London City Bond roof collapse – lessons for stock owners

The roof collapse at the London City Bond Purfleet warehouse in December 2010 damaged or destroyed a significant amount of bonded alcoholic beverage stock, and some stock-owners will suffer substantial losses.

In the immediate aftermath of the collapse, the priority for most stock-owners has been to establish whether their stock had been damaged and, if not, to get access to it and make it safe. LCB says it hopes to have removed all stock from the ruined warehouse by the end of January, and that it will not be in a position to assess the full extent of the damage until then.

In some cases it will have been a matter of stock being transferred, undamaged, from A to B with no significant loss or interruption of business or profit was sustained. Other stock-owners, however, will be looking at claims for stock which has been damaged or destroyed, or was considered too dangerous to move. A number of importers were left unable to meet orders and frantically trying to source replacement stock. In some cases, this will have meant their having to let customers down completely at the busiest time of year, and could prove very damaging for both the importers and the customers.

What can be claimed?

The stock-owner will want to claim the market value of the stock – the amount it would cost him to obtain replacement stock, or the amount he would have expected to sell it for. He will also want to claim for any other consequential losses suffered. Typically, however, a warehouse’s terms and conditions will include clauses:

• limiting liability in respect of the value of the goods, for example to £100 per tonne (inclusive of duty);
• excluding or limiting liability for consequential loss.

Furthermore, liability is usually only accepted for “neglect or wilful damage” by the warehouse. Proving “neglect” in these circumstances may be difficult and costly.

If the warehouse insures its customers’ goods, as most do, that insurance should then kick-in, but it will be subject to the above limitations and exclusions of liability.

Stock-owner’s insurance cover

To the extent that the warehouse’s contract terms and insurance cover combine to limit the amount recoverable by the owner, he must look to his own insurance policy to fill the gaps. He may well be disappointed. In the our experience, many import/distribution businesses have standard “business all risks” policies, which usually have significant gaps in cover for importer/distributors:

• stock held off their premises will not normally be insured.
• business interruption/loss of profit and other consequential losses suffered in these circumstances will rarely be adequately covered.
• claims arising from breach of contract will generally not be covered.
• loss or damage in transit will generally not be covered – and hauliers’ contract conditions usually restrict cover in a similar way to the warehouses.
• whilst goods are in bond, duty still needs to be considered. If stock is destroyed, no duty is payable. If stock is lost or stolen, e.g. in transit, then the importer remains liable for duty.

The importer may have to settle for whatever he can get from the warehouse/its insurers, and meet all the other losses and claims himself – including any claims from his customers. While this clearly could be potentially catastrophic, the good news is that specialised insurance policies are available which can fill the gaps, by providing market value cover for stock held by third parties, and business interruption/loss of profit and consequential loss cover. It would mean paying a higher premium, but:

• what is already being paid in premium for an all-risks policy may actually be of little value, and provide an illusory reference point.
• there could be scope for reducing the amount spent on premises and contents cover, by looking realistically at the risks and distinguishing between the manageable and the unmanageable — i.e. what could wipe the business out altogether.

Are there any other major gaps in cover?

When reviewing their insurance cover, importers might ask some further questions:

• do they have adequate product liability cover? Many importers assume that an all risks policy provides such cover, whereas it normally will not do so unless it is specifically insured and paid for.
• what about product recall liability insurance? This is an even rarer bird.

Where products are originally supplied by an EU-based producer, product liability may be less of a concern, provided the importer has negotiated satisfactory contractual indemnities with the producer and he is properly insured or unquestionably good for the money. But where the wine is imported from outside the EU, the importer will be held liable as if he were the producer. He, not the producer, is likely to be the first port of call for claims in the event of any serious product liability or recall issue. And if it turns out that he has no insurance cover, he could have a big problem.

Thanks to John Haber-Smith of John Ansell & Partners Ltd, Insurance brokers, for his help with this article – www.ansell.co.uk