses require that the ship operator be responsible in some way for the delay and that the delay be due to one of the enumerated perils covered by the policy.  Depending on how the facts develop as to why the Ever Given became stranded in the Suez Canal, such as if the crew had been negligent in operating the ship, such “financial loss clauses” may prove an avenue for coverage.

Contractual Indemnity Provisions Might Apply to Cargo-Related Losses Due to the Suez Canal Blockage

In addition to a company’s own insurance, it is possible that various agreements with suppliers or shippers might provide indemnity opportunities to recoup losses due to the Suez Canal blockage.  And depending on the nature of those agreements, the property insurance issued to the shipper of the cargo or the liability insurance issued to the owners of the ship blocking the Suez Canal, the latter of which is estimated to be over $3.1 billion,7 may also provide coverage. 

Conclusion

Companies should check their policies and contractual agreements as soon as possible.  Many policies contain requirements that loss be identified and claimed within a certain period, often a matter of days.  Companies would do well to confer with insurance counsel to make sure they understand whether they should submit an insurance claim for their losses.


[1] Rick Gladstone and Megan Specia, What to Know About the Suez Canal and the Cargo Ship That Was Stuck There, nytimes.com (March 25, 2021), available at https://www.nytimes.com/2021/03/25/world/middleeast/suez-canal-container-ship.html (last accessed March 29, 2021).

[2]  Peter S. Goodman and Stanley Reed, With Suez Canal Blocked, Shippers Begin End Run Around a Trade Artery, nytimes.com (March 26, 2021), available at https://www.nytimes.com/2021/03/26/business/suez-canal-blocked-ship.html?action=click&module=Top%20Stories&pgtype=Homepage (last accessed March 29, 2021).

[3] Id.

[4] Edward Segal, Blocked Suez Canal Is Latest Reminder Why Companies Need Crisis Plans, Forbes.com (March 27, 2021), available at https://www.forbes.com/sites/edwardsegal/2021/03/27/blocked-suez-canal-is-latest-reminder-why-companies-need-crisis-plans/?sh=50c0339a40ac (last accessed March 29, 2021).

[5] Gregory DL Morris, A Brief History of Marine Insurance (March 6, 2018), available at https://riskandinsurance.com/brief-history-marine-insurance/ (last accessed March 29, 2021).

[6] 4 James K. Carroll, Law and Prac. of Ins. Coverage Litig. § 53:19 (2020 Update).

[7] Leslie Scism and Benoit Faucon, Suez Canal Insurance Claims Loom as Ever Given Blocks Shipping, wsj.com (March 27, 2021), available at https://www.wsj.com/articles/suez-canal-insurance-claims-loom-as-ever-given-blocks-shipping-11616837401 (last accessed March 29, 2021).

1 thought on “Stuck in the Muck: Looking to Insurance to Cover Billions of Dollars in Suez Canal Losses

  1. This is an excellent article explaining the very broad extent of potential insurance coverages available to affected businesses. Marine insurance coverage is a very specialized world usually limited to LL.M.s and Proctors in Admiralty.

    Even so, there are numerous other potential coverages businesses may not have realized. This very useful article helps businesses understand the need to read, or reread, the actually language and coverages in their policies. Well done!

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