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Marine Insurance Lecture

This document provides information about marine liability insurance and law courses offered at Newcastle University in October 2017 and January 2018. It includes the course modules, lecture and tutorial dates, assignment due dates, and exam information. The document also summarizes the key types of marine insurance including Hull and Machinery (H&M) Insurance, Protection and Indemnity (P&I) Insurance, and Freight, Demurrage and Defense (FD&D) Insurance. It describes the risks each covers and obligations of shipowners.

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NEWCASTLE UNIVERSITY - OCTOBER 2017
MARINE LIABILITY INSURANCE AND LAW Simon MacLeod & Alvin Forster North of England P&I Association 0191 232 5221 simon.macleod@nepia.com alvin.forster@nepia.com www.nepia.com
• General Module Lecture 4 October 1000 to 1200 Tutorial 18 October 1200 to 1300 Assignment by – 03 November 1200 • Ship Module Lecture 08 November 1000 to 1200 Tutorial 22 November 1200 to 1300 Assignment by – 08 December 1200 • Exam Tutorial 10 January 2017 1000 to 1200 Exam fortnight beginning ___________ 3 MARINE LIABILITY INSURANCE AND LAW
General Module • A brief history in marine insurance • H&M Insurance What it is What it covers • P&I Insurance What it is What it covers • FD&D Insurance What it is What it covers 4 MARINE LIABILITY INSURANCE AND LAW
What are a Shipowner’s risks? • The ship(s) - own and others • Property of others • Pollution • People • Cargo • Commercial • Strikes • War 5 MARINE LIABILITY INSURANCE AND LAW
• Additional Reading • Marine Insurance, Vol 1 Principles and Basic Practice, Robert H Brown, Witherby • P&I Clubs, Law and Practice, Third Edition, Steven J Hazelwood, LLP • Shipping Law Handbook, Fourth Edition, Michael Bundock, Informa. • Hill Dickinson “at a glance” shipping guides • Swedish P&I Club – Anatomy of an Accident MARINE LIABILITY INSURANCE AND LAW
7 Joseph Vernet “ship wreck” 1759 HISTORY OF MARINE INSURANCE Phoenician merchant traders Edward Lloyd’s coffee shop
8 HISTORY OF MARINE INSURANCE
Shipowner’s insurance requirements: • Hull and Machinery (H&M) • Protecting and Indemnity (P&I) • Freight, Demurrage & Defence (FD&D) • War Risks • Strike risks 9 MARINE LIABILITY INSURANCE AND LAW
10 Hull & Machinery Insurance (H&M) MARINE LIABILITY INSURANCE AND LAW
11 HULL & MACHINERY INSURANCE • Institute Time Clauses (ITC) - Hulls 1983 1995 • International Hull Clauses 2002 • Covers: • Total loss (actual and constructive) • Partial loss (repairable) • General average contributions • Salvage awards • Collision liabilities to other vessel
• Shipowner permanently deprived of use of ship • Actual total loss or constructive total loss TOTAL LOSS Containershipping.comle-cedre. Prestige 2002 Limburg 2002 12
• Ship is lost and cannot be salvaged. 13 ACTUAL TOTAL LOSS
• Recovery and/or repair would exceed the ships insured value 14 CONSTRUCTIVE TOTAL LOSS
Loss other than a total loss: • Partial loss (economically viable to repair) • Third party liabilities for collisions (RDC) 15 PARTIAL LOSS
Self-unloading bulk carrier “Yeoman Bontrup”: repairable damage 16 PARTIAL LOSS
17 PARTIAL LOSS Yeoman Bontrup: ….the aftermath
Loss or damage caused by: • Perils of the seas, rivers, lakes or other navigable waters • PERILS OF THE SEA - Fortuitous accidents or casualties, peculiar to transportation on a navigable water, such as stranding, sinking, collision of the vessel, striking a submerged object, or encountering heavy weather or other unusual forces of nature. • Fire, explosion • Violent theft by persons from outside the vessel • Jettison • Piracy ITC – Hulls Clause 6.1 INSURED PERILS - TRADITIONAL 18
Subject to due diligence - loss or damage caused by: • Accidents in loading, discharging or shifting cargo or fuel. • “Bursting of boilers, breakage of shafts” or any latent defect in the machinery or hull. • Negligence of master/crew • Negligence of repairers/charterers • Barratry ITC – Hulls Clause 6.2 INSURED PERILS – “INCHMAREE” Containershipping.nl 19
20 OWNER OBLIGATIONS DUE DILIGENCE Proviso to clauses describing perils: • Loss or damage has not resulted from want of due diligence by the assured, owners or managers ITC – Hulls dated 1 October 1983 • Loss or damage has not resulted from want of due diligence by the assured, owners or managers or superintendents or any of their onshore management ITC – Hulls dated 1 November 1995
• A party who suffers loss or incurs costs in order to save property belonging to others has the right of compensation from all those who have benefited from it • GA can be declared by the shipowner if there is: Extraordinary sacrifice or extraordinary expenditure Intentionally and reasonably made or incurred for the common safety Made at time of peril Purpose of preserving the property from peril in a common maritime adventure 21 GENERAL AVERAGE DEFINITION: “AVERAGE” = LOSS
General average Examples of General Average acts include: • Cargo jettisoned for common safety • Fire on board and damage is caused to the ship and/or the cargo by the fire fighting measures • Ship is aground and the main engine is damaged in efforts to refloat • Expenses incurred when making for and whilst at port of refuge which was entered for common safety 22 GENERAL AVERAGE
23 GENERAL AVERAGE “Fire on board and damage is caused to the ship and/or the cargo by the fire fighting measures” Video Fertiliser Cargo Fire.MPEG
24 GENERAL AVERAGE Cargo 1 Cargo 2 Cargo 3 Owner of Cargo 1 Owner of Cargo 2 Owner of Cargo 3 Charterer’s Bunkers Shipowner PARTIES TO THE MARITIME ADVENTURE
When GA has been declared, the losses can be general average or particular average. Losses and costs that qualify for GA contributions are general average expenses. Losses and costs that must be borne by only one party (such as the shipowner - and therefore the H&M insurer) are known as particular average. A general average adjuster will determine what costs fall under general average and which ones are particular average. 25 GENERAL AVERAGE ADJUSTMENT
Another example: APL VANDA 13 February 2016 Southampton UK • Power failure in busy waterway • The decision was made to deliberately ground the vessel to prevent collisions How could this be general average? 26 GENERAL AVERAGE
Payment for services rendered voluntarily to a ship in order to: • Save the ship, its cargo or other property on board • Rescue property from a ship Salvage award assessed on salved value and the element of danger involved Framework detailed in the 1989 Salvage Convention Most common salvage contracts = LOF, WRECKHIRE and WRECKFIXED 27 SALVAGE
28 COLLISIONS “the contact or running down of one ship by another”
Collision Both P&I and H&M insurers have potential exposure Liabilities covered by H&M under standard collision (RDC) clause: H&M COLLISION LIABILITIES • 3/4 of damage to other vessel • 3/4 of damage or loss to cargo and property on other vessel • 3/4 of detention of other vessel • 3/4 of General Average and Salvage contributions of other vessel 29 • 4/4 of damage to own vessel • 4/4 General Average and Salvage contributions of own vessel Why 3/4?
Third party liabilities not covered under standard collision (RDC) clause: • Loss of life or personal injury • Damage to property and cargo on own vessel • Pollution • Wreck removal • Unrecovered general average expenses H&M COLLISION LIABILITIES Picture: Containershipping.nl 30 Who might cover these liabilities?
31 Protecting & Indemnity Insurance (P&I) MARINE LIABILITY INSURANCE AND LAW
32 What is P&I Cover? Insurance for a shipowners liabilities to third parties. These include: • Cargo liabilities (damage, loss, etc.) • Injuries and illness to crew, passengers and other persons – such as treatment, compensation and expenses • Damage to other parties’ property (cranes, quays, terminals etc.) • Collision liabilities not covered by H&M insurer • Pollution clean up and compensation • Wreck removal • Contributions to salvage (pollution prevention) • Unrecovered general average contributions MARINE LIABILITY INSURANCE AND LAW
International Group P&I Clubs (Mutual) • Collective insurance (Pooling) and Reinsurance to very high financial limits • Non profit making (insurance at cost) • In house claims handling with expertise • Long term relationship • Loss prevention services Fixed Premium Providers (Non-mutual) • Lower financial limits • Commercial and profit making • Outsourced claims handling • Short term relationship • No specialist loss prevention 33 WHO PROVIDES P&I COVER? More examples in the book!!
The P&I Club An Association of Shipowners who: • Provide third party liability insurance cover • On a mutual basis (sharing of risks) • Is non-profit making International Group of P&I Clubs • 13 Member Clubs • Over 90% of world tonnage • Collective insurance and reinsurance • Represent view of shipowners • Exchange information www.igpandi.org 34 P&I CLUB - A DEFINITION
35 DEPARTMENTS IN A P&I CLUB Board of Directors (Shipowners) Managers (in-house or third party) Underwriting P&I Claims FD&D Loss Prevention HR & Office Services IT Accounts Compliance
P&I Clubs that are members of the International Group can provide cover up to: • All Claims (except for oil pollution and people) Approximately $8,000 million for a single claim • Oil Pollution Claims (limited) $1,000 million for a single claim • People Claims (limited) $2,000 million for a single claim on passenger claims and US $3,000 million combined limit on passenger and crew claims 36 LIMIT OF FINANCIAL LIABILITY
HOW DO WE PROVIDE THESE LIMITS? THROUGH POOLING & REINSURANCE US$3.1bn to approx US$8bn – Overspill Call
P&I Rule Book: Rule 19 – “Risks Covered” Broadly categorised as: • People • Ships • Cargo • Others 38 RISKS COVERED
39 CLAIMS FIGURES – 2015 POLICY YEAR Number Value TOTAL CLAIMS 3,010 $149,525,579 PEOPLE CLAIMS 1,092 $47,387,494 CARGO CLAIMS 1,000 $57,856,518 SHIP CLAIMS 401 $38,516,412 OTHER P&I CLAIMS 93 $4,020,734 NON-P&I CLAIMS 420 $1,726,699
40 PEOPLE CLAIMS Who can be involved? • Crew (Seamen) • Supernumeraries • Passengers • Third Parties (Stevedores, Surveyors, Pilots etc) Claim costs include: • Treatment • Compensation (damages) that include loss of earnings • Expenses incurred by injured party • Expenses incurred by shipowner
Pay damages or compensation for death, personal injury or illness 41 PEOPLE – DEATH, INJURY & ILLNESS AFFECTED PARTY STATUTORY CONTRACTUAL DUTY OF CARE (NEGLIGENCE) Crew Governed by jurisdiction Contract of Employment and Crew Agreement Yes Supernumaries Dependent on jurisdiction No (unless a stowaway has been put to work) Yes Passengers e.g. EU Passenger Liability Regulation Terms contained in the Passenger Ticket (Athens Convention) Yes Third Parties Dependent on jurisdiction No Yes
Expenses for: • Landing injured or sick persons • Assisting persons in distress • Landing stowaways or refugees What are these expenses? 42 DIVERSION EXPENSES
43 SHIP CLAIMS • Collisions • Damage to Property (FFO) • Non-contact Damage • Wreck Removal • Towage • Pollution • Salvage and General Average Contributions
• Liabilities to the other ship: Assuming ITC hull policy with 3/4 liability RDC clause 44 COLLISIONS – LIABILITIES P&I LIABILITY H&M LIABILITY SHIP DAMAGE 1/4 3/4 DETENTION 1/4 3/4 PROPERTY ON SHIP 1/4 3/4 CARGO 1/4 3/4 GENERAL AVERAGE 1/4 3/4 SALVAGE 1/4 3/4 PERSONAL INJURY 4/4 No POLLUTION 4/4 No
• Liabilities to own ship and other parties: Assuming ITC hull policy with 3/4 liability RDC clause 45 COLLISIONS – LIABILITIES P&I LIABILITY H&M LIABILITY OWN SHIP DAMAGE No 4/4 OWN SHIP GENERAL AVERAGE No 4/4 OWN SHIP SALVAGE No 4/4 PROPERTY NOT ON SHIPS 4/4 No CARGO ON OWN SHIP 4/4 No PERSONAL INJURY 4/4 No POLLUTION 4/4 No WRECK REMOVAL 4/4 No
Damage to fixed and floating objects (FFO): • Cranes • Quays/Berths • Buoys • Port Facilities FFO Claim = Physical Damage + Consequential Losses 46 DAMAGE TO PROPERTY (FFO)
47 DAMAGE TO PROPERTY (FFO)
48 NON-CONTACT DAMAGE TO SHIPS
Sources of pollution: • Oil – Cargo, Bunkers and Bilge Water/Oil Waste (MARPOL Annex I) • Noxious Liquid Substances in Bulk (Annex II) • Harmful Substances in Packages (Annex III) • Sewage (Annex IV) • Garbage (Annex V) • Air Pollution (Annex VI) • Ballast Water (BWM Convention) • Hull coatings (Anti-fouling Convention) 49 POLLUTION
50 WRECK REMOVAL
Towing can be: • ‘customary’ (e.g. harbour towage) • ‘other than customary’ (e.g. salvage operation) P&I Clubs cover the liabilities associated with towage under an approved towage contract P&I Clubs generally do not cover actual costs of a towage operation 51 DURING TOWAGE
52 CARGO CLAIMS Different vessels carry different cargoes which present different risks Cargo Ship Types • Bulk Carrier • Container Ship • General Cargo Ship • Crude Oil Tanker • Product Tanker • Chemical Tanker • Gas Carrier (LPG or LNG) • Car Carrier / Ro Ro • Reefer • Barge
53 CARGO CLAIMS Cargo Claim Types: • Damage to Cargo (e.g. impact damage, collapse wetting, spoiling) • Loss of Cargo • Shortage • Contamination • Contractual / Bills of Lading P&I Clubs are not cargo insurers. P&I Clubs cover a shipowner’s cargo liabilities and the costs that may arise from the loss or damage to a cargo
54 CARGO CLAIMS Typical P&I cargo claims include: • Wet damage to dry bulk cargoes (leaking hatch covers) • Break bulk cargo damage due to lack of securing and shifting • Improper ventilation during voyage leading to condensation • Inadequate cleaning of cargo holds or cargo tanks • Discrepancies in the quantity of cargo on board at loading and discharge 54 Additional costs: • Discharging or disposing of damaged or worthless cargo
CONTAINERCARGO CLAIMS
• A steel exporter (shipper) is selling steel beams to a buyer (consignee) in another country • A shipowner (carrier) is approached to transport these goods 56 CARRIAGE OF CARGO: AN EXAMPLE
• The Bill of Lading is the contract of carriage between the “carrier” (the shipowner or charterer) and the cargo interests (shipper and consignee) • Most common contract of carriage is the Hague- Visby Rules (H-V) 57 CARGO: CONTRACT OF CARRIAGE
Seaworthiness: • Carrier has an obligation to exercise due diligence to make a vessel seaworthy at the commencement of voyage (Hague Visby Article III Rule 1) • Seaworthy means ship is fit to undertake the particular voyage and fit to carry the particular cargo on that voyage • Being seaworthy implies being cargoworthy Care for Cargo: • Carrier has an obligation to carefully load, handle, stow, carry, keep, care for and discharge the goods carried (Article III Rule 2) • Cargo must be loaded, cared for and discharged in the same apparent order and condition as when delivered to the ship at the load port 58 CARGO: CARRIER’S OBLIGATIONS
59 CARGO – CARRIER’S DEFENCES • H-V Rules allow exceptions where the carrier will not be liable for the damage or loss (eg. crew negligence, fire, perils of the sea, war, acts of God) • But if found liable, the Rules allow the carrier to limit their liability (SDR per unit or per kg of cargo) • The ability to limit liability can be taken away if the carrier acted with intent to cause damage, or acted recklessly
60 CARGO CLAIMS The Cargo Claim Process (simplified): • The shipper delivers the cargo to the ship at the load port • The ship’s master issues a document ‘bill of lading’ that records the apparent condition and quantity of the cargo • When the receiver pays the shipper for the cargo, they receive a copy of the bill of lading that allows them to collect the cargo from the vessel at the discharge port • If the cargo is received differently to the description on the bill of lading (condition or quantity) then the receiver will pursue a claim against their cargo insurer • If the cargo insurer finds that the ship was liable for the loss or damage as per the terms of the contract of carriage then they will seek a recovery from the shipowner • The shipowner then seeks reimbursement from the P&I Club
61 ‘OTHER’ CLAIMS • General Average • Salvage • Fines • Legal Costs • Omnibus Rule
P&I Clubs not normally involved in general average P&I may contribute if: • cargo owners refuse to contribute on the allegation of unseaworthiness • The general average contribution required from the ship is greater than the insured value of the vessel 62 GENERAL AVERAGE
P&I Clubs traditionally not involved in salvage costs Framework detailed in the 1989 Salvage Convention Most common salvage contract = LOF Salvage awards normally funded by H&M underwriters “Special compensation” may be awarded if threat of environmental damage. This is normally met by P&I Special compensation may be replaced with a Special Compensation P&I Clause (SCOPIC) Remember – this is different to wreck removal!!!! 63 SALVAGE
P&I cover for fines: • With the Club Managers’ approval: o Customs fines (short or overlanded cargo) o Smuggling o Immigration laws o Accidental pollution • At Director’s discretion: o Other fines o May partly or wholly compensate for confiscation of ship 64 FINES
• Legal Costs that are directly associated with the P&I Claim • Sue and labour costs • “Special Direction” 65 P&I CLAIM: LEGAL COSTS
The Omnibus Rule A shipowner’s liabilities and risks are ever changing……… 66 RISKS INCIDENTAL TO SHIPOWNING ? ?
Many charterers are exposed to similar risks and liabilities as a shipowner: • P&I – Cargo Liabilities • Damage to Hull (DTH) • Bunkers • Freight or Hire 67 SPECIAL COVER FOR TIME CHARTERERS Ship Owner Time ChartererTime Charter-party
• The first part of each claim is borne by the Shipowner • Size of deductible has an effect on premium • A shipowner may have different deductibles for different types of claim 68 DEDUCTIBLES Crew Claim paid by P&I insurer US $85,000 Third party claim US $100,000 Deductible paid by Member US $ 15,000 Cargo Claim paid by P&I insurer US $75,000 Deductible paid by Member US $ 25,000
RISKS NOT COVERED BY P&I Primary Exclusions: • Risks covered under Hull Policy • Double Insurance • War Risks • Radioactive Materials • Imprudent or Hazardous Operations • Sanctions 69 Risks Specifically Not Included: • Damage to entered ship • Equipment • Repairs to entered ship • Freight • Salvage • Charter parties • Bad Debts • Demurrage • Towage • Members’ other interests
70 Freight, Demurrage & Defence (FD&D) Cover MARINE LIABILITY INSURANCE AND LAW
71 FD&D COVER Shipowner Charterer Lawyer
• Additional Class of optional insurance • Covers legal costs in the event of a commercial dispute – does NOT cover legal costs directly associated with a P&I or H&M claim • Does NOT cover the actual substantive liabilities (such as payment of awards) – only the legal and handling costs incurred in relation to the dispute is covered • FD&D cover is discretionary – disputes will only be fought if cost effective and has reasonable chance of success. FD&D COVER 72
• Charterparty disputes • Payment of hire/freight • Laytime and demurrage • Safe port disputes • Bunker disputes • Vessel speed and performance FD&D – TYPICAL DISPUTES 73 • Newbuilding disputes • Sale and purchase disputes • Liens • Disputes with underwriters • Crew / ITF disputes • Disputes with suppliers • Disputes with mortgagees, managers or operators
• There can be a number of different parties involved in a voyage……….. • And a lot of different contracts between these parties • Some will be P&I matters and some will be FD&D 74 CONTRACTUAL DISPUTES
An example scenario – a vessel is under charter (a contract between a charterer and the owner): 1. The charterer orders the vessel to a port and it is agreed that cargo must be loaded within three days 2. The ship’s cargo cranes repeatedly break down and the loading operation takes five days 3. Whilst the cargo is in the ship’s hold, there is a leak from the adjacent ballast tank and it damages the cargo What is P&I and what is FD&D? DIFFERENCE BETWEEN P&I AND FD&D
The ship’s cargo cranes repeatedly break down and the loading operation takes five days – this may incur extra charges from the port or even penalties. No cargo damage has been suffered at this point and this is purely a contractual dispute. FD&D matter Whilst the cargo is in the ship’s hold, there is a leak from the adjacent ballast tank and it damages the cargo – the cargo has been affected whilst under the care of the vessel. P&I matter under P&I Rule 19(17)(a) DIFFERENCE BETWEEN P&I AND FD&D
Covered in the Ship Module on 9 November: • Collisions • Damage to property • Pollution • Claims handling MARINE LIABILITY INSURANCE AND LAW
78 THANK YOU

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Marine Insurance Lecture

  • 1.
  • 2.
    MARINE LIABILITY INSURANCE ANDLAW Simon MacLeod & Alvin Forster North of England P&I Association 0191 232 5221 simon.macleod@nepia.com alvin.forster@nepia.com www.nepia.com
  • 3.
    • General Module Lecture4 October 1000 to 1200 Tutorial 18 October 1200 to 1300 Assignment by – 03 November 1200 • Ship Module Lecture 08 November 1000 to 1200 Tutorial 22 November 1200 to 1300 Assignment by – 08 December 1200 • Exam Tutorial 10 January 2017 1000 to 1200 Exam fortnight beginning ___________ 3 MARINE LIABILITY INSURANCE AND LAW
  • 4.
    General Module • Abrief history in marine insurance • H&M Insurance What it is What it covers • P&I Insurance What it is What it covers • FD&D Insurance What it is What it covers 4 MARINE LIABILITY INSURANCE AND LAW
  • 5.
    What are aShipowner’s risks? • The ship(s) - own and others • Property of others • Pollution • People • Cargo • Commercial • Strikes • War 5 MARINE LIABILITY INSURANCE AND LAW
  • 6.
    • Additional Reading •Marine Insurance, Vol 1 Principles and Basic Practice, Robert H Brown, Witherby • P&I Clubs, Law and Practice, Third Edition, Steven J Hazelwood, LLP • Shipping Law Handbook, Fourth Edition, Michael Bundock, Informa. • Hill Dickinson “at a glance” shipping guides • Swedish P&I Club – Anatomy of an Accident MARINE LIABILITY INSURANCE AND LAW
  • 7.
    7 Joseph Vernet “shipwreck” 1759 HISTORY OF MARINE INSURANCE Phoenician merchant traders Edward Lloyd’s coffee shop
  • 8.
  • 9.
    Shipowner’s insurance requirements: •Hull and Machinery (H&M) • Protecting and Indemnity (P&I) • Freight, Demurrage & Defence (FD&D) • War Risks • Strike risks 9 MARINE LIABILITY INSURANCE AND LAW
  • 10.
    10 Hull & MachineryInsurance (H&M) MARINE LIABILITY INSURANCE AND LAW
  • 11.
    11 HULL & MACHINERY INSURANCE •Institute Time Clauses (ITC) - Hulls 1983 1995 • International Hull Clauses 2002 • Covers: • Total loss (actual and constructive) • Partial loss (repairable) • General average contributions • Salvage awards • Collision liabilities to other vessel
  • 12.
    • Shipowner permanentlydeprived of use of ship • Actual total loss or constructive total loss TOTAL LOSS Containershipping.comle-cedre. Prestige 2002 Limburg 2002 12
  • 13.
    • Ship islost and cannot be salvaged. 13 ACTUAL TOTAL LOSS
  • 14.
    • Recovery and/orrepair would exceed the ships insured value 14 CONSTRUCTIVE TOTAL LOSS
  • 15.
    Loss other thana total loss: • Partial loss (economically viable to repair) • Third party liabilities for collisions (RDC) 15 PARTIAL LOSS
  • 16.
  • 17.
  • 18.
    Loss or damagecaused by: • Perils of the seas, rivers, lakes or other navigable waters • PERILS OF THE SEA - Fortuitous accidents or casualties, peculiar to transportation on a navigable water, such as stranding, sinking, collision of the vessel, striking a submerged object, or encountering heavy weather or other unusual forces of nature. • Fire, explosion • Violent theft by persons from outside the vessel • Jettison • Piracy ITC – Hulls Clause 6.1 INSURED PERILS - TRADITIONAL 18
  • 19.
    Subject to duediligence - loss or damage caused by: • Accidents in loading, discharging or shifting cargo or fuel. • “Bursting of boilers, breakage of shafts” or any latent defect in the machinery or hull. • Negligence of master/crew • Negligence of repairers/charterers • Barratry ITC – Hulls Clause 6.2 INSURED PERILS – “INCHMAREE” Containershipping.nl 19
  • 20.
    20 OWNER OBLIGATIONS DUE DILIGENCE Provisoto clauses describing perils: • Loss or damage has not resulted from want of due diligence by the assured, owners or managers ITC – Hulls dated 1 October 1983 • Loss or damage has not resulted from want of due diligence by the assured, owners or managers or superintendents or any of their onshore management ITC – Hulls dated 1 November 1995
  • 21.
    • A partywho suffers loss or incurs costs in order to save property belonging to others has the right of compensation from all those who have benefited from it • GA can be declared by the shipowner if there is: Extraordinary sacrifice or extraordinary expenditure Intentionally and reasonably made or incurred for the common safety Made at time of peril Purpose of preserving the property from peril in a common maritime adventure 21 GENERAL AVERAGE DEFINITION: “AVERAGE” = LOSS
  • 22.
    General average Examples ofGeneral Average acts include: • Cargo jettisoned for common safety • Fire on board and damage is caused to the ship and/or the cargo by the fire fighting measures • Ship is aground and the main engine is damaged in efforts to refloat • Expenses incurred when making for and whilst at port of refuge which was entered for common safety 22 GENERAL AVERAGE
  • 23.
    23 GENERAL AVERAGE “Fire onboard and damage is caused to the ship and/or the cargo by the fire fighting measures” Video Fertiliser Cargo Fire.MPEG
  • 24.
    24 GENERAL AVERAGE Cargo 1Cargo 2 Cargo 3 Owner of Cargo 1 Owner of Cargo 2 Owner of Cargo 3 Charterer’s Bunkers Shipowner PARTIES TO THE MARITIME ADVENTURE
  • 25.
    When GA hasbeen declared, the losses can be general average or particular average. Losses and costs that qualify for GA contributions are general average expenses. Losses and costs that must be borne by only one party (such as the shipowner - and therefore the H&M insurer) are known as particular average. A general average adjuster will determine what costs fall under general average and which ones are particular average. 25 GENERAL AVERAGE ADJUSTMENT
  • 26.
    Another example: APL VANDA 13February 2016 Southampton UK • Power failure in busy waterway • The decision was made to deliberately ground the vessel to prevent collisions How could this be general average? 26 GENERAL AVERAGE
  • 27.
    Payment for servicesrendered voluntarily to a ship in order to: • Save the ship, its cargo or other property on board • Rescue property from a ship Salvage award assessed on salved value and the element of danger involved Framework detailed in the 1989 Salvage Convention Most common salvage contracts = LOF, WRECKHIRE and WRECKFIXED 27 SALVAGE
  • 28.
    28 COLLISIONS “the contact orrunning down of one ship by another”
  • 29.
    Collision Both P&I andH&M insurers have potential exposure Liabilities covered by H&M under standard collision (RDC) clause: H&M COLLISION LIABILITIES • 3/4 of damage to other vessel • 3/4 of damage or loss to cargo and property on other vessel • 3/4 of detention of other vessel • 3/4 of General Average and Salvage contributions of other vessel 29 • 4/4 of damage to own vessel • 4/4 General Average and Salvage contributions of own vessel Why 3/4?
  • 30.
    Third party liabilitiesnot covered under standard collision (RDC) clause: • Loss of life or personal injury • Damage to property and cargo on own vessel • Pollution • Wreck removal • Unrecovered general average expenses H&M COLLISION LIABILITIES Picture: Containershipping.nl 30 Who might cover these liabilities?
  • 31.
    31 Protecting & IndemnityInsurance (P&I) MARINE LIABILITY INSURANCE AND LAW
  • 32.
    32 What is P&ICover? Insurance for a shipowners liabilities to third parties. These include: • Cargo liabilities (damage, loss, etc.) • Injuries and illness to crew, passengers and other persons – such as treatment, compensation and expenses • Damage to other parties’ property (cranes, quays, terminals etc.) • Collision liabilities not covered by H&M insurer • Pollution clean up and compensation • Wreck removal • Contributions to salvage (pollution prevention) • Unrecovered general average contributions MARINE LIABILITY INSURANCE AND LAW
  • 33.
    International Group P&IClubs (Mutual) • Collective insurance (Pooling) and Reinsurance to very high financial limits • Non profit making (insurance at cost) • In house claims handling with expertise • Long term relationship • Loss prevention services Fixed Premium Providers (Non-mutual) • Lower financial limits • Commercial and profit making • Outsourced claims handling • Short term relationship • No specialist loss prevention 33 WHO PROVIDES P&I COVER? More examples in the book!!
  • 34.
    The P&I Club AnAssociation of Shipowners who: • Provide third party liability insurance cover • On a mutual basis (sharing of risks) • Is non-profit making International Group of P&I Clubs • 13 Member Clubs • Over 90% of world tonnage • Collective insurance and reinsurance • Represent view of shipowners • Exchange information www.igpandi.org 34 P&I CLUB - A DEFINITION
  • 35.
    35 DEPARTMENTS IN AP&I CLUB Board of Directors (Shipowners) Managers (in-house or third party) Underwriting P&I Claims FD&D Loss Prevention HR & Office Services IT Accounts Compliance
  • 36.
    P&I Clubs thatare members of the International Group can provide cover up to: • All Claims (except for oil pollution and people) Approximately $8,000 million for a single claim • Oil Pollution Claims (limited) $1,000 million for a single claim • People Claims (limited) $2,000 million for a single claim on passenger claims and US $3,000 million combined limit on passenger and crew claims 36 LIMIT OF FINANCIAL LIABILITY
  • 37.
    HOW DO WEPROVIDE THESE LIMITS? THROUGH POOLING & REINSURANCE US$3.1bn to approx US$8bn – Overspill Call
  • 38.
    P&I Rule Book: Rule19 – “Risks Covered” Broadly categorised as: • People • Ships • Cargo • Others 38 RISKS COVERED
  • 39.
    39 CLAIMS FIGURES –2015 POLICY YEAR Number Value TOTAL CLAIMS 3,010 $149,525,579 PEOPLE CLAIMS 1,092 $47,387,494 CARGO CLAIMS 1,000 $57,856,518 SHIP CLAIMS 401 $38,516,412 OTHER P&I CLAIMS 93 $4,020,734 NON-P&I CLAIMS 420 $1,726,699
  • 40.
    40 PEOPLE CLAIMS Who canbe involved? • Crew (Seamen) • Supernumeraries • Passengers • Third Parties (Stevedores, Surveyors, Pilots etc) Claim costs include: • Treatment • Compensation (damages) that include loss of earnings • Expenses incurred by injured party • Expenses incurred by shipowner
  • 41.
    Pay damages orcompensation for death, personal injury or illness 41 PEOPLE – DEATH, INJURY & ILLNESS AFFECTED PARTY STATUTORY CONTRACTUAL DUTY OF CARE (NEGLIGENCE) Crew Governed by jurisdiction Contract of Employment and Crew Agreement Yes Supernumaries Dependent on jurisdiction No (unless a stowaway has been put to work) Yes Passengers e.g. EU Passenger Liability Regulation Terms contained in the Passenger Ticket (Athens Convention) Yes Third Parties Dependent on jurisdiction No Yes
  • 42.
    Expenses for: • Landinginjured or sick persons • Assisting persons in distress • Landing stowaways or refugees What are these expenses? 42 DIVERSION EXPENSES
  • 43.
    43 SHIP CLAIMS • Collisions •Damage to Property (FFO) • Non-contact Damage • Wreck Removal • Towage • Pollution • Salvage and General Average Contributions
  • 44.
    • Liabilities tothe other ship: Assuming ITC hull policy with 3/4 liability RDC clause 44 COLLISIONS – LIABILITIES P&I LIABILITY H&M LIABILITY SHIP DAMAGE 1/4 3/4 DETENTION 1/4 3/4 PROPERTY ON SHIP 1/4 3/4 CARGO 1/4 3/4 GENERAL AVERAGE 1/4 3/4 SALVAGE 1/4 3/4 PERSONAL INJURY 4/4 No POLLUTION 4/4 No
  • 45.
    • Liabilities toown ship and other parties: Assuming ITC hull policy with 3/4 liability RDC clause 45 COLLISIONS – LIABILITIES P&I LIABILITY H&M LIABILITY OWN SHIP DAMAGE No 4/4 OWN SHIP GENERAL AVERAGE No 4/4 OWN SHIP SALVAGE No 4/4 PROPERTY NOT ON SHIPS 4/4 No CARGO ON OWN SHIP 4/4 No PERSONAL INJURY 4/4 No POLLUTION 4/4 No WRECK REMOVAL 4/4 No
  • 46.
    Damage to fixedand floating objects (FFO): • Cranes • Quays/Berths • Buoys • Port Facilities FFO Claim = Physical Damage + Consequential Losses 46 DAMAGE TO PROPERTY (FFO)
  • 47.
  • 48.
  • 49.
    Sources of pollution: •Oil – Cargo, Bunkers and Bilge Water/Oil Waste (MARPOL Annex I) • Noxious Liquid Substances in Bulk (Annex II) • Harmful Substances in Packages (Annex III) • Sewage (Annex IV) • Garbage (Annex V) • Air Pollution (Annex VI) • Ballast Water (BWM Convention) • Hull coatings (Anti-fouling Convention) 49 POLLUTION
  • 50.
  • 51.
    Towing can be: •‘customary’ (e.g. harbour towage) • ‘other than customary’ (e.g. salvage operation) P&I Clubs cover the liabilities associated with towage under an approved towage contract P&I Clubs generally do not cover actual costs of a towage operation 51 DURING TOWAGE
  • 52.
    52 CARGO CLAIMS Different vesselscarry different cargoes which present different risks Cargo Ship Types • Bulk Carrier • Container Ship • General Cargo Ship • Crude Oil Tanker • Product Tanker • Chemical Tanker • Gas Carrier (LPG or LNG) • Car Carrier / Ro Ro • Reefer • Barge
  • 53.
    53 CARGO CLAIMS Cargo ClaimTypes: • Damage to Cargo (e.g. impact damage, collapse wetting, spoiling) • Loss of Cargo • Shortage • Contamination • Contractual / Bills of Lading P&I Clubs are not cargo insurers. P&I Clubs cover a shipowner’s cargo liabilities and the costs that may arise from the loss or damage to a cargo
  • 54.
    54 CARGO CLAIMS Typical P&Icargo claims include: • Wet damage to dry bulk cargoes (leaking hatch covers) • Break bulk cargo damage due to lack of securing and shifting • Improper ventilation during voyage leading to condensation • Inadequate cleaning of cargo holds or cargo tanks • Discrepancies in the quantity of cargo on board at loading and discharge 54 Additional costs: • Discharging or disposing of damaged or worthless cargo
  • 55.
  • 56.
    • A steelexporter (shipper) is selling steel beams to a buyer (consignee) in another country • A shipowner (carrier) is approached to transport these goods 56 CARRIAGE OF CARGO: AN EXAMPLE
  • 57.
    • The Billof Lading is the contract of carriage between the “carrier” (the shipowner or charterer) and the cargo interests (shipper and consignee) • Most common contract of carriage is the Hague- Visby Rules (H-V) 57 CARGO: CONTRACT OF CARRIAGE
  • 58.
    Seaworthiness: • Carrier hasan obligation to exercise due diligence to make a vessel seaworthy at the commencement of voyage (Hague Visby Article III Rule 1) • Seaworthy means ship is fit to undertake the particular voyage and fit to carry the particular cargo on that voyage • Being seaworthy implies being cargoworthy Care for Cargo: • Carrier has an obligation to carefully load, handle, stow, carry, keep, care for and discharge the goods carried (Article III Rule 2) • Cargo must be loaded, cared for and discharged in the same apparent order and condition as when delivered to the ship at the load port 58 CARGO: CARRIER’S OBLIGATIONS
  • 59.
    59 CARGO – CARRIER’S DEFENCES •H-V Rules allow exceptions where the carrier will not be liable for the damage or loss (eg. crew negligence, fire, perils of the sea, war, acts of God) • But if found liable, the Rules allow the carrier to limit their liability (SDR per unit or per kg of cargo) • The ability to limit liability can be taken away if the carrier acted with intent to cause damage, or acted recklessly
  • 60.
    60 CARGO CLAIMS The CargoClaim Process (simplified): • The shipper delivers the cargo to the ship at the load port • The ship’s master issues a document ‘bill of lading’ that records the apparent condition and quantity of the cargo • When the receiver pays the shipper for the cargo, they receive a copy of the bill of lading that allows them to collect the cargo from the vessel at the discharge port • If the cargo is received differently to the description on the bill of lading (condition or quantity) then the receiver will pursue a claim against their cargo insurer • If the cargo insurer finds that the ship was liable for the loss or damage as per the terms of the contract of carriage then they will seek a recovery from the shipowner • The shipowner then seeks reimbursement from the P&I Club
  • 61.
    61 ‘OTHER’ CLAIMS • GeneralAverage • Salvage • Fines • Legal Costs • Omnibus Rule
  • 62.
    P&I Clubs notnormally involved in general average P&I may contribute if: • cargo owners refuse to contribute on the allegation of unseaworthiness • The general average contribution required from the ship is greater than the insured value of the vessel 62 GENERAL AVERAGE
  • 63.
    P&I Clubs traditionallynot involved in salvage costs Framework detailed in the 1989 Salvage Convention Most common salvage contract = LOF Salvage awards normally funded by H&M underwriters “Special compensation” may be awarded if threat of environmental damage. This is normally met by P&I Special compensation may be replaced with a Special Compensation P&I Clause (SCOPIC) Remember – this is different to wreck removal!!!! 63 SALVAGE
  • 64.
    P&I cover forfines: • With the Club Managers’ approval: o Customs fines (short or overlanded cargo) o Smuggling o Immigration laws o Accidental pollution • At Director’s discretion: o Other fines o May partly or wholly compensate for confiscation of ship 64 FINES
  • 65.
    • Legal Coststhat are directly associated with the P&I Claim • Sue and labour costs • “Special Direction” 65 P&I CLAIM: LEGAL COSTS
  • 66.
    The Omnibus Rule Ashipowner’s liabilities and risks are ever changing……… 66 RISKS INCIDENTAL TO SHIPOWNING ? ?
  • 67.
    Many charterers areexposed to similar risks and liabilities as a shipowner: • P&I – Cargo Liabilities • Damage to Hull (DTH) • Bunkers • Freight or Hire 67 SPECIAL COVER FOR TIME CHARTERERS Ship Owner Time ChartererTime Charter-party
  • 68.
    • The firstpart of each claim is borne by the Shipowner • Size of deductible has an effect on premium • A shipowner may have different deductibles for different types of claim 68 DEDUCTIBLES Crew Claim paid by P&I insurer US $85,000 Third party claim US $100,000 Deductible paid by Member US $ 15,000 Cargo Claim paid by P&I insurer US $75,000 Deductible paid by Member US $ 25,000
  • 69.
    RISKS NOT COVEREDBY P&I Primary Exclusions: • Risks covered under Hull Policy • Double Insurance • War Risks • Radioactive Materials • Imprudent or Hazardous Operations • Sanctions 69 Risks Specifically Not Included: • Damage to entered ship • Equipment • Repairs to entered ship • Freight • Salvage • Charter parties • Bad Debts • Demurrage • Towage • Members’ other interests
  • 70.
    70 Freight, Demurrage &Defence (FD&D) Cover MARINE LIABILITY INSURANCE AND LAW
  • 71.
  • 72.
    • Additional Classof optional insurance • Covers legal costs in the event of a commercial dispute – does NOT cover legal costs directly associated with a P&I or H&M claim • Does NOT cover the actual substantive liabilities (such as payment of awards) – only the legal and handling costs incurred in relation to the dispute is covered • FD&D cover is discretionary – disputes will only be fought if cost effective and has reasonable chance of success. FD&D COVER 72
  • 73.
    • Charterparty disputes •Payment of hire/freight • Laytime and demurrage • Safe port disputes • Bunker disputes • Vessel speed and performance FD&D – TYPICAL DISPUTES 73 • Newbuilding disputes • Sale and purchase disputes • Liens • Disputes with underwriters • Crew / ITF disputes • Disputes with suppliers • Disputes with mortgagees, managers or operators
  • 74.
    • There canbe a number of different parties involved in a voyage……….. • And a lot of different contracts between these parties • Some will be P&I matters and some will be FD&D 74 CONTRACTUAL DISPUTES
  • 75.
    An example scenario– a vessel is under charter (a contract between a charterer and the owner): 1. The charterer orders the vessel to a port and it is agreed that cargo must be loaded within three days 2. The ship’s cargo cranes repeatedly break down and the loading operation takes five days 3. Whilst the cargo is in the ship’s hold, there is a leak from the adjacent ballast tank and it damages the cargo What is P&I and what is FD&D? DIFFERENCE BETWEEN P&I AND FD&D
  • 76.
    The ship’s cargocranes repeatedly break down and the loading operation takes five days – this may incur extra charges from the port or even penalties. No cargo damage has been suffered at this point and this is purely a contractual dispute. FD&D matter Whilst the cargo is in the ship’s hold, there is a leak from the adjacent ballast tank and it damages the cargo – the cargo has been affected whilst under the care of the vessel. P&I matter under P&I Rule 19(17)(a) DIFFERENCE BETWEEN P&I AND FD&D
  • 77.
    Covered in theShip Module on 9 November: • Collisions • Damage to property • Pollution • Claims handling MARINE LIABILITY INSURANCE AND LAW
  • 78.