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Mariner's Guide to Marine Insurance 1999 Anderson 1870077539

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The Nautical Institute The Nautical Institute was founded in 1972 with the principal aim of 'promoting a high standard of knowledge and competence amongst those in control of seagoing craft'. It is an international professional body for qualified mariners. Membership standards are based upon a foreign-going master mariner's certificate from a recognised maritime administration or a naval command qualification for a major warship. There are currentlyl6 branches in the UK and 21 branches overseas. The Institute publishes a monthly journal called Seawa.ys, which is circulated to over 7,500 members and subscribers in more than 70 countries world-wide. The journal includes reports from the Institute's confidential marine accident reporting scheme, which covers near-miss incidents and potentially dangerous occurrences in the context of international shipping. The Institute also runs a series of career development programmes through correspondence courses and is a major publisher of nautical books for the practitioner. Members are entitled to a 30% discount on publications, a full list of which is available on request. The Institute validates an international programme of training and certification for officers in charge of a watch on dynamic positioning vessels. It also accredits training programmes on behalf of the UK government for oil-
spill response training and runs a square rig sailing ship examination scheme. The Institute's work plan is published in Plans for the Future, which is available on request or can be read on its web site at www.nautinst.org. For further information please contact The Secretary, The Nautical Institute, 202 Lambeth Road, London SEI 7LQ, telephone +44 2079281351, fax +4420 7401 2817, e-mail pubs@nautinst.org, web www.nautinst.org. The Nautical Institute is a registered charity, number 1002462 and a company limited by guarantee, number 2570030. THE MARINER'S GUIDE TO MARINE INSURANCE PHILlP ANDERSOI'\, Master l'vlariner, BA(Hons), FNI ~ The Nautical Institute Puhlished by The Nautical Institute 202 Lambeth Road, London SEl 7LQ, UK 'Iel: +44 20 7928 1351 Fax: +44207401 2817 E-mail: pubs@nautinst.org Web: www.nautinst.org Copyright © The Nautical Institute 1999 ISBN I 870077 53 9 All rights reserved. No parr of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the publisher, except for the quotation of brief passages in reviews. Although great care has heen taken with the writing and production of this general guide to marine insurance, the Nautical Institute and the author do not under any circumstances whatsoever accept responsihility for errors, omissions and mis-statements or the consequences of following the advice within the guide. FOREWORD {;tlpttlill Pl.D. Rl/s.l'ell, FNI, Pm;idl'llt, Tire Nfll/tim/ hmitllte Tlrere tire feu!' Kl/idillK plillnples Ulwirlr s/(IlId tire leSI of tillle. Tire IIIfllille slIpflillll'lldmt's tlrk'ire to tire lleu!'fv tlppoillter/lllflster,o 'behllve pntdmtfl' flllr/ treollhe slrip tllld lire rtJlJ;O os (f the)' were I/ot ills"rer/' is {'I'I1t1illfl' 0111' of tlrelll. This may seem a strange introduction to a book on marine insurance, but the principle is correct. l\larine insurance -whether hull and machinery or protection and indemnity -is designed to indemnify the assured in the event of an incident to the level insured. Marine insurance is nor a∙ wager in that an owner can use cover to behave recklessly. Also, marine insurance is not free. It has to be paid for and like all services there is over time a relationship between claims and premium. This excellent guide to marine insurance for the mariner by Philip Anderson explains the underlying rules affecting marine insurance contracts and then examines how claims arise and how they are handled. Of course damage, incidents, injury and orher liabilities such as stowaway. strikes and contractual faults occur on or to the ship. In this respect the master will be involved in assembling the facts writing a repon and liaising with the owner, correspondents, surveyors, agents, lawyers and representatives. To understand this role and contribure effectively on behalf of the company the mariner needs to have a good grasp of the issues involved. The jlfflliller:r GI/ir/e to Morille bWII'{IIIce fulfils this role admirably. PREFACE CI/Plflill Philip AIlt/rf"SOIl, M(l.rlrr J/flrillt'r, BA(HI)//.,), FNI, Vi,,, PrrJit/t'IIl, Tnt' N(f[llimllllJlillllr This book is nO[ intended [0 provide a technical or legal perspective of marine insurance -there are already many excellent books available [0 those interested in such studies. It is intended as a practical guide for ship masters and officers on the different types of insurances which they may come across during the course of their work. The book will also act as an invaluable introduction and source of reference for anyone involved in the operation or insurance of commercial ships or the cargoes they carry. It is a companion [0 The Nautical Institute's earlier publication Tltt' il,;lflrillt'r:r Rolt' ill Col/milll( F.vidrocf (sec inside back cover for details). It is often not clear what risks and liabilities fall under hull and machinery (H&rvl) cover and what falls [0 be covered under protection and indemnity (P&l) insurance. Indeed, the particular form of H&M policy in use will determine what cover is provided by P&l. However, of all a shipowner's insurances, freight, demurrage and defence (FD&D)insurance can be considered its most important lifeline. This book nO[ only guides the reader through the apparent maze of marine insurance, it also explains the crucial role which must be played by those on board in preventing accidents and claims in the first place and, if they do occur, what can be done [0 minimise the loss and protect the shipowner's position. The final chapter considers questions of causation and challenges some current beliefs. If the shipping industry is [0 achieve any degree of success in its loss preveruion efforts, it needs [0 start asking 'why' the incident happened rather than just asking 'what' happened. The companion volume Tltf Mor7l1fr's Rolt'ill Col/fctillg Evidmcf explains what evidence will be needed [0 protect the shipowner's position and bow [0 collect that evidence -an extremely important issue which those on board ship can contribute [0 in a very significant and meaningful way. In this new book a detailed examination is carried out looking at an incident and following the development through [0 conclusion of the settled claim. By seeing the [Otal picture in this way, the master and other mariners will see what an important contribution they can make [0 the satisfac[Ory resolution of accidents and claims. 2 CONTENTS Chtlp!,,. 1. INTRODUCTION 1.1 Natun: of marine insurance 1.2 Financial implication of claims 2. INSURANCE REQUIREMENTS OF SHIPOWNERS, CHARTERERS AND CARGO OWNERS 2.1 Shipowner's insurance requirements 2.2 Charterer's insurance requirements 2.3 Cargo owner's insurance requirements 3. UNDERLYING PRINCIPLES -
THE MARINE INSURANCE ACT 4. HULLAND lVlACHINERY (H&M) 4.1 'IYpical scope of cover 4.2 Collision cover 4.3 General average and salvage 4.4 Action in the event of an incident 5. PROTE(''TION AND INDEMNITY (P&l) 5.1 Historical development 5.2 Nature of P&l c1uhs and the P&l industry 5.3 P&l underwriting 5.4 Scope of cover 3 5 6 8 8 9 10 11 15 15 17 18 20 21 21 24 30 33 6. FREIGHT, DEMURRAGE AND DEFENCE (FD&D) 6.1 Nature ofFD&D 6.2 Scope of cover 6.3 \:VI1at FD&D means in practice 7. CLAIMS HANDLING AND THE IMPORTANCE OF EVIDENCE 7.1 Importance of the contribution from those on board 7.2 Correct response can make all the difference 7.3 Claims handling illustration 7.4 Advising of the incident 7.5 Responding [0 the incident 7.6 Appointing experts 7.7 Establishing contact 7.8 Risk of arrest 7.9 Evidence required from the vessel 7.10 Evaluating the evidence 7.11 Submission of claim documents 7.12 Settlement negotiations 7.
13 Possible indemnity claims 7.14 Conclusion 8. INSURANCE CLAIMS AND LOSS PREVENTION INDEX 4 58 58 59 60 62 62 62 62 63 64 65 65 67 69 78 78 80 80 82 83 94 Chapter I INTRODUCTION I I T \ I l HI-01 -
1\1 \1< I I-
I Sl H \ ( I' Insurance exists to avoid or minimise financial uncerrainty. It provides individuals and organisations with financial protection against the outcome of events which involve monetary losses or liabilities which were not anticipated or predicted, and over which they had no effective control (Fig. I). ]n return for this financial protection, the 'insured' individual or organisation pays money, usually by way of a 'premium', to another individual or company, the 'insurer', and a policy or contract of insurance is drawn up to formalise the legal relationship between those parties. The IVlarine Insurance Act 1906 actually provides a definition of marine insurance at section 1 A cOfltract of marifle itlsllfmue is a COlltrait whereby the illsurer IlIIriertai:es 10 iflriflflflij), the assured, ifl maflfler alld to the extf11llherebJ' agreed, agaitlSI1JIarifle losses, that if 10 say, Ihf losses ;mirien( (0 manlle adventllre. l'vluch of the language used in marine insurance, parricularly where Lloyd's policies or institute clauses are concerned, is archaic. However, over many Years, the courrs and . . the industry have given very specific meanings to particular words and phrases, such that those involved in the marine insurance business know exactly what is meant and to change the wording would lead to confusion and uncerrainty. Fig.1 A maritime disaster can involve loss of /ife, loss of ship, loss of cargo and much more In the case of a shipowner or shipmanagcr, insurance is usually confined to the financial consequences of damage to its own ship, damage to other people's property or death or injury to people. A charterer's insurance requirements. particularly a time charterer'
s, are similar in many respects to those of the shipowner. A cargo owner's requirements are usually confined to loss or damage to its cargo. 5 Crewmembcrs, supernumeraries, passengers, pilots, stevedores, parr officials and many other categories of individuals who may tind themselves onboard a vessel will usually require their own personal insurance for injury, illness or death. Some risks are virrually uninsurable such as freight, demurrage and a whole mnge of bad debts and disputes under charrerparries, for example. If there are any accidenrs or other incidenrs during the voyage involving any of the parries under any of their insurance policies or conrracrs, the master of the ship is very likely [0 become involved. V,'i1ether or nor the master rakes the correct action at the correct time in rcsponse [0 such an incidcnr can often make the difference between the maner remaining a minor inconvcnicncc which is kept under control or else a major disaster which quickly gets out of conrrol, usually involving rhe shipowner in considerable expense. In realit)'; for anyone incidenr there may be a number of insurers involved. For example, if the cargo has been damaged this may involve nor only the cargo insurer bur also the shipowner's protection and indemnity (P&l) club and possibly the time charterer's P&l club. A collision may involve thcsc insurcrs as well as hull and machinery (H&M) underwriters, personal insurcrs of individuals, property underwriters and so on. The masrer may find thar in law he has obligations and duties co many of the insured parties and consequenrly to their underwrirers -for example as an agent of necessity. But his principal and indeed employer -the shipowner -may find itself in conflict with these other parties. If they can prove a breach of conrract or negligence against the shipowner, they may be able to pursue an indemnity claim against it. It is therefore crucial that the master has a clear understanding of the differenr types of insurances which may be involved in the many potential accidents, incidenrs and liabilities with which he may be confronted during his time in command. " r I f' • I( ( L { I To bring the whole issue of insurance into perspective and to consider its real implications for the ship master, it is importanr to appreciate the enormous financial implication of claims. H&M and cargo claims on the London insurance markct alone amount to more than US $10,000,000,000 each year. Annual P&l claims cost a furthcr US$ 2,000,000,000. But what is the co~t to the individual shipowner? The answer is not straightforward as it depends on the type, size and age of the vessel being considered, the trade in which the vessel is involved and a number of other relevant factors. However, the most significant factor influencing what any particular shipowner is paying for insurance is the past claims record. A shipowner with a bad claims record will be paying many times more for insurance than one with a good record. figs 2, 3 and 4 show breakdowns of the typical daily operating budgets for three different types of vessels on time charter (the charterer will be paying for fuel, port cxpcnses, etc). It can bc seen that typical insurance costs for a recfer vessel arc 20%, for a conrainer vesscl 23% and for a VLCC a staggcring 45%. 6 However, this is not the full story. In order [0 keep insumnce premiums as lo\\' as IXlssible, shipowners usually take ever larger 'deductibles'. This is the parr of any claim which the shipowner insures out of its own resources and may amount to many tens or even hundreds of thousands of dollars. In addition [0 any human sullering, inconvenience or annoyance an accident or claim may bring, it can also prove to be tinancially disastrous filr the shipowner. The m<l~ter and his officers and crew can have a major effect on whether or not there are accidents and claims and also to protecting the shipowner's position by taking the correct action quickly if there is an incident. It is therefore crucial that the master has a good understanding of the various insurances involved in the commercial operation of the ship, of what he can do to minimise the risk of accidents occurring and of what [0 do in the event that problems do arise. Fig.2 Daily operating budget -
reefer vessel 30,000 Cu. ft. Fig.3 Daily operating budget -
reefer vessel 923 TEU FigA Daily operating budget -
VLCC 7 • Management fee • Other expenses Insurance • Lub. oil • Repairs • Equipment • Victualling Crewing costs • Management fee • Other expenses Insurance • Lub. oil • Repairs • Equipment • Victualling Crewing COSts • Management fee • Other expenses Insurance • Lub.oil • Repairs • Equipment • Victualling Crewing COSts Chapter 2 THE INSURANCE REQUIREMENTS OF SHIPOWNERS, CHARTERERS AND CARGO OWNERS _.1 "'IIIPI)\\ 11 '.., ..,\ I \ Cl I ,'I I IHI J "i The shipowner or shipmanager has many different insurance requirements. Fig. 5 identifies some of the more usual insurances. Hull and machinery War risks H&M Freight. demurrage Shipowner Strike and defence FD&D Protection and Loss of hire indemnity P&l P".S Typical insurances (or a shipowner The two most significant insurances for the shipowner are H&M and P&l. An approximate analogy could be drawn with the normal insurance which may be considered for a motor car. P&l insurance might equate to straight 'third party' cover and, with the addition of H&M, would constitute 'fully comprehensive' cover. Hull and machinery (H&M) Hull and machinery (H&M) insurance covers the ship itself and the equipment on board the ship including the propulsion and auxiliary machinery, cargo handling and navigation equipment, and similar items of plant. H&M may also cover the ship's contribution to general average and salvage as well as 3/4 of the liability to the other vessel in a collision. Protection and indemnity (P&l) During the course of operating ships, a shipowner can incur liabilities towards all manner of third parties. Protection and Indemnity (P&l) insurance provides this third party liability cover. P&l also covers a variety of other losses which a shipowner may suffer and which may not be insured elsewhere, although there are a number of specific exclusions from cover. 8 ;\ shipowner may also have additional insurance: re:quire:me:nts de:pending ve:ry mut'h upon the type: of vessels involve:d. and the trade: or use to which the vessels arc he:ing put (I∙ig.6). For e:xample. a shipowne:r upe:rating a fleet of containe:r ships may require insurance ('over for the containers themselves. Some of the more usual additional insurances could include the following. Freight, demurrage and defence (FD& D) A shipowner is exposed to a number of liabilities or losses for which it does not have insurance COVl:r. Examples include disputes under charterparties and sale and purchase of ship disputes. Freight. demurrage and defence (FD&D) cover does not provide insurance for these risks but. rather, provides a legal costs insurance. It covers the cost of providing legal and technical support and assistance to defend or prosecute a wide range of uninsured claims and disputes. Many P&l cluhs offer FD&D as an additional class of insurance available to its members. There are also independent FD&D associations. Strike insurance Strikes by stevedore lahour. ships' officers and crew or others who can disrupt the normal working of the ship can have devastating financial consequences. Strike insurance is available to alleviate the I i ... or serious losses which may arise from strikes. .... War risks If a vessel finds itself in a war zone or other area of hostilities, the normal H&M and P&l insurances are likely to be suspended. War risks insurance provides the shipowner with continuity of cover as required. Fig.6 Commercio/ ships have many different insurance requirements Dependant upon the terms and conditions of the charterparty. a charterer may be exposed to many similar risks and liabilities as a shipowner. This is particularly the case with time charterers. It is unlikely that the charterer will be t:xposed to liabilities with regards to collisions or pollution or damage to third party property or personal injuries to the crew, for example, but may very well find that it has an exposure to cargo claims. A time charterer can in fact take out full 'P&l' cover with a P&l club and be provided with the same cover a~ a shipowner member -
although the method of underwriting will he different. An unusual situation arises with a time charterer's P&l cover in that the time charterer may include damage to the ship in its P&l cover. This is 9 something which is specifically excluded as far as a shipO\\Iler mcmber of a 1'&1 club is concerned . .\S far as the shipowner is conccrned, thcn ob\∙iously damage to his own ship is cO\∙cred ulllkr thc 1-1&1\1 policY. The reason a time charterer may decidc to take this cm∙cr through a P& I club is that, as !;lr as the charterer is concerned, the ship is another piece of third party property. If the ship is damaged as a result of some negligence on the part of the charterer -
say because of some badly stowed cargo shifting -then the shipowner may have a valid claim for compensation against the charterer. In a similar way; although it is not quite as common, a charterer may also require FD&D insurance, war risks insurance and strike insurance but not usually 1-1&:\1. Voyage charterers which own the cargo -
which is often the case in trading bulk commodities such as oil-
would also be interested in cargo insurance. Cl I'_l PI"I I. The cargo may be owned by the charterer or even the shipowner but, in the majority of cases, belongs to a third party. \\-11Oever owns the cargo would usually arrange for insurance cover on the cargo to protect themselves agaimt loss or damage as well as their contribution to general average and salvage (Fig. 7). If the cargo sale contract was on cost, insurance al~d freight (CIF) terms, then the seller would usually arrange for the insurance. On free on board (FOR) terms, it is usually the buyer who insures. Cargo insurance underwritten in I,ondon is likely to be covered under one of three versions of the Institute Cargo Clauses -all risks, free of particular average (FPA) or Fig.7 A prudent cargo owner would insure its cargo 10 without average (WA). The terms of the thn.:e versions art: almost identical except for clause 5. The insurance covers the goods during their entire transportation period, basically from the shipper's warehouse to the receiver's warehouse, which obviously covers the entire sea passage. There are also various safety cushions built in to the policy terms to allow the insurance period to be extended under various circumstances. The Institute Cargo Clauses provide cover for the cargo owner's contribution to general average and salvage, war risks and risk of strikes. The variations between the three versions -which are set out in clause 5 -relate to the extent of cover provided for loss of or damage to the cargo insured. This cover ranges from the 'all risks' (although there are in fact two specific exclusions: losses proximately caused by delay or inherent vice) to the FPA, which only covers total loss of the cargo or damage as a result of fire, explosion or collision. The important point for masters to note is that, even though a cargo owner may have insured the cargo, it (or its insurer under subrogated rights) can pursue an indemnity claim against the carrier -usually the shipowner but possibly the time charterer -if the cargo is lost or damaged while in the carrier's custody. Under Hague or Hague-Visby Rules or similar carriage of goods by sea acts, carriers can raise various defences to such claims provided they can show they exercised due diligence to make the vessel seaworthy and that they properly cared for the cargo. If the cargo owner or subrogated cargo underwriter is successful in its claim against the carrier then the shipowner I charterer should be covered for such liabilities through its P&l club. It is important however to recognise the important distinction between what cargo underwriters cover and what P&l clubs cover -
P&l clubs are liability undenvriters, not cargo insurers. 11 Chapter 3 UNDERLYING PRINCIPLES -THE MARINE INSURANCE ACT Although marine insurance had been around for thousands of years, the form that is recognised today can really be traced hack to the activities in the Lloyd's Coffee House in the 17th century. In the years that followed the 'rebirth' of marine insurance, there were many legal cases that were considered by the courts -basically interpreting the Lloyd's standard policies. These decisions became so numerous that a decision was taken to codify the law of marine insurance. Accordingly, underpinning every contract of marine insurance that is written in England and / or is subject to English law is the Marine Insurance Act (MIA) of 1906. Specifically, this Act applies to H&M, P&l and cargo insurances and at section 3 it describes how every la\\ful marine adventure may be the subject of a contract of marine insurance. Selected sections are considered and they provide 3. (J) SlIbj{'CIIO Ihf pror.,isiolls 0/ this Art, {'f)fr.l' lomftll nUlrille ationllllre 111a), be Ihe Sllbj{'(t 0/ a mll/raft 0/111ari11l' illsllmllf'/'. (2) (a) AI~l' ship, goods or 0Iner111(Jt,'f'ables are e>.:pos{'d 10 t1101ili111f pl'1iis. SlIcn propnt), is ill/his Art r/'/m"fd 10 as ';ILfllmble pmperl)':∙ (b) Tn{' mmill/{ or acqllLii/irJII 0/ (/fly/reignl, passage mOlle)', (()111missiOll, profit, or Olner penllliaf)' belltjit, or Ihe s{,(7Ifil)'/or ml.f advOIlr{'s, 10011 or disbllrsetl/mts, is mdallger{'d by the exposllre 0/ insurable property 10 m(Jfitime pl'liLf; (r) AflJ' liabilil)' to a thirr/ part)' "/{l)' be inf7llTnI by Ihe OWller of, or olher person illter{'s/{'r/ ill or rfsp()ILiible /()r, insurable property, b.l' reaSOll 0/ maritime perils. ';\fmili111e peli!'i' lIIe{l1lS the peri!'i mnseqlll'lll on, or ifl{itimltll lO, Ihe navigation o/lhe sm, that is to say, pni!.i o/Ihe sl'lIs,fire, usar peli!.i, piralfs, rOOfr5, fnil't'{'s, mpfllr{'s, s{'izur,s, It'slmin/s, (/1/(1 dflllinml'1lfs 0/ prilltl's (l1ll/ peop/l'.(, jfllis01Li, harml')', OI/{/ allY oln,r peril, ei'hrr o/Inf lik" killti ()r wihirh IIIU)' be tifsiglllller/ b)' Ihe polii)'. Section 39(5) on seaworthiness would usually apply to H&M and P&l insurance though the whole section is reproduced here since a number of the other policies, such as cargo insurance, may need to be considered under one of the other sub-sections. 39. Ilt/rml/O' 0/ SemJl)f)/thilless o/Ship (I) Itl a vo)'a/;e polif)' tnere is {Ill implifti IDYIITtl1ln' rh(// (If thr mmllle1lrfmml 0/ the vo),uge the ship sholll){' sl'£Iworth),/or'nr pllrpos, 0/ fhr partintlor oticV'1I1l1rr i,w,r"tI. 12 (2) Wllfr('fN polil)'aoadll'J rdlilf till' Jhip is ill pOrI, IIlI'r/' iJ alw (Ill implid worrrlllty that Shf shall, at thl' rrJ11I1IIfl/rf11lflll of thl' risk, bl' rftlso//flb/:,∙ fit 10 fl/('Ollllll'r thl' ordi//{{ry pfrils of the port. (3) Wlll'rl' Ihf polit:). rflolfs to a voyag/' whirh if prrforlllfd ill diffm'fll ~1{/gf.r, dllrillg whirh thl'ship rfqllirrs differfflt killdr of or/l"lll1'r preparatioll or eqllipmffll, fhn'f is (/1/ i11lplied W01'fYlIlI)' that (If Ihe (,()111111f11rf1l1f11t of fOrh Sf(/gt' fhf ship is sI'tIw011hy ill respnt of slIrh pI'fpomlioll or fqllip11ll'fll for Ihf pll1pOSf of fllIIl SlagI'. (4) A ship is dff1l1fd to be Sftlr1,VJrt/~" whf1l Shf is rfosollab("jit ill a/I rfsj>f(tf to m((}lIl1lfr Ihe ordillary j>frils of the Sfa of Ihf O(kellfllrf il/Sllml. (5) ilia ti111e po/if")' tllI:rf is 110 i111p/ied WOfTonI)' thollhe ship 51/0// be Sf{/n}'Orlhy 1I1 lIflJ sltlgt' of the mk'l'lIlure, but wh,r" wilh fhe privily of the assurl'd, thl'ship is .rent to SfO ill Ofl /II/S('(ff£'Orlhy stllfe, the illSl/rer is I/ofliab/e for llfl)∙loss 1Ilfribtitllble 10 I/IISf(ff£'OrlhillfSS. Section 39(5) basically means that, if the insurer can demonstrate that the ship was unseaworthy when it put to sea and that the assured had positive knowledge or 'turned a blind eye' to facts which rendered the ship unseaworthy and the loss was attributable to that unseaworthiness, then the insurer may refuse to pay the claim. But exactly who is the 'assured'? [s the knowledge of the master, for example, sufficient to implicate the shipowner? The answer, under English law at least, is probably no. However, with the reporting requirements of the safety management systems of the ISM Code and the appointment of the designated person ashore, it may become increasingly difficult for a shipowner to argue that it did not know of the unseaworthiness and had no reasonable means of knowing. Of course, if there is a failure to make the necessary reports, then that is likely to constitute a serious breach of the ISM Code requirements. If there was a breach of section 39(5) of the MIA, then not only would the shipowner run the risk of losing its P&l cover but it may seriously risk losing its right to limit its financial liability in cerrain circumstances. There are a number of other underlying basic principles of most marine insurances of which the master should be aware. Firstly, it would usually be a strict condition that the vessel must be classed with an approved classification society and that class is maintained. This does not necessarily mean that the classification society actually has to cancel the classification -simply for a situation to exist which would have led to withdrawal of class would be sufficient. It is also usual that insurance covcr may cease if the shipowner does not comply with cerrain international conventions, in the form ratified by their flag state administration -
for example the SOfAS convention. Indeed many insurers have made it a specific requirement that relevant vessels must have valid ISM safety management certificates (SMCs) and the operating company a valid document of compliance (DOC). This probably also extends to actual implementation and maintenance of the safety management system (SMS) of the ISM Code. {Foot llOte: For a detailed diSl7lssiOIl of rl'MI't/ iss/lfs SfI' Allt/m'011 P. ' Thl' IS/vI Code -A Prmliml GI/ide /0 /hf Legal alld illSlImfff'e ImplimlioflS', HP hmi/I'd, 1998, ISBN I 85978621 9/ 13 Section 17 of the l\HA states that contract of marine insurance is a contract based upon the utmost good faith and, if the utmost good faith is not observed by one party, the concract may he avoided by the other party. Furthermore, although it may never be seen actually stated down in the written terms of any insurance policy, onc the most fundamental principles of all marine insurances is that the shipowner must always act as 'a prudent uninsured'. In other words, the shipowner should conduct its affairs as though it did not have the protection of its insurances to fall back upon if things went wrong. Owners must act in a thoroughly careful, diligent and indeed prudent way and not in a reckless, careless or cavalier way. They should not take unnecessary or unreasonable risks and certainly they must not act in an unlawful way. These obligations are usually directly on the shipowner and, in normal circumstances, the actions of a master or crewmember may not necessarily lead to loss of insurance cover. However, a shipowner would be expected to have in place various procedures, particularly in complying with ISM, to verify the suitability, qualifications and experience of the master, officers and crew -as well as procedures to check and verify that the master, officers and crew were indeed doing what they were supposed to be doing. The ISM Code will be the benchmark against which such things will be measured in the future and there may well be cases whereby shipowners are considered to have failed to act as a prudent uninsured if they have nor been maintaining their recruitment / employment procedures of their SMS. There are of course many other factors, circumstances or problems which might arise which could lead to the insurances being withdrawn -for example non-payment of premium or mental incapacity of the shipowner -but over which the master, and those on board, will have little influence. The Act also makes it clear, at section 55, that cover is provided for any loss proximately caused by a peril insured against but cover is not provided if the loss was not proximately caused by a peril insured against. The principle adopted is causa proxima 11011 remota speclalor, which means that it is the proximate cause, and not the remote cause, which needs to be considered. It is also perhaps worth stating at this point that the MIA does specify the minimum information which must be provided on the policy at section 23: 23. A mmille po/it)' IIII£rt speci!J': (I) Tlte lIame of tlte assurer/, or of some person who efferfJ tlte illSUf'(lllCe OIl his behalf; (2) Tlte subject-moPe,. insured and tlte risk insured agaillSl; (3) Tlte t'o}'tlge, or period of liml', or botlt, (/s the case may be, cooered by the i,Lfllrm/Ce; (4) The SIIIII Of'SIIIIIS illSured; (-'» 1 'ltl' /ltlllll' or //(/IIII'S of tlte illSlmn. 14 Chapter 4 HULLAND MACHINERY (H&M) T I ((' \I "(.r I' . () I ( f\'\ost policit:s of hull and machint:rv (H&\I) insuranct:, at least those underwriut:n in England, are on the basis of the Institute 'Iimt: Clauses Hulls -
ITC (l lulls) -1.10.83, although a revised ITC (Hulls) -
1.11.95 has bt:en introduced but has not yet gained wide acceptance in the market (Fig.8). Fig.8 Most shipowners insure their ships with an Ire (Hulls) policy The standard perils covered hy the ITC (Hulls) 1.10.83 are set out in clause 6 of the policy. It is worthwhile separating these risks into two categories • basic perils -
set out in clauses 6.1.1 to 6.1.8 inclusive • 'Inchmaree' perils -set out in clauses 6.2.1 to 6.2.5. Basic perils 6.1 Ini.., ill..,III'(II/I"(' mr.∙/n lo.\.[ of or r/{l/I/(~t;I'!O !Ir(' slI/!jnt-1l1f1!!('r ICIII_wlll)' 6.1.1 jJrrilr of !lrl' sm, ri"I'1)', laiy's or o!/rfr l/(wiR(lb/r o;'((!fI:r, 6.1.2 /in'. I'xploJilJl/. 6.1.3 dolm! !/rrji 11)' PI'I:l'fJllsjiml/ oll!sir/I' !hl' c'{'.(.rr/. 6.1.4 jf'fliSfJll. IS 6.1.5 pinNY. 6.1.6 /I!mlillK 0/ or aair/mf to fIIldmr iIlSftf//afioll or n'm/oo', 6 ~ I. 7 tYJllfrll/ fJi'i/H ainTtlji or j'imi/ar o/lin1J, or o/ljnls/a//illg /Ht'rtjrolll, /alld tYJIIC~:I't!IIlI'. dod-
or Har/lollrl'ljlliplII('//f or ills/a//afioll, 6.1.8 ('({!IHljlla!.-I', 'Co/((fllir {'mp/ioll or /igH/l'flillg. Inchmaree pet-its 6.2 THI' iIlSIlf'{fIll'l' mnn /oss 0/ or damagl' /0 fHI' JII/Jjfll-JJ1al/l'r i!lJIlfw/ mllJl'd /ly: 6.2.1 (fait/('//ts ill /oadillg, dischargillg or shiftill/( mrgo orftll'/, 6.2.2 /llIrsfillg 0/ bOI/f'fJ, brmkl/gl' of sHafts or l/lIy /afm/ dejn/ ill/ht' madlillf'f), or hll//, 6.2.3 lIeg/igm(1' of fIll/SlerS, offil'l'rs, (rt'fJZ' alld pi/OfS, 6.2. 4 lIeg/igfllll' of repairm' or (haf1('f'I'rs provided SIICH repairers are lIof all assllm/ Herelllldn; 6.2.5 !mrrtlflJ of master; offia'rS alld mw, protJided slIch /OSS or d(mulgl' has 1101 f'l'SlIlled from fl-'VIIII of dill' diligl'1lce by IHI' {/ssur,(/' OfJ;)lIer or fl/(Jflagers ... There is also an additional clause, which is included here for reasons of completeness. 6.3 Master, offirers, (Tt'W or pilots 110f /0 be cOlrsidered OWllffS fIlIithill/he l11f{Jl1il1g of this C/mlSf 6 j-nollld the)' Hold sllOrfs i1l IHf vessrl The basic perils are quite straight forward bur it is perhaps worth exploring a little what the implications are of the so-
called Inchmaree perils or what is sometimes referred to as the negligence clause (Fig.9). The original of what is now the ITC (Hulls) -1.10.83 clauses 6.2.1 to 6.2.5 was first introduced iri 1887 as a result of THe IlIcHm{/ree, Thames & Mersev Insurance Co. v. Hamilton Fraser (1887) 12 A.C.484. In that case a member of the crew started up a pump without satisfying himself whether the valve was open or shut and, in consequence of this negligence, some minor damage was caused to an air chamber. The court held that this damage could not be recovered as a peril of the sea. 16 Fig.9 Damage 10 ship's machinery is covered under its H&M policy :A.ccidems in loading, discharging, or handling cargo . .' was added to the clause in 1916 following the decision in Sum Steamers Ltd. v. tvlarten 1191611 AC. 304. In that case a boiler, when hoisted by a crane, fell into a hold of a ship, damaging the hull. It was held that the damage done to the ship was not a peril of the sea or of like kind for neither the wind nor the waVeS had conrributed (0 the accidcm. The important issue here is that the 11&1\1 underwriter is providing insurance cover for damaged caused to the shipowner's own ship and equipmem possibly as a result of the actions or inactions of the shipowner's own servants -and in particular the master, officers and crew. There is a proviso that those risks arc covered 'provided such loss or damage has not resulted from wam of due diligence by the assured, owner or managers'. Damage resulting from the negligence of comracrors is also covered. t2 Co I SIO COYFH Section 8 of the policy covers certain liabilities arising Out of collisions (Fig. 10) -
the relevam part reads as follows. 8.1 Tnl' llfltil'rft'fitffs ogrl'l' 10 illtif'lllllijv 1nl' AS;'urn/ for InreejriltrfnS of all)' 511111 or SIIIIIS paid ~)' 1nl' assured 10 OIl,}' olnff prrsO!1 or pfrsOfls by rt'flSO!1 of fhr Assllrrd becomillg Irgol(y liable bl' f.<l'0' of tiU!1UlKl'S for 8. 1.1 loss of or dO!!lflge 10 011)' Olnrr vrssel or property Ofl OilY other vessel 8.1.2 dellq 10 or loss of IIse of tl!ty .fllrh other vessel or property rllfT"fOfl 8. 1.3 gfTIeraloverage of, salvage of, or salvage wltier contract of, 011)' slIdl orher vessel or properl), Ihf'!"f01I, ..... . Fig. I 0 Collision domoge to 0 shipowner's own ship will be mainly covered under its H&M policy 17 An explanation as to why H&I\l only covers threc-fourths in this so-called 'running down clausc' (or RDC) is provided in Chapter 5 dealing with P&l club cover. The P&l clubs tend to cover the remaining RDC and it was this unusual split of the collision liabilit)∙; which partly led to the formation of the P&l clubs. Nso of relevance to the P&l clubs is section 8.4 of the ITC (Hulls) -1.10.83 policy which sets oU[ specific exclusions. Because they are excluded under the H&M policy, they are usually included under the P&l cover. Section 8.4 reads: ) 8. 4 Prooidi'd oln.'!(~)'s 'hllllhis Ck'llse 8 silllll ill 110 msl' n,'mrl to tIf~)' Slllll whirlllhl' Assllf'l'll SIIII/! po)' for 01' ill re.rprrl of 8. 4.1 l'f111Of)alor oirposllf of obstrllctiOlIS, m,'f'nks, ([fry;oes or (lilY olhfr Ihillg fJ)!hatsol'ol'r 8. 4.2 allY rml 01' prl'S(ifllIl propn1,Y or Ihing witalSOI'Vl'f' e:r[{'pt olhfr Ofs.reir or proprl'!)' 011 other oesse/s 8. 4.3 Ihe mrgo or of hI' I' proprrt), Oll, or Ihe mgaKl'llIl'lIfs of, Ihl' illsllrnllfssel 8.4.4 loss of lift, prl'SOIl(l/ injur)' or ilIT/fss 8.4.5 po/!ulioll or (,Ollltnllilltltioll of allY real or prl'SollOl propert), orlhillg whlllsof"oer (eX(rpl olher t-'fsse/s with fJ);hi('h fhe iflsllred Vr.~rel is ill ('ollirioll or proprl'!)' Oil slIrh other ofsse/s). H 'T Another major cover provided under the H&M policy is the vessel's proportion of general average (GA) and salvage (Fig.II) and there would usually be a requirement that the adjustment of general average wou!d be in accordance with the York Antwerp Rules. The other contributing parties to general average and salvage would be the cargo owner I cargo underwriter and possibly time charterer's bunkers if their propert)' was saved, and possibly freight. General average and salvage are enormous and complex topics. A starting point would be the definition as set out in the York Antwerp Rules at rule A: 'There ir a Gelleml Average lI('t whm, 01/(/0111)' whell, 011)' I'xtrtlorrlillOlJ' sorrifi('e or expmoilure ir intf.llliollol6' 0111lreosollobl), II/(Ir/e or ;1/(7II',.eo for lhe romtnOIl stlfety for Ihe purpose of pre.reroillgfrotn perillhe Proprl'!)' illVolved ifl a (,Otnlll{J1111/Orilime advellture. ' The York Antwerp Rules have developed into a rather complex set of criteria that tend to require experts -general average adjusters -
to interpret and apply the rules correctly. However, the basic principle is quite simple. If the master finds himself in a position whereby the ship, the cargo and other propert)' on board are in imminent danger, then he can act, using his skills and judgment as a seaman, to save the majority of the property even if it means some property will be lost or damaged. The master may have a number of choices available to him and it will be his decision as to which particular property will be lost or damaged. However, the basic principle of general average is that 18 the other parries who have had their property saved as a consequence of the mas[(;r having taken that action will all contribute and make good the loss. Once a general avera!!;e or salvage incident has occurred thcn it would bc usual for the shipowner [() appoint a general average adjuster. Onc of the adjuster's first tasks would be ro arrange for the collection of GA or salvage security from the cargo interest. This would usually be by way of average bonds or underwriters guarantees. If there arc many cargo interests this can be a very costly and time consuming exercise. Surveyors would be appointed and the documentary evidence would be collected to allow the general average adjusters [0 prepare their detailed adjustment serring ou( what losses and expenses had been incurred, and by whom, and who should pay what proportion of those losses and expenses. Again this can be a very costly exercise -
particularly if there are many cargo interests involved. Fig. I I A shipowner's contribution to salvage charges will be covered under its H&M policy. What has tended to happen over the last few years is that the shipowner has agreed with its H&l'vlunderwriter [0 incorporate a GA retention clause in the H&M policy. This basically means that if the total general average losses and expenditure fall below a certain figure, say for example US$100,000, then the H&tvl underwriter will pay the whole contribution rather than proceeding through a full adjustment and trying to obtain a contribution from cargo interests. This effectively saves all the costs of collecting the GA security and preparing the adjustment. Contributions to the general average apply regardless of fault. However, if the cargo interests, for example, show that the incident which led to the general average or salvage was as a result of some unseaworthiness, then they may have a counter claim under the relevant contract of carriage. A~ a consequence, cargo interests may refuse to contribute [0 general average alleging a breach of the contract. If successful then the shipowner should be able [0 recover their contribution from its P&l club. For this reason it is very important to advise the P&l club of any GA or salvage incident so 19 that the dub may instigate an investigation and collect relevant evidence (0 challenge allegations from cargo interests. If the cargo interests merely decline (() make their contribution (0 GA or salvage and if adequate security has not been obtained, then this will be a bad debt -pure and simple -and will be uninsured. If the shipowner does have FD&D cover then it may obtain some assistance in rrying to recover the debt. -1-.... eTI) T • F\ I T ()\. [ ( )J' T If an accident or incident does occur which is likely to result in a claim being made under the H&M policy, it is very imporrant -and probably a condition of cover -that the underwriter should be advised. It is quite normal still (0 see in the policy terms that, if the vessel is abroad, then the nearest L1oyd's agent should be contacted. With tbe veIV advanced communication svstems available today it is much more . . . likely that the ship operator will be contacted immediately and it in turn, usually via the H&M broker, will contact the underwriter. Often it will be restricted to the leading underwriter(s) since there may be many individual underwriters involved in anyone vessel. The underwriter will then appoint a sUIVeyor to inspect the damage and ascertain what repairs may be necessary. Sometimes damage may be found -either to the hull of the ship or to machinery-
and it may nor be possible to ascertain exactly when the particular damage occurred. In such cases it is important to advise the underwriter in a similar way and give it an opportunity to sUIVey the damage prior to any repairs taking place. If the damage to the ship or machinery is such that the classification may be affected, then the H&M, and indeed the P&l, insurance cover may be lost. If the classification society withdraws the class, or would have withdrawn it had they had access to the vessel, tben the insurers would usually continue cover until tbe ship reached a POrt of refuge. The insurance cover would not continue however unless and until the classification society gave its approval for the ship to sail. Insurances are usually warranted 'class maintained'. Also it is usually a condition of cover that the class does not change during the period of insurance. Similarly, the ownership of the vessel must not change during that period. Any of these events could mean that the insurance becomes void. Of special relevance and interest to the master and those on board is a duty on the assured (i.e. the shipowner) to take such measures as may be reasonable for the purpose of averring or minimising a loss which would be recoverable under the H&M policy. This duty is usually referred to as 'sue and labour'. If steps (() minimise, reduce or avoid the loss or furrher damage are not actually successful bur arc reasonable and taken in good faith, then the losses -even though they may now exceed what they would have been if no steps had been taken -are still be covered under the policy. 20 Chapter 5 PROTECTION AND INDEMNITY (P&l) Protection and indemnity (P&l) insurance, as administered by the P&l clubs, is probably unique in the way in which it operates. It could certainly be argued that P&l clubs don't really belong to the insurance industry at all but, rather, are part of the shipping industry. P&l clubs are basically groups of shipowners which, although in commercial competition with each other, have agreed to co-operate and insure each other's liabilities in the spirit of mutuality on a non-profit making basis. For a proper understanding of how the clubs are structured, how they work and the risks covered, it is helpful to understand their historical development. Traditionally most marine liability insurance has been kept separate from the H&M policy. Again to understand the reason for this it is necessaty to understand why and how the clubs came into existence. 5. HI""o {(' , ) '\ ," OI'\lF ., The roots of the P&l clubs can probably be traced back to the early days of the 18th century -the year 1719 to be precise. In that year the British Government passed an Act of Parliament which basically gave a monopoly to just two insurance companies, and certain individual 'names' at L1oyd's, to underwrite marine insurance business. Without the constraints which competition brings, the monopoly holders tried to take advantage of their situation and charge enormous premiums for their insurance cover. At this point in history a shipowner's main insurance cover was in respect of the hull of its ship. The shipowners in the major maritime cities of Newcastle, Liverpool, Bristol and London decided that they were nor prepared to pay these enormous premiums. Although they were acting illegally -
the shipowners of those cities formed themselves into associations or 'clubs' with the purpose of agreeing to cover each other's losses or damage to their ships. It would appear that these mutual 'hull clubs' were rather informal organisations with meetings often being held in the back rooms of public houses. When a member of the particular club suffered a loss and had a claim to present, then a 'call' was made around all the members, who would each contribute their share on a previously agreed percentage basis. The most probable reason why the shipo ..... ∙ners were allowed to operate in this illegal way was that their ships were needed by the government. The British Empire was expanding, which led to considerable increase in trade and made the merchant fleet of Great Britain the largest in the world. Wars with other nations were still regular events, for which the merchant ships were required for carrying supplies and troops. Many merchant ships were indeed armed. 21 Evenrually, in 1824, thc governmem appears £0 have realised that the insurance monopoly was not working and the Act was n:pealcd. Once competition re-emered the market place, many of the good quality shipowners found that they were able 10 purchase hull insurance on very reasonable terms from the market. This provided them with the security of not only knowing that they would not lose financially if their vessel sank bUl also they could build the COSts inlO their operating budget and know exactly how much they would need lO pay cach year. This was something they had nOl been able 10 do with the mUlUal clubs since what they paid, and when, depended upon how many claims were made by the individual members of their club. As time wem on, more and more shipowners moved to the market for their insurance which left the clubs with only the bad tonnage which couldn't obtain insurance on the commercial market. Their furure survival therefore looked rather bleak. However, a number of evems occurred which were to put new life-blood imo some of those clubs. In 1836 the court was considering a collision incidem-the case of ' De Vaux v. Salvador'. However, the interest was not so much in the collision itself but rather in the cover which was, or was not, provided under the standard hull policy in use at that time, particularly with regard to the liability for damages and compensation to the other vessel in the collision. The judge agreed with the hull underwriter that there was no cover provided for the liability damage under the hull insurance policy. This case raised considerable concern across the entire shipowning community for it meam that they had a very large exposure to such liabilities but had no insurance cover. The shipowners subsequently met with the underwriters and a compromise was reached. The underwriters agreed to cover the collision or 'running down' risk but only to the extent of three fourths -leaving the shipowners to cover the remaining one fourth themselves. The idea seems to have been that the underwriters believed that the shipowners would be more careful with the navigation of their vessels if they were carrying a share of the risk. Indeed, this three fourths 'running down clause' (RDC) is still a standard clause in the usual hull insurance terms written on the London market. However, the shipowners considered that the one fourth running down risk was potentially too large to carry themselves and they decided to rum to the mUlUal hull clubs to see if they would provide the insurance cover they required. The clubs appear to have been happy to oblige and cover the one fourth ROe. fullowing on from the industrial revolution, a new group of people emerged -the so-
called 'working class'. The working classes had very few rights and were often exploited by those in control of the means of production. For example, if a worker was killed even as a result of clear negligence on the part of his employer the family could not obtain any compensation -any claim died with the worker. In 1846 Lord Campbell presemed a paper to parliament increasing the rights of workers and making their employers more responsible. This Act was passed and employers, including shipowners, realised that they were now potentially exposed to these financial liabilities and for which they required insurance cover. Other changes in legislation, such as the Factory Acts and Workmen's Compensation Acts were also introduced bringing sweeping reforms in the liberalism which was to 22 dominate much of the reign of Queen Vic(Oria. There were also large numbers of people travelling by ship at this time -often emigrating from Europe (0 the Americas, Africa, Australia and New Zealand. Such uavellers also posed pO£emial financial risks and liabilities (() the shipowners should they be injured or killed when on board. In 1847 anO£her law was passed making shipowners responsible for damage caused (0 piers, jenies and O£her harbour propeny. The shipowners seemed (0 feel that they could better comrol these risks and liabilities if they insured them themselves and they therefore again turned (0 the mutual hull clubs, which were prepared (0 provide the protection and cover necessa~: The entire nature of the business of those hull clubs had thus changed. Accordingly one of the firms of hull club managers, Peter Tindal Riley and Co., was asked (0 set up and run a mutual club specifically (0 provide protection against these risks. The Shipowners' Mutual Protection Society was formed in 1855. Tindal Riley is still a club manager (Oday and manages the Britannia P&l club. Cargo claims do not appear to have posed a serious problem for shipowners during the middle of the 19th century, which may appear a little strange since English law imposed an almost strict obligation as far as seaworthiness was concerned. This mea m that if the cargo was damaged after it came into the custody of the shipowner due (0 some unseawonhiness, then it would be liable (0 compensate the cargo owner regardless of any mitigating fac(Ors. However, there was another area of English law which allowed almost total freedom of contract. Shipowners therefore took advantage of that situation and insened in their bill of lading comracts some extensive exclusion clauses. The clauses basically excluded the shipowners from liability for any loss or damage to the cargo howsoever caused. The shipowners were in a powerful position and basically if a cargo shipper wamed goods moved, then it would need (0 agree to the bill of lading terms. But an incident occurred involving a vessel called the Westerltope, which came to be considered by the courts in 1870 and which was to pose a most serious challenge co the secure position which the shipowners believed they held. The Westl'rltope was fully loaded with cargo and the bills of lading comained the usual wide exclusion clauses exonerating the shipowner from all liability for loss or damage to the cargo. The vessel was bound for discharge pores in South Africa. However, she sailed past her scheduled discharge port and on up the East African coast for reasons involving the shipowner's business unrelated to the cargo voyage. On her way back to the scheduled discharge POrt, the vessel sank with the loss of the entire cargo. The owner of the cargo commenced an action against the shipowner for loss of the cargo. The shipowner pleaded the wide exemption clauses of the bills of lading. The judge decided that by sailing past the schedule discharge port the vessel had deviated unreasonably from the comracted voyage and, if it had not been for that deviation, then the cargo would, in all probability, have arrived safely at the imended destination. The deviation constituted a fundamemal breach of the contract of carriagc meaning that the contract came to an end once the vessel had deviated and consequently the shipowner could not rely upon the terms of bill 23 of lading and in particular the exemption clauses. The shipowner was found liable and had to compensate the cargo owner for the loss of the cargo. The shipowner turned to its protection club and asked the board to indemnif,' it for the claim. The club refused, pointing out that liability towards cargo owners was not covered. A marine underwriter in Newcastle, j. Stanley Mitcalf, had been carefully following the U'fI,1l'rnope case and, once the judgment had been handed down, he wrote a detailed article which appeared in all the shipping press of the day. This drew the attention of shipowners to many risks and liabilities to which they were exposed with regard to potential cargo claims and for which they had no insurance. A number of shipowners took Mitcalf's article very seriously and asked him to form a mutual club to provide them with indemnity cover for these risks. The first indemnity club was formed in 1874, called The Steamship Owners Mutual Indemnity Association. The protection associations and the indemnity associations continued to grow during the following years and existed side by side in the same cities and often with the same shipowners on the boards. Eventually in 1886 a group of shipowners in Newcastle recognised that it made sense to amalgamate the protection and the indemnity risks under one roof and agreed to a merger of the North of England Protection Association with the Steamship Owners Mutual Indemnity Association to form the very first full P&l club -the North of England Protecting and Indemnity Association. The clubs continued to grow and develop and most of the current P&l clubs had been formed by the beginning of the 20th centuty. The increasing demand for ships to cope with the increase in trade and passengers / emigrants put increasing demands on the P&l clubs. As the clubs responded and strengthened, then more businessmen felt confident to venture into shipowning or to expand their existing fleets and thus each industry was leading to the development of the other. New laws were passed defining the shipowners' legal liabilities and also providing them with a legal right to limit their financial liability. Initially the Harter Act in the US and later the Hague Rules and Carriage of Goods by Sea Act of 1924 pro\~ded a clear framework of liability and responsibility for the carriage of goods, which helped considerably with the provision of mutual P&l insurance cover for cargo claims. All P&l clubs work on the same policy year running from noon GMT on the 20th February of one year to noon GMT on the following year. The clubs had in fact inherited this tradition from the mutual hull clubs. Historically ships trading from Great Britain into the Baltic Sea would lay-up on the River Tyne at Newcastle during the winter months while the Baltic was ice-bound. During this time they did not require their normal insurance since they were not trading. The 20th February became recognised as the first day when masters and owners could be sure of sailing from the 1)'ne and finding the Baltic ice-free. Consequently, they needed their normal insurance to resume on that date. I , • > I I I BS ") -, ) . 'I The P&l clubs responded to the changes in legal obligations of their shipowner members by providing the relevant cover when necessary. However. the P&l clubs of today have 24 nor changed sunstantially from those early days when they were first formed. They are still groups of shipowncrs, insuring each other liabilities on a mutual, non-profit making basis with the shipowner members actually owning the club and comprising the board of directors. The only real difference is that no longer are the c1uns made up just of the local shipowners of Newcastle, Liverpool, Bristol or London but rather are representatives of the entire international shipping community. l\lost of the P&l clubs, while maintaining their independence and autonomy, agreed to co-operate with each other. This was to spread the financial risk of larger claims by sharing those risks across all the clubs and also to take advantage of the resulting bulk purchasing power to buy a single reinsurance for the very large potential claims. The first London Group of P&l clubs was formed in 1899 with the International Group being formally constiwted in 1979. There are currently 14 P&l club members of the International Group and between them they provide liability insurance for more than 90% of the world's shipowners. The current members of the International Group are as follows: • Assuranceforeningen Gard (Gjensidig) (Norwegian) • Assuranceforeningen Skuld (Gjensidig) (Norway and Denmark) • The Britannia Steamship Insurance Association Ltd. • The Japan Ship Owners' Muwal Protection and Indemnity A~sociation • Liverpool and London Steamship Protection and Indemnity • The London Steamship Owners' Mutual Insurance Association Ltd. • The North of England Protecting and Indemnity Association Ltd. • The Shipowners' Mutual Protection and Indemnity Association • The Standard Steamship Owners' Protection and Indemnity Association Ltd. • The Steamship MutualUndelwriting Association Ltd. • Sveriges Angfartygs Assurans Forening (The Swedish Club) • The United Kingdom Steamship Assurance Association (The UK Club) • The West of England Shipowners' Muwallnsurance Association • The American Club Each P&l club has its own individual identity and profile with its own group of shipowner members. Some clubs, such as North of England, employ their own managers and staff to run the club on a day-to-day basis. Other clubs employ a professional commercial management company; some of the well known managers include 25 • Tindal Riley (Britannia) • Thomas Miller (UK Club) • Charles Taylor (Standard) • A Bilborough (London). Most of the UK based clubs have registered offices in offshore centres such as Bermuda and Luxembourg and reference to those countries may appear in the full style of their name e.g. The West of England Shipowners' Mutual Insurance Association (Luxembourg). However, the day-to-day running of the club will be from a London or regional office. Each individual club will have a board of directors who will be actual shipowner representatives of the club membership. The board will meet a number of times each year to consider important issues affecting their own club as well as the International Group generally. Depending upon how the panicular club is structured, there will either be managers and staff directly employed by the club or else a firm of managers will be employed to run the club on a day-to-day basis. In either case they will have a similar internal structure. There will be a number of depanmencs within the club (Fig. 12) Chairman Vice chairman Board of directors I Accounts Managing director(s) Underwriti
ng and OR department management company entries department IT I services Marketing department department Services Condition survey I-
department department Claims department Loss prevention department FD&D class P&l correspondents I representatives Fig.12 Typical P&l club structure 26 Because P&l clubs are predominantly service orientated, the largest depanment is usually the claims department. Often this is staffed with experienced lawyers, ex-
shipmascers and other suitably qualified professionals. There will also be an accounts department and an underwriting department, both very mueh involved in cash flow. In addition, a P&l club may also have further departments having special responsibilities such as loss prevention, ship inspection, services, quality assurance and marketing. There may be a separate department running the FD&D class -usually staffed by specialist lawyers. Another important pan of any P&l club is the network of correspondents and representatives in every major port and most minor ports around the world. On board ship the master, and indeed the officers, should have available a list of the correspondents and representatives for the P&l club in which that particular vessel is entered (see Hg. 13). Many of the correspondents around the world may represent all of the International Group clubs. They are not actually employed by the P&l clubs directly nor are they strictly speaking agents in the legal sense. They are more like an ad hoc newspaper correspondent, who are usually only paid when actually reponing. The P&l correspondents tend to be experienced individuals, either maritime lawyers or commercial professionals such as average adjusters, ships' agents or surveyors with excellent local knowledge. Their value is often under-rated as they can make all the difference between a problem being handled in a controlled manner, resulting in the shipowner's and club's position being protected while causing minimum delay to the vessel, and the problem getting out of hand leading to the ship being arrested or falling foul of local authorities. The master should not hesitate to call in the local P&l correspondent at the first signs of a P&l incident arising. The correspondent is likely to be the best friend he has in that port and will be there to assist, protect and ad,,;se the ma~ter in some very difficult situations. The master should always ensure that his officers also know where the P&l club list of correspondents is kept on board and to give them instructions that, in his absence, they should not hesitate to call in the correspondent if a P&l incident has happened or a situation is developing which looks as though it may turn into a P&l incident. The local correspondent will have access to local surveyors, lawyers and other experts to provide 'first-aid' cover in the event of need and also the expertise available at the head office of the P&l club. If a correspondent is called in then the master should advise his owner / manager at the first opportunity, which in turn should advise the head office of the P&l club. In addition to co-operation between the P&l club members of the International Group with regJrd to sharing the larger risks and purchasing the group reinsurance for the very large claims, the clubs also co-operate in many other ways. There are many group committees and sub-committees covering subjects as diverse as club correspondents, ship condition surveys, salvage contracts, passenger contracts, bills of lading and charterparties. The International Group will usually be involved with other organisations such as BIl'vleO, the ISU and IMO, where the group has consultative status when new 27 Fig. 13 Extract from typical club lis! of correspondants SURINAM Paramaribo (.\"'" (:c~I~'·) SWEDEN IJlJI)-1hl Gothenburg 1.\n ·.lCU(lt-.·~I) Stockholm (.\H'", Cud ... ∙HJ SYRIA lattakia (Art-" C:odr-
t I) SurilWnl Shipping. t.~r111 i"1 Zlt'«ftt'll/Wt'f'uhl'lI.r,f/' '!.J:! 1'0110, I!II6 Paramanbo ,')' It TlIlfIlIl SOllth .- ~mah"(l ∙I.ngalof& !.f/mlll. \drol.:a/~)'m .18 PO &J.t 2J:i2 S∙403 1-/ (;"Ih,,,bll~~ Sl('rd(1/ Sflrrl.lddrt'Sf: 1;lIlra H«1I111,(OIQII '.N GOlhfllbu~~ .\'lll'f/fn ∙Srll,ntolls .1r!(I/Q(,galall Ij I I I .f1 S(",-I/IOI", .\'wrdrll ∙SI.:,ar A H({fQWl H(lI'fJllll Buildillg .\fnlki S(""I PO fior 1-/0 I.al/akin .~.'na • Raja & Omor HmrNlII /'0 lJo, 150 LnllnJ;,jn .~,·,.jn 28 Telephone: n:?Htl (I line''') AOH: Ij21 67 ~Ir ({"hh, "",,,,. A SO'" f(t?3!J5 ~I l ,\1111' Lit'.\ L in~ Fax: 472ljj Telephone: 70 16~OO 70 16804 ~ l r ~13, SI"Il< -
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~ l ub i lr (70j)937HH3 ~Ir Johall \\∙ilkr", . ~ r obik Telephone: 59839000 AOH: 3321196 ~l r ~l a~!lUs ~iodill 66:n 11 j J\lr Gla~s BI uman 731Y-,"5H ~Is Knstina l:in3 1 ~:,clll Fax: 6 I 14630 Telex: O:H 17673 SETLAIVS E-Mail: nils{!ls(.ucrwalls.sC. Paging: (70)6359903 ~I, ~ l"glll" ~ j (Jdi" (70)5~U4 1 7j ~I r Cla .. s Brom,,, (iO)fi3.iR960 ~ r s KriSlin;l Eil1arssol1 Telephone: ~ 7j6j U6JO 1 9.~7j6511 AOH: {75653 .\11' X\ Haroun ~7'i6611 ~ I r 11:-1 H"rolln 21.f66H ~ r"s B KnirlillY Fax: 175652 Telex: 0192 ∙lj1169 lIAR :-:."y E-Mail: 1\ .. ~IA({OU!\(i.(yb .. ria.nci.lb Telephone: ∙17,) IOG,1735S∙U33 127 AOH: -162822 ~ l r ){"ja lIalUlIl1 +fi23H/4fi23j7 ~I r Om:,,∙ Harollll Fax: 16(1 WI,t32046 Telex: I'> IIIIiO RAJA SY Paging: RI\J!I Cab!<-
documents are being drafted or changes in maritime legislation are being considered. There is also a formal agreement between the clubs covering various issues, known as the International Group Agreement (the IGA). The IGA has come under some very careful scrutiny in recent years from the competition directorate (DGIV) of the European Commission because certain parrs appear to contradict the freedom-of-trade provisions of the Treaty of Rome. The group clubs operate what some have considered a cartel. Under the IGA, for example, if a shipowner wishes to leave one group club and put its ships in another group club, there are a number of procedures which must be followed and restrictions which apply. The new club is not allowed to offer any financial inducement, such as reduced premium, to entice the shipowner across. Indeed the new club is obliged to follow the premium being charged by the existing or 'holding' club, at least for the first year. The reason is that the holding club is in a much better position to assess the risk and potential claims level of that particular shipowner based upon its own knowledge of that owner's past claims record. The holding club is obliged to disclose details of the claims record of a particular member to another group club on request if that club has been asked to 'quote' for the business. The holding club must also provide the current call rating (the level of premium being charged) and loss ratio (the ratio derived from comparing the amount of money the particular member pays into the club in calls with the amount received in paid claims). The shipowner will need to either pay a 'release call' to the holding club or otherwise provide a suitable guarantee to cover any future liability for calls to the club before it is allowed to leave. The reason for this is that P&l clubs work on a mutual basis of underwriting rather than the fixed premium of other types of insurances and, as such, will not know how much money they will need from their membership to pay claims for maybe four or five years after the calendar end of the particular policy year. The new club will not be allowed to accept the new business until the holding club confirms that all outstanding debts, including release calls have been cleared. Some of this may appear, from the outside, to be rather unreasonable but it actually introduces considerable stability to the P& I industry. What must also be remembered is that more than 90% of the shipowners of the world actually want it to be like that. There are a number of very respectable P&l clubs which exist outside of the International Group providing cover for shipowners which perhaps do not require the full range and very high levels of financial cover offered by group clubs -for example, the coastal and river barges of the Netherlands and Germany. There are other non-group clubs which are perhaps prepared to accept ships which the group clubs will not accept for various reasons. There are also a growing number of 'fixed-premium' facilities becoming available offering P&l type cover. Each individual shipowner or ship manager, possibly with the advice of professional specialised brokers, will need to decide which club or facility will be best for them. 29 ) P&l clubs do not issue policies of insurance but rather provide each of their memhers with a rule hook which sets out the terms of the relationship between the memher and the club, such as defining the risks covered, the risks not covered and the rights, duties and obligations of the members and the club towards each other. The member is also provided with a 'certificate of entry', which not only confirms that the particular ship / shipowner is entered but also sets out any special terms and any variations on the standard terms of entry as well a~ serring out the appropriate deductible. A copy of this rule book should be available on board every entered ship. To appreciate fully the significance of P&l claims to the shipowner and the master, it is necessary to understand the way in which the underwriting is organised and how it works because it is very different from almost any other kind of insurance. The most fundamental difference is that a shipowner member of a P&l club does not know at the beginning of a policy year just ho,,∙ much his insurance will cost it for that year. Indeed it maybe four or five years before it knows. When an individual insures his house or car, for example, he will be advised by the insurance company what the premium will be and what the risks are that will be covered for that premium. The individual pays that agreed fixed premium and can rest assured that he will be protected against those specified risks, with the financial limits agreed, for the agreed period of time. With P&l insurance, however, the P&l club underwriters will advise each shipowner member what they think they will need to pay -
this figure is known as the estimated total call (the ETC). The ETC has two component parts: the advance call and the supplementary call. It is anticipated that both the advance call and the supplementary will be required and consequently the shipowner should budget accordingly. What each individual member will have to pay will vary considerably even between members operating very similar vessels. The type, size and age of the vessels are certainly factors the underwriters will take into account when calculating what each individual member's call will be. They will also look at things such as the trade in which the vessel is involved, nationality of the crew, the flag, the classification society and similar faetors. However, the real influencing factor is the past claims record of that member. A member with a bad claims record will be paying a much higher call than a member operating similar vessels but with a good claims record. This method of calculation goes to the very heart of the principle of mutuality. Basically the club needs to 'call' in sufficient funds to pay all the valid and legitimate claims which arise during a particular policy year, including contributions towards larger claims which are shared -or more correctly 'pooled' -across all group clubs together with a share of the reinsurance premium for the very large claims, plus the administration costs of the club. In addition to call income the club may have a fund of reserves invested, the income from which can be used to reduce the call levels. Because the majority of the calls from the shipowner members will be used to 30 settlc claims arising during that particular policy ycar, those funds will not actually be requircd immediately. l\'lost clubs would not need to call the full amount of the ETC at thc beginning of the policy year, believing that the members would prefer to have the use of those funds until they wcre actually required by the club. Accordingly the club ""ould ask for the advance call lO be paid during the policy year -often as three instalments spread throughout the year. At the end of the policy year an analysis is carried out looking at all claims notified lO the club during the year and a financial estimate is placed against each claim as lO what funds might need to be made available to settle it. Because many types of claims have a prescribed period within which a legal action would need to be commenced, for example cargo claims subject lO the Hague-Visby Rules have a one year time limit, there may be a number of claims which have arisen within that policy year but which have not yet been notified lO the club. These are known as 'incurred but not reported' (INBR). From past experience the level of IBNRs can be calculated with a reasonable degree of accuracy. The total of the known claims and the IBNRs are calculated and this figure is then compared with the originally forecast figure to decide whether the original ETC was accurate. Based on the results of that assessment, it may be concluded that the original calculation was reasonable and therefore the supplementary call would be made, either in part or in whole. The important point to note though is that there is absolutely nothing unexpected in calling the supplementary. \\lhat would be unexpected, and indeed unwelcome, is if an 'additional' or 'extra supplementary call' had to be made. This would arise where the level of claims and IBNRs significantly exceeded the original forecast levels and consequently more money would have to be called in to settle all the liabilities. Alternatively the club could use some of its reserves. The assessment of the policy year does not actually end at that particular policy year. The policy year will be left 'open' and will be reviewed again, usually after a further 12 months and 24 months with more frequent or further reviews as considered necessary. At each assessment the member may be asked to pay further supplementaries or it may be reconfirmed that the original anticipated supplementary will not actually be required -it all depends upon the actual level of claims experienced by all the members of that club. If there are more claims, all the members have to pay more; if specific members are the ones having the claims, then their loss ratio will increase and they will have to pay more into the club. h can therefore be seen that even though the shipowner does have an insurance for liability claims with its P&l club, more claims mean the shipowner will have to pay more to the club. Fig. 14 shows the structure of the club calling system. Fig.14 P&l club calling system Excess supplementary call -
This is an additional. not anticipated call and 3n unwelcome surprise to members Supplementary call -
This is an anticipated part of the call Estimated Advance call _ total call Usually about 70% of the ETC -and called in (ETC) three lnstallments 31 Each club member of the International Group spreads the costs of the relatively smaller claims across its own membership, it then shares the cost of larger claims across all group clubs and joinrly purchases what is one of the largest single insurance policies in the world -the International Group excess loss reinsuranee policy for very large claims. There is another level of cover even beyond the upper limit of the reinsurance contract. This is called 'overspill', which would be covered by all the members of each club in the group. The figures for the various layers can change from year to year. In 1999 they were as follows. Retention The first layer is called the individual club 'retention'. This is where the vast majority of all the claims will fall and will be paid out of that clubs own funds, although it is not unusual for individual clubs to purcbase additional reinsurance to cap the level of claims to which it might have to face within the retention through stop loss or excess of loss policies, for example. In 1999 the retention covered any individual claim up to a maximum of lJS$5,000,000. Pooling agreement The second layer is the 'pooling agreement'. This is where all the clubs of the group spread the risk, and the cost, of rdatively high level claims. In 1999 the pooling agreement covered individual claims which fell between the retention of US$5,000,000 and USS30,00Q,000. Each club contributes to the pool in accordance with its relative size, that is by number of ships and in terms of tonnage and also taking into account that club's own past claims record in the pool. Contributions are called as and when they are actually needed. A small part of the pooling agreement actually extends up to US$50,OOO,000 but this is morc by way of the group taking a share in the reinsurance contract. Excess reinsurance contract The third layer is the excess reinsurance contract itself. This provides cover beyond the US$30,000,OOO of the pooling agreement up to a maximum of US$500,OOO,OOO in respect of pollution claims and lIS$Z,OOO,OOO,OOO per claim for other categories. For most of the history of the P&l clubs there was no upper limit of cover -it was, in theory at least, unlimited. However, in 1996, a decision was made to introducc an upper limit for the potential 'overspill' claims, that is a claim which might exceed the upper limit of the group reinsurance contract. The figure which was introduced is not a fixed figure, it is based on a percentage of the tonnage limitation figure of all the vessels entered in all the International Group clubs. In 1999 it would be approximately US$4.Z5 billion. In the history of P&l insurance there has never been the need to make an overspill call but the potential is certainly a very real possibility. The sorts of scenarios which have been imagined which could lead to such an enormous claim would bc, perhaps, a gas tanker involved in say a collision close to a major city such as Tokyo or 32 New York. The gas did not ignite at the time of the impact bU( rather leaked into the atmosphere and perhaps spread OU( across the city and then exploded. The subsequent claims from such a catastrophe would very likely exceed by far the upper limit of the reinsurance contract. The oil spill from the Exxofl lillde-z in 1989 actually resulted in claims exceeding US$5,000,000,000 bU( the P&l club exposure in 1989 was limited to US$400,OOO,OOO and was not subject to the overspill provisions. The Exxon Company had to cover the bulk of the claims OUt of its own resources. Fig. 15 illustrates the different layers of cover within the International Group reinsurance arrangements. Approximately 70% of the funds called in by a P&l club are used up in paying claims within the U8$5 million retention. The other 30% (approximately) is used in contributions to the pooling agreement, the COSt of the reinsurance contract and the administration of the club. Fig. 15 International Group reinsurance arrangement Million US$ (Approximately) 4.250 Overspill call 2,000 International Group excess reinsurance contract 500 Limit of pollution cover 30 Pooling agreement 5 Retention o Within the context of P&l underwriting, it is wonh remembering that the clubs need to call in sufficient funds to pay the claims. There is thus a direct relationship between the COSt of P&l insurance and the claims actually experienced -panicularly the relatively smaller claims falling within the retention. If those claims could be reduced or even avoided altogether, then significant reductions could be made in the cost of P&l insurance. Money that is not needed for paying claims and calls could be used for much more useful purposes such as training, additional crew, maintenance, new buildings and maybe even higher salaries, better conditions and more leave for those on board. Every single person involved does have a very direct interest in working towards the reduction of claims. :;;.4 '-'('( I r ') C( I I Another unusual fact about P&l clubs which also make them very different from almost any other insurance provider is that they do not actually know the full range of risks that are covered. The club will set out in its rule book certain risks and liabilities which are specifically excluded, such as risks that are normally covered under the H&M policy and freight I hire, and they will set out a long list of risks that are included. However, that list of risks included is open-ended -it is only a list of the types of things covered. Within the club rules there will be an 'omnibus rule' covering risks incidental to shipowning. The inclusion of this rule provides the directors of the club with the discretion to approve claims from members for risks and liabilities which are not specifically 'included' in the rule book provided it is similar to the other types of risks covered by the club. 33 ThL: dirL:crors of a P&l club do in facr h;I\'c a l'OnsiderabiL: aJllounr of disl'rL:rion gi\'en ro rhL:m unliL:r rhL: club ruiL:s wirh rL:gard ro providing rarhL:r rhan dL:nying C(l\'er ro mell1bL:rs, Again. ir is rhese sorts of areas which make P&l clubs n;ry ditkrL:IH from jusr abour an\' orher ryp<: of insurancL:, Ir is rh<: shipown<:r m<:mbL:rs. sirring as dir<:crors. making rhL: dL:cisions as ro whar claims rh<:y will accq)( and which claims rhey will rL:jL:cr. Of course if a dir<:cror had a pL:rsonal inrerest in a particular cas<: th<:n he would nor he allowed [0 us<: his own discretion or otherwise influL:ncL: any decisions of his fellow direcrors, The scope of cover provided by anyone P&l club memher of the InrL:rnational (iroup will be almost identical with rhL: cover prO\'ided by any other mL:mbL:r club. alrhough rhe specilic wording may vary slighrlv. The reason for this is that all the clubs are sharing in the larger claims rhrough the pooling agrL:L:menr and also in the cost of rhe reinsurance conrmcr. It would therefore he unfair and unworkable if each club was covering differenr risks and liabilities. In addition to the heads of risk specifically identified in the rule book. the club also covers the costs of correspondents, lawyers. surveyors and other experts \\'ho may be needed [0 investigate or otherwise handle and deal with a particular problem (Fig. 16). The claims will be subject to a deductible which rhe member \vill have agreed wi th the underwriters at the time of renewal. These deduetibles -
which are that part of rhe c1ai m which the member will pay itself -
can vary from a few hundred or a few thousand dollars to manv tens and even hundreds of thousands of dollars. Fig./6 P&l insurance covers a shipowner (or a wide range of potential Ijabilities 34 • • • • • • • • • • • • • • • • • • • • • • • • • Set ou[ below is a list of the heads of cover specitically identified by a l)'pical P&l club liabilities in respect of seamen liabilities in respect of supernumeraries liabilities in respect of passengers liahilities in respect of third parties stowaways diversion expenses li fe salvage person in distress quarantine liabilities arising from collisions non-contact damage to ships damage to property pollution wreck removal towage contracts, indemnities and guarantees liahilities in respect of cargo general average fines legal costs, sue and lahour risks incidental to ship owning special cover special cover for salvors special cover for containers special provisions for charterer's entry. The percentage breakdown of claims under the different liability categories will vary from cluh to club and will he influenced by the membership profile of the particular club. "or example, a club with a large tanker entry may show a relatively large proportion of 3S pollution claims and a c1uh with a large passenger ship C:lHry may show a rdnivc:lv brgc: number of passenger injuries. Figs 17 and I H show the experience of a medium-sized club with a fairly even spread of members for a panicular policy year. Fig. I 7 Percencage breakdown of claims by number (Source North of England P&l -policy year 1998) • Cargo .GA Collisions • Injuries and illness • Damage to property • Stowaways • Pollution Mise. Fig.18 Percentage breakdown of claims by value (Source North of England P&l -policy year 1998) • Cargo .GA Collisions • Injuries and illness • Damage to property • Stowaways • Pollution Mise. It can be seen that by far the largest single category of claims both in number and in total value are cargo claims, followed by personal injuries and illness. What is interesting is that the number of collisions and damage [0 property incidents is relatively small -
representing a mere 7% of the roral claims. However, together they represent about 25% of the total claims by value. The above list of liabilities can be shonened since most of the liabilities covered by a P&l club can probably he included under onc of three general headings • • • liabilities in respect of people liabilities in respect of cargo liabilities in respect of ships. 36 Liabilities in respect of people i\ shipowner has a general dury of care towards anyone who comes on board irs ship or even finds rhemselves in proximiry of the ship. It must provide a safe access to and from the ship (Fig. 19), ir must not allow unauthorized people to wander around the ship, it must provide safe routes around the ship as well as a safe work place and generally a safe environmenr where all reasonable stcps have been taken to prevenr people being injured. If the owner fails in this duty of care and someone is injured as a consequence rhen, provided the c1aimanr can demonstrate thar rhe owner was in some way negligenr, rhey will be enrirled in many jurisdictions to bring a claim for damages agJinst the owner. Such people might include members of the crew, passengers, supernumeraries and third parties such as stevedores, pilots, port officials, P&l surveyors and even people who should nor even be on board such as stowaways. In addirion to rhis general obligation of a dury of care, a shipowner will also have specific conrractual obligations to certain caregories of people such as the crew under the relevanr crew contract and passengers under thc passenger ticket conrract. Crew conrracts differ widely in the conditions of service offered and this includes compensation paymenrs in respect of illness and injuries suffered. Passenger contracts may include the terms of an inrernational convenrion such as The Athens Convenrion, which sets out the respective responsibilities and liabilities including financial limits of liability. The P&l club will cover the shipowner member for most liabilities to people in negligence and in contract, as well as under certain domesric laws and srarutes such as health and safety at work acts, or the Jones Act in the US. It is essential that the P&l club managers be given the opportunity of reviewing the respective contracts prior to agreeing financial rerms for rhe insurance. Fig.19 A safe means of access must be provided In addition to compensarion to the injured individual or his or her family if deceased, along with all the hospital and other medical bills, the club will also reimburse the shipowner for the costs of any necessary repatriation expenses of the injured person and rhe COStS of sending our a substitute. Neither the shipowner nor its P&l club operate private health insurance although rhe extenr of cover being provided in some crew contracts could be viewed by some as getting very close to thar posirion. 37 There may also he uther incidental expenses which the shipowner may have, incurred such as the costs of fuel, wages and other expenses while diverting to land a sick or injured individual. In certain circumstances the club may also cover loss of or damage to the personal property of the crew if the shipowner has such a liability towards its crew. Another important and significant head of claim which could fall into the category of liabilities in respect of people and which is becoming an increasingly difficult and expensive problem to deal with is that of stowaways. The P&l club would usually expect to sce evidence that the member had taken reasonable steps to prevent stowaways coming on board and to detect them prior to sailing. Subject to that caveat the P&l club will cover a member for the direct costs incurred in having the stowaways on bo-drd as well as the costs of supplying guards, when necessary, and the expenses involved in repatriating the stowaways back to their home countries. Sometimes this process of repatriation can not only be very expensive but also extremely frustrating when the stowaways have hidden or lost their identity papers, will not cooperate by declaring their true details such as name and nationality, and where ports and countries of call will not assist -which is becoming increasingly common. Sometimes the ship is even fined for having the stowaways on board, but usually the club would cover such a fine. The costs of diverting the ship to a suitable port to remove the stowaways will also be covered by the P&l club. However, on this point, it is important to remember that if the ship is loaded with cargo and diverts to land stowaways, then this may very well constitute an unreasonable deviation from the contracted voyage and as such mean that there has been a breach of the contract of carriage. The shipowner may then lose the rights and exemptions of the Hague-Visby Rules, for example, as well as the right to limit its financial liability for cargo claims which might arise in consequence of, or during, the deviation and may also prejudice and lose its P&l Insurance cover. This applies to any 'unreasonable deviation'. If the deviation to land the sto'Naway is merely because it would be convenient to the shipowner to do that at the particular port then the deviation would probably, from a legal point of view, be considered unreasonable. If the deviation was to land 20 stowaways who were turning violent and dangerous on board a vessel with a crew of only 18 then it may very well be considered to be a 'reasonable deviation'. As such there would not have been a breach of the contract of carriage, no loss of rights and no loss of P&l cover. Liabilities in respect of cargo The first important point to realise is that nei ther the shipowner nor the P&l club is a cargo insurer, and nor is the club offering cargo insurance to the shipowner. The prudent owner of cargo will need to insure its cargo properly. However, if the cargo becomes lost or damaged while in the custody of the carrier, usually the shipowner, then the carrier may very well have to compensate the cargo owner unless it can bring itself within one of the exemptions of the Hague-Visby Rules, for example. The cargo owner may not wish to have the trouble of pursuing a claim against tbe carrier, even though this may preserve its own insurance record. It i.~ usually mucb easier to present its claim to its cargo underwriter. However the cargo underwriter that has 38 compensated the cargo mqler can no,,∙ bring a claim ;Igainst the carrier in the name of thc cargo owner. This right is known as subrogation. The majority of cargo claims arc brought ;Igainst ('arriers by subrogated ulllkrwriters. Thcse cargo claims arc frequently dealt with by recO\∙ery agents acting on behalf of the cargo underwriter and the 1'&1 club claims handler Oil behalf of its nH.:mber. As secn from Figs. 17 and 1 H, cargo claims generally represent \w far the greatest numher and value of any category of claim handled by a P&l cluh. As a result of this, the claims handlers in the club will have a <.:onsiderahlc amount of knowledge about all ditferent types of cargoes and all manner of problems with <.:argoes (Fig. 20). Under regimes which have incorporated the Hague or Hague-\~sby Rules into their domestic legislation, often under a carriage of goods by sea act (COGSA) or as part of their national commercial code, thcrc are a series of obligations imposed upon the carrier. Article III, rulcs 1 and 2 of the Hague-\~sby Rulcs set out the most imporralH obligations and it is a failurc on Fig.20 Cargo claims are the largest category o( claims handled by P&l clubs the part of thc carrier which leads to most of the cargo claims handkd by P&l dubs. If either of thest: rub are not complied with then it is very unlikely that thc shipowner can rely upon the long list of defences which are st:t out in article 1\; rule 2. To understand exactly what son of cargo liabilities the P&l club will be covering it is worth looking at what article Ill. rules 1 and 2 actually say. IJl1idl' /11. Rufl' I. 1nl' m,.,.i!',. sll({II/J1' bOll/lfl b~1(m' alld ((I 1nl' brgillllif~f< of 1nl' ('o)'agr 10 !'xrniw' dill' tii/igl'lll¥' 10: (a) Mai:r Inl'sllip SI'((U!'Oflll)': (/J) PfYJPI'r/), /fI(/I/, ('fIllip (lIIdsIIPP(l' IHr sllip: 39 (I) J/akl' thl' holds. rl'./iigl'ntrillg ({ful mol rhalll/ltn. ({fill all olhl'r pans of rhl' .,flip ill ID'hilh KOIJ(t. (/1'1' IlIITin/, /il ({fill sufl' fi,r Ihrir m'fplioll. mniagl' (/lid PI'fSf'l'CYIrioll. RlIIl' 2. Silo/I'd /IJ rhl' pmf'irioJlS 0/tII1idl' II( Ihl' mrril'r s/IIt11 plVptr/J' (filii mr/'./i,l(l' loa(/, hallllll', SIOID\ mrr)'. kl'l'p. mrl'/OI; (/lid disrhtllKf thl' goods mrrinl. The obligation in both these cases is one of 'reasonableness'. It is not a strict obligation of seaworthiness but the shipowner, usually through the activities of the master. officers and crew, must show that they did all that was reasonably and realistically possible to check and ensure that the ship was in all respects seaworthy and in a suitable condition to load the intended cargo. If problems subsequently arise which do lead to the cargo being damaged and which would, from a legal and technical point of view, be considered as being the result of some unseaworthiness, then the shipowner can still rely upon the various defences and exceptions provided it can prove that whatever happened could not have been discovered or detected by the exercise of reasonable care. In reality it is very difficult to discharge the burden of proof completely. To what extent a claim can be defended will depend almost completely on the quality of the evidence available from the ship. Consequently most cargo claims tend to be settled on an amicable, out-of-court basis with each side arguing its own strong points until a reasonable compromise can be reached. The bener the quality of evidence from the ship, the better the chance the club will have of either repudiating liability or of settling on nothing more than a nuisance-value basis. On the other hand, if it is clear that the claim is indeed justified, then it may be more prudent to settle on the best possible terms without incurring any further legal or other expenses. The most common types of problems which lead to cargo damage and consequently to claims include leaking hatch covers (Fig. 21), ventilators or other openings into the cargo compartments. In most cases it would be very difficult to prove that the proper checks and inspections had been carried out on these closing devices since, if they had been the subject of a reasonable Fig.21 Leaking hatch covers are the source of many cargo claims -
they should be tested regularly 40 check, then they would have revealed the problem -which is often the result of corrosion, defective or missing rubber gaskets or securing armngements (Fig.22). An argument of 'heavy weather' or 'perils of the sea' is unlikely to succeed except in the most extreme of circumstances. Other common causes of damage to Fig.22 Ultrasonic testing of hatch covers should reveal problems cargo occurring after it has come into the custody of the carrier is dirty or inadequately prepared cargo carrying compartments (Fig. 23). These may be the cargo holds of a bulk carrier or the tanks of a product carrier. Often it is the remnants of the previous cargo which damages the current cargo. This type of contamination can lead to enormous claims from the cargo owners for compensation -particularly with liquid cargoes -where the product may no longer be capable of being used for its intended purpose. This lack of preparation of the cargo compartments would render the vessel uncargoworthy, which is synonymous with unseaworthiness as far as Hague-Visby Rules are concerned, for example. Cargo can often be damaged as a result of being inadequately ventilated. The ventilation may have been deliberately suspended, for example as a result of heavy weather, or the ventilation given may have been wholly inappropriate as a result of a lack of appreciation or understanding of the ventilation requirements of the particular cargo by those on board ship. Whether Fig.23 Cargo holds must be properly prepared for the intended cargo 41 or nO[ a shipowner \rill be able (() raise a \'alid defence (() a cargo claim in respect of damage from inadequate \'enrilation \I∙ill dept:nd enrirdy on tht: cof1(emporaneous evidence 'lI'ailable from the ship. \\.11en cargo is loaded on hoard. a bill of lading will usually be issued and. amongsr orher rhings, ir will usually srare rhe number of pieces or quanrit)∙ of rhe cargo loaded (Fig.24). The carrier will be obliged (() ddiver rhis guanrit)∙ of cargo (() rhe cargo receiver ar rhe agreed desrinarion. If rhere is a shorrage then rhe shipowner will he ohliged to compensare the cargo owner for this loss unless it can provide a very good explanation as to where rhe cargo has gone or why rhere may appear to be a shorrage on paper. Again, if the shipowner or club is to stand any chance of defeating such shortage Fig.24 The quantity of cargo loaded must be accurat~1y determined claims, they must have availahle to them g(Kld quality evidence from the vessel by way of draught surveys, tally reports and similar conremporaneous documents confirming what quanrity of cargo was loaded and what was discharged (Fig. 25). If the shipOlvner does have to settle claims for loss, shortage or damage to cargo then it will usually be provided wirh cover by rhe P&l club, subject to certain provisos. :"Iosr cargo claims would fall into rhe category of loss and damage. However, there may be additional charges, expenses or losses with which the shipowner is faced in dealing with a cargo problem or potential problem. For example, a cargo of grain may be damaged, say due to leaking hatch covers, and additional expenses need to be incurred in trying to separate as mueh sound cargo from damaged cargo. These additional expenses would be covered by the club. The damaged grain may have to be officially destroyed, say by incineration. These and related costs would be covered by the club. A situation might arise where a cargo may need to be resecured after sailing from the load porr. It may be thar rhe ship and cargo are nor in immediare danger -and consequenrly ir is nor a General Average situation -
but if rhe resecuring is nor undertaken rhen a dangerous situation may very well develop during rhe ocean passage. The cost of diverring and of resecuring the cargo for the safe prosecution of the voyage would he covered by the P&l cluh. Special arrangements may have been made with the P&l club, usually hy paying additional premium, for the member to be covered for ohligations under through transport or transhipment bills of lading, that is for liabilities which might arise within a multi-modal transport sysrem. If those special arrangements have been made with the club, then cover will he provided. It is also worth menrioning that ships are frequently operating under charterpartics. 42 Whereas thcre will be liabilities ro he considered between the shipowner and the cargo owner under the terms of the conrract of carriage evidenced by the hill of lading, there will also be various obligations between the shipowner and the charterer arising under the terms of the relevanr charterparty. In many cases, if a shipowner is found to have a liability towards a cargo owner, or subrogated cargo underwriter, under the terms of the conrract of carriage evidenced by the bill of lading the shipowner may vety well have a legJI indemnity claim against the charterer under the charterparty. Consequenrly the shipowner would make a recovery from the charterer rather than from the P&l club. Alternatively, a charterer may he considered to be the legal carrier undcr certain bills of lading and it may be the charterer which has to deal with cargo claims in the first instance. It may therefore be the charterer which brings the indemnity claim against the shipowner under the terms of the charterparty. Under normal circumstances the charterer cannot take advantage of the shipowner's P&l cover but rather would take out its own, independent, cover. There are numerous charterparty forms but often there will be provision whereby the charterer has a responsibility with regard to the loading and stowing of the cargo. fur example, in a GENCON Voyage charterparty form, there is a 'free in and out stowed and trimmed' (FIOST) clause, meaning that the charterer is undertaking these functions and not the shipowner. In time charters such as the NYPE form 'charterers arc to load, stow, trim the cargo at their expense'. Again this is a charterer's operation and, as such, is likely ultimately to involve its liability if it does it wrongly or badly. Charterers can, and time charterers frequently do, take out their own P&l cover primarily to provide themselves with Iiabili ty insurance cover for these risks. Sometimes it is a matter that the operation of loading and discharging is a joint operation as between the shipowner and the charterer. I n such circumstances there is a propensity for disputes to arise as to who did what and consequently arguments as to who should pay what. This is indeed the case under the NYPE form. The .. Fig.25 Evidence should be collated of potential reasons for cargo shortage cargo responsibility clause continues 'load, scow, trim the cargo at their expense ..... under the supervision of the Captain'. Sometimes an amendment is made to this clause to include the words 'and responsibility' after the word 'supervision'. The interpretation of this wording led to so many disputes that the International Group clubs drafted a mechanical formula which would be used to apportion cargo claims arising under the NYPE -the so-called NYPE Inter-Club Agreement. 43 A frequenr problem which arises is with l"llrgo that has been damaged as a n:sult of had handling by stevedores. Bap;s may be torn, pipes may be bent and mher similar damages. Usually rhe carp;o is considered to have come into the custody of rhe carrier once it has crossed the ship's rail or possibly once it has been attached to the ship's gear. If rhe handling damage to the carp;o has occurred prior to this point rhen it would usually be appropriate to record the damage on rhe marc's receipts and bills of lading. However, the damage frequently arises after it has come into the custody of rhe carrier. In such cases it may be inappropriate to record it on rhe mate's receipts and bills of lading since the obligations and responsibilities under article III of the Hap;ue-Visby Rules have now started and these are usually non-delegable. The shipowner may have an indemnity claim against the stevedores or the charterer but in the first instance is likely to have a liability towards the cargo owner if the cargo was damaged after it came into the custody of the shipowner. The reason why there is a certain amount of hesitation in this situation is that if the stevedores are employed by the cargo shipper, as maybe the case under say FIOS terms, then the situation may be quite different in that the shipowner's period of responsihility may nor start until the cargo is stowed on board. One of the most frequent problems which arises with the carriage of carp;o, giving rise to potential claims and the risk of a shipowner losing its P&l cover, is where cargo is loaded on board not in 'apparent good order and condition' but so-called 'clean' bills of lading are issued. The bill of lading performs a number of different funcrions. A very important and fundamental funcrion is as a receipr for rhe cargo. To comply with the requirements and obligations of rhe Hague-
Visby Rules, or similar, it should describe rhe apparent order and condirion of the cargo at the rime of loading and also state the number of pieces or weighr of the cargo (I∙lg. 26). As a receipr ir will be given to rhe shipper of rhe cargo, which will rhen use rhe bill of lading in another way: as a document of title or negoriable instrument. Under the contracr of sale which will have been negotiated between Fig.26 The preshipment condition of the cargo must be accurately described on the mate's receipt and bill of lading the buyer and the seller of the cargo, there will have been established, in most cases, an irrevocable lener of credit (LOC) within an imernalional banking system. Under the LOC the seller will be paid for the goods provided it produces cenain documemalion in a panicular form. This will inevitably require a bill of lading, which will confirm that • the goods have been shipped on board a panicular ship at a particular POrt and bound for a particular port • the goods were loaded by a particular date • the goods were in apparem good order and condition, or in such a condition as allowed under the terms of the LOC • a particular quamity had been loaded. The buyer of the cargo is thus relying on the statemems in the bill of lading when handing over its money to the seller and, if these statemems subsequently turn out to be inaccurate or umrue, then the shipowner will have to compensate the cargo receiver (Fig. 27). If such a bill of lading was issued by the master or the shipowner (or with its knowledge) then the P&l cover may be prejudiced. Fig.27 The buyer of the cargo will be relying on the description of the cargo os set out in the bill of lading If the shipowner has accepted a so-called 'Iener of indemnity' (LOI) to issue 'clean' bills of lading, then it could uyand recover under that LOI. But if the shipper or charterer refuses to honour their promise, there is linle the shipowner can do. The courts will not recognise LOls as having any validity since they came imo existence to perpetrate a fraud and the shipowner is implicated in that fraud. It may therefore have to bear the loss out of its own resources and also lose its P&l cover. In addition to describing the apparem order and condition of the cargo, the bill of lading will also state the date when the cargo was loaded. This date may be crucial under the terms of the sale comract. If the date has not been correctly stated and consequences 45 arise, then the shipowner is likely ro be liable ro compensate the cargo owner and may also lose its P&l cover. Another problem which often arises and which can result in a shipowner losing P&l cover for cargo liabilities is in respect of a deviation under the contract of carriage. Csually the deviation will be a geographical deviation -a diversion from the normal route or contracted voyage with cargo on board for some specific purpose. There may however be other types of deviation such as a deviation by dela); or time deviation, where the original contracted voyage is extended beyond what was reasonably anticipated. If the deviation was 'reasonable' or 'justifiable' then there is unlikely to be any problem -the Hague-Visby Rules, for example, allow a 'reasonable' deviation without breaching the contract of carriage and, consequently, there is unlikely ro be a problem as far as P&l club cover is concerned. However, if the deviation is 'unreasonable' then this is likely ro amount to a serious breach of the contract of carriage, resulting in the loss of any of the defences and rights to limit liabilit); for example. It is also likely to lead to a loss of P&l cover for cargo claims arising as a consequence of or during the deviation. What is meant by the term 'reasonable' is quite specific and is unlikely to extend to commercial reasonableness, no matter how sensible it may bc. tinder the Hague-Visby Rules, for example, it would certainly be reasonable to deviate to save life or propert)'. To seek assistance for sick or injured seamen or other persons would be reasonable; to go to the help of another ship in distress or requiring assistance would be reasonable; if a large number of srowaways were found on hoard, perhaps out numbering the crew, and who were perhaps becoming threatening or violent, then a deviation to a port where help could be obtained would probably be considered reasonable. However, a deviation to effect a crew change, to land a repair squad or a stowaway at a convenient port are unlikely to be considered reasonable if the only reasonableness was the convenience of the shipowner -even if this was the most sensible solution commercially. If the vessel is going to be involved in a deviation which is likely to be considered 'unreasonable' then the shipowner is strongly recommended to take out a separate 'shipowners liability' (SOL) insurance cover. This is available on the commercial market but it would usually be arranged by the P&l club on behalf of the member and at the member's expense. It should be understood however that the only P&l cover which is lost is cover for cargo liabilities arising as a result of the deviation. For example, consider a vessel hound from Brazil ro Japan which diverts into Cape Town to change some crew. During the deviation she has a collision resulting in number 2 cargo hold being breached along with a bunker fuel tank. The H&l'vl cover, and the P&l, for the RDC would remain in place. P&l cover would also be available for the consequences of any pollution and personal injuries which might arise. However, if the cargo owner brought a claim for damage to the cargo, then the shipowner is likely to have breached its contract of carriage and as such will not be able to rely upon, say, the error of navigation defence and any package 46 limimtion. As a consequence it would not he able to recover from thc P&l club the compensation it may have had to pay to the cargo o\vner. The P&l club would normally cover a shipowner member for the net losses and expenses incurred during a diversion to land a sick or injured person or to land a stowaway, or to go to a vessel in disuess. Lost freight or charter hire is not covered but the COSt of fuel, extra insurance, crew wages, port expenses and similar are covered. It is therefore very important to keep accurate records of any diversion. A special type of deviation from the contracted voyage is frequently requested by charterers or possibly eargo owners and that is to deliver the cargo at a destination other than that stated in the bill of lading. Normally neither the shipowner nor the master are obliged to agree to such a request but the shipowner may do so for commercial reasons. If they do then it should be in the knowledge that they would be in potential breach of P&l club cover. Similarly, requests may be made by the charterer or cargo owner to deliver the eargo without production of an original bill of lading or other document of title. Again, if the shipowner did agree to do this then it would be putting its P&l club cover at risk for any consequences which might arise. The consequences could be that the cargo is discharged at the newly nominated port in accordance with the charterer's request bur the cargo receiver then demands that the cargo be delivered at the original destination. The additional transportation cost of on-forwarding the cargo and the risk of loss or damage during this transhipment would be for the shipowner's account without recovery from the P&l club. If the cargo is delivered to an individual without an original bill of lading being produced, then there is always the risk that someone else may subsequently come along with an original bill and demand delivery. The shipowner may very well find itself liable to compensate this individual for the loss of his entire cargo -again there would be no P&l cover for such a liability. To protect itself if it does decide to agree to these requests, a shipowner should obtain from the charterer a guarantee in the wording recommended by the P&l club. This should be countersigned by a first class bank. Such guarantees replace the shipowner's lost P&l cover. P&l club cover for cargo liabilities assumes that all the shipowner members of the club will be conuacting on basically the same terms, usually the Hague or Hague-
Visby Rules. In this way no one shipowner is imposing a greater burden upon the mutuality of the club than any other. However, if the contracted voyage is from or to countries whieh have ratified the Hamburg Rules, and the Hamburg Rules compulsorily apply, then the club cover will remain in place. If the member voluntarily agrees to the incorporation of Hamburg Rules then its P&l cover will only extend to a level which the directors of the club believe would have existed if Hague or Hague-
Visby Rules had applied. If a problem does arise with the cargo, the prudent master would immediately arrange for the local P&l correspondent to attend. It may be necessary to appoint a 47 slllyeyor and perhaps a lawyer. The costs of these attending parties would normally be covered by the P&l club. In a general average or salvage incident there are usually two intnested and contributing parties -
the ship and the cargo -although such things as freight or time charterer's bunkers may also be contributing parties. Thus the costs of the (j:\ losses and expenditure and sacritice or the salvage expenses would be shared between the shipowner and the cargo owner(s). The shipowner would be insured for these contributions with its H&~I underwriter and the cargo owner would be insured under its cargo insurance policy. In normal circumstances therefore the P&l club would nor be involved. However, if the cargo owner (or subrogated cargo underwriter) can demonstrate that the occurrence which caused, or led to, the GA or salvage incident was as a result of some breach of the contract of carriage -
usually some unseaworthiness -then it may withhold its contribution (Fig. 28). If its allegation proved [0 be correct and the shipowner cannot demonstrate that it exercised due diligence at the start of the voyage to make the vessel seaworthy, then the P&l club will cover the cargo owner's contribution to GA and salvage. It is therefore crucial that the P&l club be advised immediately in the event of a GA or salvage incident. This enables the club to consider whether it needs [0 carry out its own investigation at the time of the event and thus put itself into a position whereby it can respond [0 allegations of unseaworthiness which may come forward from the cargo owner / underwriter some considerable time after the event. Fig.28 Cargo interests may challenge their obligations to contribute to GA if the vessel was unseaworthy If the cargo interests simply refuse to pay their contribution then that would be a bad debt -for which the shipowner would not have any insurance cover. However, if the shipowner did have FO&D cover then the FO&D lawyers may assist the shipowner with the debt recovery exercise. 48 Liabilities in ,∙espect of ships It could be said that P&l insurance covers those risks which have nO( heen covered under the H&M policy. 1(> some extent this is true and particularly so when considering risks spccitically relating (0 the ship itself in contmst (() risks related (() people and cargo. Jldost P&l clubs assume that their members will be contracting for their H&M cover on L1oyd's Marine Policy with Institute Time Clauses (Hulls) -
1.10.83 or similar. However, whereas these particular H&M policy terms are very popular, shipowners will make their own choice as (0 the terms and policy under which their hull and machinery risks are covered. There are other popular H&M policy terms in place in other insurance markets around the world such as, bur nor limited to, Scandinavia, Germany and the us. These may differ significantly from the standard forms used on the L1oyd's market. It is extremely important for the shipowner (0 know what is covered under its H&M policy for two related reasons. Firstly, if certain risks are covered under the H&M policy then those same risks do not need (0 be covered under the P&l insurance. This reduced risk should be brought to the attention of the P&l underwriter, who should take it into account when calculating the ealllevel for that particular member. Secondly, within rhe rules of the P&l club, there will probably be a 'double insurance rule', which says that if a particular risk is covered under some other insurance policy, then it is not covered by P&l. Of course the master also needs (0 know the terms of the H&M policy since, if there is an incident involving the ship, he needs (0 know whether to call in the P&l correspondent or the H&M representative. The risks covered in this section include • collisions • non∙contact damage to ships • damage (0 property • pollu£ion. • wreck removal, and • towage. The extent to which a P&l club will provide cover for liabilities arising out of a collision will depend very much upon the terms of the hull and machinery policy. Under the ITC (Hulls) -
1.10.83 H&M policy tenns, three fourths of the collision liability (3/4 RDC) will be covered. The other 1/4 RDC would be covered by P&l. Damage to the shipowner's own ship falls under H&M insurance. 49 There are a number of 11&l'vl policies which do nor follow rhc rraditional splir of ∙'/4 and 1/4 on rhe collision Iiabiliry clause, such as cerrain Scandinavian, (jerman and American polici<:s, wh<:re the whuk: of rhe collision liahiliry is covered. It is also possible for rhe P&l club to agree to cover the whole 4/4 of the collision liahility, in which case rhe II&M under-Hiter will need to he advised in order to adjusr its terms and relevant premium. In a collision ther<: may be many other losses, injuries or claims in addition to the fig.29 Collisions may include cargo damage, pollution and injuries physical damage to rhe two ships (Fig. 29). There are certain liabilities and losscs arising out of a collision which are not covered under ITC (Hulls) -
1.10.83, such as personal injuries and death both on rhe insured ship and on the other ship, damage to cargo on the insured ship and pollution as well as wreck removal. If these rypes of liabilities arise in consequence of a collision, and if thcy arc not covered under the H&~l policy, rhen rhey would bc covered under P&l. Exactly how rhe RDC liabiliry cover is split between H&1\1 and P&l also becomes very important when considering the provision of securiry. Following a collision the owners of botb ships are likely to arrest, or tbreaten to arresr, rhe orher vessel in order to obtain security -usually by way of a guarantee to cover the porenrial claim pending the legal apporrionment of liability. The danger is that the ship may be the only asset of value belonging to the particular shipowning company and, if security is not obtained, then the ship may sink or other-vise be lost or disposed of before a judgmenr is given. It may subsequenrly be extremely difficult, if not impossible, to enforce an award / judgmcnr and bave the claim paid. If securiry has been posted tben rbe l-,'lIaranror will have to settle any sueb liabilit): When securiry is demanded, following a collision, ir is quire normal for rhe shipowner to ask irs P&l club (0 provide its own letrer of guarantee as security. The same faciliry may be offered by the P&l club for rhe owner of the other vessel. However, if rhe H&M policy is on normal ITC (Hulls) -
1.1 0.83 terms then tbe P&l dub will need to obtain counrer security from the H&\lunder-vriter for its .1/4 RI)(~ exposure. It may also be appropriate to obtain additional counter security from tbe shipowner for the H&l'vl and P&l deductiblcs -which may be ve~' significanr. Although the H&~I underwrirer will be involved in tbe whole of the damage (0 tbe shipowner's ship (alrhougb some recovery should be possible from the other ship in the collision) and .1/4 RDC, the P&l club will probablv be the single biggest under-witer involved in any collision. The reason for this is that the H&M cover is probably shared out amongst many individual underwriters and insurance companies -each taking its own 'line' or percentage of the (Oral risk. It is therefore quirc normal for the P&l club to take over the handling of the collision case -at least as far as defending the claim from the other vessel is concerned. This also means that 50 the P&l club claims handlers acquire a considcmble amount of cxpcricnce in handling such claims. Other issues will also nced to be taken into account \vhen considering the question of providing security, such as the reasonableness of the amount of security being demanded. In this respect joint surveys may be carricd out on each other's vessels and, hopefully, the surveyors can a/,'Tee an approximate quantum of damage although obviously this will be done without prejudice to legal liability. That legal liability will be decided in due course by the courts or will otherwise he agreed through amicable negotiations. Jurisdiction and choice of laws can also be decided at this time. This can have a significant bearing on the cnd result of a collision dispute -
particularly in the cvent of a major incident where questions arise relating to the right to limit financial liability are concerned. In jurisdictions which still apply the 1957 limitation convention, then a much smaller financial limit will apply but the opportunity to 'break' limitation, that is to disallow the party trying to limit, is relatively easy. On the other hand, in countries which have ratified the 1976 limitation convention, the limitation figures will be much higher but the chances of breaking limitation will be very small indeed. There may be other reasons for choosing one particular jurisdiction over another; for example, the Admiralty Court of England has considerable experience of dealing with such legal cases whereas the courts in some other countries may be perfectly suited for dealing with local domestic law issues but have no experience of the very specialised field of Admiralty law. Very rarely is one ship ever held 100% to blame in a collision. In almost every case there will be some degree of blame to attach to each vessel; it may be 50/50 or 70/30 or 95/5, for example. However, the final apportionment will be influenced considerably by the quality of the evidence produced from the vessel and this point cannot be over-emphasised. A collision occurs when two ships come into physical contact with one another. Often, however, considerable damage can be caused by onc vessel against another even though there has been no physical contact -the so-called non-contact damage incidents. The most usual scenario would be where one vessel was secured alongside a berth, say in a river or canal, and another vessel passed by at excessive speed. The wash from the passing vessel could cause the moored vessel to surge on her mooring, causing damage to herself and to other property or even people. It maybe that the incident is very serious indeed. Consider a situation where the moored vessel was loading say oil and the surging caused the loading lines to break with serious pollution of the river. Such potential liabilities to the other ship in such an incident would not be covered under an H&M policy such as the ITC (Hulls) -1.10.83 or similar, although it is possible that some mher H&M policies could cover some of these third party liabilities. Again it will be a matter of checking the particular terms of the H&~I policy in use. It is however much more likely that these third party liabilities would be covered by the P&l club. A~ far as the moored vessel is concerned then attempts should he made to recover from the passing ship whose wa~h caused the damage. Physical damage to the ship would 51 of course he covcrcd under the owner's 11&1\1 policy. An\" personal injuries or dama~e (0 third party property would hc cO\'cred hy the owner's P&l c1uh hut it should tr\" and protect its claims record with the c1uh h\" claiming from the other vessel. Those on board the ship which has suffered damage need (0 act quickl\" in sllch situations. Initially. of COllrse, they need to identif~i the offending ship and immediatdv advise the shipowner / shipmanager. Crgent steps will need to be taken to se!,"e .1 f(,rmal notice on the offending ship holding it, its masu:r and owners responsible for all damages and to obtain adequate security ~ bearing in mind that any other third party claims for damages as a result of the surging incident will probably he hrought against the \'essd which was alongside in the first instance. Another liabilirv risk which is nor usuall" covered under the H&J'v1 policy, although it may be under certain policies. is damage to third party property (Fig. 30). Such damage can often arise when the ship comes imo physical contact with the third party property. For example. the ship may run into a wharf. jetty or pier or hit the arm of a comainer gantry crane or a navigational marker buoy -plus an almost unlimited range of other so-called 'fixed and floating objects' (FFO) incidents. This physical comact by thc ship and the third party property IS not a collision in a technical or legal sense. The English language does not have a similar word for such an event. However, there are words in other Fig.30 Damage to a shore crane by a ship would normally be covered by the P&l club Fig.3 I Damage to quays and jetties may also include a claim (or loss o( use 52 languages and the Americans have coined the word 'allission' to describe the physical contact between the ship and the third party property which is not another ship. This liahility towards damage done to third party property and the consequential losses is normally covered hy the P&l c1uh. A typical list of the potential risks under the FFO cover would be as follows. 'Loss of or damage to 011.1' IUlr/JoUl; dock. pit'!; qlltl)'. jl'tty. 101/(1 or {1l~Ylltillg wItttISO/'f}(r fixed or mOf}abll' (IIOt being (lIIolhl'r ship or rfll/!:o or other properl), tltereill or mrgo or olltl'r property rtllnl'd illlhe Elllern! Ship) by reason of ronlorl brlm'l'f1Il/t1' E'ltrrl'd Ship fIIld slIr/t /tar/HJ/lr ... 1'11: •• This list is deliberately open-ended and no-one can say with any degree of certainty exacdy how long that list might be. It is really a matter of assessing each incident which might arise and considering whether the damage is to some similar third party property and, if it is, then it should be included. If necessary the so-called 'omnibus' rule of the P&l club could be invoked whereby if an unusual claim did arise then it could be referred to the club directors to exercise their discretion. Other examples of FFO type incidents might include • Damage to an underwater electricity cable running from the mainland to an off-lying island. perhaps as a consequence of the cable being pulled up by a ship's anchor. The P&l cover would not only cover the cost of repairs and restitution of the electricity cable but also the legal claims which might come forward from factories, hotels, island residents and others who could show that they had suffered a financial loss as a direct consequence of having their electricity supply cut off. • An explosion occurs on board a ship and hatch covers and other parts of the ship land on property ashore. Many windows are also blown out by the shock-wave. Such damages would be covered. Consequential loss claims which can accompany FFO type incidents can be considerable (Fig. 31). Consider, for example, the consequential losses of a ship hitting and knocking over a container gantry crane in a major container terminal (Fig. 32). Such an incident could bring the terminal to a standstill for weeks while repairs were carried out. In addition to consequential loss claims from the port or terminal operators, there could also be claims from other shipping lines and concainer operators whose operations become seriously hampered because of the incident. However, as far as the allowable extent of consequential loss claims is concerned then this reallv does vary from one jurisdiction to another. The important point to note . , though is that if the shipowner is legally liable, then the P&l club will probably provide the shipowner with the insurance cover needed. 53 Pollurion is included here because many of the porenrial liabilities arising from a pollution incident are basically in respect of damage [0 third parry property -
except thar in this casc it is likelv (() involve cleaning the property rather rhan rebuilding a physical structure. Fig.32 If a loading gantry is damaged, the total claims will be enormous Ir is narural (Q rhink of thick black oil when rhe word pollution is menrioned, but there can be many mher different typcs of pollution -from chemicals and garbage [0 smoke and hold sweepings. The P&l club provides insurance cover for most types of pollution, including claims for damages, c1can up and fines. However, the financial level of cover available wirhin the P&l club for oil pollution is limitcd at US$SOO,OOO,OOO. y!ost leading maritime nations around the world have ratified rhe Civil Liability Convention (CLC) which is a strict liability regime whcrcby 'the polluter pays' (excepr in very exceptional circumsrances) regardless of how or why thc pollution happened. Nevertheless the shipowner is entitled [0 limit its financial liability, based on the [Onnage of the vessel, (0 reasonable levels (Fig. 33). Even in the largest ULCC, the CLC limitation figure would not come anywhere near thc US$SOO,OOO,OOO cover provided by thc P&l club. If the pollution claim did exceed the CLC limitation figure then another source of funding would be made available -
the so-called Fund Convcntion. This is literally a fund of money which is built up from a levy made against thc main oil tradcrs and importers. Fig.33 The cost of pollution incidents will almost always be very high S4 There are a few coumric::s around the world that arc:: not signarories ro the CLC and Fund Convcmions -most notably the US, which enactcd the Oil Pollution Act of 1990 (OPA'90) following thc r:.\∙XOII IMdt'Z incidem. Thcrc arc limits available under OPA'90, for example, but it would be quitc casy ro break limitation. Consequently, the amount of liability insurance cover requircd by tankers trading to the US could well cxcecd thc limit of P&l club cover. Such tanker owners would need ro makc additional insurance arrangemems as well as obtaining a document demonstrating to the US authorities that they do in fact have the neccssary insurance cover. Another relatcd liability which is covered by the P&l clubs, and which is relatively new, is cover for special compensation paymcnts to salvors. For many years the Lloyd's Open Form of Salvage Agreemenr was on terms of 'no cure -no pay'. In other words, if the salvor was not successful in saving the ship and cargo then it did not get paid. Thus if it became apparenr to a salvor during a salvage operation that it was not going to succeed, for example it was clear that the ship was going to sink, then there was no incentive for it to conrinue its work and it may as well just leave the ship and its cargo to its fate. However, that would also mean in many cases that the sinking vessel would pose a serious pollution risk -
as well as possibly posing a potential wreck removal risk. If such a situation occurred then it would be the P&l club that would cover the pollution claims, clean-up COSts and fines. It therefore made sense for the P&l clubs to come to an agreement with the professional salvors such that, if the salvors found themselves in a position whereby they knew they could not save the ship but by continuing their efforts they could prevenr a pollution incident -for example by towing the vessel away from the coast where she could sink in deep water -then the salvors would be compensated for their work. This provision was incorporated as article 14 of the I nternational Salvage Convention of 1989 and forms part of the standard terms of the Lloyd's Open Form (LOF) Salvage Agreements. There have been some problems experienced with the actual working of the article 14 compensation, which required complex accounting to work out exactly what compensation the salvor was entitled to. There were also disputes as to the reasonableness of the particular action taken. Accordingly the International Group clubs have worked out an agreement with the International Salvage Union and others, whereby a tariff rate for all types of clean-up equipment have been agreed in advance. The shipowner and cargo owner(s) will be entitled to have their own monitor on board during the salvage operation to agree, or otherwise, what is reasonable and the salvor will be entitled to receive a minimum amount by way of security. This is the so-called SCOPIC clause and, if it is successful, is likely to replace the article 14 special compensation provisions. If a ship sinks or otherwise becomes a wreck, the local harbour master or other local official may declare that the wreck is in a dangerous position and issue a order to the effect that the wreck must be removed. The most usual reasons for such an order are that the wreck either poses a danger to navigation or is a potential pollution risk (Fig. 34). In either case the order will be served on the last owner of the vessel and the legal obligation to remove the wreck would usually be upon that owner. This is one of the main reasons why H&;,,'I underwriters will never accept responsibility or 55 Fig.34 An explosion on boord a tanker can result in not only the loss of the ship but also loss of lives and cargo and pollution ownership of a ship when it becomes an actual or constructive [Otalloss. They will pay the insured for the loss under the policv but will then divest themselves of any further interest or involvement. Consequently, if the shipowner is legally obliged to mark or remove the wreck, this liability will be covered bv the P&l club. Wreek removals can be some of the biggest financial claims with which a P&l club has to deal. \Vreck removal cover provided by a P&l club can also extend to items of cargo -for example where drums of highly [Oxic chemicals are lost overboard and an order issucd for the drums [0 be recovered from the sea bed. During the normal trading of a ship it is very likely that tugs will be engaged either entering and leaving port, during river and canal transits or possibly ro assist going alongside or leaving a berth. This is normal harbour [Owage. The terms of most standard harbour rowage contracts are very onerous against the ship being towed -basically making the to\\' responsible for any damaged caused or other liability incurred, even if it arose as a result of some fault on the parr of the tug. Similar liabilities may also arise in other situations where the vessel is being towed. Perhaps the vessel has broken down and a tug has been contracted ro take the vessel to her destination. l'vlaybe the vessel is being towed as part of a salvage incident. There is potential for damage to he caused ro third party property, to people or to the tug itself. P&l clubs do not provide cover for the cost of towage hut if the memher incurs a liability during a towage opcration -provided rhe P&l club managers have approved the terms of the towage contract -then the club will cover that liability. 56 During its employment a vessel or the people operating it may find themselves being fined for all manner of alleged or actual offences. These could include fines for failure to maintain safe working conditions, cusroms fines for short or over-landed cargo or for smuggling, for having illegal immigrants on board (e.g. an undeclared stowaway), as a punishment following a pollution incident and for many other violations and offences. All of these fines will be covered by P&l although the directors of the club may need to be satisfied that the members were not privy to the incidents for which the fines were being levied. It is possible under this particular head of risk that the P&l club, rather than the H&l\,( underwriters, may have to compensate the shipowner for the loss of its ship. This could arise if, for example, customs or police found a large consignment of drugs which were being smuggled on board the ship. As a consequence, and by way of a punishment, the local authorities or court confiscated the ship by way of the fine or penalty. As stated, P&l cover is open-ended. Because of the unique way in which the clubs are structured they can, and do, respond to new risks and liabilities which arise or changes in the law which may occur. The aim is to provide the protection the shipowner members of the club require during the commercial operation of their ships. If a risk or liability arises and, provided it is not specifically excluded and it is of a P&l nature, then the claim can be referred to the board of directors of the club under the omnibus rule for approval. 57 Chapter 6 FREIGHT, DEMURRAGE AND DEFENCE (FD&D) (0 I '\ Tll{I. OF r1 (:'.J) It might be thought that between H&M and P&l insurance, every conceivahle risk and liahility to which a shipowner might be exposed would be covered. This is not the case. There are numerous areas of potential financial loss to which a shipowner is exposed and for which it has no insurance cover or for which it is self-insured. Freight, Demurrage and Defence (FD&D) insurance does not cover those suhstantive liabilities but rather provides a shipowner or charterer with insurance cover for the legal costs of pursuing or defending such claims or disputes. FD&D is a legal costs insurance. Such expenses may include, in addition to external lawyers, attending correspondents, experts and surveyors depending upon thc nature of the dispute. A number of International Group c1uhs provide FD&D as a separate class of mutual insurance cover in addition to the normal P&l. There are also other mutual organisations which provide only FD&D insurance such as the Northern Shipowners Defence Club, Oslo (;\Iordisk), the Danish Shipowners Defence Association, Copenhagen and the German Shipowners Defence Association (Schurzverein Deu[scher Rheder VAG) Hamburg. It is important to realise though that, whereas almost every shipowner will take out H&~"I insurance and P&l, FD&D is very much an optional 'extra'. A shipowner may decide that the type of trade it is involved in or the types of vessels it is operating do not tend to place it in the position where it finds itself involved in the sorts of prohlems and disputes anticipated in FD&D cover. For example, the ships may be operating as inter-island ferries. It mayhe that the shipping company is part of a very large international company with its own in-house team of legal advisers which can deal with its own legal prohlems. It should never be assumed therefore that any particular shipowner does have FD&D cover. This should always be checked and confirmed with the shipowner or shipmanager. Charterers may also have their own FD&D insurance. Indeed there is at least one FD&D facility which is dedicated to providing charterers' FD&D cover a.~ well as charterers' P&l. However, most of the other FD&D facilities will also offer FD&D to charterers. The risks, liabilities and disputes falling under FD&D are of the utmost importance to shipowners because the losses or expenses involved will be coming straight out of their own pockets. There is no safety net by way of an insurer to pay the money at risk in FD&D disputes and claims. For this reason it is not at all unusual for shipowners to take a very close and personal interest in these matters -possibly more so than in H&~I or P&l incidenls. 58 .2 'i( '01 I I (~() I. 11 The purpose of FD&D insurance is to provide the member with cover for the enforcement of all proper claims and the defence of all claims improperly brought relating to • • • • • • • • • • • freight, deadfreight and demurrage general average, insurance monies and salvage breach of charter or contr-act of affreightment or hire detention through collision or any other cause the negligent repair or alteration or the supply of shon, defective or improper outfit, equipment, bunker fuel or other necessaries loading, stowing, trimming, or discharge of cargo the building, purchase or sale of the ship disputes with mortgagees of the ship wrongful arrest improper action by national authorities or similar bodies H&M claims below deductible. FD&D also covers legal representation at coroner's inquests, formal investigations or other inquiries into casualties, or the conduct of servants of the member. The actual cover provided by different FD&D insurers may vary slightly from the above list; there may be some additional areas specifically identified or some of the above may not be specifically mentioned. The various areas of cover identified may also have restrictions imposed before cover is provided -for example, if FD&D was assisting a member with a claim falling below the H&rvl deductible then the member would need to demonstrate that the H&M deductible was set at a realistic and reasonable level. The managers of the FD&D class of insurance tend to have very wide powers of discretion as to which disputes they will support and which they will decline to support. This may sound rather arbitr-ary but, like P&l Insur-ance, the cover is operating on the principle of mutuality whereby the members of the FD&D class are insuring each other. It would be unfair on the membership as a whole if costs were being expended in respect of a claim or dispute which was very unlikely to result in a successful recovery or outcome for the specific member. For example, if a member had a good and valid claim for demurrage against a particular charterer then, under normal circumstances, FD&D would provide the leg-JI assistance necessary to obtain an award and enforce payment from the charterer. S9 However, FU&U may decline assistance if it transpired that the particular charterer was a foreign company which had just gone bankrupt and which had no known funds available which could be attached to settle the demurrage claim, even if an arbitration award or court order was obtained. The costs of obtaining such an award or court order would be very high without having any realistic chance of achieving a tangible result. An important underlying principle of FD&D is that it does not provide cover if such cover is normally provided under some other insurance, such as H&M or P&l. Probably the easiest way to understand what FD&D insurance is, what it covers and the implications for the master, is to consider a number of examples. Disputes over hold cleanliness A vessel arrives at the first load port under a time charter and the charterer's surveyor declares the ship is not suitably clean to load the intended cargo, and consequently the vessel is put off hire. This is neither a P&l or H&M matter -it would fall to be dealt with by FD&D. In such a case, if the member or its master genuinely believed that the cargo holds were suitably clean to carry the intended cargo, then the FD&D managers may appoint a suitable local independent surveyor to carry out a further inspection of the relevant cargo holds. If the surveyor agrees with the master's assessment, then the FD&D managers would take the matter up with the charterer and, if appropriate, engage local lawyers to assist. This shows how FD&D cover can offer very direct and practical assistance to members and their masters with everyday problems. In this particular case, for example, the appointed surveyor or lawyer may be able to obtain evidence that the real problem was that the cargo the charterer had arranged to be loaded had not actually arrived at the load port and the attempt at rejecting the cargo holds was merely an attempt on the part of the charterer to save some hire payments. Unsafe ports Another example of where FD&D might become involved is if a charterer has ordered the vessel into a port which the member or master considers to be unsafe. If the vessel is structurally damaged or if equipment of the vessel, such as mooring ropes, are damaged as a consequence (hen this may become a H&M maner. However, if the damages are below the H&M deductible, then FD&D may be prepared to finance the appointment of surveyors and lawyers to investigate the matter and, if appropriate, pursue an indemnity claim against the charterer. Again, the master should be aware of this possibility if he finds himself in an unsafe port or berth situation. The master can have a very significant role to play, not only in ensuring that the situation itself is dealt with properly and in a seaman-like manner, but also in collecting relevant evidence. 60 Lay time and demurmge disputes A fn:quent type of incident with which FD&D hecomes involved is in respet:t of disputes regarding lay time and demurrage calculations. Clearly if the FD&D managers and lawyers are to he successful in assisting the shipowner recover t:harter hire or demurrage which is properly due, it is vital that the log hooks, statements of facts and similar ret:ords are scrupulously mainraincd. The responsibility for producing and maintaining these vital records rests wi th the master. Bunker quality disputes Occasionally faulty or defective bunker fuel is supplied to the vessel. If the potential problem is not identified quickly and the bunkers are used in the main engine, then considerable damage can be caused -possibly in those circumstances leading to a claim against the H&M underwriters. Often, however, the problem does come to light before any of the bunkers are used but after they have been put on board -usually after the laboratory analysis has been completed on the bunker samples. In either case the shipowner is going to suffer serious financial losses as a consequence of having those defective bunkers on board. FD&D will assist with pursuing an indemnity claim against the hunker supplier and / or the charterer, as appropriate. This may involve appointing suitahle chemists, engineers and other experts as well as lawyers as appropriate. If the FD&D managers and lawyers are going to succeed in assisting the shipowner with his indemnity claim, then it will be necessary for suitable evidence to be obtained from the vessel to show that correct sampling and bunkering procedures were in place on board and were being carefully followed and maintained. In this regard suitable documentary records and other evidence would he required. Speed and consumption disputes Another type of FD&D dispute relating to bunkers is in respect of 'speed and consumption' under time charterparties. It is crucial that very careful records are kept, particularly the deck and the engine log books, with relevant abstracts, to show clearly what distance the vessel had travelled, in what time, on what revolutions of the engine, how many stOps occurred and why, in what weather conditions, and what quanrity of fuel was consumed. Without that valuable evidence, the FD&D managers and lawyers will be unable to assist the shipowner. 61 Chapter 7 CLAIMS HANDLING AND THE IMPORTANCE OF EVIDENCE 7.1 1\lI'OI{T\ Cl' ()I 1111' Co nOBl 110 )'HO') 'IIIOSI: () IH \ {I) The earlier ~ections of this book have described the more significant types of in~urance~ available to shipowners and others. In particular it has been shown that a P&l club provides insurance for a wide range of types of marine accidents and liabilities for its shipowner members, If an incident does occur on board ship, there is a most valuable contribution which can be made by tho~e on board to firstly keep the situation under control and then to assist with the immediate solution to the problem and then to actively participate in the subsequent investigation. With regard to the latter point of this will involve the collection of evidence. To participate most effectively in any incident those on board should have a clear understanding of the procedures which will be set in motion when an incident occurs which will be working towards dealing with the initial incident, to establish the potential liability of the shipowner and ~tart preparing a defence of the claim which will come forward. It is important for those on board to know where they fit into that activity, who the other player~ are and who is performing what function. Once the master, his officers and crew appreciate exactly what their role should be then the quality of their contribution will be increased enormou~ly. 7? C(WHF< '" H.FSPO "iF C\ . '\1 \ F \1. TIII'DI 1;I',HI' 'CE Clearly it is always better to prevent an incident occurring in the first place. However, if an incident has occurred then the way in which it i~ handled and dealt with at the time can make all the difference between the incident turning into major disaster or something which can be managed. Those first few hours are extremely important and that position can never be recovered if the correct steps are not taken at that time. Eaeh different type of incident, and indeed different types of the same problem, will have their own particular and unique facts and will require a slightly different approach and response. Having said that however, there are many similarities in the procedures which can be followed as well as in the systems and the machinery which will come into play. Once the general idea is grasped then the principles can be mapped onto other types of incidents. 62 \1 I I I (' I11 I H \'1 ( FOr illustration purpo5es a cargo damage incident will be considered. 1be example will show how many different individuals and o~sations may become involved each with its own vested interest, At. the centre of all the activity though is the ship, the master and his officers and crew. It is possible that the P&l club may have been involved prior to the vessels arrival at the discharge port. It may have been that the shipowner members contacted the club to discuss particular charterparty teons prior to concluding the contract. Problems may have arisen at the loading port -for example, perhaps a problem arose regarding the signing of the bills of lading. Maybe a loading survey had been carried Out, for example with steel cargo. Maybe the master was requiring some guidance on the stowage or carriage of this particular cargo. However, for the purposes of this chapter the emphasis will be placed on the involvement and the development from the time the cargo damage had been discovered at the discharge port. 7.... \m 1 I (; ( I∙ 'I Ill' (.11)1. T r Imagine therefore a ship which has arrived at the discharge port, the hatch covers have been opened and discharge has commenced. Damaged cargo is then discovered. Often the master on board the ship will be amo~t the first to be aware of the problem. Whereas the master may be in a position to render some 'first aid' measures to keep the situation under control, it is Cargo underwriter Shipowner or t shlpmanager Cargo receiver P&l club I'" i r+-
Local agent MASTER Charterer Local P&l J reps Charterer's P&l club .35 Initial reporting options Fig 63 importam that he recognises that hc should advise his shipowners or shipmanagers a~ well as the P&l club immediately in order that the necessary back up and support (:an be prO\;ded. Fig. 35 shows that there are a numher of possible routes which the master may take. He may initially report the prohlem to the operations department at the shipowner's office. The shipowner or shipmanager may then establish contact with its P&l club to advise the club of the problem. There is no reason why the master should not contact the P&l club directly but this does not occur very often -it being more usual for the master to contact the local representative or correspondent of the P&l club. The master should have on board the list of correspondents of the particular P&l club covering that particular vessel. He should therefore have available all the relevant details of the local correspondents. However, he may approach the local ship's agent, who will usually know who the local P&l correspondents are and how to communicate with them. The agent may also be used to relay advice of the incident to the shipowner or shipmanager. However, some caution may need to be exercised because the agent may find itself in a slight conflict of interest situation. If, as is often the case, the vessel is operating under a charterparty then the ship's agent is likely to have been appointed by the charterer rather than the shipowner. If the incident has arisen from an alleged breach of the bill of lading comract by the shipowner, as carrier, this may also involve, for similar reasons, a breach of the charterparty comract. It may therefore be inappropriate for the charterer, via its agent, to become involved in the investigation on board until the facts have been clarified and the evidence collected. By one means or another the P&l club should be advised of the incident at a very early stage. Indeed the cargo receiver is also likely to be aware of the incident at a very early stage. It may in fact be the case that it was the cargo receiver who first raised the alarm and gave notice of the apparent problem with the cargo. The cargo receiver is also likely to be advising his own cargo underwriters and putting them on notice of a potential claim under the policy of insurance. If the vessel was operating under a charterparty then the charterer should also be advised of the incident. If the charterer is entered with a P&l club for time charterer's liability cover, then the charterer will advise its own P&l club. All interested parties should therefore be advised of the incident soon after it had occurred. 7.S {I'SPO \)1'(; IO'III!' 1 ('fl)I:T The steps which are taken following an incident will very much depend upon the particular situation. If the situation is potentially dangerous or otherwise requires an immediate response, particularly if there could be delay in seeking instructions, then it may be appropriate and necessary for the master, the local P&l correspondent and possibly the local ship's agent to take whatever steps are reasonable to best protect the interests of the shipowner, the P&l club and indeed chose of the cargo owner and charterer. However, with modern communication systems, it is usually possible to obtain instructions from the P&l c1uh or shipowner very quickly. The claims handling team of the P&l c1uh should be available 24 hours-a-day throughout the year. 64 What must ht: dt:cidcd, as soon as possihle, is the assistance which is going to be required. Tht: local P&l correspondt:nt should know the assistance available locally and the additional expt:rtise which may net:d to he hrought in from outside. 7.6 PI'OI '1'1 '(j F 1'1 J{T~ In the case under consideration (see 7.4), it is most likely that a local cargo surveyor will be appointed by the local P&l correspondent to attend on board the vessel as quickly as possible. The surveyor will then be in a position to assess the situation and assist the master to dt:al with the immediate prohlem. The feedback from the surveyor may well determine whether a specialist consultant, with more derailt:d knowledge of the particular commodity, should be commissionedw attend. In a serious incident, which is likely to involve a substantial potential claim, it may he appropriate for a lawyer to be instructed to attend and collect the relevant evidence, probably to take witness statements and possibly give t:arly legal advice to tht: P&l club and its mt:mber. The significance of a lawyer attending to collect the evidence is considert:d in some detail in Thl' Mariners RoIl'i1l CoIIl'eti1lK Evidf11Cf guide, particularly in those sections dealing with the doctrine of privilege. Whether or not lawyers are attending a master will find it extremely helpful to consult Thl' Mari1lers Role i1l Collecting F.oidf11C1' book for practical advice on what documentary evidence may be required for any particular type of incident and how to prepare a report of the incident. In a similar way the cargo receiver and cargo underwriter as well as the charterer and its P&l club are also likely to be appointing their own surveyors and possibly lawyers and specialist consultants. Fig 36 illustrates how, in a very short period of time, many different individuals can become involved in relation to the one incident. The decision as to who is instructed and how the immediate problem is dealt with will usually be made by the P&l claims handler at the head office of the P&l club in consultation with the shipowner and after having taken into account any advice or recommendations which may have come from the master, the local P&l correspondent, the surveyor, the lawyer or the specialist consultant. 7.7 ~ST\J31 1';;111 ∙c; Co T ('1 At an early stage of the incident it is important that the parties involved establish contact with each other -that is those acting on behalf of the shipowner, the charterer and the cargo interest(s). This contact is not only important in order to ensure that the problem is handled in such a way as to minimise the extent of the damage as much as possible -by way of mitigation -that is taking active steps to keep the losses to an absolute minimum regardless of ul timate liability, but also in order to avoid unnecessary delays to the vessel should the cargo interests decide that they require security for their potential claim. Understandably a shipowner does not want its ships delayed while security is being arranged. If there are delays then the vessel may be put off hire by the time chanerer, it 65 Surveyor I Lawyer I I Cargo underwriter Consultant I Shipowner or Cargo shipmanager receiver P&l club ..... ~ Local agent MASTER Local P&l Charterer reps I I I I Charterer's Surveyor Surveyor P&l club I Lawyer I I Lawyer I Consultant I Consultant I 66 may run rhe:: risk of missing rhe:: cancdling dare:: on rhe ne::xr charre::r and orher similar conseque::nces -none of which arc insure::d againsr. Accordingly ir make::s sense:: for rhe:: parrie::s to establish a dialogue. If it can then be e::stablished whether security is going to be demande::d , rhe:: siruarion can be dealt wirh in a controlled way. In many jurisdictions around rhe world, a potential claimant will have a facility, via rhe local courrs, to arrest rhe:: ship in order to secure their potential claim. It is rarely to the advanrage of a shipowner to allow a siruation to develop whereby the porential claimant has to proceed to a formal arrest. If that does happen then cerrainly additional legal costs will be immediately incurred; it is most likely that security will have to be provided but negotiations relating to applicable jurisdiction, choice of law and other terms may be severely limited and may be determined by the:: courr. Additional delays are likely to be incurred even after the security has been established while the court paperwork is sorted out to allow the arrest to be lifted. It is therefore much more sensible in most instances to recognise that security will have to be given and to discuss such questions as relate to the wording of the guarantee, in parricular rhe jurisdicrion and choice of law provisions. Another very important issue which needs to be resolved prior to the security being posted is to determine the quantum or extent of apparent damage to the cargo. If this is not done then clearly a dispute is likely to develop as to the reasonableness of the amount of security being demanded. Quantum can usually be agreed by a meeting between the surveyors acting on behalf of the shipowner, the cargo owner / underwriter and possibly the charterer's surveyor -
possibly also involving the master -in order to try to calculate and quantify the extent of the damage but without prejudice and without admitting any liability. Indeed it is not the role of eirher the master nor the surveyors to srart getting involved in discussing questions of liability. Again, if such issues are dealt with in a sensible and controlled way then considerable delays can be avoided. fig. 37 suggests the lines of communication which will need to be established. 67 Fig.3 7 Arranging security P&l club Surveyor Lawyer Consultant Bank Court \ Shipowner or shipmanager ARRESiTi .:. : . / .' ,. .,. MASTER Local P&l reps j 68 Surveyor Lawyer Consultant Local agent Surveyor Lawyer Consultant Cargo underwriter Cargo receiver Charterer Charterer's P&l club 79 F\ 11>1∙ (:1 HFOl ml'l I IW\I . 'I It∙ \ S' I Once the immediate problem has been resolved the extent of the damage has been minimised, the quantum of the damage has been established, security has been provided, if necessary, and the ship has sailed, then each of the interested parries will assess its respective position. Prior to the vessel sailing the master should have been working closely with the surveyor, lawyer and possibly consultant who were attending on behalf of the shipowner and its P&l club to ensure that all the relevant evidence has been collected together and that any statements that need to be taken have been taken. The role of the master and his officers in this activity is crucial. Tire lv/miller's Roll'ill Co//millg Eoidl'flce should be consulted for guidance on the types of evidence required for the parricular incident under consideration. In this example, where cargo is the subject of the potential claim, the book suggests the following. Documentary evidence 111 0 claim for cargo loss or daJJlage, the dOClJlJlfII/s liS/I'd be/orP) should be {(ssI'll/bled whellever possible alld IllIfIlbrnd ill cOllseCllti'{)f' ordn: 7'lIfJ' should ,hell be referred to ill the II/oster's report whidl is disCllssed ill thl' /lexr se(1iol1. Ir is recognised that ill certaill ills/allces tI/{/se dO(1llllell/s will be more easily ovailable from rhe shipo "II""S office, bll/ ij rhey are ovailable 011 the oessr/ alld {({{ae/led to rhe report they will be of great assistall(f'ill lillliri1lg the alllol",t of COff/mell/a"y 'Whirl I I,os to bl' il/£Iuded ill rhe report. The dOCIIlllf!llts are os follows. • A cOmlellif!llt plal/ of the vessel which illcllldes a desrriptioll of the distribution of Ila/ches {(lid holds, the position of the '{)f's.rel's equiplllent, the distriburiofl of dOl/ble bortolll tallks, willg tallks {md peak {{mks tllld ((Jpaci/ies. • Vessel's tOlll/age cer/ijiCtlrl1. • Class certijiratl!S il/rludillg reaJIIllllelldariolls, reservariolls tllld cOllditiolls of dass at rhf' time of rhe loss or illddellt. • Crew list. • RRPOI1,r of the llIasrer or deck or el/gilleer officers 011 regular illspectioll alld lIIaiflfellCIIICf of rhe '{)f'sse/ alld hI''' l'fjllijJfIlfflt. • ,
'1talldillg O/ders for reglllar illspectioJl alld lIIailltetll'IflCl' of oesse/ prior to .roilillg. 69 • • • • • • • • • • • • • • • • • • • • • • • • • • /lIsfin/i(JII, rl'jJflir flIltilll((ill/('I/(/lIr(' srhed/lll's. /lIsjJ('(/iolf. I¥'j!flir fll/(llII(lilf/{'If(III({' lo{;s. Rl!pair alfd lIIailflf'lltlfla' {{(nJ(lfIls. Rl!ron!.r oj.r/('d Ihid.'lless. Shipboard IIItlflflgfllll'lll ;)'SI(,III, O'fi!'IIer:r [)f'lijimliolf remrr!." ilf/('mai (fllr/ ('_11('/1/(/1 {{/ldi/r('mrrk Correcliolfs {flld II/ailflflltlllre 11'f"1)17!.r for 1I(llItiml pllb/im/ioIlS. Terhllimllllflllll{t/S {Jlld operators' 1II01l1la/S. Rl!p{Jir rerord, frolll Olllsir/f'roll/mctors. COlfdiliolf repol1S. (:I1'W dO(lllllfll/S, qll(/liji((l/ioIfS certifimres of compermC)', 1IIt11l11illg rerlijim/es. Cl'I1ijimle of fitlless (chellliral alld g(/S ((Il'fiers). C(/rgo s)'srell/ alld a/lxiliary J:)'Slem lesr aud mlibm/iolf remrrL\. Pf'l fonlfallre!sperifi((ltiolf/llIaf//ifarfllrer~ dare of mrgo littlldlillg eq/lipmetll/s),sIt'IIIS. Vessel's deadru'eiglJrlfreeboard ca/c/llaliolls. Vessel's ((Ilmlatioll of bmdiflg 1II0ll/elflS in v{lfiolts s/ages of empl()),lIIellf. Slabilif)' calmlalions. Mate's rerei prs. Bills of lading. Chorlerparty(-ies). Dl'(fjl SlJl'fX')'.S with allaccompallying (,{(/clliatiolls. /.ettl'rs of pro/rst. /)erk log abslmc/sfOl-lhe period of loaded vO.l'age i"dlldillg loadillg alfd dischargilfg operatiolfs all/I till' pl'riorl or voyage before loadillg if, dllring fhis fill/e, heavy ft:ear/ler was ef!('Olllflered or 1/01£1 detming W(/S mrril'rI Ollt. Vellfilal iOIl records if 1101 illdllded ill the dfrk log. Telllperotwl' rerordr if 1101 illd/lded in the ded: log. Bilge SOllllriillg remrdr if no/ inriur/fd ill rhe deck log. RIf!!,ille logs for till' sallle period. 70 • • • • • • • • • • • • • • • • • • • • • • • • • Slall'llll'lIl OJ Jarl.\' III load (lIId disdltllKI' pOll. 'l ;1111' shms al load alld disdltll∙gt' jJ()/l. 1\ olirl' oJ Imdill('SS 01 load tIIld diodlargl' pon. 'l;II~v SIII'l'IS III 10lld IIl1d disdltll]!:f JJOll. Cargo IIIl1l1ijl'St. Cargo pl1'/Jamlioll prol'l'dlm's (lilt! rmmls. /
lIsjJ('{1ioll rl'ronls, slII't'eyors 1'I'/JOI1S. dmft SII/'t'f')' mlmlt/liolls prior 10 IOfldillg. Cargo hlllldlillg I'quiplI/mt II ~ fl 1Y'('OI7A Cargo isolalioll/sff,,'7'f'[£alioll procl'dlll¥'s {lIId diagrams. Cargo log book I'lItril'.r. Cargo ('(Ilrulalioll recol7ls beJore (lIId after loadi/lg. Cargo sf('[lriry lIletltot/r (lilt/ pla/l. Reporls oJ labomIOI)' t/lldyses oJ rfll'<10 StllI/pll's. Hal(h dosillg/fm/ing proretlllres. Stourage plall (jor ellt/; porI ij mrgo /oat/t'd at sl'f}l'r{Ii /ot/d pons). Course rl'(oIC/er plillfoflt. F(ho SOli/iller ralA, mgilll'lelegmph rl'lOrdt'r. Empl), Ilo/d rel1ijimft'. IlItegralet! brir/gf 0)'511'111 prilllolltS. Corgo/ballast/flld rl'lOrds. ROlllillt' positirm rrporlS. fVorkillK (hal"l (wilh Ihf origillallllar/;illgs) ij Ihl' (OllrSf or ill(ir/l'IIls oJ Ihe voyage fl.."I'r'f ullllsllal Correspollti('llCl' '-ilh (h{lrll'rt'rs, shipp{'/'S, agellts, S/l'f)fr/omr, .ruper('(lrgo or m~)' pfrsoll or orgalliStllioll i1wo/;.,,,t! ill mrgo h(lIIdlillg operaliolLi illdudillg jJl1'-arriot// lIolicl' of IY'adilless, pal1 dearallce/hfalth dt'{//"{/II(f, t/O(llllll'lI/{ltioll. Copit's oJ fill ('(Ibles or mdio IIIl'SSflges receif.,'et! by Ihe r;esse/ ill pm1;m/ar; dell/Ollslmtillg ti,e m'('at/,I'f' etICOllllt{'/'fr/, m/ll{lcl wilh olher t'fssds {lIId Ocrall Rlll/le;lI/!. (or silllilm) lIIessages. PliOlogmplls deIllO/lstral;'l/!.thf lOllr/ilioll oJ Ih" veJsel, wealher fI/(,()IIIII{'/'fd, II/flhor/r oJ 10ad;'lJ{ (llld r/ischargillg oJ Ihe mrgo alld sloff,'age oJ mrgo -
thl'.rt' fJ!:ill grt'a/~)' f'/Ihallt'f 71 Ob!'fI('/:'-' msl' ill Ihl' {'f.'('1II oj di,-plllf's. /11 ({r/ditioll, fI 1I0le shollld ({fWlllptlll}' Ihe phologmphs idl'lllijyilll( ,""hmlhey WIn'If//:m, bJ' ft'holll olld b!.'hallhey pllrpOI1 /0 tlepia. 'l'/,e lIegfllir.'f's slll)//Id be mrtjit/o' prl'servf'fl • Vidros -
Ihm' is fill illrrf'flsillg poJ:fibililY ri/fir vessels b!111 ((In]' 'i.'ir/m I'q1liP1II1'II1 Ollr/ Ihr)' alii alld shollld be IISed 10 idmlify o/Joiolls drjirif'll(irs illlofldilll( or disdlflrgillg lerhlliqllt'
S, lIIethods ojslow{~r!;e or he({f)Y ft'f{llher fIlr()IIII!f'lWI. • {,olllpllfer prilltollts -if the (,'essel has 011 /Joard fI rOlllpllter ((Ipa/JIe oj doillg sla/Jilit:y, draft alld t11111 mlmlatiolls, Ihe prilltollts or rcwrded dish sl/ollld Of' pH'sen'er/. il{aster's repm't Allhollgh the lIIasler's rrpor/ shollld SI.'! ollf Ihe illj017lltltioll irl the sallle ortler th{(1 it is lisfr'(lodob!; Ihe /llflSler shollld I'IIsure that he asselllbles Ihe lVlllelllpOrtlll('OIl.l' eflidellre jirst. The IIIflsler's repol1 should illd/lde tht' jollowillg li!fo/'lll{(tioll: 1. Df'fails oj thr lII(f.rter-
Alflsler's lIall/e 1I0II/e addrrss HOllle telepholle IIIIII/brr Agl! fllld dale oj birlh Qllalijimliolls Dale of II/{/Sll'r's rertijimle alld rr:here obmiller/ Dall' of first Sl'agoillg experif1/ce D{lfl' ftof'ell first assumed (Olllll/brld of {/ oessd Date will'" firsl sailed 0" prcsnl! '(lfSSe/. 2. Deloils of die oessel-
l1>sseI's 1I{1lI1(' POri of I¥gisll)' Flag 0'/Jt' of vessel, for (,,\,,{(lIIple, 'lr.rt'fIl deli:el; olllk ({frrier, obo or otht'r 72 !.Oil Bm", 1I/1/1l1er rlWlIg/lt Gross rtgistfl'f't/ tOIl/l(~!(e Ne! rrgisterl'r/ IOlIlIflKI' SUllllller DIIT Classijimtioll sociery sta/lls NUlllber 01 holdf ,lIl1l11b"r 01 hatches (lIId type olluilch COt'fl"S Layoul 01 dOllble bO/lOIll, ballasl allti peu/; Itlfl;..s (P1'f'jXlI,(, diagram if IIfCeSS{//:)~ F.lIgillf mot/el ulld (l'pe POSifioll 01 bike SOIlIlt/illg pijXs (prep{//'f'diLlgraJII if lIet'f'SSlIl:J') Posi!ioll of DBT.fOlllldillg {lilt/ ot'flf/ow pipes (prfpure diugraJII if lIecess{l/}') NOfe wllerher ri,e ",'essel I,as a/~)1 of till' foll()'f;!}illg IIUf)igafiollul eqllipJllflll: -
I!Yro/lllagllefir rOlllpass -
rejXa/e!"S 011 m'illgs -
radar (lIolelhe mllge alld fyjx 01 radar) -
riecm/lon:/f/ -RDF -
salellife navigation ff/lliPlllf!llf -ed/O sOlll/der -
tOlII"Se recordl'r -
radio e({lIipJllel// illdlldillg VHF -
alll!fl1011leter -other eqllip1llfllt Ves.fel's cOlllple11lfllt. J. Dftails 01 p,'('li11lill{fry voyage fO load p0l1-
Pn'Violls mrgo mlTiet/ 73 11 ('(I!her f'11f7JlIlI!I'IW/ Bd/flS! dis!ribll!ioll COlldilioll of holds prior 10 /o{{r/ill/1 (if rdl'l'tllI{, illl/lI{k Ih(' ft'or/., r/Olll' by (fm' 10 r/nlll holds) 11 Ill'lher or 1101 Ihe bilgl' plllllp maioll abili!} revs (hed:ed Oil 1)(1.,.1£1/11' or /It/Oft' loar/i" J' II'II('/hl'r or 1101 ballasl Ifm/:s fi!.'('I'f' presst'r/ lip 011 pflSJflge befon' IOflr/illg .I, /)I'tflil.'i of /otlr/illg opemlioll-
NtI"'f of loar/ port D{'lails of pre-{fITi",'ol lIoli('f' r{'qllinllll'll/J IVhl'll alld re'hl'l'f' Ihl' NOli{'f' of Rf'Oriillf'.I:' fJ2'tIS {(wrierer/ Detoils of free protiq/l{, f01711aliries /)mji resrriaiOIlS Dote{s) of (m7001 omf of loor/illg berth(s) 'li1lle(S) of berlhillg NUllle of oWllers' reprfSf'IIlalioe, if oltf'lltiillg Nall/e(s) of 511,-;;e)'or(5) if atlmriillg olld Ihl' polties w/lirh rhey repml'll! Cargo type orlype5 Whether or 1I0t specific illsrrurliolls ri'ere gioell as to the 110(/(/,' of mrgo ollcl me/hor/ of I()a{liilg allr/ if 50 by who", Details of repoltillg promlllr{'s ,\ fethod of lour/illg (ship:r eqlliplllflll, shore eqlliplll('lIt, gmbs, elevalor or olher) 5. Loar/lilK seqllet/ce Dales ollr/limes ID'ht'll mrgo loaded Qllolltily loatled Sloppoges 74 Whl'lht>r or 110/ tl/{//~)' m'lls /f/km of /hl' mrgo allrl if so, by 410111 (ship S flf!,l'IIlS, ,warli'I('I'S' agl'll/S, shiPPI'l1" agl'lI/j' or rll'd' oj/im'jlll Probll'lllS illwkl'd ill loadillg opl'm/iolls flllrI fJ!YtI'/her fill)' prO/f'SIS feW'f issllrd {)('/flils of ship pin . r/O('l(lIlrlllfl/ioll prol'{'(llm's Dl'lai!., of all)' mrgo ill/onllalioll oblailler! or pror:itkd Whf'lhrr or 1101 fill illspmioll of Ihr (tlt'KO Slom'(~!(I' firm, har! bn'll rarrirr/ 0111 prior /ri lotldill!! IfIhflhfr mrgo hrllldlillg I'qllipllletll mYIS /esferi/illspmrd prior 10 flrri'Ufll Whether IIl'cessalT isola/ioll proredlll'fs or/Ill'/, ball{/s/ or ot/lfr {'(/rgo <eas rhn/o'er! rllld /olllld dinliof. 6. De/flils of lashing, s/om'age (lIId /I'illllllillg-
I Vhelht>,. or 110/ sp{'(ijir ills/rllctiolls @'I'I'f giom and if so, b)' wl/OIII Whf/ht>r or 1101 shol'f labollr 01' eqllipll/f'lI/ fJ!.'as IIsfd {llId if so, fJ!.'hirh cOll/pallifS ID'ere illwlved alld by ID'holll m'as the shol'f labollr appoill/l'd H1'f/hl'r or riO/ dll/II/age <eas IIsed alld if so by @'holll mYIS if procidrd (/lId wlltlt m'as its 11(/1111'1' IV!/{) mrried oll//rillllfllilg opera/iolls Who ({Il'rird oll/lashillg opera/iolls Describe Ihe IIl1mber {flld dilllellsioll of lashillg wires llsed fllld poill/s (if lIeteSstllJ prt>pflrf fI diagralll) De/ails of draft slIrvey (if {lilY} before COlllfllfllCelllell/ and 011 c01llple/ioll 0/ loadillg FVhl'/her or lIot /h(' lIIa(e's rereip/ was dOllsI'd Who is.flled Ihl' bills of Ifldillg and wIle/her or I/O/ rhfJ fJ!.'fl'f dallst'd al/d colIsis/ml f>!.'itll/he II/a{e's 1'f!l'fipl (if 1101, fJ!.Yty 1I0/) Defails of t/Il' dosillg of ha/chI'S, whm ID'fre rlley dost!{1, rherked (alld by whom) fllld whefher or 1101 rill)' probkms were ell(()III/{l'f'fd. 7. Derails o/Io{/ded voyage ({he followillg illfol'llla/ioll shollld be illdllrktl if i/ is 110/ ap/Jrlrm/ fmlll Ihe tied.' log {lb.f/mrt.r or dl'd: loJ[}-
75 Dalt' r/sai/illg, dl~"lillaliIJII, SjJI'f'(/ alld (O/Im' illll'lldl'd l'niorLr of 1t1'(1t:)' ''('(lIltl'r l'll(()III1II'Il'd illdlldillg 1II('lltod of (LW~\SIlIl'III of fR.'llld spml,for fxalllp/f, ft:(lf,'l' ob,lI'rt'tlli(}JJ or (JlleJllolI/ell'r G'lltlllgfS ill COIlf:S1' or SPfl'd "lid l1'aslJIIsfor lite fI/{f'I¥IliollS II0ve {lIIdsf([ slalf OJl HmI/fori sm/I' Dalll{IUf slIjfi'l1'd kJ' ded:jiflillgs {lilt! eqllipllll'lII (if (I/I)~ I.oss of rkd: jiflillf(.r (111(/ eqlliplIIl'lII (if (//~I') F!I'qllf/It)' of f:J!'('ar/Il'r l1'fJOIIS rm'ir:rd fllld (lteir fI('(lIlYII) II7Ier/ler or 1101 Omlll ROllleillg or sillli/ar sfnice ""ft.r IIsf'd 117,ellter 01'1101 lite sltip fR.'ar ill mriio mlllaN ""illt ollter fXs,rel.r {lilt! ifso, Ilteirll{l/lIes Ba//asl riij11iblllioll 011 sai/ill' (lilt! all)' r/ltlllgfS lIIade or o{(lInillg rillfillg r}(),J'agr 117lelltf'r or 1101 ltalrltl'S fl!-'fre opl'IIl'd alld ifso. ill'lt)' allt! fl!-'ltell Period dllrillg fl!-wirlt mrgo O!:as vl'IIfi/afed (lIId ill f:J!:lticlt Itolrls Wltelltt'r or 1101 I"f'{/rlillgs /irlet! below fl'fre takm alld if so, mi/It ff)1'flt frl'qllelll)'.' -
r{l/Ko lell/pert/lllres -bi/ge soulldillgs -
Sf{(fl!-'(ltfr Iflll/leralllre.r -
air lellljJfralllres H7Ietltfr or 1101 rf'gll/ftr rllI'Ii.'s /ltIri bel'll mrried 0111011 (ltl' Sf{'/lIil~e: of Iltf mlJ(o IVltflltf'r or 1101 regll/ar clte{ks Itad bel'll mrrifd Oll{ COllfirlllillg iso/alioll of lite mrgo frolll fllel, b{l//asl allrl olltfr al/KI! Wltl'llter or 1101 regll/ar dleds Itad lIl'ell mrried 0111011 lite fR.'aler ligllllless of Italfh rovers. 8. Details of disrhlll'glllg o/lf'rrtliOIl N{fIIll' of alld lilllf of an'if/a/ al discharge porr Dmft SIIf'f-'()' 011 {lnioa/ Nalllf fllld lilllf of ofrlltillg al di.rrhargf o1'l1h Df/ai/s of Ihe shrm'llfrlllillrt! rfrfplioll (1/'('(/ 76 .\~fllI{' of offmdil~f!; SIII'f.Y'.l'or \~flllI' r/ fl//fllrlillg SlljJl'lwrgo NOIIN' of sHip :,' agm/ II 'ilt'lIlfr or 110/ sjJl'lijir ills/ruC/iolls m'fl1' givl'll rf'f!:fmlillf!: lIle/Hod of disdltlrgl' flllrl if so, by WHOIII ij'jJl' of eqllijJlllelllltj1'd alld WHe/Her ir fJ)'{IS SHil):f f'qllijJlllm/ or JHOfl' eqllijJlllt'II/ Dafes alld rillles m'H{'/! mrgo dis(Harged Quall/i/y disrHargt'd WHetllt'I" or I/O! a r{{lly of tHe mrgo m'aS !al:m alld if so by WHom (,Hip:, agm!s, d,al1frs' agm!s, sHippers' agm!s or deck offiret) WH,./Her or I/ot jJartimitlrpmbif'lll.l f;!('re "flaJlIlIll'I1'ri {Hlr;lIg IHe discHOrgillg ojJera/ioll fIIHelHrr or 1101 SHOr1' labollr ill'as illvolved alld ifso wHat (()!IljJtlllJ' tlllt! by WHOIII @Y/S tHe sl/o1'e labour ojJpoillled 9. Deroi/s of loss, sHorrage or dalllage Whell wos tHe firsr repOl1 of loss, sll0110ge or dalllogt' lIlade alld bJ' ill'HOIII alld to wholl/ was it sent Did a joill! illspmioll toke p/a(f alld if so, lIaJJle ptll1ies imJolved tlleir l1'p''1'sm/a/ives (flld lIot,. tHe date of tHI' illSjJf(tioll WIJ('re f)?:as (tlIgo dis(Hargfr/ alld stol1'd W1II'tHer or 110/ all)' affellljJ/ fl!Xll" fIIar/e to S{'grf'gate daflla!!.ed mrgo frofll good mrJ!:o ({lid ifso -
HOW illYlf rHis dOfle -
@YIS rHe !IIptHod llsed agreed by tile SHip olld if 110/ fJ)'lIS a jJrolesl1llade -
fJ!:Haf is all fstilllat(' of tHe period 0/ delu), 10 the vessel ill'Hereas /He mrgo ill'lIS beillg segregured -
@Y/s (tIIgo flbfll/dolled 0/1 deck al/d if so, HOfJ!-' mlld, apjJ1"Ixw'III{l/e/), Ift!arher (OlItliliollS m(Olllltereci dllrifl!!. diSCHarge 1f dalll(IKe (froSI' (IS (f mill! of illSltfjicifllf)' of pod:illg, hOU!' m'lZf tile padillg dejirim! owl did tilt' eqllipll/l'IIllI.rer/ by tI'f'stf'f-v'dor('s, 1J'fJf of rlLlIlII(1J!I' IIser/. 1fI('/llOd ()f .11owillg or/os/lill!!. or gl'llem/ halldlillg 0/ (He aI/go ({)lIlribll/e (0 the dalllage. ' 77 I I I Clearly not all of the li~t of documentary evidence shown in 7.9 is going [0 be relevant, and nor will the entire list of items to be included in the master's report be appropriate. It is neccssary for the master ro consider the suggestcd list in an educated and informed manner and identify what will be appropriate for the particular circumstances of the specific case. Survey reports, specialist consultant's reports and legal advice will be submitted by the experts who were commissioned by the local P&l correspondent. As far as the P&l club is concerned, these reportS will probably be forwarded via the local P&l correspondent, which may also have a report to submit. All these reports should be directed towards the nominated claims adjuster within the P&l club. The claims adjuster in the club, probably in consultation with the member, will review the various reportS to establish the potential liability for the cargo claim which is likely [0 be submiued in the near future. Additional evidence which may be required can also be identified and collected while it is still available. The cargo receiver will be considering its own reports received from its experts and advisors in preparation for submitting its claim against the cargo underwriter. The cargo receiver and/or cargo underwriter will also be considering the prospects of pursuing a claim against the carrier. The charterer and its P&l club will probably be going through a similar exercise to that being carried out by the shipowner and its P&l club. It will depend very much upon the particular jurisdiction and the particular bill of lading terms but it is possible that the charterers may be considered as the legal carrier or as joint carrier with the shipowner. It may also be necessary to consider the respective position, as between owner and charterer, under the cargo responsibility clauses of the charterparty. This is basically a period of reporting back to principals and assessing the respective positions and is highlighted in Fig. 38. 7 1 ~(B IISSIO, (H. '[ I IF ( L \1\1 )O( {'\I . ''1' At some point in time, usually within 12 months of the discharge date, the cargo receiver or the cargo underwriter under subrogation will submit a documented cargo claim against the carrier along with the basis for the alleged claim. This will usually relate to an alleged breach of the contract of carriage -probably the bill of lading contract or in some circumstances the charterparty. The usual breach would be an allegation that the vessel was unseaworthy, or rather that the shipowner had failed to exercise due diligence to make the vessel seaworthy. Another major allegation would be that the carrier had failed to care for the cargo while it was in its custody. Assuming for the purpose of this illustration that the cargo claim is presented to the shipowner, it would usually send the claim documents on to its P&l club. The claims 78 1'"".38 Evaluating evidence Surveyor I lawyer l Cargo I Consultant ~ underwriter Shipowner or ship manager Cargo receiver P&l club i Local agent MASTER Local P&l Charterer reps t Surveyor Charterer's I Surveyor r P&l club Lawyer I lawyer I t Consultant Consultant 79 handler in the club would then consider the claim documents in conjunction with the various reports which had been submittcd earlier from the P&l correspondent and the additional evidence and repons from the ship. 7 I? SF I'l'l I∙ 11 T H;OI'l '110 S It may be possible for the carrier to reject the claim completely and repudiate liability by providing to the claimant a reasoned explanation of what happened backed up with relevant evidence, to bring themselves into, for example, One of the defences or exceptions as set out in article IV rule 2 of the Hague Rules. However, the majority of claims are not that straightforward. Usually an exchange of correspondence will take place between the P&l club and the claimant. This will be to clarify certain issues, obtain further evidence or carry out further investig,ltions or otherwise endeavour to establish the realistic merits of the claim. Whereas recourse would usually be possible for the claimant to pursue its claim either through the courts or possibly in arbitration, depending upon the contractual terms or the local legal regime, most claims are settled amicably 'out of court'. Settlement negotiations would usually be conducted by correspondence between the claims adjuster in the P&l club and the cargo claimant. Frequently cargo underwriters will instruct recovery agents to pursue claims on their behalf. The level at which a claim is settled will obviously depend very much upon the documented claim which has been submitted and, of greater importance, will be the quality of the evidence produced by the shipowner, by those on board the ship itself and by the local P&l correspondent, surveyor. consultant and lawyer. Without good quality evidence the P&l claims adjuster is in a very difficult position. Usually the burden of proof shifts very quickly onto the carrier -once a prima facie claim has been received from the claimant, the obligation is then on the carrier to explain how the loss or damage occurred and to bring itself within, for example, the exemptions and defences as set out in article IV rule 2 of the Hague Rules. For many claims there is scope for negotiations between the parties and in most cases an 'amicable' settlement will be negotiated and concluded. 7.13 POSSIBI I' I 'J)F:\I~n y CL.\I\IS If the vessel was on charter then the shipowner's club would usually be in contact with the charterer or its P&l club. FIrstly the charterer will need to be advised of the claim and should be asked if it has any information or documentation which could assist in defending the claim. The cargo responsibility clause of the charterparty will have to be scrutinised to establish the potential extent of ultimate liability as between shipowner and charterer. If it docs become necessary to settle the claim with the cargo owner/underwriter then it may be appropriate to pursue an indemnity claim under the charterparty. See FIg. 39. 80 Fig.39 Submission of clean documenrs and possible indemnity action Surveyor C I P indemnity action Lawyer ...... Cargo Consultant underwriter I + B I L claim Shipowner or Cargo shipmanager receiver P&l club Local agent MASTER Local P&l Charterer I'" reps Char,erers Surveyor Surveyor P&l club Lawyer Lawyer Consultant Consul,"n, 81 This will also include a review of charterparty responsibility clauses and, in particular, the New York Product Exchange (NYPE) form and the Inter-dub Agreement, which is a series of formulae allowing for the mechanical apportionment of cargo claims under the NYPE charterparty form as between shipowners and charterers . ., C( ('I l "10 \Vhatever the eype of incident might be, whether it is a P&l incident, FO&D or H&M, the matter will need to be investigated to try to establish the cause and the documentary evidence will need to be collected and reports will have to be prepared. The evidence and the reporrs prepared by the master and his team on board will be crucial if the shipowner and the P&l club are to be protected. If the claims cannot be resolved amicably then that documentation and the reports may have to be produced in a court or before an arbitration tribunal and the originator of that evidence, the master or officer may have to stand up and testify on oath that the information presented is accurate and correct. The collection of evidence is not something which is done just following an accident or problem but rather it is an ongoing exercise as part of a well run ship. Log books should be properly maintained, records kept, reports made, and procedures followed both of the QA system and the safety management system of the ISM Code. Checks and inspections should be done to exercise due diligence to make the vessel seaworthy but records should also be kept of all those activities which can then be used to demonstrate, to a court of law if necessary, that the due diligence was indeed exercised. Almost as a by-product, the activiey of creating evidence as part of the running of a ship in this way will in fact make everyone more conscious of what they are doing which, in itself, is a most powerful loss prevention tool. 82 Chapter 8 INSURANCE CLAIMS AND LOSS PREVENTION No one benefits from accidenrs and claims except perhaps the lawyers, surveyors and adjusters who tend to have very busy careers trying to assist in resolving the disputes which so frequently arise from these marine incidents. As was menrioned in rhe introductory section of this hook, thousands of millions of dollars are heing drained from the shipping industry every year to pay claims. These paymenrs are in respect of accidenrs or incidenrs to people, ships, cargo, property and similar -
the majority of which could have been prevenred. In addition to the cost in monetary terms there is also the COSt in many other ways which can he so damaging -
the coSt in human suffering of personal injuries, illnesses and fatalities. There is also the damaged reputation of the shipowner, not to menrion that of the master, officers and crew, following a collision or other major navigational incident. Once a bad reputation has been 'earned' then it is often very difficult to cast off that reputation -this in turn will have an effect on the commercial rating of the shipping company and the morale on board and in the office ashore. Similarly if cargo is damaged, the cargo owner is unhappy that its goods have been damaged, its underwriter is unhappy because it will have to payout on an insurance claim, the charterer is unhappy because its customer, the cargo shipper, is unhappy and it may decide to use another carrier in the future which will not allow its goods to be damaged (Fig. 40). The shipowner is unhappy because it is facing claims from the cargo owner / underwriter, its charterer is unhappy with it and may decide in future to charter some other company's ship which will not allow the cargo to be damaged. Fig.40 Damaged cargo is nat good for a shipowners business The shipowner may also have to damaged its claim record with its P&l club and nobody will be happy ahout that. At the end of the day everyone loses. On the other hand, if accidents and claims do not arise then everyone is a winner. The cargo owner receives the cargo in good condition and can market or use the goods as originally intended -rhe charterer and the shipowner are seen in very favourable light by the cargo owner and it certainly knows which carrier it will use the next time it has some cargo to ship. Similarly, the charterer will he well pleased with the ship and will certainly 83 charter ships from that company agdin in the future. Neither the cargo insurer nor the P&l club are even made aware of such a trouble-free voyage. Everyone is very happy. lVlaybe this is a rather simplistic view of the shipping world but, in its simplicity, it shows how there are many other factors which really do need to be taken into account when calculating the real value of marine accidents and claims. If many of these accidents and claims can therefore be avoided there will be an increased confidence in the industry generally and also substantial amounts of money for inward investment in personnel, training, maintenance and even new buildings. It is therefore worth considering what may be the factors of causation behind these claims and what can be done to prevent these accidents and incidents occurring in the first place. It must be said, however, that neither of these issues can be considered completely. When the question of causation is addressed it has become extremely fashionable in recent years to declare that a large percentage of the claims are as a result of 'human error'. Indeed such a conclusion would seem to be supported by a whole range of reports which were commissioned to look into the cause of the enormous rise in marine claims which occurred in the late 1980s and early 1990s. Depending which report was consulted the conclusion varied from about 60%, to 70% to 80% and even up to 90% of accidents and claims were as a result of human error. For example, early in 1991 the Marine Directorate of the Department of Transport in the UK issued a report The HUIIl(11I F.lellll'1lt in Shippillg Cosuolties. In paragraph 1/17 of the report a statistic is quoted the' ... 80-90% of all accidents are caused by human error. .. ' In February 1992, in the UK, the House of Lords Select Committee on Science and Technology issued its report Safet)' Aspects of Ship Dl'sigTr tint! Techllolof!J" In discussing the human element in paragraph 42, the report states: ' .. .it is received wisdom that 4 out of 5 ship casualties -
80% -are due to human error. .. ' A number of the larger P&l clubs carried out work in analysing their major claims. Their conclusion was that something like 65% of their major claims were attributable to 'human error'. They were even able to break down this 'human error' into such things as deck officer error, shore error, pilot error, and so on. lt is suggested that this conclusion is somewhat misconceived and misleading and, without clarification, can steer the loss prevention efforts seriously off course. There is nothing at all new about the fact the human beings can and often do make errors and mistakes -and this certainly applies as much to those human beings involved in ships and shipping as it does in any other sphere of human activity-
possibly more-so. First of all though consider whether 'human error', or one of the other terms frequently used: 'human involvement' or 'human factors', can be considered a modern phenomena. Secondly, consider what we might actually mean by these terms -'human error', 'human factors' and 'human involvement'. 84 Dealing with the lirst point -that is whether wc arc dealing with a 'modern phenomena' -it would perhaps be helpful to explore a couple of brief examples which will sho\\' that there have been at'Cidents and losses throughollt maritime history. The iceberg did not suddenly jump out in front of 1'ft/lli,' during her fateful maiden voyage in April 1912 -it was clear 'human error' -
nm'igating in dangerous waters at excessive speed (Fig. 41). 1I/tlllir had not acquired a mind of its own, it was being navigated by human beings. The ship didn't decide to carry [(Xl fe\\' lifeboats or design inadequate watertight bulkheads: these omissions were [he result of the designers, naval architects, builders and indeed the shipowner who was paying the bills. All of these were humans and all these errors were 'human errors'. It is suggested that when any accident or incident is analysed, onc would find a whole series of ' human errors'. Perhaps the only maritime incident which could not be attributed to human involvement would be the stranding of Noah's Ark on l\lount Ararat after the great flood. However, even that incident could be traced back to dle many errors which humans were making and for which God sent his punishment! There is in fact not h i ng new abou t human errors or human involvement in maritime incidents and accidents. It has probably been a factor in every single accident since man launched his first 'dug out' in our prehistoric past. Fig.41 The Titanic tragedy in 1912 was due to a series of human errors Perhaps an important question to ask, therefore, is what we actually mean by this term '
human error'? Does it mean anything other than a generic expression of the fallibility of human activity? Is it of any use whatsoever to recognise the fact that 'human beings' by their actions or inactions inevitably figure fairly high up in the causal chain of any accident. There arc, of course, many incidents where the human involvement or human error is dearly apparent, for example in a collision between two ships. Sometimes the human involvement is a little further back along the causal chain. For example leaking hatch covers which allow cargo to be damaged will usually be the result of inadequate maintenance by humans or by bad design which would also involve humans. Does the acquisition of this knowledge, that the errors of human beings arc almost inevitably going to be involved in these maritime accidents and claims, really help us to understand why they happened and most importantly what can be done to prevent them happening again? The answer is probably no. 85 \\11ereas we:: must avoid a siruation whe::re::by wc become involve::d in a process of n'dlll1io ad flbJlln/llIl/, wc should recognise:: that wc do need to e::nter a reductionist debate to start asking the:: questions 'why were:: these human errors made?' rathe::r than 'what human errors we::re made?' The Latin maxim alllsa proxima ff 1/01/ l1'flm/tI Spn1l1lll1' may be relevant whe::n considering legalliahility under a policy of insurance but for loss prevention purposes it is importam to uncover the 'why' behind the:: apparent cause. If that argumem is accepted, that it is the 'why' and not the:: 'what' that we should be e::xamining, then the next ste::p is perhaps to break down this generic term 'human error' imo some of its component parts. One way of doing this is to conside::r the range of 'human errors'. At onc cnd of the scale we would find something equivalent co 'the simple mistake' which we are all capable of making. At the other end of the scale we would find 'gross negligence::' or even 'willful misconduct' which should never be tolerated. In between \ve have a whole:: range of errors due co misunderstandings, oversights, carelessness, forgetfulness, fatigue and stress. These few examples alone perhaps demonstrate the absurdity of trying co extract anything useful from the general term 'human error'. Simple ... Misunderstanding Oversight Mistake Carelessness Fatigue Stress ... Gross Negligence Another, useful, approach at categorising human involvement has been put forward by Professor Reason of the University of Manchester. He suggests that the division should be between 'errors' and 'violations'. These in turn can then be sub-divided into skill-based, rule-based and knowledge-based errors and violations. Some examples may help to explain these sub-categorisations. Skill-based error. The navigating officer of the watch inadvertently switches to the three mile range on the radar set instead of the six mile range -as a consequence he believes that targets are twice as far away as they really are. The officer knows how to use and operate the equipment but makes a mistake. Rule-based error. Adopting a bad rule, such as fixing a ship's position by use of a single bearing and radar distance off. The officer may believe that such a mea~urement would establish the ship's position -the reality is that it mayor may not indicate the approximate position of the ship and is an error in principle. Knowledge-based error. A tanker is approaching port and the master requests steam on deck for manoeuvring operations. An inexperienced engineer simply opens the steam valve leading to excessive 'hammer' and subscquem failure of the steam line, thus rendering the vessel incapable of completing mooring operations. 86 Skill-based violation. An electrician is working on a live switchboard without wearing the correct protectivc equipment or using rubber mats. The electrician is aware of his violation but he has decided to 'cut corners' in order [0 completc the job more quickly. Rule-based violation. Whereas the master and the officer of the watch knows very well that they should reduce the ship's speed in congested waters or reduced visibility-
they chose [0 ignore the rules and continue to proceed at full speed which would probably be considered an excessive speed in the circumstances. Knowledge-based violations. Even though the individual knows of the consequences -he chooses, perhaps in the agony of the moment, to disregard his knowledge and the training he has received. The classic example of this type of situation is the 'entry into enclosed spaces' scenario. One man enters without having followed the correct procedures and without taking the necessary precautions. He is overcome by toxic fumes and collapses. His colleague sees him and, ignoring all his prior training, goes into the compartment to try and rescue his friend and he also collapses ... and so the tragedy continues. The approach of Professor Reason has perhaps moved the debate along considerably but he is still at the 'what' stage and the 'why' questions remain to be addressed. To start answering the 'why' questions is far from easy. In fact, in most cases, we do not have access to the relevant information. In the West we have been heavily influenced by particular understandings of science and philosophy and have grown up thinking in terms of straight lines -as far as questions of causation are concerned. This is a view of one cause being followed by one effect. It is a linear view of the world whereby cause 'Pi. occurs and appears to be immediately followed by effect '8' which in turn becomes a cause with a following effect, and so it goes on -moving in one direction through time. This is perhaps a reasonably accurate picture at the level of identifying the accident or incident or damage or whatever -with the 'what' that caused it -but maybe unsatisfactory when we start to look for answers to the 'why' questions. When we start exploring those issues we will find that there is very rarely one single identifiable cause, rather there 'Nill be found a whole series of interacting and mutually conditioning systems at work. If these systems are working in harmony then all is well, but if one of the ~)'stems, or one part of a system, is not working in accord with the rest then problems are sure to follow. It is within these systems and the interaction of these systems that we will start to find answers to the 'why' questions. In an attempt to illustrate this point perhaps use could be made of an hypothetical example -a cargo of grain has become wet as a result of seawater entering the cargo compartment through a leaking hatch cover. WHAT caused the wetting was the water entering the compartment through the leaking hatch covers. Certainly it is a truism to say to say that to prevent wet damage to the grain steps must be taken to make the hatch 87 covcrs watertight! Clearly this is good advice but not particularly useful or helpful. The master, the P&l claims adjuster, the shipowner, the best friend of the second cook would all agree with the statement. The real issue is WHY did this particular hatch cover leak on this particular occasion? It may not just be a matter of concluding that it was a piece of rubber packing that was missing or that the drain valves were choked -it is a matter of probing deeper than that -
looking behind those factors and considering the whole situation from a wide angle. The fact that water entered the cargo compartment through defective hatch cover seals will probably be sufficient to establish the legal liability of the carrier / shipowner-
which will probably have to compensate the cargo owner for its losses, which are likely to be substantial in financial terms. As far as the law and insurance are concerned, the situation is quite simple. It is a linear causal chain (Fig. 42) Fig.4 2 Simple causal chain Leaking hatch Wet damaged covers grain This is usually as far as an investigation tends to go since legal liability has now been established. However, there is not an obvious human factor issue involved at this level of investigation. From this position there is little we could learn from a loss prevention point of view other than stating the obvious: 'if you don't want the cargo to get wet then don't let the hatch covers leak!' There could be many reasons why the hatch cover leaked. It is possible that the weather conditions were so ferocious, unexpected and exceptional that, subject to one's theological convictions, we are in a tiny range of possibilities -much less than 1%-of an Act of God or perils of the sea. In such cases the shipowner may be able to defend the claim. • • • However, it is much more likely that the hatch covers leaked because they were not properly closed and / or battened down during the voyage not properly designed to fit the hatch coamings not properly maintained -defective rubber joints -wastage of steelwork, etc. It is worth continuing to ask the 'why' questions. Why were the hatch covers not properly closed? Why were the hatch covers not designed properly? The answer to the first question could possibly be that the ships crew did not close the hatch covers properly. At this point the human factor is starting to enter the 88 picture. The answer to the second question would be, presumably, that the naval architects (most of whom are human!) had not done their job properly -another type of human error. It is necessary to go further and ask why didn't the crew close the hatch covers properly? Why didn't the naval architect design the hatch covers such that they properly fitted the coaming? For illustration purposes here, however, only the third possibility will be explored in more detail that is where the hatch covers had perhaps not been properly maintained. The question to ask would obviously be: Why was the hatch cover not properly maintained? It is at this point that things start to get a little more interesting. The particular leaking hatch cover was, probably, symptomatic of the general condition of the vessel. Poorly maintained hatch covers are unlikely to stand in isolation from the general level of maintenance on board (Fig. 43). FigA3 Effects of ship's condition General condition of ship Leaking hatch Wet damaged covers grain The answer to the question: 'Why was the hatch cover not properly maintained?' is probably that the people who should have been carrying out the maintenance, that is the relevant members of the ship's crew, had not in fact carried out that necessary maintenance or possibly they had not done the job to a satisfactory standard. The human factor is now very squarely in the picture at this point. The answer to the next why question can raise many possibilities and could in fact be a combination of a number of these possibilities. So, why did those on board the ship -who had the duty to maintain the hatch covers -
fail to maintain them? Some of the possible answers may be as follows. • The shipowner I superintendent I technical manager would not provide the spare parts or equipment needed to maintain the hatch covers • The relevant members of the crew did not know how to maintain the hatch covers. • The trading pattern of the ship was such that she was almost permanently operating in heavy weather and the opportunities to carry out the necessary maintenance just never arose. • There were not enough crew on board to carry out the necessary maintenance. 89 • The: rde:vant members of the crew were not motivated or interested in maintaining the hatch covers -
indeed the" may not have had any inte:rest at all in whether the , . .. cargo got wet or not (Fig. 44)! Fig.4 4 Effect of crew Rest of ship's crew General condition of ship Individuals on board who Leaking hatch maintain hatch covers Wet damaged covers grain There are, no doubt, many other possibilities but this short list will be sufficient to expand the debate. Certainly there are human factors involved, but there is also another strong influencing factor in this particular example -economic pressures. • • • • The spare parts or equipment were probably not supplied because of the cost of doing so. The crew did not know how to maintain the hatch covers because they had not received the relevant training and / or experience -again such things cost money. The vessel was not taken out of sen .. ice to carry out the relevant maintenance because that would mean a loss of income. To have more crew on board would, obvioush-; cost more mone\,. .. .. Consider the economics of the situation. What money has actually been saved by not providing the spare parts and equipment, by not providing a crew capable of doing the job properly, by not taking the vessel ou[ of service for a while to carry out the maintenance, by not having enough crew on board to do the job properly when, at the end of the day, the shipowner faces enormous claims for damage to the cargo? The na'ive person may answer that the shipowner is insured for such claims -
usually with its P&l club. Such a view would demonstrate a profound ignorance of the way in which P&l insurance works. A\ shown in this guide, what a shipowner pays for its P&l insurance cover is directly linked to his claims experience. The premium, or call, of a shipowner which has had a numbt:r of claims will bt: considerably more than that of a shipowner with few or no claims. It is probably fair to say that most of what a 90 shipowner recovers from its P&l c1uh hy way of claim se[(lemems is like a short term loan which will have [0 be repaid by way of increased calls in the fmure. During the last decade, or so, some shipowners with bad claims records have seen the cost of their P&l cover increasing ten fold along with substantial increases in the level of their deductihles. A number of the possible issues memioned above may coexist as causal faclOrs alongside the fifth possibility -
the unmotivated, disinterested crcw. Why should the crew become unmotivated or adopt an uncaring altitude? Indeed the question may be asked: were the crew ever motivated or imerested? Certainly the risk of accidems and incidems occurring in such a situation would have [0 be vcry high. It is now rare to find a ship manned by officers and crew of one nationalit)\ who are well qualified and experienced and who live and work on hoard as part of a company culture with the company loyalty and dedication which used [0 exist. [s such an ideal crew just a utopian dream? It wasn't such a long time ago that such a situation really did exist on board ships of many traditional shipping companies -and it still exists in some companies. [s it JUSt a coincidence that the cost of insurance, which is indicative of the level of claims experienced, was a very small fraction of what it is today? For many ships these days the situation is very differem. It is not unusual for the shipowner to hand the managemem over to some third party management company who in turn utilise manning agems in another part of the world [0 find a crew. In some cases it is the first occasion that this particular crew had ever sailed with each other. It would not be unusual [0 find a whole mix of nationalities, cultures and religions. Not only is it possible that the crew have never sailed with each other before but it is also likely that this is the first time they have sailed on the particular ship, or even rype of ship, before or even with the particular shipowner or shipmanager before. There is also a very real possibility that they will not sail with the same shipowner or shipmanager again after their tour of duty is completed. [f this bleak scenario is even partially correct, is it any wonder that there is little motivation amongst such a workforce? The maimenance on board a ship manned in this way is likely to be of a very poor standard. Leaking hatch covers are likely to be but a reflection of the condition of the rest of the ship. Even if there was some level of emhusiasm amongst the crew when they first came on hoard -on being confromed with a ship in a poor state of repair -it is not difficult to understand why that initial emhusiasm would very quickly be lost overboard. In the situation just described it is imeresting to note that it is the condition of the ship itself which is conditioning the crew's attitude [Owards it, which in turn will result in even less maimenance being carried out and, as a consequence, the physical condition of the ship will get worse. It would not be difficult to imagine in such a depressing situation that a number of the other fac[Ors would also be conditioning the situation -for example, the manager's failure [0 supply spares or equipment, the particular crew may not have the relevam qualifications and experience, maybe they are there because they are basically cheap labour, maybe there are just not enough crew members on board. There may he many other reasons (Fig. 45). 91 Fig.45 Multi<ausal effects Manning Shipowning I Ship Cargo receiver Agent • • management • • I underwriter company claimant Policy and t Policy and attitude t attitude ~ Policy and attitude Rest of ships crew General condition of ship Individuals on board who Leaking hatch maintain hatch covers Wet damaged covers grain t • Weather conditions There is not one single causal factor at work here -there are many. They are often interacting and sometimes even reciprocal causes as in the case of the condition of the ship itself determining the attitude of the crew towards the maintenance of it. Whereas this example may be considered an extreme case, it is suggested that some elements, to varying degrees, would be found on all too many ships and the propensity towards accidents and incidents leading to claims in such situations is obvious. When questions start to be asked 'why' such situations exist or how such situations have been allowed to develop, the issue of economics is clearly in the fore. As a by-product there is also the most serious of all problems -that of inter-relationships, or rather lack of them. Unless considerable care and thought is applied there is a risk of losing that special sense of loyalty which needs to exist between employer and employee, between ship staff and shore staff. There is a very serious risk of serious problems arising if there is no feeling of belonging, no 'we' feeling, no company identity or culture. There are inherent problems of mixing peoples of certain different cultures who not only have no respect for each other but may harbour strong feelings of dislike and mistrust of each other. It would certainly be fair to reflect upon this situation and ask how it might have come about. Maybe it was because the shipowners who tried to maintain their high 92 standards with good and loyal crew were forced out of business by trying (() compete in a commercial world against other shipowners who had, by one means or another, 'rcduced their operating costs'. l'vlayhe the classification societies became too relaxed, possibly under pressure, and reduced their standards. l\ilaybe the H&M underwriters and P&l clubs should have been more strict in monitoring and comrolling the risk which they were insuring. The question which perhaps now needs to be considered is whether a 'gCt tough' approach by flag states, national governmems, classification societies, underwriters, P&l clubs, port state control and other regulatory bodies will change thc situation. Will the revised STCW Convemion really produce better quality officers imernationally and even if it did would this change anything? Will the ISM Code or quality assurance really raise standards of safety and efficiency onboard? It is certainly hoped that they will make a . major contribution but the biggest factor of all, and it is this which will determine whether accidents and claims can be reduced, is the question of motivation of the individuals and generally. The underlying problems affecting the human elemem are complex and varied. The provision of 'quality' people both on board ship and ashore will certainly be a move in the right direction but an equally importam issue which must be addressed is that of motivation and that requires an understanding of the human elemem at a level which a few shipowners and shipmanagers are now starting to reach again. For others however there is still a long way to go. Once shipowners, shipmanagers, their shore staff and most importamly their masters, officers and crew on board have come to terms with the motivational issues, then (hey should find (his guide, along with its companion The Mariners Role in Collecting Evidence (both the book and the video), to be an invaluable reference source in their sure goal to reducing accidents and claims to a minimum from a position of knowledge and understanding. 93 INDEX Page p...ge Advising of an incident 63 Incident reporting 63 Appointing experts 65 Indemnity claims SO Arrest -risk h7 Insurance re(luirements -of cargo owners 10 Basic perils -of chanerers 9 15 -of shipowners 8 Cargo -liabilities 38 Liabilities (~argo owners' insurance requircmcnlS 10 -in respect of cargo 38 Causation in accidents and claims 88 -in respect of people 37 -in respect of ships 49 Charterers' insurance requirements 9 Loss prevention 83 Claims -documents 78 -indemnity 80 Marine Insurance Act 12 -handling 62 Master's repon 72 Clubs, P&l 24 Negotiations -settlements 80 Collision cover -H&M 17 Protection and Indemnity (P&l) 8 Documentary evidence 69 -clubs 24 • historical development 21 Due diligence 14 -liabilities in respect of cargo 38 Establishing contact 65 -liabilities in respect of people 37 -liabilities in respect of ships 49 E,∙idence 62 -scope of cover 33 -documentary 69 -underwriting 30 -evaluation 78 -required from the vessel 69 Report -master's 72 Experts -appointment 65 Responding to an incident 64 Financial implication of claims 6 Risk of arrest 67 Freight, demurrage and defence (FD&D) 9 Salvage 18 • examples 60 Seope of cover -nacure 58 -FD&D 59 -scope of cover 58 -H&M 15 • P&l 33 General average 18 Seaworthiness 12 Historical development -
P&l clubs 24 Settlemcnt negotiations 80 Hull and machinery (H&M) 8 -
!Ydsic perils 15 Shipowners' insurance requirements 8 -collision cover 17 Strike insurance 9 • general average and salvage 18 -Inchmaree perils 16 Submission of claims documents 78 -typical scope of cover IS Underlying principles of marine insurance 12 Human error 84,86 Underwriring -
P&l 30 Inchmaree perils 16 War risks 9 94 THE MARINER'S ROLE IN COLLECfING EVIDENCE The Guide Thr .lJanllers Rol('ill Col/rc/illK Evid('//Cf' gives stl".1ightforward, easily readable guidance to masters and officers on the evidence required by shore-based staff dealing with claims and explains what masters' reports should contain. Published in 1997, this 127 page, AS sized guide is the e.xtensively revised expanded and updated edition of the book originally published in 1989 as Thr ,lIas/rr's rolr ill Col/~f1illg JividtflCf'. It is produced by a Nautical Institute committee chaired by the Institute vice president Captain Phil Anderson FNI. In his foreword, the Admiralty Judge, The Honourable Mr Justice Clarke, says: 'Contemporary evidence is of the utmost importance. It is vital to make a note or report of any incident immediatel); if possible while it is still in progress. Photographic or video evidence is of particular assistance to the judge or arbitrator in trying to establish the true facts. The guide has a comprehensive introduction and covers the following principal areas • • • • • • • • • • • • • • cargo damage loss and shortage insurance damage under performance and over consumption claims bunker disputes unsafe berths and ports damage to fixed and floating objects pollution general average salvage collisions labour disputes and disciplinary procedures personal injury stowaways refugees The video Linked £0 the book, a new video has been produced £0 illustrate that events which happen on board ship must be recorded systematically and well. Where possible photographic evidence should be used, the value of closed-circuit television exploited and, when appropriate, video footage collected. The aim of the video is to demonstrate how easy it is to overlook and not bother about events which happen on board. It then takes the viewer through the same sequence where an intelligent interest is taken, all available evidence is collected and the subsequent court appearance is professional and leads to a successful conclusion. This is a powerful training video cleverly animated \\∙;th a strong professional message. It was produced by a multidisciplinary team and directed by The North East Branch of The Nautic-dl Institute. Ordering The book and \~ deo are available from The Nautical Institute, 202 Lambeth Road, London, SEI 7LQ, telephone +44 207928 B51, fax +44 2074012817, e-mail pubs@namins!.org, web ww\\∙:nautinst.org. 
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