- Often claims do arise in which there are multiple interests, some of which insured by single or multiple insurersi and some uninsuredii. Mature marine insurance covers have the benefit of experience and have developed various adjusting principles to apportion the costs incurred including for recovery. However, new marine policies may not have any specific provision for such apportionment. Accordingly, the purpose of this article is to consider the prevailing market practice for the apportionment of costs in a Hull Policy and whether they can be also considered for other Transport Liability policies.
- Hull policy:
- Anecdotal evidence suggests that the most preferred Hull Policy, at least in the region where we are based, is the Institute Time Clauses (Hulls) 1/10/83 (“ITCH 1/10/83) followed by International Hull Clauses 1/11/03 (“IHC 2003”). These policies are “named perils”iii policies and provide cover for Damage to Hull and Machinery (Cl 6 in ITCH 1/10/83 & Cl 2 of IHC 2003 ), Collision Liabilities ( Cl 8 of ITCH 1/10/83 & Cl 6 of IHC 2003), General Average & Salvage (Cl 11 of ITCH 1/10/83 & Cl 8 of IHC 2003) and Sue & Labour (Cl 13 of ITCH 1/10/83 & Cl 9 of IHC 2003).
- Both the policy wordings (ITCH 1/10/83 & IHC 2003) provide for the application of a deductible (Cl 12 of the ITCH 1/10/83 & Cl 15 of IHC 2003). These clauses also provide for the allocation of recoveries with the crucial difference being that
- ITCH 1/10/83: the Insurers are entitled up to the sums they have indemnified without considering any pro-rata recovery for the Insured’s share of the deductible
- IHC 2003: More detailed provisions are provided in Cl 49 and allow the Insured to share in the recovery pro-rata with the Insurers, subject to the costs incurred having the first charge on the recovery.
- With respect to collision liabilities, liability under English would be on basis of a set-offiv between the parties such there would be a Single Liability/Payment. However, due to the incorporation of the principle of cross-liabilities, liability is assessed as if each party pays the other for their fault separately, allowing each party to recover their business interruption risks/Demurrage. Similar provision exists under the cover provided by P&I Clubsv for collision liabilities given that they would often be covering the balance ¼ (or sometimes 4/4) Collision Liability of the vessel.
- New Policies:
- The development of Marine Insurance was mainly from the Cargo and Hull marketvi. Subsequently, P&Ivii cover developed due to the increase in Protection and Indemnity risks.
- The other covers such as Marine Professional Indemnity and Transport Liability are relatively young and use bespoke wordings given that there are no common wordings in the market. Here, we are focusing on a Container Operator and who may be covered for their liabilities (Cargo, Third Party, etc.). However, this cover does not extend to loss of earnings given that there is no similar cover available in this market.
- These new policies do not have any provision for “cross liability”, such that the Insurers liability would be restricted to the net sumviii i.e. Single Liability. This is unfortunate and if the sums for which the Insured is entitled to recover for their uninsured loss of income/demurrage, is meagre, then it would not be an issue. However, sometimes, the sums due to the Insured would be substantial and therefore this may be a factor to consider.
- An example of a Container related loss:
- Whilst on carriage and due to improper stowage/packing of the cargo inside one of the containers operated by the Insured, the cargo damaged the carrying container and other adjoining containers. Due to this, the cargo/carrying container had to be discharged at an intermediate port together with the adjoining damaged containersix (which may be of the Insured or 3rd party). There would be costs incurred for the discharge of the both the Insured and adjoining cargo/containers (which would fall for consideration under both the liability and equipment policy. The containers used by the Insured are freight earning instruments and therefore the Insured would have an entitlement to pursue for recovery for their loss of income/demurrage.
- We assume that the container operator/Insured is insured for both their liability and equipment with the same insurerx.
- For easier understanding, we have put figures below (for the purpose of this example, we have not considered the application of deductibles).
- Damage to cargo being carried: US$ 25,000.00
- Damage to adjoining cargo and containers: US$ 100,000
- Damage to the carrying container: US$ 5,000
- Loss of Income/Demurrage: US$ 20,000.00
- Grand Total – US$ 125,000 (Liability US$ 100,000, Equipment US$ 5,000 and Loss of Income: US$ 20,000 – we have not considered the damage to cargo of USD 25,000 being carried by the Insured given that the Insured would have a defence to the claim pursued by the cargo interests as the loss arose due to their (cargo interests) fault).
- Let us say that the eventual recovery from the cargo interests after deduction of common legal costs (which would have a first charge on any recovery) is US$ 100,000.00.
- The policy conditions in Transport Liability policiesxi generally provide for the Insurers to recover up to the indemnity provided. Accordingly, the Insurers would be entitled to recover the complete sums of US$ 100,000 given that they do not exceed the amounts (USD 105,000) initially paid out.
- If the policy wordings included a Cross Liability Clause, arguably, the Insured would be entitled to share in the recovery pro rata and without application of the deductible.
- Suggested course of action:
- In the unlikely event that the uninsured losses are significant and have a high potential of recoveryxii, the Insured should seek an agreement from the Insurers that they (Insured) share in the proceeds, subject to participating in the costs of pursuit.
- If this is not possible due to the policy conditions, the Insured should consider funding the pursuit for the common benefit of both the Insured and Insurers with the intention to seek reimbursement once a recovery is accomplished, obviously after updating their Insurer’s. As and when the recovery is accomplished and if there is shortfall, the Insured should submit their claim to their Insurers for reimbursement.
- The allocation of recoveries should be accomplished on the following basis:
- Successful recovery:
- Legal and other costs incurred for recovery – first charge on the recovery
- Balance to be shared pro-rata on the agreed claim of both the Insured and Uninsured Claims.
- Unsuccessful recovery: All costs incurred to be shared pro-rate on the agreed claim of both the Insured and Uninsured Claims (If the Insurers have not agreed to the recovery action, there is a risk that these costs would have to be borne by the Insured themselves. However, this does not bar their initial claim and which they would be entitled to pursue in full).
- Successful recovery:
- Final Thoughts:
- While this may be a convenient way to deal with uninsured claims, liability policies generally provide for the Insurers to have conduct of the claimsxiii such that they may insist that the claim be dealt as they deem fit. In this case, the recovery potential of the uninsured claims may not be realized.
- It would be better if the Insured conducts a risk assessment and discuss with their Broker to ascertain both the insured and uninsured risks and see whether the policy wordings can be tinkered so as to allow for recovery for their uninsured losses.
i. For example, if it is a collision related claim, ¾ RDC may be covered by the Hull Insurers (say under ITCH 1/10/83) and with the balance ¼ RDC being covered by the P&I Insurers.
ii. For instance, of Loss of Income (although there is cover available for Loss of Hire but after application of the agreed deductible)
iii. See https://insurancetrainingcenter.com/resource/named-perils-vs-all-risks-explained-in-plain-english/ for explanation of named perils and all risks cover.
iv. See The Khedive (1877) 3 Asp MLC 567
v. See Rule 36 of the Gard P&I Rules and which presently is the largest P&I Club by Tonnage.
vi. See A Brief History of Marine Insurance – Risk & Insurance : Risk & Insurance
vii. A search in Chat GPT over the development of P&I cover developed in the mid-19th century from mutual hull clubs to address liabilities not covered by traditional marine insurance, initially focusing on collision liabilities. Its scope expanded significantly in 1874 to include cargo loss and damage, which led to the creation of “Protection and Indemnity” (P&I) clubs, a model that continues to evolve to cover new risks like pollution and crew welfare.
viii. Although the English Hull Policy has a Cross Liability Clause, this is only with respect to Collision Liabilities. This being the case, for other covers provided by the Hull Policy, the Principle of Single Liability will continue to apply. However, if the recovery is basis a separate contractual right, arguably, the Insured would be entitled to pursue separately for recovery.
ix. For instance, if Steel Coils are not properly lashed in the container, they may result in causing damages to both the carrying container and adjoining containers/cargo.
x. It is possible for the liability and equipment risks to be insured with different insurers. For the purpose of this example, we have considered one insurer insuring both risks for easier understanding.
xi. See TT Club Transport and Logistics Operator 2025 wordings G3 Claims
6 Distribution of Third Party Recoveries
6.1 Amounts recovered from third parties in respect of a claim will be credited to us to the full extent of the amounts which we have paid out, including costs of making the recovery
6.2 Any balance will be credited to you to the extent of amounts which you have incurred (for example: deductibles)
6.3 Any excess will be distributed equitably between you and us – taking into account amounts paid/incurred and the relevant dates
xii. This will depend on whether the counterparty / party at fault is a party of worth, the jurisdiction where they are seated, etc.
xiiii. See TT Club Transport and Logistics Operator 2025 Wordings G3 Claims
7 Powers of the Managers
7.1 The Managers may, in respect of any claim or proceedings relating to a risk for which you are or may be insured:
7.1.1 direct the conduct of the claim/proceedings