ITIC says professional indemnity cover essential in litigious shipping industry.
International Transport Intermediaries Club (ITIC) has warned that, in today’s increasingly litigious business environment, there is a growing need for shipping professionals to have third-party indemnity insurance cover. This can be the case even in those sectors where insurance has not previously been deemed necessary, and in cases where, despite a favourable outcome to legal proceedings, substantial costs may be unrecoverable.
Writing in its newsletter, The Wire, the latest issue of which is dedicated to the hydrographic sector, ITIC cites by way of example a US court ruling which held that the then-US Hydrographic Office (USHO) was not negligent in causing a passenger ship to ground between Nantucket and Martha’s Vineyard after the ship’s owner claimed that a reef had been charted negligently.
Firstly, the court held that the error on the chart was not a result of any negligence by the USHO because the organisation conducted the survey in 1939 using state-of-the-art techniques. It also found that there was no pressing need for the USHO’s successor, the National Oceanic and Atmospheric Association (NOAA), to perform a new survey. Finally, the court ruled that the ship did not actually rely on the defective chart when fixing its course. Therefore, even if the chart had been defective, it did not cause the loss. The US Court of Appeal confirmed the second point, but the first was not mentioned in the judgment.
ITIC points out, “Although there was no liability on the USHO, the defence costs amounted to a small fortune and, in the US court system, the winning party does not receive a cost award. In this instance, the party was a large national hydrographic office, but the same could apply to anyone providing data or professional advice. The cost of being proven innocent can be high.”
ITIC also cites a case in which a hydrographic surveyor had been contracted to produce a chart for a telecommunications company to allow the positioning of underwater fibre-optic cables. A significant time after the charts had been created, a ship towing an anchor made contact with one of the cables and with an underwater electricity cable, which caused damage estimated at $175,000. A claim was made against all parties to the project, including the hydrographic surveyor. However, the surveyor was successfully defended on the basis that the charts were created specifically for its client a year prior to the incident. However, the cost of the defence came to $32,000.
ITIC says, “The cost of legal assistance is always high and time-consuming. The ability of the correct insurer to manage the litigation is vitally important to ensuring that costs are kept to a minimum and to allow people to continue with their business and not have their efforts diverted into the often complicated ensuing legal issues.
“Many companies see insurance as an unproductive cost. This is especially true of small companies, where it is one of the top three expenses. We often hear that ‘insurance takes the profit out of a project’. This is the wrong way to view insurance. A good insurer can add enormous value.”