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Transport Liability Claims Handling – Front Foot or Back Foot?

Author: M. Jagannath
Date: July 10, 2017

What is the best way to deal with a Transport Liability Claim? Should Carriers / Transporters and their Insurers (“TLO”) be involved when the loss is developing? Or should they wait for a claim to be submitted by the claimants? This article will consider these issues and argue that it would be best to be involved as the claim develops so as to minimise any exposure.

  1. Transport Liability Claims are derivative claims in that the Insured must be first liable to a third party (either based on applicable laws i.e. COGSA; or as provided in the carriage / service contracts, etc) and which would trigger the liability policy to respond to the claim. The question would be is whether investigations on a loss should be conducted when the loss is first reported whilst the claim is developing (Front Foot) or when a claim is submitted (Back Foot)?

  1. Front Foot and Back Foot are styles used in cricket and symbolize aggressive and defensive play respectively. By Front Foot, we mean that whenever a loss is reported, surveyors / experts are engaged to ascertain the circumstances of loss and which would lead to front loading of costs i.e. costs will be incurred irrespective as to whether a claim is submitted or not. With respect to Back Foot, losses would only be investigated when a claim is submitted. This would result in lesser costs being incurred as some losses may not have matured into a claim. 

  2. Front Foot:

    1. Advantages:

      1. TLO can assess their exposure together with the parties involved for possible recovery / contribution by 3rd parties who may be responsible for the loss.

      2. Mitigation of loss: Attendance during the loss would give TLO the opportunity to ascertain both the liability and quantum of the loss. It is submitted that while focus is invariably given to ascertain the liability, adequate consideration must also be given on the quantum and whether this (quantum) could be reduced by adopting pro-active measures (such as suggesting cargo interests to conduct a salvage sale, segregating damaged cargo from sound cargo, engaging cargo specialists etc). Attendance of a TLO's surveyor well versed in these issues would ensure that the cargo interests are forced to consider mitigation. As a consequence, the loss may be significantly reduced such that it may no longer be necessary to argue on the liability (and settle, if necessary, on “nuisance value” basis).

      3. Preservation of evidence: TLO’s have an opportunity to ensure that the relevant evidence, together with participants involved. are preserved so that if this matter is pursued further, they can defend the claim. 

    2. Disadvantages : 

      1. Costs will be incurred irrespective of whether a claim is actually submitted by the cargo interests/ third parties.

      2. Attendance during the loss may draw undue attention to the TLO and the availability of "funds" to deal with the claim. This may lead the cargo interests / third parties to pursue the TLO for recovery (which they would not have considered if the TLO had maintained a low profile).  

  3. Backfoot: 

    1. If claims are reported much after the incident, the TLO does not have an opportunity to participate in any survey. In this case, the claim would necessarily have to be dealt in the “back foot” i.e. based on details which are provided by the claimant.

    2. Tactical: TLO’s may deliberately maintain a low profile and only investigate when a claim is properly submitted for consideration. While most of the losses may not lead to a claim, this option would mean a significant reduction in claims investiagtion costs. 

    3. Loss of control: As the TLO does not participate in any survey / investigation, they loose not only an opportunity to ascertain the the circumstances but also the opportunity to force the claimants to mitigate the loss.

    4. Late reporting: TLO's may report the loss as and when a claim is submitted by the claimants. If the TLO's were aware of the incident which may give rise to a loss, failure to report promptly may be in breach of their liability policy terms and conditions (mentioned in 6 below).

  4. The major difference between the “Front Foot” and “Back Foot” approach is that there will be a front loading of costs in the “Front Foot” option. While we do not have any statistics, we believe that the costs incurred are well worth given that most of the claims can then be dealt at more “reasonable” levels due to the mitigation assistance provided and / or the possibility of taking a tactical position to deal with the claim.
     
  5. Investiagtion on losses under Transport Liability Policies are invariably conducted by the Liability Insurers given that Transport Operators may not have the knowledge to deal with the claims. Additionally, given that the Insurers would be liable for any claims arising under the terms of the policy, they would wish to ensure that claims, if any, are properly investigated so as to minimise their exposure. Transport Liability Policies therefore generally provide for the Insured to notify the Insurers of any incident which may give rise to a claim. The aim of these reporting conditions is to allow the Insurers, on being notified of the loss, an opportunity to consider engaging an expert / surveyor to attend to protect their interests. Failure to report promptly to the Insurers may entitle Insurers to either deny or reduce the quantum of the claim reimbursable under the policy. 

  6. In conclusion, 

    1. if the claim is reported while the loss is developing, it may be best to engage experts / surveyors to attend to ascertain the nature, cause and extent of damage, assist in the mitigation of loss and preserve evidence to deal with any eventual claim.

    2. if a decision is taken not to participate / investigate the loss, this must be consciously taken after considering both the tactical advantages and disadvantages.

 

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