Release of Cargo (fraud)

Error and Omission cover as provided for carrier liability insurance is generally intended for wrongful cargo release such as release without presentation of correct documents or against release instruction.

Not every error or omission of such nature is insured as claim investigation process would explore the internal operating procedure in place to determine whether an insured error has occurred. Other issues which would affect the investigation outcome of such claim involve the type of practice in place at designation on release of goods. Hence it is pertinent to note that the various types of release channels would include the following:

Where Custom has a part to play:

Certain countries would require imported cargo to come immediately under their Customs service, who then takes on the role for its release.

Where there is law affecting the release of cargo:

Such c ountries with legislation that permits the release of cargo without the presentation of the original bill of lading would bring about additional concern and exposure under the Error and Omission cover.

Where the Carrier's Agent authorizes the release:

Without the presentation of correct document, it is not that uncommon that carrier's agent authorized the release without the permission of the shipper or the carrier who issued the bill of lading. If this is an acceptable practice in the country involved, it would mean the higher risk of error and omission claim.

Arising from all the various permitted procedures of cargo release, there is an environment in which frauds could be perpetuated to the detriment of the carrier and cargo interest (more likely the shipper).

Here are two examples of how frauds have taken place involving containerized cargoes:

1) In certain South American countries where custom undertake the delivery of cargoes, including without presentation of bill of lading, fraudsters have manipulated the system for their unlawful gains. In a particular case, instead of presenting the original bill of lading, the fraudster provided an insurance company's bond for the value of the goods. This bond was deemed to have been issued by a bona fide reputable insurer and it undertakes to indemnify any party against a loss that may arise from such delivery without presentation of original bill of lading. Being a delivery by the custom, the carrier or its agent was not informed of such bond in place of bill of lading. The fraudster in this case was the consignee who has not paid for the goods (hence no original bill of lading in possession). Having received the goods, the fraudster could not be reached

A claim was subsequently made against the insurer whose initial response suggested that the bond was fraudulently issued and could not account for its existence on record. Subsequent investigation revealed the bond was indeed issued by the insurer but under circumstances which are not in line with their internal procedure.

2) The second case involved perishable goods hence it was time sensitive and again in a South American country.

In that case the consignee (obviously without bill of lading and having not paid for the goods) made a court application (fraudulent) within the provisions of the import legislation there concerning perishable goods, in order to secure the release of the goods without bill of lading.

Certain allegations were made against the shipper to give the impression that the shipper was not abiding by the terms of the contract hence the delay in releasing the goods for subsequent re-shipment by the consignee would cause great financial loss.

The court accepted the application without checking with the carrier's agent and ordered the release of goods against a security lodged with the court. Upon receipt of the goods, the consignee revisited the court producing a fraudulent document showing that the shipper has come to terms on the contract (it got to do with payment arrangement). So, everything would seem to be back to proper state and the court cancelled the security.

At a subsequent stage, it was found that the court document and supposedly the shipper's agreement were all fraud. By now a criminal act would seem to be the case involving the consignee but the loss has innocently been suffered by the shipper and/or the carrier.

These are two examples of loss relating to delivery without presentation of documents with the unusual feature of a loss not committed by the error or omission of the carrier or its agent. A situation as such is being brought about by the different practice in the destination country.

Disclaimer: Whether there is insurance cover against the above two cases is not intended in this article. Please consult the insurance practitioner.