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Port Operators Risk Inadequate Insurance Cover

Maritime Activity Reports, Inc.

March 25, 2002

Speaking at the Panama Maritime VI World Conference, Dan Negron, vice president at Through Transport Mutual Services (Americas), stated that port operators face significant liability risk unless they are properly advised by specialist insurers and are in possession of a bespoke port and terminals policy. The devastation caused to New York in the September 11 terrorist attacks has inevitably led to repercussions in the insurance markets. Reports from market analysts contain the sobering conclusion that reinsurance capacity will diminish significantly in the foreseeable future. Consequently, many weaker insurers will either restrict their coverages, or will consolidate with others in order to maintain their capacity. Those insurers remaining in the market are likely to impose significant increases in their premiums. In simple terms, for the foreseeable future, the average purchaser of insurance is likely to pay higher insurance premiums for similar, or even lesser, coverage. A purchaser with unique insurance needs, for instance a port operator, or one who has suffered an adverse number of claims, may well be unable to obtain coverage – at any price.

Because of this, the concepts of risk management and loss prevention are taking on an increasing significance in the establishment of an effective insurance management program. For the owner or operator of a port installation, this means having greater control over the efficiency of his operation and having to maintain a greater awareness of the impact that his relationships with others will have on his insurance coverage. Special operations require specialist coverage A typical port authority can be one of three types: firstly a pure landlord, or a provider of equipment or premises, which does not perform any services. Its facilities might include marine terminals, passenger terminals, offices, piers and wharves, gantry cranes, container handlers and other heavy equipment. Secondly, an intermediate landlord, which provides both equipment or premises and some essential services – such as security, the publication of information about water depths etc, provision of pilotage and so on. The third type is an operational port, which provides some or all of the necessary port services: warehousing; marine terminal operations; container repairs; stevedoring and so on.

The greater the number of services offered by a port, the greater the operator’s exposure to risk. Operators may be liable for a multitude of claims, including: loss of or damage to cargo; delay in delivery of cargo or delivery to an inappropriate destination or improper person; injuries to third parties or loss of or damage to the property of third parties; liabilities arising out of pollution; and costs for clean up operations as a result of accidents, among others. In the event of any insurance claim being made, the complexity of multiple relationships with suppliers and clients could well serve to “muddy the water”. Liabilities and loss A liability insurance policy contains two fundamental obligations. The primary obligation of the insurer is to indemnify the operator for liabilities he incurs arising out of a covered loss. Simply, if an operator causes a loss for which the policy provides protection, the policy will indemnify the loss. The second obligation of the policy is to defend the insured against claims arising out of a covered loss for which he is not responsible. This is typically found in the costs provision of the policy, which includes the costs of investigating, defending and mitigating, or reducing the potential exposure on a claim. In these cases, the policy is designed to defend the operator against the claim, and to seek recourse against the responsible party. In no event, will a liability policy indemnify an operator for claims resulting from the improper actions of unrelated third parties, unless that cover is specifically endorsed onto the policy. The contractual undertakings that ports and terminal operators effect with their premises providers, equipment providers and subcontractors will have a direct impact on the quantum of insurance they will be required to maintain. An operator must be mindful of the impact that such arrangements will have on his insurance cover, or he might risk not having any insurance at all. A well-structured liability policy, if written with the specific exposures facing ports and terminal operators in mind, will protect against the direct losses arising from the ownership or use of the port facilities as well as the contractual undertakings of the operators themselves. The policy itself must be supported by knowledgeable underwriters, capable of providing a local service – wherever in the world the operation is located. Specialists at hand Reflecting the complexities faced by port operators and those that insure them, some specialised insurers manuscript their own forms to suit the specialised risks which they insure. The Through Transport Mutual Insurance Association (TT Club) Limited for instance has created policy forms especially suited to the transportation industry. Its Insurance for Cargo Handling Facilities provides a comprehensive cover specifically designed to cover the various services provided by the operators of installations dedicated to the handling and movement of cargoes and passengers. Another cover issued by the TT Club, the Insurance for Port Authorities, is designed to insure the operational or non-operational (landlord) risks faced by port authorities. These specialized coverages are supported by a network of local offices with industry expertise throughout the world.

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