The Latin America (LatAm) region has been particularly affected by social instability in recent times. As a result of this volatile landscape, insurers have found themselves dealing with an increase in claims relating to cargo damaged as a result of strikes.
Many of the claimed damages are not as a direct result of the action of the strikers, but because of the subsequent delays incurred. In Colombia in 2021, these delays lasted more than four months, resulting in restrictions to the entrance of main ports such as Buenaventura, and national roads becoming completely blocked. When insurance contracts contain clauses that have been translated from English to Spanish, ambiguities and disputes regarding extent of cover can often arise.
Institute War and Strike Clauses
Clause 1 of the Institute War and Strike Clauses (the Strike Clauses) provides cover for loss or damage caused by (amongst others) war, civil war, revolution, rebellion, strikers and persons taking part in labour disturbances, riots or civil commotions.
Clause 3.5 provides that losses or damage caused by delay, even if the delay be caused by a risk insured against, are excluded.
However, poor translation of these clauses from English to Spanish may change the spirit of the wording, thereby establishing cover for any losses or damages that occurred during the strike and not limited to those within the defined clauses.
This can result in overriding the clause 3.5 exclusion and providing cover for damages for delays, simply because these occurred during the strike or as a consequence of it.
Insurance in most LatAm markets is governed by the principle of freedom of contract, which allows parties to agree the terms of coverage, even if proforma clauses are used as a reference.
Therefore, within the regulatory regime of each market, insurers and their policyholders commonly use proforma clauses such as the Strike Clauses to facilitate the underwriting process. This assists with a mutual understanding of the cover provided, as the parties are familiar with the conditions of coverage that applies.
Although the principle of contractual freedom allows the parties to expressly agree on the text of the insurance and the scope of the coverage, the recommended practice when applying this type of proforma clauses is to integrate them into the original text, so that the overall insurance product is not distorted.
As most of these proforma clauses are of English creation, when they are used in Spanish speaking countries, these must be translated.
Risks associated with translating clauses
Although there are many translations into Spanish that faithfully reflect the sense and spirit of the insurance provided, there are cases in which poor translations of clauses distort the meaning of the coverage, exclusions and other conditions of the contract.
This can result in a mere inconvenience to the parties involved, or it may result in a legal dispute that ultimately allows the parties to modify the proforma clauses that were intended to be adopted - including or eliminating sections or words contained in the original wording. This has a direct effect on the meaning and interpretation of the policy, and has the potential to generate ambiguities that must then be resolved, to establish what the parties intended to agree.
It will also be necessary to establish whether the parties wanted to agree the proforma conditions in its original form, or if the difference in the translation was the actual intention.
All of these questions will impact the construction of the policy, and whether the claim is covered or not. If the translation accurately reflects the wording of the original clauses, it should be easily resolved. If the policy contains a poor translation, the dispute could be lengthy.
In markets such as Colombia, the risk of strike is particularly relevant, as in recent years strike events have affected road transportation and, consequently, the cargo.
In the Strike Clauses, for the coverage to be activated, the damage or loss must be caused by the act of the strikers. However, there has been much discussion in the LatAm markets about the application of this clause, including whether or not consequential damages, such as damages for delays, are covered?
In the original text of the Strike Clauses, it is clear they are excluded. But this can be distorted by a translation that makes the coverage wider, stating that damages that occur during the strike are covered, which can easily allow the coverage to be construed to include damages for delays.
In Colombia in 2021, a strike event lasted for more than four months, and included the blockade of roads and access to ports. The longevity of this event affected large amounts of cargo, which resulted in millions of dollars of losses for the market - not from the direct action of the strikers, but for damages due to delays. Some claimed losses were deemed covered while others, applying the accepted interpretation of the Strike Clauses, were rejected.
This highlights that if the text of the clauses is modified when translated, it opens the door to undesirable interpretations, and the potential for litigation.
While the adoption of proforma clauses (such as the Strike Clauses) is common practice and facilitates the production and agreement of the contract, it is important for all parties to remember that to avoid ambiguity and potential legal disputes, these clauses must be adopted as originally written and that the translation must be a true reflection of the original text, which preserves the spirit of the coverage. This will hopefully leave no doubt about the extent of coverage and exclusion provided.
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