Transport Insurance: Limiting Clauses vs Delimitation Clauses

Transport insurance is characterised by the principle of universality of risk, that is, the object of the insurance will be the damage that can be suffered by the goods during or as a consequence of the transport, without any other precision and independently of the nature of the incident occurred. In this context, the clauses delimiting the insured risk emerge. These should be differentiated from the limiting clauses of the insured party’s rights.

The character of the delimiting clauses consists of stipulating: (i) which risks constitute the object of the contract; (ii) in what amount; (iii) during what period; (iv) in what time frame. That is to say, the objective of these clauses is to individualise the risk and establish its objective basis, eliminating possible ambiguities and specifying the nature of the risk in coherence with the object of the contract.

This type of clause will never delimit the insured risk in any way that is  contradictory to the particular conditions of the contract or in an infrequent or unusual way (Sentence STS 853/2006 of September 11, STS 1051/2007 of October 17, STS 598/2011 of July 20 and STS 273/2016 of April 22).

With respect to the limiting clauses, their character is completely different since their main objective is to condition or modify the insured party’s right. The main characteristic of these clauses is that for the insured party they imply the introduction of exclusions that go beyond the natural content of the contract, restricting, conditioning or modifying his right to receive the compensation or benefit guaranteed in the contract (Rulings, STS 273/2016 of April 22, STS 58/2019 of January 29, STS 609/2019 of November 14 and STS 421/2020 of June 14).

Contrary to what might be expected, the limiting clauses are accepted by Spanish regulations and are perfectly valid as long as they comply with the requirements of the Law of Insurance Contracts. Specifically, Article 3 of the mentioned regulation states that the clauses limiting the rights of the insured party must be specially highlighted and must be specifically accepted by both parties in writing.

The jurisprudence of the Supreme Court: Limiting clauses vs Delimitation clauses

Before starting the jurisprudential analysis of the validity and characteristics of the different clauses included in insurance policies and which affect in a direct way the rights of the insured party, we consider to be relevant to study a prime and practical example where we can observe the difference between the delimitation and limiting clauses: the requirement to subject the vehicle and the cargo to “due vigilance” during the transportation. A concept that represents a clear example of how insurance companies try to limit and consolidate their policies, through their clauses, so that the insured party guarantees a cargo transport that fulfils some minimum and general security requirements.

When considering the requirement to subject the vehicle and its load to “due vigilance”, an obligation that is imposed on the insured party in the agreed coverage, the first thing that should be emphasised is that its interpretation is not uniform or steady, since each insurance company will determine the characteristics or requirements it will demand from the insured party. However, we can outline some common patterns that are recurrent in most of the policies, which we set out hereafter:

– The vehicle must be completely and properly closed.

– The vehicle must have all the locking, alarm and locking devices available to it in proper working order and use.

– The vehicle may not be parked in inappropriate and tentative areas, that is lonely, poorly lightened areas with uncontrolled entrance, not subject of surveillance, etc.

– The vehicle must be parked primarily in a monitored parking, in a completely closed garage or building or in a solidly built and locked area.

– If the insured party proves the impossibility to park in an appropriate place, it is possible to accept other options of parking if: the vehicle is parked with other lorries, in properly-lighted areas adjacent to establishments open 24 hours a day, provided that the driver spends the night inside the vehicle, etc.

Having analysed the requirements stipulated in the transport insurance policy, the question to ask is: are these delimiting or limiting clauses?

Already in 2017, we published an article on the validity of the limitation of coverage of insurance policies for the transport of goods due to the lack of due vigilance during road transport (“Limitation of coverage due to lack of due vigilance during road transport“). At that time the Supreme Court, with its ruling of 7 November 2017 (STS 590/2017) recognized that there were two opposing interpretative criteria regarding the qualification of such clauses:

1. Those that consider that these clauses are delimiting for the purpose of the insurance.

2. Those that consider that these clauses are limiting the rights of the insured party.

At that time, the Supreme Court opted for the second interpretation, establishing an interpretative criterion for the rest of the courts. That means, it considered that the clauses that developed the concept of “due vigilance” limited and modified the rights of the insured party. The Judgement of November 7, 2017, reads as follows: “The clause that is the object of the dispute cannot be qualified as a clause that delimits the risk, given that its content, interpreted systematically, does not adjust to the nature and function of these clauses, that is, it does not attempt to individualize the risk of theft of the goods and to establish its objective basis. On the contrary, the criterion which it incorporates, in a decisive manner, apart from establishing or defining the objective basis of the risk, limits the cover initially agreed with the establishment of a regulation which departs from the natural content of the contract concluded, and from what may be considered usual or deriving from the introductory or particular clauses”.

Now, three years later, the Supreme Court, once again, ratifies this criterion by means of its Ruling of October 22, 2020 (STS 3415/2020), in which the limiting character of these clauses is reiterated and it is stated: “With respect to the distinction between clauses that delimit coverage and limiting clauses, the delimitation clauses specify the object of the contract and establish the risks that, in the event of its occurrence, cause the insured party to have the right to the benefit because it constitutes the object of the insurance. While the limiting clauses restrict, condition, or modify the insured party’s right to compensation or the benefit guaranteed in the contract, once the risk covered by the insurance has occurred. (…). The regulation of the insurance contract for land transport of goods itself establishes a series of material, temporal, and spatial exclusions and limitations: damage due to the intrinsic nature or inherent defects of the transported goods (Art. 57.2 LCS); carrying out the journey within the time limit (Art. 58 LCS); carrying out the transport within national territory (Art. 107.1.a LCS). These legal limitations, together with the intrinsic purpose of this insurance modality of compensation for material damage that the transported goods may suffer on the occasion of or as a consequence of the transport, make up its natural content. Whereas the rest of the limitations, which are usually more or less literal and extensive transcriptions of national or international forms (in this case, according to the policy itself, of the Institute Cargo Clauses, of the Institute of Insurers of London) suppose the introduction of exclusions that go beyond the natural content of the contract and, therefore, are limiting clauses, in the sense and with the effects foreseen in art. 3 LCS. As we have already stated in the aforementioned ruling 590/2017, of 7th November. 6.- Consequently, we must conclude that a clause such as litigious clause, which established a series of determining factors (places and times of parking, locked premises, surveillance, etc.) to the coverage of the risk in the event of theft of the goods, is a limiting clause of the insured party’s rights, and not merely one that delimits them”.

Although the criterion applied by the Supreme Court is clear, in the lower courts these clauses remain a controversial concept and that is because limiting clauses are every time broader and their presence is very frequent in insurance policies in general.

For all these reasons, we recommend that users (insured parties) duly analyse every type of insurance policy offered to them, particularly what regards the limiting clauses contained in the policy, before agreeing to any type of insurance contract. To this effect, you can always count on the assistance and advice of our law firm, AIYON Abogados.