The Belt and Road cases of Qingdao Maritime Court (2014) Qingdao Maritime Court Hai Shang Chu Zi No. 1153

　　RizhaoZhonggangLiangyou Co., Ltd. v. Sunshine Property Insurance Co., Ltd.

　　(Case concerning disputes over a marine insurance contract)

　　【Reasons for Recommendation】

　　Insurance of carriage of goods by sea plays an important role in reducing risks of maritime transportation and promoting the construction of the “Belt and Road” especially the “Maritime Silk Road”. The dispute was brought by damage to goods en route from Malaysia to China through the “Maritime Silk Road”. Although primafacie, the damage was caused by voyage delay, yet the delay was an inevitable result of the failure of the vessel’s machine, rather than an independent and determining factor to the damage of goods. It served as a linkage between the failure of the vessel’s machine and the damage to the goods, rather than an external factor which cut off the original chain of causality. Therefore, the proximate cause of the damage to the goods occurring in this case was the failure of the vessel’s machine instead of the voyage delay, from which the responsibility of the insurer could not be exempted.This case correctly interpreted, elaborated and applied the Principle of Proximate Cause under the marine insurance contracts, and made clear that proximate cause should be the cause which is proximate in effect and has a decisive and dominant function independently. The case also fully enshrined the basic function of judicial service to guarantee the construction of the “Belt and Road”.

　　【Basic Facts】

　　Rizhao Zhonggang Liangyou Co., Ltd. (hereinafter “Zhonggang Liangyou”) imported 8,000 tons of refined palm oil from Malaysia in total price of 6,728,000 US dollars. Sunshine Property Insurance Co., Ltd. (hereinafter “Sunshine Insurance”) underwrote a cargo insurance, and all the terms of insurance contract were Institute Cargo Clause A. The above-mentioned cargos were loaded on the vessel “AMANDA” at two ports of Malaysia. After the shipment inspection, the cargo did not exceed China’s mandatory standards on public health in all the items of the food safety tests. On 7 March 2014, the vessel “AMANDA” anchored at the anchorage of the second port of loading after finishing loading. Due to the failure of the vessel’s main engine, the vessel began to be towed by a tug from 3 pm on April 12 and the cargos were discharged at the Rizhao Port on May 9. After the inspection, the cargos involved in the case were returned from carriage due to excessive acid contents. Later Zhonggang Liangyou resold the involved cargos to a third party overseas in price of 4,215,801.26 US dollars. After the cargos arrived in Rizhao Port, Zhonggang Liangyou immediately notified Sunshine Insurance, but it had not received any indemnification.

　　【Judgment】

　　Qingdao Maritime Court held that the insurer shall compensate for any loss caused by the perils insured against which is a proximate cause of the damage but did not undertake the compensation for any loss which was not caused by covered risks as a proximate cause. The so-called proximate cause shall be a cause that was proximate in effect and independently has a decisive and dominant function. In the present case, the proximate cause of the cargo damage was the engine failure accident of the vessel, not the delay in voyage. The exclusion clause of the insurance contract did not contain engine failure accident of the vessel which undertakes the carriage, and the aforementioned proximate cause belonged to the risks covered by the insurance contract. Therefore, the insurer shall compensate for the damage caused by the proximate cause according to the contract. As a result, the Court ruled that Sunshine Insurance shall assume insurance liability. After the judgment was announced, both the plaintiff and the defendant accepted the result and did not appeal, and thus the judgment has been legally effective.

　　【Significance】

　　The case concerns a marine insurance contract disputes related with the “Belt and Road” factors, involving the interpretation and application of the Principle of Proximate Cause. The Principle of Proximate Cause is a basic principle of marine insurance contracts and is adopted by most States’ marine insurance laws. Under the Principle of Proximate Cause, the insurer only undertakes the responsibility to make compensation when the risks covered by the insurance contract are the decisive, dominant and the most influential causes of the damage. The proximate cause shall be the one proximate in effect and plays a decisive and dominant role. Since vessels may encounter a range of risks and accidents while sailing at sea, there may be a series of causes. If the intervention of a certain cause interrupts the causal linkage between the original event and the damage, and such an intervening factor independently plays a decisive role in causing the damage, then the intervening cause becomes the proximate cause. If there is no intervening causes, it is necessary to find the last cause playing a decisive and dominant role in causing the damage in the causation chain, which shall also be a sufficient condition for the subsequent causes, as the proximate cause, to determine whether the insurance liability exists or not.

　　In the present case, the duration of the voyage was far from normal due to the engine failure of the vessel undertaking the carriage. Although prima facie, the damage was caused by the delay in voyage, yet the delay was an inevitable result of the engine failure accident, rather than an independent and determining factor to the damage of goods. It served as a linkage between the failure of the vessel’s machine and the damage to the goods, instead of an external factor which cut off the original chain of causality. Itserved as a conductor and medium within the chain. Therefore, although the loss, damage or cost directly caused by the delay in voyage belonged to the general exclusion clause specified in Institute Cargo Clause A, the insurer could not exempt its liability because the proximate cause of the cargo damage in this case was the engine failure accident of the vessel rather than the delay of voyage.

　　The judgment correctly interpreted, elaborated and applied of the Principle of Proximate Cause, settled the disputes and served the judicial function to guarantee the construction of the “Belt and Road”.

　　Case Editor: Yong Zhang, from Rizhao Tribunal of Qingdao Maritime Court

　　Qingdao Maritime Court

　　Civil Judgment

　　(2014) Qing Hai Fa Hai ShangChu ZiNo. 1153

　　Plaintiff: Rizhao Zhonggang Liangyou Co., Ltd. Residence: Zhonggang District, Rizhao Port, Shandong Province.

　　Legal representative: MiaoZhonglin, president of the board.

　　Authorized agent ad litem: ZhaoYao, lawyer of ShandongLuhai law firm.

　　Defendant: Sunshine Property Insurance Co., Ltd.Residence: Kuntai International Building No.1, Chaowai Street Yi No. 12, Chaoyang District, Beijing.

　　Legal representative:Li Ke , president of the board.

　　Authorized agent ad litem:YuanHui, lawyer of Guangdong Wang Jing & CO. (Qingdao) Office.

　　Authorized agent ad litem: TianZhiqiang, lawyer of Guangdong Wang Jing & CO. (Qingdao) Office.

　　Defendant: Shipping Insurance Operation Center of Sunshine Property Insurance Co., Ltd. Residence: Room 1902-1906, No.458 Fushan Road, Pudong New District, Shanghai.

　　Representative: LiKaibin, manager.

　　Defendant: Rizhao Center Branch of Sunshine Property Insurance Co., Ltd. Residence: Rizhao Economic Development Area, 3rd floor, Citic Bank, intersection of Qinhuangdao Road and Taiyuan Road, Rizhao, Shandong.

　　Representative: GengWeigang, general manager.

　　Authorized agent ad litem:YuanHui, lawyer of Guangdong Wang Jing & CO. (Qingdao) Office.

　　Authorized agent ad litem: TianZhiqiang, lawyer of Guangdong Wang Jing & CO. (Qingdao) Office.

　　Plaintiff Rizhao Zhonggang Liangyou Co., Ltd. (hereinafter “Zhonggang Liangyou”) and the defendants Sunshine Property Insurance Co., Ltd. (hereinafter “Sunshine Insurance”), Shipping Insurance Operation Center of Sunshine Property Insurance Co., Ltd. (hereinafter “Sunshine Insurance Operation Center”), Rizhao Center Branch of Sunshine Property Insurance Co., Ltd. (hereinafter “Sunshine Insurance Rizhao Branch”) disputed about a marine insurance contract. The plaintiff filed a civil lawsuit to this Courton 12 November 2014. After the acceptance of the case, the defendant filed the motion to challenge the jurisdiction of this Court. The Court made the(2014) Civil Verdict of Qing Hai Fa Hai Shang Chu Zi No. 1153, which reversed the motion against jurisdiction. The defendant appealed from the verdict to the Shandong High People’s Court. That Court made the (2015) Civil Verdict Lu Min Xia Zhong Zi No. 319,which reversed the appeal and upheld the original verdict. This Court formed a collegial panel in accordance with the laws and held a public hearing on the case. ZhaoYao, the authorized agent ad litem of the plaintiffZhonggang Liangyou, together with YuanHui and TianZhiqiang, the authorized agent ad litem ofthe defendants Sunshine Insurance and Sunshine Insurance Rizhao Branch attended the trial. The defendant Sunshine Insurance Operation Center refused to attend the trial without justified reasons after summoned by the Court, and thus the case was tried in absentia. Nowthe case has been concluded.

　　The plaintiff Zhonggang Liangyou raised claims as follows: The plaintiff is the insured and consignee under the all-risk cargo insurance underwrittenby the defendant. The insurance numbers are 1405410012014000075 and 1405410012014000076. The objectives of insurance: RBD PALM OLEIN 4000.987MT and RBD PALM OLEIN 4000.774MT. The ports of loading: LAHAD DATU and TAWAU. The numbers of the bills of lading: LDU/RZO-01 and TWU/RZO-01. The insurance terms:Institute Cargo Clause A. According to the statements on the bill of lading LDU/RZO-01, the vessel “ARMADA GEMA” loaded 4000.987 tons of palm oil at LAHAD DATU, Malaysia, on 26 February 2014. And according to the bill of lading TWU/RZO-01, the vessel loaded another 4000.774 tons of palm oil at TAWAU, Malaysia, on 7 March 2014. Pursuant to the Declaration on the General Average announced by the shipowner on 28 March 2014, the vessel “ARMADA GEMA” had lost power in an accident during its voyage to the second port – TAWAU, on 26 February 2014, and then it was towed by the tugboat to TAWAU. After that, due to the lack of repair conditions at the TAWAU Port, until the end of April in 2014, the vessel hasn’t been towed to the Rizhao Port to discharge the goods on 3 May 2014. After discharge, all cargos of the palm oil were found to have been seriously damaged. And after the CIQ inspections, all cargos under the two bills of lading were decided to be returned or destroyed, from which the plaintiff suffered huge loss. The loss of the plaintiff was caused by the risks insured against by the insurance underwritten by the defendant. Therefore, the plaintiff requested this Court: 1. To order the defendant to compensate the plaintiff the loss of goods in amount of $2,513,679.74 and the relevant interest (calculating according to the loan interest rates of the People’s Bank of China for the same period, from 5 June 2014 to the date when the judgment becomes effective); 2. To order the defendant to compensate the plaintiff the difference in market price of the goods in amount of $1,432,000 and the interest (calculating according to the loan interest rates of the People’s Bank of China for the same period, from 3 May 2014 to the date when the judgment becomes effective); 3. Toorder the defendant to compensate the plaintiff for other losses caused by the return of the goods (including additional storage fees, handling fees, inspection fees and procedure fees for the letter of credit) in total amount of RMB 3,122,061.85 yuan plus interest (calculating according to the loan interest rates of the People’s Bank of China for the same period, from the date of litigation to the date when the judgment becomes effective); 4. And to order the defendant to bear the costs of the case, preservation costs, attorney’s fees and other expenses.

　　The defendant Sunshine Insurance and Sunshine Insurance Rizhao Branchanswered as follows: 1. The defendant has the right to refuse to make compensations due to the failure of the plaintiff to make honest disclosure when having the cargos insured; 2. The present evidence produced by the plaintiff cannot prove the goods involved in the case were damaged; 3. Even if the goods involved suffered damage, it was caused by inherent defects of the goods and the delay in voyage etc., which are excluded from the responsibilities the defendant undertakes; 4. The plaintiff claims for compensation which far exceeds its actual loss and thus it shouldn’t be supported by this Court; 5. Even ifthe defendant should take the responsibility under the insurance, the corresponding deductible shall be deducted.

　　In support of its claims, the plaintiff provided evidence as follows:

　　1. Insurance contract, amendments to the insurance contract and the invoices of insurance premium, including 2 insurance contracts, 2 amendments to the insurance contract and 2 invoices of insurance premium. The insurance contract was issued by the defendant on 7 March 2014, under which it was agreed that the Institute Cargo Clause Adated 1 January 1982 shall apply, and the compensation exemption rate0.5%. On 15 March 2014, the defendant made an amendment to the contract, which modified the compensation exemption rate to 0.35%. On 17 March 2014, the defendant issued the invoices of insurance premium. This set of evidence was used to prove the marine cargo insurance contract, signed by both the plaintiff and the defendant, provides the insurance clauses and the compensation exemption rate. The insurance contract was legal and valid.

　　2. The Declaration on the General Average. It was sent on 28 March 2014 to the plaintiff by the shipowner of the vessel which undertook the carriage of the goods involved. And it was to prove that a machine failure accident occurred to the vessel in carriage of the plaintiff’s goods on 28 March 2014.

　　3. The sales contract, commercial invoices and certificates issued by the bank. These were to prove the fact that the plaintiff purchased 8,000 tons of refined palm oil produced in Malaysia from a third party, and the price of the goods was USD 3,364,830.07 andUSD 3,364,650.93, and the payment had already been made.

　　4. The bill of lading (for import), to prove that the goods involved were carried by the vessel “ARMADA GEMA” and that a clean bill of lading was issued at the port of loading.

　　5. Commodity inspection certificates (at the port of loading), including 2 certificates on weight, 2 certificates on quality and 2 certificates of sanitation. The originals of this set of evidence were submitted to the Rizhao Entry-Exit Inspection and Quarantine Bureau during the customs declaration and thus the plaintiff applied to the Court to obtain the originals. They were produced to prove the inspection situation of the goodsat the port of loading, the quantity of which was 4,000.987 tons and 4,000.774 tons respectively. The quality was in satisfaction with the requirements under the sales contract. And the index of the goods for inspection and quarantine, especially the contents of the acids, met with the compulsory standards of China.

　　6. Commodity inspection certificates (at the port of discharge), including 2 certificates on weight, 2 certificates on quality and 2 certificates of sanitation. They were produced to prove the quantity of the goods in the CIQ inspection at Rizhao Port was 3,995.477 tons and 3,995.264 tons respectively. The contents of acids were 0.21mg/g and 0.38mg/g respectively, which exceeds the standards of the acid contents stipulated by the national standard of China (GB15680-2009) on palm oil.

　　7. The Returned Cargo Notices issued by the competent authorities, including 2 notices issued by Rizhao Entry-Exit Inspection and Quarantine Bureau and 1 notice issued by Rizhao Customs. They were used to prove that the contents of acids of the goods involved exceeded the mandatory provisions of China, and the competent authorities made the decision to return the cargos compulsorily.

　　8. 4 sales contract and commercial invoices for the reselling of the goods involved, and 2 certificates issued by the relevant banks for foreign exchange collection and settlement. These were to prove the fact that after the goods involved were ordered to be returned by the competent authorities, the plaintiff resold the goods to Korean customers in order to reduce its losses. The price for reselling was $530/ton, FOB Rizhao Port, in total $4,215,801.26.

　　9. Bills of lading and certificates on weight (for export), including 4 bills of lading and 4 certificates on weight. These were to prove the loss of the goods in 47.419 tons caused by the load and discharge of the goods due to its return.

　　10. The export declaration form of the goods. This was to prove that the goods were returned, and the quantity of the cargos reduced by 47.419 tons due to its loss.

　　11. The receipts of expenses related with the damage of the goods, to prove the loss suffered by the plaintiff due to the damage of the involved goods, including:

　　(1) 2 invoices of insurance premium, to prove the plaintiff has insured the goods and paid the premium;

　　(2) 2 invoices of loading and discharge fees, to prove the cost of loading and discharge fees caused by the damage of the goods;

　　(3) 2 receipts for port construction fees, to prove that the port expenses caused by the damage of the goods;

　　(4) 2 payment receipts of tariff and value-added tax, to prove the loss of the goods in 47.419 tons in the process of discharge and loading due to the damage;

　　(5) 7 receipts of relevant bank fees: fees for applying the credit of letter, postal and telecommunication fees, fees for acceptance, the interest and procedure fees of negotiation loan;

　　(6) 3 receipts related with demurrage fees, to prove the amount of demurrage fees incurred by the plaintiff;

　　(7) 1 invoice of agent fees, to prove the relevant fees paid by the plaintiff to the forwarder for customs declaration and inspection;

　　(8) 2 receipts of inspection and quarantine fees, to prove the inspection and quarantine fees paid by the plaintiff for the goods;

　　(9) 2 receipts of inspection fees, to prove the inspection fees paid by the plaintiff for the goods;

　　(10) agreements and invoices of transferring and warehousing costs, to prove that due to the excess of acid contents of the damaged goods, they cannot be stored together with other goods, and thus fourseparate tanks were used to contain the goods. The plaintiff had no container to keep the palm oil coming after, and had to rent tanks from Rizhao Sendamei Company, which cost extra transfer and storage fees. They also proved the market price of palm oil transferringcabin and that therewerein total 114days from when the goods were discharged to the plaintiff’s own oil tank, to when they were exported abroad. During this period, the extra cost of the transferring and warehousing fees was calculated as per the standards provided in the above-mentioned agreements.

　　12. A printout of the screenshot of Malaysia Futures Trading Index System. This was to prove that the market price of Malaysian palm oil futures trading on 10 March 2013 was about 2,865 Malaysian Ringgit, equivalent with about 1,000 US dollars. The difference in price was calculated based on the market price of 1,020 US dollars/ton.

　　13. 2 Notices of Shipment sent from the seller to the plaintiff by fax after the shipment of the goods involved in this case. They were to prove that two sets of the goods were respectively loaded at the port of loading on 26 February and 7 March 2014. The seller notified the plaintiff ofrelevant data for cargo transportation insurance matters. In the two Notices, the expected time for the vessel to arrive at the port of destination was 16 March 2014. The plaintiff provided the defendant with the information contained in the faxed Notice of Shipping, which is the basis for the defendant to issue the insurance documents. The argument raised by the defendant that they didn’t know the extraordinary situation of the vessel undertaking the carriage lacked authority.

　　14. The remittance receipt, issued by the bank, for transfer of the insurance premium paid by the plaintiff to the defendant. It was to prove that the plaintiff paid the insurance premium on 11 March 2014.

　　15. Institute Cargo Clause A and the Marine Insurance Act 1906 of the United Kingdom.

　　The defendant Sunshine Insurance and Sunshine Insurance Rizhao Branchcross-examined the above evidence provided by the plaintiff and opined as follows: No objection to Evidence 1, but the defendant’s responsibility under the insurance started from when the plaintiff made the payment of insurance premiums. Objection against Evidence 2 because it cannot prove that the plaintiff was aware of the vessel machine accident on 28 March 2014. Objections against Evidence 3: Firstly, according to the contract, the FFA (free fatty acids) index of the goods was 0.1% at highest, but there were no limitswith regards to thecontents of acids of the goods. After the goods arrived in Rizhao, the FFA index was in conformity with the contract, sothe acid contents in the result of the inspection conducted byRizhao Entry-Exit Inspection and Quarantine Bureaucannot be based to conclude that the goods were damaged. Secondly, according to the sales contract, the plaintiff shall provide an acceptable letter of credit to the seller in ten days before the shipment, so the plaintiff was aware of the transporting situation of the vessel undertaking the carriage. The authenticity of Evidence 4 cannot be confirmed. The authenticity of Evidence 5 was in doubt, and since this set of evidence was produced abroad, the corresponding notarial procedures should be fulfilled in accordance with the laws. Objections against Evidence 6 because the certificate on quality and certificate of sanitation cannot prove the excess of acid contents of the involved goods occurred during the insured period and the inspection results issued respectively at the port of loading and at the port of discharge were notcomparable. Objections against Evidence 7 for the results of the inspection couldn’t reflect the change in the acid contents of the goods during the insured period. As for Evidence 8, the plaintiff was not able to provide evidence to support the rationality of the resale price. Obviously, the resale price of the goods was relatively low. The acid contents of the goods recorded in the sales contract just proved that the change of the acid contents of the goods was natural attributes or inherent defect of such goods. Objections against Evidence 9 as the natural loss of the goods was not covered by the insurance. Objections against Evidence 10 as the customs declaration of goods was claimed by the plaintiff unilaterally, which couldn’t prove the rationality of the resale price of goods. As forEvidence 11, the insurance premium and demurrage fees didn’t belong to the scope of insurance indemnification. The plaintiff had no rights to claim loading and discharge fees, the port construction fees, tariff and value-added tax, banking charges, agent fees, inspection and quarantine fees as those were expenses incidental to the import. And the plaintiff had no rights to claim indemnification for extra transferring and warehousing costs. The authenticity, relevance and the legality of the Evidence 12 were all in doubt and its sources was not clear. In addition, the market price difference was not covered by the insurance. The authenticity of Evidence 13 cannot be confirmed as it was not the faxed version. As regards Evidence 14 and 15, no objections were raised against their authenticity.

　　The defendant Sunshine Insurance and Sunshine Insurance Rizhao Branch submitted evidence as follows:

　　1. An Insurance Assessment Report issued by Qingdao Rongda Insurance Assessment Co., Ltd. The loss adjuster Yanliang Zhao appeared in court to bear witness, proving that the damage was caused by the inherent defects of the goods and the extension of the voyage, for which the defendant shall not be liable to compensate, and that the market price set by the plaintiff in the resale was obviously too low.

　　2. Institute Cargo Clause A, to prove that the loss caused by inherent defect of the goods or delay in voyages is an exclusion of the insurance liability sand that the plaintiff, as the insured, shall perform the obligation to make honest disclosure.

　　The plaintiff cross-examined the above evidence submitted by the defendants, Sunshine Insurance and Sunshine Insurance Rizhao Branch, andopined as follows: Objections against Evidence 1. Firstly, the qualification of the loss adjusters who issued the report was doubted. Secondly, the loss adjusters majored in navigation instead of food, and thus lacked relevant professional knowledge. Thirdly, the phrases of the assessment report were obviously subjective and speculative, not objective, fair, scientific and authoritative. Finally, the assessment report was made in authorization of the defendant unilaterally and had an obvious bias, so it couldn’t be used as the basis for the final decision of the case. No objections were raised against Evidence 2.

　　The defendant Sunshine Insurance Operation Center didn’t attend the trial, or submit any evidence, or opined on the evidence produced by both the plaintiff and the defendant, which was regarded as a waiver of its litigation rights.

　　The Court’s opinions on the facts and evidence of the case are as follows:

　　1. Facts Concerning the Sales and the Carriage of the Goods Involved

　　The Court ascertained that on 19 February 2014, the plaintiff signed a sales contract with Bingfeng Macao Offshore Commercial Services Co., Ltd. (hereinafter “Bingfeng Company”). Under the contract, the plaintiff purchased RBD PALM OLEIN (refined palm oil) from the Bingfeng Company. The origin of the oil is Malaysia or Indonesia. The quantity is 8,000 tons with a permitted floating of 2% up and down. The price is CNF Rizhao $841 per ton, with a total price of $6,728,000. The oil shall be loaded no later than 15 March 2014. The parties made agreements on the quality of the goods and the certificates the seller should provide. It was provided under Article 2(h) that the seller should provide a certificate of sanitation. After the conclusion of the contract, the plaintiff applied for a letter of credit for payment, and Bingfeng Company issued two commercial invoices to the plaintiff respectively on 26 February and 7 March of the same year, in the number of 35816206 and 35816220. The amount on the invoices was 3,364,830.07 USD and 3,364,650.93 USD respectively.

　　The above goods were loaded on and carried by the vessel “ARMADA GEMA” at two ports. On 25 February 2014, “ARMADA GEMA” arrived at the first port of loading, LAHAD DATU, to load the first batch of cargos. The bill of lading No. LDU/RZO-01 clearly stated it was issued on 26 February 2014 with a shipment of 4,000.987 tons in quantity. The certificate on weight and quality were issued by China Inspection and Certification Group Malaysia Co., Ltd.,certifying the loading quantity was 4,000.987 tons. China Inspection and Certification Group Singapore Company inspected the contents of the lead, total AS, acids (KOH), peroxide value, Aflatoxin B1, and issued a certificate of sanitation, which indicated the allowed acid (KOH) value of goods was 0.20 mg/g at maximum, but the actual contents were 0.145 mg/g after inspection. The tests of food safety items were all in compliance with the public health standards of China. On March 6, “ARMADA GEMA” berthed at the second port of loading, TAWAU, to load the remaining cargos. The bill of lading No. TWU/RZO-01 stated clearly that it was issued on 7 March 2014 and the quantity of the shipment was 4,000.774 tons. Certificates of weight and quality issued by China Inspection and Certification Group Malaysia Co., Ltd. certified the loading quantity is 4,000.774 tons. China Inspection and Certification Group Singapore Company inspected the contents of the lead, total AS, acids (KOH), peroxide value, Aflatoxin B1, and issued a certificate of sanitation, which indicated the allowed acid (KOH) value of goods was 0.20 mg/g at maximum, but after inspection, the actual contents were 0.194 mg/g. The tests of food safety items were all in compliance with the public health standards of China. At 16:54 on March 7, “ARMADA GEMA” anchored at the anchorage of the second port of loading after finishing the loading. Due to the failure of the main engine of the vessel, it was towed by a tugboat from 15:00 on April 12 and arrived at the anchorageof the Rizhao Port at 16:00 on May 2, berthed at Rizhao Port for discharge at 16:00 on May 9. It started unloading the goods at 6:00 on May 10, and finished the discharge at 1:00 on May 13. The certificates on weight issued by RizhaoEntry-Exit Inspection and Quarantine Bureau of the People’s Republic of China showed the discharge weight of the two batches of the goods at Rizhao Port were 3,995.477 tons and 3,995.264 tons respectively. The certificates of sanitation recorded the acid value of the two batches of goods was 0.21mg/g and 0.38mg/g respectively. On 15 July 2014, the Entry-Exit Inspection and Quarantine Bureau of the People’s Republic of China issued two Notices of the Inspection and QuarantineResults which indicated that the involved goods shall be returned because the acid values of 0.21mg/g and 0.38mg/g were in violation of the standards of palm oil (GB15680-2009) which shall be no more than 0.2mg/g.On 25 July 2014, Rizhao Customs issued the Notice on Return of the Imported Palm Oil to the plaintiff, which stated that the goods involved did not meet the requirements under the GB15680-2009 and should be returned.

　　On 22 August 2014, the plaintiff concluded a sales contract with a third party, JUST OIL AND GRAIN PTE LTD, to resell the involved goods. The quantity of the goods was 8,000 tons, and the price was USD 530 per ton, FOB Rizhao. Later, the actual shipment quantity of goods in the resale was 7,954.342 tons, and the receivedpayment was USD 4,215,801.26.

　　It is also known that according to the national standard GB15680-2009 of the People’s Republic of China, the acid value of product palm oil shall be no more than 0.20mg/g.

　　The above facts were confirmed by the evidence provided by the plaintiff, includingEvidence 3, 4, 5, 6, 7, 8, 9 and 10. Among them, the authenticity of Evidence 3, 8, 9, 10 were not objected by the defendant. And Evidence, 4, 5, 6, 7 were also affirmed by the insurance assessment report made in the defendant’s unilateral authorization. And the objective statements about the shipment and the inspection contained in the insurance assessment report were consistent with the above evidence. Therefore, this Court affirmed the effectiveness of the above evidence.

　　2. Facts About the Insurance

　　After the trial, the Court ascertained that the plaintiff had an insurance between the defendant for the above two batches of imported goods. On 7 March 2014, Sunshine Insurance issued two cargo transportation insurance policies numbered 1405410012014000075 and 1405410012014000076 respectively. Both policies contained the contents as follows: The words of “so valuated” was indicated. The signature was “Sunshine Property Insurance Co., Ltd.”. The authorized representative column below the signature was stamped with the signature seal of Sunshine Insurance Operation Center. The assured was the plaintiff. The insured goods were all refined palm oil. The quantities thereunder were 4,000.987 tons and 4,000.774 tons respectively. The amounts of the insurance was USD 3,701,313.08 and USD 3,701,446.02 respectively. The port of loading was LAHAD DATU and TAWAU respectively. The numbers of the bill of lading were LDU/RZO-01 and TWU/RZO-01 respectively. The numbers of the invoices were 35816206 and 35816220 respectively. Insurance terms were Institute Cargo Clause A, and the compensation exemption rate was 0.5%. Both insurance policies provided that at the request of the assured, the Sunshine Insurance shall undertake the following cargo transportation insurance in accordance with the provisions set forth in this insurance policy after the full payment of the insurance premium made by the assured. Both insurance policies indicated that Sunshine Insurance Rizhao Branch was in charge and the place to make compensation was in Rizhao. On March 11, the plaintiff transferred 40,781.87 yuan to Sunshine Insurance Operation Center through the bank online. On March 15,Sunshine Insurance Rizhao Branch made two amendments, which changed the compensation exemption rate into 0.35%. On March 17, Sunshine Insurance Operation Center issued the insurance premium invoices to the plaintiff.

　　Institute Cargo Clause A provides that the insurance covers all risks of loss or damage to the subject-matter insured except as excluded by the provisions of the general exclusions, unseaworthiness and unfitness clauses, war exclusions and strike exclusions as set forth in this insurance clause. The general exclusions include loss, damage or expense arising from an inherent defect or nature of the objectives insured; and loss, damage or expense directly caused by delay. Article 8 of Clause A, Transit Clause, provides this insurance attaches from the time the subject-matter insured is first moved in the warehouse or at the place of storage (at the place named in the contract of insurance) for the purpose of the immediate loading into or onto the carrying vehicle or other conveyance for the commencement of transit, continues during the ordinary course of transit and terminates either: 1. on completion of unloading from the carrying vehicle or other conveyance in or at the final warehouse or place of storage at the destination named in the contract of insurance; 2. on completion of unloading from the carrying vehicle or other conveyance in or at any other warehouse or place of storage, whether prior to or at the destination named in the contract of insurance, which the assured or their employees elect to use either for storage other than in the ordinary course of transit or for allocation or distribution; or 3. on the expiry of 60 days after completion of discharge overside of the subject-matter insured from the oversea vessel at the final port of discharge,whichever shall first occur. If, after discharge overside from the oversea vessel at the final port of discharge, but prior to termination of this insurance, the subject-matter insured is to be forwarded to a destination other thanthat to which it is insured, this insurance, whilst remaining subject to termination as provided in aforementioned clauses, shall not extend beyond the time the subject-matter insured is first moved for the purpose of the commencement of transit to such other destination. This insurance shall remain in force during delay beyond the control of the assured, any deviation, forced discharge, reshipment or transshipment and during any variation of the adventure arising from the exercise of a liberty granted to carriers under the contract of carriage. The insurance shall be governed by the laws of the Britain and common practices.

　　After the goods involved in the case arrived at Rizhao Port, the plaintiff immediately reported to the defendant. The defendant entrusted Qingdao Rongda Insurance Assessment Co., Ltd. to start the investigation of the accident and conduct on-site inspection on 9 May 2014, but the defendant has not paid the indemnification to the plaintiff.

　　The above facts were affirmed based on the Evidence 1 provided by the plaintiff and Institute Cargo Clause A provided by both the plaintiff and the defendant. Both parties raised no objections.

　　The Court holds that:

　　The case is a dispute over the insurance contract for carriage of goods by sea. The goods involved were transported from Malaysia to Rizhao, and the marine insurance contract related to the transport of the goods is foreign-related. Article 41 of the Law of the Application of Law for Foreign-related Civil Relations of the People’s Republic of Chinaprovides that “the parties concerned may choose the laws applicable to contracts by agreement”. Since the plaintiff, Sunshine Insurance and Sunshine Insurance Rizhao Branch all agree that the laws of Britain should apply. In addition, Institute Cargo Clause A also provides the insurance shall be governed by the laws of the Britain and common practices. Therefore, the insurance contract shall be governed by the laws of Britain. As regards the clarification of the laws of Britain, the plaintiff provided the Marine Insurance Act 1906 of the United Kingdom and the Analysis of the Principle of Proximate Cause of Marine Insurance, and both the plaintiff and the defendant provided Institute Cargo Clause A.And both parties raised no objections. Therefore, the Marine Insurance Act 1906 of the United Kingdom, the Analysis of the Principle of Proximate Cause of Marine Insurance and the proximate cause principle should apply in this case.

　　As for the validity of the insurance contract, Sunshine Insurance and Sunshine Insurance Rizhao Branch put forward the defense that the plaintiff failed its obligation to make honest disclosure pursuant to the laws and failed to inform the fact that the vessel had malfunctions. Therefore, the insurance contract between both parties was invalid from the beginning, and the plaintiff couldn’t claim its rights based on the contract. The Court holds that, in accordance with Article 18 of the Marine Insurance Act 1906 of the United Kingdom, the assured must disclose to the insurer, before the contract is concluded, everymaterial circumstance which is known to the assured. The assured is deemed to know every circumstance which, in the ordinary course of business, ought to be known by him. If theassured fails to make such disclosure, the insurer may avoid the contract. That is to say, under this circumstance, the insurer is entitled with the right to avoid the contract but the contract is not null and void from the beginning. In this case, the insurer didn’t produce sufficient evidence to prove that the plaintiff knew the fact that the main engine of the vessel had malfunctions, nor did it exercise the right to avoid the contract. Therefore, the insurance contract should be confirmed as valid. The plaintiff paid insurance premium in amount of 40,781.87 yuan on 11 March 2014. Pursuant to the insurance policy, the insurer underwrote the risks under the Institute Cargo Clause Afrom 11March2014. This insurance attaches from the time the subject-matter insured is first moved in the warehouse or at the place of storage (at the place named in the contract of insurance) for the commencement of transit and terminates on conveyance in or at the final warehouse or place of storage at the destination named in the contract of insurance. The plaintiff had the rights to claim damage,during the insurer’s liability period, if the quality of the involved goods changed in transit and didn’t meet the compulsory inspection standards for entry into the territory, causing damage to the goods. As to the defendant’s allegation that the sales contract involved in the case did not stipulate the acid value of the goods and thus, the plaintiff’s claim for damage couldn’t stand, the Court believes that the involved goods are cooking oil, which are goods subject to inspections in accordance with the laws. Since the sales contract between both parties provided that the seller shall submit certificates of sanitation issued by relevant authorities, and certificates of sanitation issued at the port of loading set forth that the acid value should not exceed 0.2 mg/g, accordingly, the acid value not exceeding 0.2mg/g should be the general safety standard for such a refined palm oil trading. The purpose of the sales contractcannot be achievedin violation of the standards. Therefore, the defendant’s arguments cannot stand.

　　As regards the exclusions, the Court holds that, since the laws of Britain should apply in this case, the Principle of Proximate Cause under the common law should also apply. Article 55 of the Marine Insurance Act 1906 of the United Kingdomprovides that the insurer is liable for any loss proximately caused by a peril insured against, but, subject as aforesaid, heis not liable for any loss which is not proximately caused by aperil insured against. The proximate cause should be the one that is proximate in effect and has a decisive and dominant function independently. In 1938, the caseLansa Furut Steamship and Import Company v. Universal Insurance Company served as a precedent for the determination of the proximate cause. In that case, the vessel “EMERALDS” ran aground during its voyage, and the bananas carried on board rotted due to the delay. The Supreme Court of the United States of America pointed out that proximate cause was the valid cause, not the minor cause which was relatively close in time to the result. The goods in that case were shipped in good condition. The normal voyage would not cause them to rot, and thus the proximate cause of the damage was the risk of running aground, not the delay caused by the running aground. In that case, the insurer was ruled to compensate for the cargo damage in accordance with the insurance policy. Thus, it can be concluded that whether the insurer should bear the liability to compensate for the loss caused by the disaster or accident depends on whether the proximate cause of the loss is the covered risks. If many causes exist at the same time when the loss occurs, it is necessary to determine which independent cause is decisive and dominant, and whether the insurance policy covers such a risk. This is the basis for determining the insurer’s responsibility. In practice, the vessel may encounter a series of risks and accidents at sea, so there may be a series of causes with consequential connections. If the intervention of a certain cause cuts off the original causal chain between an event and the damage, which has a decisive function in causing the damage independently, then the new intervention cause may be regarded as the proximate cause. If there is no new causes involved, it is necessary to find the last cause, as a proximate cause, in the chain of causality that has a decisive power over the result of the damage and serves a sufficient condition for the subsequent series of causes, to determine the existence of insurance liability. Specifically, in this case, after the goods were loaded on the vessel, the acid value of the goods was inspected to be lower than China’s compulsory inspection standards for entry into the territory. For the normal voyage from Malaysia to Rizhao, the acid value of the goods will not exceed the standard of 0.20mg/g. But the vessel engine’s malfunction caused the voyage to cost more time than normal. Although prima facie, the damage was caused by voyage delay, yet the delay was an inevitable result of the engine failure accident, rather than an independent and determining factor to the damage of goods. It served as a linkage between the failure of the vessel’s machine and the damage to the goods, rather than an external factor which cut off the original chain of causality. Itserved as a conductor and medium within the chain. Accordingly, in this case, the proximate cause of cargo damage was the engine failure rather than thevoyage delay. The malfunction of the vessel’s machine didn’t belong to the general exclusion clause specified in Institute Cargo Clause A. Therefore, the proximate cause of cargo damage was within the coverage of the risks insured against by the insurer, the insurer should not be exempted from its liability to compensate. During the trial, the defendant didn’t produce sufficient evidence to prove that the damage was caused by inherent defects of the goods or the delay in voyage etc., and thus the Court didn’t support the arguments of the defendant.

　　Regarding the scope of indemnity, the Court holds that Article 71 of the Marine Insurance Act 1906 of the United Kingdom provides that where there is a partial loss of goods, merchandise or other movables, the measure of indemnity, subject to any express provision in the policy, is as follows:…(3) Where the whole or any part of the goods or merchandise insured has been delivered damaged at its destination, the measure of indemnity is such proportion of the sum fixed by the policy in the case of a valued policy, or of the insurable value in the case of an unvalued policy, as the difference between the gross sound and damaged valued at the place of arrival bears to the gross sound value; (4) ‘Gross value’ means the wholesale price, or, if there be no such price, the estimated value, with, in either case, freight, landing charges, and duty paid beforehand; provided that, in the case of goods or merchandise customarily sold in bond, the bonded price is deemed to be the gross value. ‘Gross proceeds’ means the actual price obtained at a sale where all charges on sale are paid by the sellers. This clause shall be applied in this case to determine the scope of compensation. The amountof two policies involved in the insurance is $3,701,313.08 and $3,701,446.02 respectively, bonus insurance 10%based on the invoice price of $3,364,830.07 and $3,364,650.93, so that in case of loss of the goods, the buyer can not only get the compensation of the value of the goods, but also get the expected profit lost caused by the loss of the goods and the expenses incurred. It is in line with both business practices and insurance practices. The premium paid by the plaintiff was based on the amount insured, and the insurer collected the premium and issued the policy accordingly. As a result, after the occurrence of the insurance accident, the insurer shall perform the obligation to make compensation in accordance with the principle of equal value compensation, in consideration of the characteristics of the insurance contract, and under the premise that the plaintiff has paid the consideration of the contract. Both policies involved were marked with the words of “so valuated” and thus the insurance was valuated. The “value insurance” refers to the insurance where the insurer and the assured both agree on a value of insurance in the contract beforehand, as a basis for the insurer to make indemnification. Article 27 of the Marine Insurance Act 1906 of the United Kingdom also provides that, subject to the provisions of this Act, and in the absence of fraud, the value fixed by the policy is, as between the insurer and assured, conclusive of the insurable value of the subject intended to be insured, whether the loss be total or partial. Therefore, the intact gross value of the involved goods shouldbe determined according to the insurance value stated in the policy, which is in line with the contract and does not increase the insurer’s liability. Therefore, it can be determined that the intact gross value of the involved goods should be $7,402,759.1. The quality of the goods didn’t accord with the compulsory standards due to the insurance accident. The plaintiff resold the goods to third partyabroad, to effectively reduce its loss. Theloss of the difference in price belonged to the underwriting insurance loss. Although the defendant challenged the price in the resales, yet it failed to produce evidence to prove the resale price was significantly lower than the normal price. And the insurercould have assisted the plaintiff to find suitable buyers out of its own interest, but within more than four months, the insurer didn’t find a buyer who offered a higher price, so the objections of the defendant cannot stand. The Court confirms the reselling unit price USD 530 as the basis for calculating the difference between the intact gross value and the damaged value. As the quantity of the goods resold by the plaintiff was less thanthat had been loaded on the vessel “ARMADA GEMA” at Rizhao Port, and the shortageof goods did not occur during the period of the insurance liability, and thus the insurer didn’t assume the insurance liability. Therefore, the total quantity of two shipments of “ARMADA GEMA” at Rizhao Port should be 7,990.741 tons which should be the basis of quantity for calculating the difference between the intact gross value and the damaged value. Accordingly, the damaged value of the involved goods is $4,235,092.73 ($530/ton × 7990.741 ton), and the difference between intact gross value and damaged value is $3,167,666.37 ($7,402,759.1 - $4,235,092.73). Under the fixed value insurance policy, the above balance between the intact gross value and the damaged value of USD $3,167,666.37 shall be deemed as the indemnity to be borne by the insurer. Although in the lawsuit, the first claim of the plaintiff for loss of goods was $2,513,679.74, yet in the second and third claims, the plaintiff explicitly required the defendant to compensate for the operating expenses and operating profits including insurance premium, loading and unloading expenses, inspection and quarantine expenses, bank expenses, freight forwarding expenses, etc. In fact, this part of the operation and management costs and operating profits were included in the addition of 10% insurance coverage, which was within $3,167,666.37. As a result, the Court’s determination of the insurer’s indemnity accords with the plaintiff’s claims and does not exceed the amount the plaintiff claimed. The Court does not support the claim raised by the plaintiff which exceeds the amount determined by the Court, or which is normal expenses incurred in commercial activities, or which is not within the scope of compensation under Article 71 of the Marine Insurance Act 1906 of the United Kingdom.

　　In addition, according to the insurance contract, the exemption rate is 0.35% and the deductible amount should be $25,906.66. After deducting deductibles, the insurer should make compensation to the plaintiff in the amount of $3,141,759.71. The Court supports the claims of Sunshine Insurance and Sunshine Insurance Rizhao Branch on deducting deductibles.

　　Concerning the subjects of responsibility, the Court holds that in this case the insurance policy was signed by Sunshine Insurance and the policy contents also set forth that “Sunshine Insurance shall, at the request of the insured and upon payment of the agreed premium to sunshine insurance, undertake the following cargo transportation insurance in accordance with the terms and conditions set forth in this policy”. Sunshine Insurance OperationCenter signed in the policy authorized representative column, which indicates that it was on behalf of Sunshine Insurance to issue the insurance policy.Sunshine Insurance had no objections to it. Therefore, Sunshine Insurance was the issuer of the policies. The collection of premiums and issuance of premium invoices by Sunshine Insurance OperationCenter alsoshould be regarded as on behalf of Sunshine Insurance. During the trial, both parties accepted that the insurance involved was insured by Sunshine Insurance Rizhao Branch, and the policy also stated that the insurance involved was handled by Sunshine Insurance Rizhao Branch and the place of indemnity payment was Rizhao. After the issuance of the policy, it was also the Sunshine Insurance Rizhao Branch which amended the policy. Accordingly, Sunshine Insurance and Sunshine Insurance Rizhao Branch should assume insurance responsibility jointly.

　　In conclusion, the Sunshine Insurance and Sunshine Insurance Rizhao Branch insured the imported refined palm oil under the Institute Cargo Clause A of 1 January 1982 version. During the period of the insurance liability, the underwriting risk occurred, and caused losses to the plaintiff. The defendant Sunshine Insurance and Sunshine Insurance RizhaoBranch should assume responsibility and should compensate the loss of the plaintiff. However, the insurance liability of defendants shall be determined in accordance with Article 71 of the Marine Insurance Act 1906 of the United Kingdom and Institute Cargo Clause A. The plaintiff’s claim beyond the scope are not supported.

　　In accordance with Article 41 of the Law of the Application of Law for Foreign-related Civil Relations of the People’s Republic of China, Articles 1, 27, 55 and 71 of the Marine Insurance Act 1906 of the United Kingdom and Article 144 of the Civil Procedure Law of the People’s Republic of China, the judgment is as follows:

　　1. The defendant Sunshine Property Insurance Co., Ltd. and Rizhao Center Branch of Sunshine Property Insurance Co., Ltd. shall indemnify the plaintiff, Rizhao Zhonggang Liangyou Co., Ltd. for its loss of $3,141,759.71 and the corresponding interest within five days from when this judgment becomes effective (from the date when the plaintiff sued namely on 12 November 2014, according to the same period bank loans interest rates to the date of payment determined by the judgment).

　　2. Other claims raised by the plaintiff Rizhao Zhonggang Liangyou Co., Ltd. are rejected.

　　In the event that the defendant fails to perform the obligations to make the payment during the period specified in the judgment, double interest for the debt for the period of deferred performance shall be imposed on the defendant, in accordance with Article 253 of the Civil Procedure Law of the People’s Republic of China.

　　The case acceptance fee is 178,280 yuan, of which the plaintiff Rizhao Zhonggang Liangyou Co., Ltd. should pay 53,484 yuan, and the defendant Sunshine Property Insurance Co., Ltd. and Rizhao Center Branch of Sunshine Property Insurance Co., Ltd. should pay 124,794 yuan.

　　Against this judgment, parties may submit six originals of the petition to this Court within 15 days after the service of the judgment. The appeal party should submit copies of the written appeal in the same number of the counterparty and appeal to the Shandong High People’s Court.

　　Chief judge:ZhangYong

　　People’s juror:WangXingyou

　　People’s juror:GaoXinxue

　　9 October，2016

　　CourtClerk:GaoYan