Unanticipated Shipping Expenses Not Covered Under Cargo Insurance

Century Aluminum Co. v. Certain Underwriters at Lloyd's, 97 F.4th 1019 (6th Cir. Apr. 4, 2024).

            Century Aluminum owns and operates aluminum plants in Kentucky. The ore is shipped via barge from Gramercy, La. up the Mississippi and Ohio rivers to Century’s plants for refining.[1] When the Corps of Engineers closed the locks on the Ohio River in 2017 due to low water levels and for maintenance, barges were prevented from delivering the ore timely. Century, in order to mitigate damages, had the cargo transported by truck and rail to its facilities.[2] The company, nonetheless, incurred $5million additional transportation charges which it sought to recover from the cargo underwriter. Century asserting diversity jurisdiction, filed for declaratory relief for coverage of the additional expenses incurred.[3]

            Pursuant to the insurance contract, Kentucky law applied to the dispute.[4] Lloyd’s did not  contest that the Extra Expense provision covered up to $1 million of the extra expenses but otherwise asserted the policy did cover losses due to delay.[5] As explained by the magistrate’s opinion and order, “Century contends that other policy provisions, when read in a ‘holistic’ manner with an eye toward the policy as a whole, demonstrate that it is entitled to additional payment for the extra transportation costs.”[6] Lloyd’s filed a Motion for Partial Summary Judgment which was granted. Century appealed.

            The appeal panel addressed the four policy provisions the parties identified as potentially material: (1) the All Risks Clause; (2) Risks Covered Clause; (3) Shipping Expenses Clause; and (4) Sue and Labour Clause.

(1)   The All Risks Clause – This clause covers “risk of physical loss of or damage to the subject-matter insured….” Under Kentucky law, physical loss means deprivation of or physical damage to the insured property.[7] In this case, the cargo sustained no physical loss or damage. Hence, this provision provides no coverage.

(2)   The Risks Covered Clause – This is also known as the “named perils provision.”[8] This provision also provides no solace to Century. “The government never took control of the barges or impounded the alumina, ruling out arrest and detainment.”[9] Nor was there a “restraint.”[10]

(3)   The Shipping Expenses Clause. This provision covers “charges incidental to shipping” when the insured property is not delivered to the destination. The purpose of this clause is to cover failed, not delayed delivery. It is undisputed that the cargo was delivered. This provision is inapplicable.[11]

(4)   The Sue and Labor Clause. This provision would only apply if Century had to undertake expenses to prevent or to mitigate actual physical loss of or damage to the insured property.[12] Century faced no physical loss or damage to the ore.[13]

            Finally, Century maintained the policy covers its “Interest” in safeguarding its property.[14] But, even this coverage is conditioned on risks covered under the policy resulting in “’ loss of or damage to or delay in the delivery of the property’” and which causes production to fall below a benchmark level.[15] The insurance will cover lost profits and charges which result from actual shortfall.[16]

            The panel noted that the policy included by reference the "American Institute Cargo Clauses” which excludes the risks of "’arrest, restraint, [and] detainment’" and "’loss, damage or deterioration arising from delay’" except where the policy affirmatively includes them.[17] In a coda, the appeal court stated: “These exclusions may have denied Century coverage beyond the Extra Expense Clause even had it been able to identify a covered risk.”[18] But, as the litigants briefed only whether Century experienced the risk, it left that decision to another day.

            In light of the foregoing, the grant of summary judgment for the insurer was affirmed.

A copy of the opinion is available here.

[1] 2023 U.S. Dist. LEXIS 70809 at *2 (W.D. Ky. 2023).

[2] Century Aluminum, 97 F.4th at 1021-1022.

[3] 2023 U.S. Dist. LEXIS 70809 at *4.

[4]  Century Aluminum, 97 F.4th at 1022.

[5] Id. at 1021.

[6] 2023 U.S. Dist. LEXIS 70809 at *10.

[7]  Century Aluminum, 97 F. 4th at 1022-1023.

[8] Id. at 1024.

[9] Id.

[10] Id.

[11] Id. at 1025.

[12] Century Aluminum, 97 F. 4th at 1026.

[13] Id.

[14] Id.

[15] Id.

[16] Id.

[17] Century Aluminum, 97 F. 4th at 1027.

[18] Id.