What is SRCC Cancellation Clause?

The SRCC cancellation clause refers to the cancellation of Strikes, Riots and Civil Commotions (SRCC) coverage in marine cargo insurance policies. This clause allows insurers to cancel SRCC coverage by providing notice to the insured.

What is SRCC Coverage?

SRCC stands for Strikes, Riots and Civil Commotions. It is a type of coverage included in marine cargo insurance policies that protects against physical loss or damage to cargo caused directly by:

• Strikes
• Locked-out workers
• Labor disturbances
• Riots
• Civil commotions

Key points about SRCC coverage:

• It covers physical damage only, not delays, loss of sales, loss of use, etc.
• The physical damage must be directly caused by the strikers, rioters, etc. Not indirectly or as a side effect.
• It is an optional add-on coverage for marine cargo policies. Not automatically included.

SRCC coverage is important for shipments going through volatile areas where labor unrest or riots are more common. It protects against disruptions to the cargo by politically motivated events beyond the control of the insured.

The SRCC Cancellation Clause

The SRCC cancellation clause allows marine cargo insurers to cancel SRCC coverage by providing notice to the insured party.

Key features of the SRCC cancellation clause:

• Insurers can invoke the clause at their discretion if they feel the risk has increased.
• Written notice, typically 7 days, must be provided to the insured before cancellation takes effect.
• Once notice is given, SRCC coverage will be cancelled at the expiry of the notice period.
• The base marine cargo policy remains in effect, just without SRCC coverage.
• Premiums may be adjusted lower since SRCC risk is removed.

The clause is usually based on the Institute Strikes Clauses Hulls-Time wording. The insurer can cancel just the SRCC coverage, not necessarily the whole policy.

Why Insurers Invoke the SRCC Cancellation Clause

Insurers may decide to cancel SRCC coverage on marine cargo policies if:

• Civil unrest or labor strikes escalate in a certain region.
• War or political violence makes the SRCC risk unacceptably high.
• Reinsurance capacity is reduced for SRCC risks.
• They are looking to reduce exposures in a volatile market.

By cancelling SRCC coverage only, insurers can maintain the overall relationship and marine cargo policy with the insured. But remove a risky component they no longer wish to cover.

Impact on the Insured

When insurers invoke the SRCC cancellation clause, the insured party is left without coverage for strikes, riots, and civil unrest. This exposes their cargo shipments to:

• Damage from politically motivated riots.
• Disruptions from longshoremen strikes.
• Hijacking by protesters or activists.
• Collateral damage from civil conflicts.

The insured will need to evaluate the risk environment and may take steps to avoid transiting cargo through higher risk areas. Or they may be forced to buy alternative coverage at likely higher rates.

Notice Period

The SRCC cancellation clause requires a written notice by the insurer before cancelling coverage. This is usually 7 days, but may be a longer or shorter period.

The notice gives the insured time to make any necessary logistical arrangements or seek alternative coverage options. It also prompts any discussions with the insurer if there is disagreement on the level of risk.

Coverage remains in place during the notice period. Cancellation takes effect immediately after the notice period ends.

Reinstatement of Coverage

If conditions improve, the insured can request the insurer to reinstate SRCC coverage on their marine cargo policy. There would likely be a premium increase to reflect the elevated risk.

The insured may also negotiate restrictions, sub-limits or conditional SRCC coverage based on origin/destination of cargo rather than a blanket cancellation.

Examples of SRCC Cancellation

Here are some examples of when insurers invoked the SRCC cancellation clause:

• In July 2019, Indian national reinsurer GIC Re cancelled SRCC coverage for cargoes transiting the Persian Gulf due to escalating tensions between the US and Iran.

• In early 2020, some marine cargo insurers cancelled SRCC coverage on shipments through Italy and other parts of Europe during the early stages of the Covid-19 pandemic.

• During the Arab Spring protests in Egypt in 2011, insurers cancelled SRCC coverage for cargoes moving through the Suez Canal and Alexandria port.

• In 2008, piracy concerns led insurers to cancel SRCC for cargoes transiting the Gulf of Aden.

• Labor unrest cancellations have occurred in ports like Buenaventura, Columbia and Umm Qasr, Iraq at various times.

Key Takeaways

• The SRCC cancellation clause allows marine cargo insurers to remove SRCC coverage by providing written notice to insureds.

• It is invoked when the risk of strikes, riots and civil unrest become unacceptably high in a certain region.

• Cancellation leaves the insured exposed to disruptions and physical damage from politically motivated events.

• The insured can request reinstatement if conditions improve, likely at a higher premium.

• Notice periods are typically 7 days, allowing the insured to make alternative arrangements.

• The base marine cargo policy remains in place, just with SRCC coverage removed.