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A Few Questions on Claims

Question 1

A vessel with bulk cargo on board under one bill of lading grounded and tugs were engaged to refloat her but then the limited information available would be sufficient to substantiate that the vessel and the cargo were in position of peril and it was suggested that the vessel could have been refloated under her own power after a period of time.  What would you suggest I (the Ship-owners) can do to protect my interests?

For the expenditure to be considered as general average all the properties in the adventure must be at risk and not merely one interest.  It does not appear that the facts as known at that time were sufficient to help make a judgment as to whether the expenditure would fall to be general average (to be shared by all the properties in the adventure) or sue and labour charges (to be paid by Hull & Machinery Underwriters subject to the cover).  It is certainly a border-line case.  I would suggest that firstly check the terms and cover of the insurance on the ship to see if there is a General Average Absorption Clause that may adequately cover the expenditure involved.  In absence of such cover and if time allows, you should approach the Hull & Machinery Underwriters (through Brokers) with a view to persuading the Underwriters to accept liability for the relevant costs on the basis of them being Sue & Labour.  The last resort would be to proceed with the collection of general average security from the concerned in cargo in view of the fact that only one bill of lading is involved – preferably with the agreement of Hull Underwriters in the circumstances to bear the cost of collecting security (which would unlikely be much) if at the end of the day when the full facts of the casualty proves that this is a case of Sue & Labour.

Question 2

What obligations as to seaworthiness does a ship-owner have under a time policy on ship subject to Institute of Time Clauses – Hulls 1/10/83?

The ITC-Hulls 1/10/83 (which specifies that the insurance is subject to English law and practice) do not mention the word “seaworthiness” / unseaworthiness and Section 39(5) provides as follows:

“In a time policy there is no implied warranty that the ship shall be seaworthy at any stage of the adventure, but where, with the privity of the assured, the ship is sent to sea in an unseaworthy state, the insurer is not liable for any loss attributable to unseaworthiness.”

So, the law does not imply that the vessel, at any particular time, shall be seaworthy. However, where the vessel was unseaworthy, and the unseaworthiness contributed to the loss/damage, and the Assured was aware of the unseaworthiness, the Underwriters are not responsible for the loss/damage.

Hence, if the vessel was unseaworthy and the Assured was aware of that unseaworthiness which did not contribute to the loss/damage caused by a peril insured, the Underwriters still have to pay the claim.  On the other hand, if the seaworthiness contributed to the loss/damage proximately caused by a peril insured but the Assured was not aware of that unseaworhiness, the Underwriters again will have to pay the claim.

“Privy” means that the Assured must know or should have known the defect and such knowledge includes so-called “turning a blind eye” and it is submitted that this will extend to the Assured being required to ask questions, keep a good record of maintenance and inspection.  The burden of proving unseaworthiness rests with the Underwriters but the Assured will have to first of all prove a loss proximately caused by a peril insured against.

Question 3

Damage to main engine bearings, etc., attributed to negligence of crew was repaired at Port A early last year but after 12 months damage to main engine idle gears became apparent at sea and the vessel had to put into Port B where permanent repairs were effected.  The repairs involved re-metalling bearings and was agreed to have been resulted from negligence of the repairers in re-metalling of the bearings at Port A last year.

The vessel was insured subject to Institute of Time Clauses – Hulls 1/10/83. The Assured has put forward the claim for the Port B repairs as being a supplementary claim for the Port A repairs, i.e. same crew negligence claim applying one single deductible for both.  Underwriters however contend that the second repair is a separate claim attributable to negligence of the repairers at Port A on the first occasion and is subject to a separate deductible in terms of Clause 12 of the ITC-Hulls 1/10/83.  Whose contention is correct?

Section 69 of the Marine Insurance Act 1906 provides for the measure of indemnity being the reasonable cost of repairs.  What is reasonable is a question of fact.  Section 88 of the MIA specifically states that this is so as regards reasonable time, reasonable premium and reasonable diligence and it would seem logical to apply the same principle to reasonable cost and reasonable repairs.  Understandably, the Assured, having acted reasonably and bona fide in carrying out the reinstatement of his loss he is entitled to call these repairs the reasonable repairs and cost incurred the reasonable cost of repairs.  However, it is submitted that there is a clear distinction between the situation where repairs, effected and in good faith considered to be permanent, subsequently transpired to have been insufficient and the situation where repairs would have been entirely satisfactory but for the negligence of repairers in the effecting of the repairs (whether the negligence results in a duplication of the original damage or not).  The facts of this case seem to suggest that the latter situation exists.  We would agree with the Underwriters that the damage repaired at Port B is a result of an entirely new and separate accident, negligence of repairers at Port A.

The Editor would share with readers the following old notes by his former partner, who was an outstanding average adjuster:

  1. Underwriters are liable for reasonable cost of repairs but are not guarantors to Assured for workmanship of repairers.
  2. If repairs are entrusted to repairers of repute with appropriate facilities the cost of that work normally represents reasonable cost of repairs.
  3. If such repairers do a bad job and damage results, the damage is a separate claim for repairers’ negligence if covered.
  4. If such repairers do a bad job, whether damage is sustained or not, the cost of re-doing properly the work which had been done badly, is not part of the reasonable cost of repairs either of the original damage, or of the new damage.
  5. If, with general agreement, a calculated risk is taken with a method of repair which might succeed or not (e.g. metal locking, or welding on propeller blade tips) and it fails in ordinary service, I would allow the cost of that work, and the cost of the new bedplate etc. or propeller, as part of the reasonable cost of repairing the original damage.

Question 4

Clause 10.4 of Clause 10 – Notice of Claim and Tenders of the ITC-Hulls 1/10/83 states: “In the event of failure to comply with the conditions of this Clause 10 a deduction of 15% shall be made from the amount of the ascertained claim.  Does “ascertained claim” refer to the gross claim?

There used to be argument that the “ascertained claim” refers to the gross claim, i.e. before the application of the policy deductible.  However, in practice, we often saw adjusters apply the 15% penalty to “net” claim, i.e. after applying the deductible.  In their book on the Institute Time Clauses, Messrs. N.G. Hudson and J.C. Allen, both former chairmen of the Association of Average Adjusters write: “There is a fixed penalty for non-compliance with the conditions of this clause and this is specified as a 15 per cent deduction from the ascertained claim (the ascertained claim being the net claim after the policy deductible).”


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