Conference Issue 2017

PREVIOUS HOME NEXT

Crew inefficiencies risk major claims


By Kate Tilley, Editor, Resolve

Shipowners are risking greater machinery damage claims by skimping on crews, Mark McGurran, group director, hull & machinery services with London Offshore Consultants in Singapore, told APIC17.

He said the costs of operating vessels continued to rise and charter rates were declining. More than 50% of operating costs were for fuel; port charges were 19%; insurance was 13%. Crews were only 5% of operating costs, but many were "not up to the job and it's the biggest cause of machinery failure".

With almost no ships manned above minimum safe levels, there was no time for crews to do maintenance. Engines were becoming more complex but there was reduced shore-side maintenance so work was being done by unqualified crews.

"High-speed engines are cheaper but crews are not familiar with them and there is a reluctance from engine manufacturers to accept repair over replacement. "Cost savings are there with fewer crew, but how much do you really save?" Mr McGurran asked.

Vessel downtime impacted on owners and operators' costs. "Poor and incorrect maintenance is the root cause of machinery failures," he said. LOC preferred to work with insureds to effect quality repairs to get ships back into service as soon as possible.

He urged shipowners and operators to look at crews' duties and workloads before reducing manning. "Will it jeopardise critical maintenance? If so, it might not be the cost saving you think it is."

Co-presenter Iain Anderson, a partner with RPC Legal in Singapore, said the marine market was changing and coverage questions were less frequent. "Lawyers are now saying ‘you will pay, let's talk about how much'."  Brokers had been adept at removing exclusion clauses, including war and breach of customs, "and the market is going along with it".

The constructive total loss (CTL) threshold was getting lower so it was harder for insurers to argue against CTLs.

Insurers could "kiss goodbye to warranty deficiencies" and had to ensure underwriting files were pristine. "If not, don't expect to win a non-disclosure defence."

English courts "don't suffer fools gladly and will punish sloppy underwriting or terms". In cases that succeeded, an insurer had picked a single issue ad pursued it and the courts had agreed. "Sometimes there's a kitchen sink of defences chucked in, but the courts don't like that and think you're just having a go. Pick a single issue and you will have better credibility."

Mr Anderson told insurers to "be realistic". Shipowners had no money so insurers had to get involved early in claims. "You know you'll have to pay something, so get involved. You have a lot of skin in the game; you are writing the cheque. Manage insureds' and cedants' expectations. Be firm but fair."

He advised insurers to "keep your subrogation pathways open". Mr Anderson said the 2017 UK case Atlantik Confidence was a landmark because it showed insurers did not have to pay if they could prove wilful misconduct. In the Atlantik Confidence case, it was a deliberate scuttle. "The standard is still high, but someone has done it."

The cargo Insurers argued the only credible explanation for the vessel sinking was she was deliberately sunk by her crew on the direction of her owners. They argued  the owners' explanation required a series of improbable fortuities and the only credible conclusion was that the loss was caused by a deliberate act. The judge agreed.

 
Back to top
 
 

Resolve is the official publication of the Australian Insurance Law Association and
the New Zealand Insurance Law Association.