Lloyd's Agent's liability for cargo survey

A Lloyd's agent was instructed to carry out pre-shipment surveys on twelve consignments of frozen swordfish chunks and the surveys were completed over a period of approximately four months.  The buyer required the agent to warrant that laboratory tests had been carried out prior to shipment to establish the mercury content of not less than 5% of the swordfish selected on a random representative basis.

The agent asked the State Laboratory to carry out the surveys.  The correct number of cartons were opened, samples were taken and the analysis report showed that the mercury content was within the specifications.  Unfortunately, the agent had omitted to tell the Laboratory that all samples must be analysed separately and the Laboratory, in accordance with their normal practice, mixed the samples together and analysed only one or two composite samples.  Furthermore, the wording of the agent's survey reports suggested that 5% of the cartons had been both sampled and tested.

On arrival in the United States the consignments were subjected to additional analysis by the US Authorities and the majority were found to contain mercury in excess of the permitted maximum.  The cargo was rejected as being unfit for human consumption and the US importer suffered considerable financial loss which was only partially covered by his cargo insurers.

Subsequently the agent received a claim for US$ 1,000,000 from the importer and the Club instructed lawyers to act for the agent and the Club.  Legal proceedings were commenced against the agent in the Californian Courts and the Club's San Francisco Correspondent, was instructed to assist the lawyers' California office in the preparation of the defence.

Detailed investigations revealed certain information which was useful to the defence but the documentary evidence against the agent was difficult to dispute.  An attempt to obtain a summary judgement to dismiss the claim against the Lloyd's agent was dismissed in California and the Club decided that a negotiated settlement was the better option.  The negotiations were lengthy and protracted but agreement was finally reached whereby the claim was settled in the sum of US$ 412,500.  Inevitably, substantial costs had been incurred amounting to US$ 247,727.

This claim is yet another reminder that the financial consequences of simple errors are impossible to foresee and highlights the need to carry the highest affordable level of insurance.