The Netherlands – Coverage dispute, soybeans shipped from Brazil to Finland arrive moldy. Coverage denied, mold damage not the result of an uncertain occurrence, as well as exclusion for inherent defects.

Judgment of the Court of Appeal of The Hague dated 30 April 2024 (published on 5 September 2024) in the appeal proceedings between Nationale Nederlanden Schadeverzekering Maatschappij B.V., appellant and Gebana B.V., respondent.

The facts

Transportation of soybeans sold by Gebana from Brazil – where it purchased the beans – to its buyer in Finland, where the beans arrive moldy. Insurer Nationale Nederlanden denies coverage under its goods in transit insurance policy with all-risk coverage, arguing that the mold damage is not a result of an uncertain occurrence. Nationale Nederlanden also relies on the exclusion of coverage for inherent defects. On these and other grounds it also disputed the right to compensation of the salvage costs claimed by Gebana. The Rotterdam District Court found the coverage denial unjustified and granted Gebana’s claim. Further investigation into the transportable condition of the soybeans will first follow on appeal.

The established facts

Gebana trades among other things in fair trade and organic (agricultural) products. One of its customers is located in Finland. To this customer, Oy Soya Ab, it sells and supplies (fair trade/organic) soybeans, which Gebana buys from a cooperative of local farmers in Brazil. This cooperative, Cataratas for short, has a procedure to ensure homogeneous quality. Part of this procedure is checking the moisture content of the beans. If the content exceeds 14%, the beans are dried. After drying, cleaning and sizing, the soybeans are put into big bags. These big bags are transported in dry-box containers by ship from Brazil to Finland. The total travel time is between five and six weeks.

The present case concerns a batch of soybeans purchased by Gebana from Cataratas in early 2019, which was transported, loose in 80 big bags, in four (40 ft.) containers, by an ocean-going vessel from Brazil to Finland. The total sales value was EUR 119,035. The vessel departed on or about 5 April 2019.

Prior to departure, a visual inspection of the soybeans took place on 1 April 2019 at the quay of the port of departure, Paranaguá, by inspection agency SGS, which also took samples. According to a two-page “memorandum – stuffing/unstuffing” submitted by Gebana, the big bags containing the soybeans were already loaded into the containers at that time (between 10 a.m. and 11 a.m.). The memorandum also states that the ‘General cargo condition verified during sampling’ was ‘satisfactory’ and the ‘Average temperature of cargo’ was ‘N/A’ (not available). On a single page submitted by Gebana as Exhibit 5, with the name SGS at the top left, it reads:

“Bookings Client Product
9ITJ015326 9ITJ020149 GEBANA Soyabeans
FINAL ANALYSIS RESULT – BOOKING 9ITJ015326
Analysis Results Unit Method
Moisture 13.09 % AOCS AC 2-41 (2009)
FINAL ANALYSIS RESULT – BOOKING 9ITJ020149
Analysis Results Unit Method
Moisture 11.70 % AOCS AC 2-41 (2009)”

The containers arrived in Helsinki on 9 May 2019 and were delivered at the premises of buyer Oy Soya Ab in Tammisaari, Finland on 13 and 14 May 2019, when mold was detected on the soybeans. Oy Soya Ab rejected the soybeans for that reason. Two containers (MSKU 106309-8 and MRSU 334084-4) were unloaded and for this the unloaded cargo, Gebana rented two other containers (GESU 470045-5 and CAXU 902109-7), which after loading, together with the two containers not yet unloaded, were stored on Oy Soya Ab’s premises. There, the soybeans were inspected by SGS on 20 May 2019. The inspection report submitted by Gebana states on page 9:

“Inspection summary: All Big Bags 80 pcs were Visual inspected and sampled with lance. Visual inspection: In all 80 big bags there was traces of mould outside and inside. Also in all big bags centerseams was stretched and product was visible throught bag. noted that big bags from every container doorside were more mouldy as bags inner container. 

Sampling: sample was taken from every big bag by lance and 4 composite samples was collected from each container. 16 composite samples total .

Sample distribution: All samples to Analysis (16 x 1 kg)
Analysis: One ( 1pc ) mould analysis/ sample total (16 pcs)
Reporting separately.”

A ‘study certificate 2019-17157’ dated 24 July  2019, from MetropoliLab states as analysis results relating to a ‘combined sample’ provided by SGS on 6 June 2019:

“Dried soybeans.
4 containers, 4 bags of beans (ca. 2-3 kgs each) from each container
[…]
Combined sample for moisture analysis:
50 grams of beans from each bag
[…]
Moisture […] 15.0 g/100 g 4”

Gebana reported the loss event to its insurance advisor on 19 June 2019, asking whether insurance coverage existed. The policy schedule for the goods in transit insurance refers states under ‘special conditions’:

“all risks: the insurance provides coverage as described in the section description of coverage of the policy conditions”.

On 21 June 2019, insurer Nationale Nederlanden was notified of the claim and the latter engaged surveyor EMN shortly thereafter.

After first searching, unsuccessfully, in Finland for a possibility of sale or treatment of the soybeans, it was decided in the context of mitigation of damage to transport the soybeans to the Netherlands, where a company would “clean” the soybeans, after which further sale would be possible. Two containers of soybeans were shipped to Rotterdam on 11 July 2019, where they arrived on 29 July 2019. The other two containers did not follow until 13 August 2019. At their arrival, it was then concluded that cleaning the soybeans was no longer possible. The moldy soybeans were eventually sold through a tender to the highest bidder for an amount of EUR 19,200.

EMN’s report of 18 November 2019 report states, among other things, the following:

“[…] Of any irregularities as to the condition of the containers or in transit, nothing appeared from the reports received including photographs. The containers were accepted for loading at Brazil and also upon unloading at Finland, no comments on the condition of the containers were made. On this basis, we assumed that the damage was not related to the condition of the 4 containers or otherwise due to an external impact. […]

To mitigate the damage, your insured had investigated several options locally but had to conclude that bringing the beans to the Netherlands […] for cleaning and further sale would be the most damage mitigating solution. […]

We determined this to be the appropriate loss mitigation measure. We made arrangements with your insured on this […].

Due to various circumstances […] the 4 containers arrived at Biervliet with a delay. We inspected the beans there […] Eventually, based on our investigation, we had to conclude that cleaning the beans was not possible. […]

Cause of damage:

We concluded from the analyses received that the shipment in question had been checked for moisture before shipment by SGS, which determined that the moisture content was between 11.7% and 13.09%. […]

Based on the analyses, we are of the opinion that although the moisture percentage was in accordance with our own and third party advised standard before the start of transport, the margin in this respect was limited.

In our opinion, due to less favorable transport conditions (strongly fluctuating temperatures), the moisture present in the beans most likely leaked out resulting in condensation which led to mold formation.

Fungi are latent in soybeans but, due to conditions favorable to them (moisture/heat), they will quickly develop into mold. Conditions (moisture/heat) will grow rapidly, which eventually led to the contamination of the beans. The fungi present then also cause the production of unwanted toxins. […]

The containers were in good condition and were normal dry-box containers. Although these containers have ventilation grilles, in practice these are not sufficient to adequately ventilate the contents of a container. Your insured had made no demands on its carrier regarding the method of ventilation during transport.

In our opinion, the damage occurred during transport because the moisture present in the beans was present in the beans was allowed to leach out and condense due to varying temperatures and lack of ventilation, with all its consequences. With the use of conditioned containers this could have been prevented. The use of such containers had not previously been considered by your insured; the many previous container loads of beans were transported without significant problems.”

EMN calculated the total damage ‘subject to the policy conditions’ at EUR 127,857.50, consisting of an amount of EUR 99,835 for damage to the cargo (sales value minus residual value) and EUR 28,022.50 for the costs incurred by Gebana in relation to the shipment to Rotterdam after the cargo was refused by the Finnish buyer.

On 26 November 2019, Nationale Nederlanden informed Gebana that it would not provide coverage for the loss.

Confronted with the rejection, Gebana instructed an expert company to prepare an opinion on the shipment of soybeans in containers and the conditions under which cargoes of soybeans can or cannot withstand a transport from Brazil to Finland without damage. In a letter addressed to Gebana the expert appointed wrote, among other things:

“[…] Parameters of importance whether a batch of soybeans arrives healthy at final destination are:
-moisture percentage and loading temperature of the product
-transportation and travel time
-exposure to falling and/or varying outside temperatures
-age of the beans
[…]
In the trade and transportation of soybeans, a common and contracted moisture percentage of up to 14% is used. […]
A moisture percentage of 14% is […] at the limit and carries a higher risk of oxidation of the oil (fatty acids), microbiological deterioration and mold formation during long sea voyages. This also depends on the initial temperature of the beans, outside temperatures and passage of temperature zones.
[…]
Ideally, a maximum moisture percentage of about 13%. Soybeans with a moisture of around 13% are in equilibrium with the surrounding air at an outside temperature of 25º-30ºC and an air relative humidity of 65-70% […].
[…] soybeans […] are shipped from all over the world in standard “dry box” shipping containers.
[…]
The above makes it clear that […] there is no need to ship these products in conditioned containers.
[…]
As noted earlier, moisture content is of prime importance for the safe sea transport of soybeans. Normally, healthy soybeans with a moisture of 13% or lower should be safely shipped from Brazil to Europe within a transit time of 6-7 weeks. […]

Given the temperatures in early April in Paranagua (day 28-31ºC/night 24-26ºC) and lower temperatures in northern Europe, the present shipment was a transport from a warm to a comparatively cold temperature zone. […]

In case of larger and longer temperature drops, a process of moisture migration will be initiated. […]

Conclusion

Given the above considerations and facts, this shipment of soybeans met all requirements to withstand the journey well and to expect that the consignment would arrive healthy in Finland.

In summary, this was a young lot of the new crop with a low moisture percentage (11.7% -13.09% EMN report page 8), while the travel time could not be called long.

As mentioned, agricultural products such as soybeans and nuts, seeds, kernels, rice, cocoa, coffee, etc. are comparatively trouble-free shipped worldwide in “dry box” shipping containers transported, not in conditioned containers.

Although the initial batch temperature is unknown, we assume that given the outdoor temperatures in early April 2020 in Paranagua, the lot when loaded into the containers had a normal temperature of around 27°.

In addition to a low moisture content, buying a young lot and booking a transport with a normal travel time, there are no further measures a trader could could take to ensure a safe and healthy journey.”

The claim and the Court’s decision

Gebana claimed in the first instance that Nationale Nederlanden should be ordered to pay the damages amount of EUR 127,857.50, plus extrajudicial costs and interest.

The Court granted the claim, ruling that Nationale Nederlanden’s objections – that the damage was not the result of an uncertain incident, that there had been an inherent defect and that the claimed salvage costs were consequential damages that were not covered – were unfounded.

The assessment of the grievances

Nationale Nederlanden raised six grievances. The first five deal with the cause of the mold. It is Nationale Nederlanden’s position that the fungus formation was a normal foreseeable event, given the (too) high moisture content of the soybeans at the start of the trip, in combination with the other known and foreseeable circumstances: the trip duration of approximately six weeks, the decreasing/changing temperature and humidity during the trip (from Brazil to Finland) and the choice of transporting the beans deposited in big bags in unconditioned, dry-box containers. Nationale Nederlanden considers an (average) humidity percentage of 13.09% at the start of the voyage (already) too high in this regard. Gebana disagrees and is of the opinion that, barring external causes, the soybeans should have withstood the journey with a moisture content of up to 14%, i.e. once again at a lower moisture content.

The Court of Appeal is of the opinion that in answering the question of who is right in this regard, there is a need for expert information at this time, and that more clarity is first desired regarding the moisture content of the soybean shipment in question at the start of the voyage on (or a little before) 1 April 2019.

The Court of Appeal continues that according to the EMN report, the moisture content at that time was between 11.7% and 13.09%, allegedly so measured by SGS. However, the report of SGS submitted by Gebana shows that the percentage of 11.7 mentioned by EMN (referring to the SGS measurement) belongs to another batch of soybeans, namely to the batch with ‘booking’ number 9ITJ020149, and not to the present shipment known under ‘booking’ number 9ITJ015326. The use of the percentage of 11.7 with regard to the present, moldy, shipment therefore seems to be based on a mistake. The fact that Nationale Nederlanden did not notice and address this earlier does not mean, contrary to Gebana’s wishes, that this omission must remain the starting point of the assessment.

Gebana refers to the measurement by SGS on 1 April 2019 as the “second test” and also speaks of a “double assurance” in this context, apparently referring to the circumstance that a measurement in the context of drying process (at the cooperative) had already taken place. Little is known about the samples taken by SGS on 1 April 2019 at the port site, except that the big bags of soybeans were already in the four containers at that time and that upon visual inspection, the overall condition was satisfactory. The average temperature of the shipment was not available. The one-pager on the letterhead of SGS submitted by Gebana as Exhibit  5, showing the moisture percentages of 11.07 for number 9ITJ020149 and 13.09 for number 9ITJ015326, does not contain any information on how these results were obtained. No damage apparently occurred with respect to the shipment of soybeans with number 9ITJ02014 with the lower moisture percentage of 11.7; after all, according to Gebana, damage only occurred with respect to the present shipment, i.e., the shipment with number 9ITJ015326 with the higher moisture percentage of 13.09.

Gebana will be given the opportunity to provide further information about the situation at the start of the voyage; information from which it follows that the moisture content of the present shipment was indeed 13.09%, or at least cannot have been (partly) above 14%, or substantially higher than 13.09%.

Gebana is also invited to bring into play (objectively verifiable) data on the (maximum and minimum) relative humidity at the start and during the trip, as well as temperature data right away. This need not be hourly or daily during the trip, but at some regularity.

A further investigation into the occurrence or non-occurrence of abnormal conditions during the voyage is not at issue at this time; what is at issue is the ground/transport condition of the present shipment of soybeans at the start of the voyage from Brazil to Finland.

The Court of Appeal also gives the parties its thoughts on the claim for the salvage costs, should the parties still wish to reach an amicable settlement, which the Court of Appeal encourages.

Nationale Nederlanden’s own experts notes as a summary note in his report: “In summary, we believe that your insured attempted to mitigate the loss by initially finding a solution in Finland. When the return of the beans also proved impossible, after consultation with us it was decided to transport the beans to the Netherlands.” Nationale Nederlanden also argues that the mold damage had already occurred and there was no imminent situation. Again, Nationale Nederlanden ignores its own  expert’s comment that these were damage control measures decided upon after consultation with him. Assuming a covered event, Gebana was in this case entitled to trust that the costs associated with the measures decided upon after consultation with the expert appointed by Nationale Nederlanden would be reimbursed.