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It is well established that merchant shipping involves an element of risk. The casualties and claims are various. In this article we will look at the risks which are covered by a property insurance – hull and machinery insurance (H&M). The relevant claims could be machinery damage, grounding, fire and explosion, etc. The costs of those casualties can be counted, most importantly, in human lives and injuries, but also in financial costs to ship-owners, charterers and their insurers.
According to the Nordic Association of Marine Insurers annual report 2018, machinery claims are the most frequent individual claim type, while grounding is placed as a second frequent type of claims. In this article we will focus on the grounding and other emergency situations that, for instance, might have been caused by machinery damage.
Having handled various grounding incidents and emergency situations, as well as having seen how such incidents are handled by other H&M Underwriters, we are motivated to share our experience.
Generally, there are two types of contracts for salvage assistance:
- No cure – no pay
- Lump sum or daily rate basis
The most common first type of contract is the Lloyd’s Open Form. Such contract enables services to be rendered on the basis that the renumeration to the salvors is determined after the completion of the services, either by a court or by an arbitrator.
The second type of contract is that which is specifically negotiated and tailored for the work to be undertaken and in which either the lump sum or daily rate is agreed.
The decision whether to agree a traditional “no cure – no pay” type of agreement or to negotiate a fixed price contract usually depends on the degree of urgency and availability of the alternative contractors with suitable salvage craft.
In most cases a salvor will be willing to offer a “no cure – no pay” form of contract while the Ship-owner will be looking to minimize the costs of assistance by negotiating a “fixed price” contract.
We are concerned that the guiding principle when choosing the type of assistance is a cautious evaluation of the degree of danger to lives, environment and property. The overriding responsibility for making the decision rests with the master.
Working alongside various leading H&M Underwriters, we note that the crisis handling approaches differ, sometimes to a surprising extent. In most of cases, the actions or inactions of the leading H&M Underwriter are critical enough to avoid major casualty and for the Ship-owners to sustain their business.
Our team, with an addition of previously seagoing officers, is aware of the tough decisions to be made in often harsh weather circumstances. We are of a firm opinion that a proactive and hands on approach is of a benefit to all parties. Having had experience with a different type of casualties, we are sure that engaging early and working alongside the Ship-owner is the best way forward.
This includes taking a prompt decision on the type of assistance 24/7; being always ready to contact towage brokers and assist with the best options suitable in prevailing circumstances. We have established a network of proved and tried subcontractors, surveyors, correspondents, who are ready to render their professional assistance at a first notice.
Dealing with the casualty and claim in the aftermath is an old-fashioned approach which is of no benefit to any party.
The matters that might be at stake are lives and the environment. The pressure might escalate when state admissions/permissions need to be obtained before starting operation, what is particularly stressful in adverse weather conditions. Thus, in our view, obtaining timely local advice and support is essential.
Here are just few issues that the Ship-owners might face in an emergency:
- Immediate claims, fines from the local Authorities;
- Which contractors are best to engage (local repair company, barges, tugs, cranes, etc.)?
- Safety of the crew (necessary repatriation);
- Seaworthiness issues (keeping the vessel safely afloat), etc.
If the H&M Underwriter fails to send out the surveyor on site and nominate a correspondent, the Ship-owners lose a crucial smooth contact with the local authorities and have limited possibility to make necessary arrangements during emergency. Unfortunately, still today, we see examples when in rather difficult circumstances the Ship-owners are left without sufficient support.
To sum up, there is a difference in the claims’ handling approaches between various H&M Underwriters and markets. It is of course largely up to the Ship-owners to decide what type of the claims handling approach suits them best. However, in our opinion, with a hands-on and pro-active claims handling concept there is a high potential not only to reduce the uncertainties and incident expenses
but also to avoid a casualty.