Cargo Fumes Spark Insurance Concern

Published Aug 6, 2015 5:26 PM by The Maritime Executive

By William Bennett

Recently seven crew members were injured as a result of inhaling fumes during cleaning operations on the chemical tanker Bomar Mercury while in Rotterdam. The cause and extent of the gas release has not yet been confirmed. While this incident may seem inconsequential to some, to those involved it is not.

In addition, it is not inconsequential to the marine insurance market because it highlights the potential danger that exist for companies that engage in buying and selling commodities, bulk chemical and petroleum products.

Consider the consequences if the fumes caused an explosion while the chemical tanker was moored alongside a busy terminal with people and other vessels nearby. Consider the litigation that could ensue, the parties involved and the entities that those adversely affected would seek compensation from.

Most people would immediately target the vessel, but what of the shippers and cargo owner? Could they be found liable? Do they have proper insurance cover? The answer is “yes” they can be found liable, and “no,” most do not have proper liability cover.

Over the past decade the maritime community has suffered significant losses (vessel, cargo and crew) resulting from the carriage of dangerous cargoes which has resulted in significant litigation where cargo owners and shippers have been the target of liability. Defending such claims can be costly and analyzing defenses for a shipper can be complicated.

There are several statutes, regulations and contractual relationships which must be analyzed and reconciled. The International Maritime Dangerous Goods Code, commonly referred to as the IMDG Code governs handling and classifying of dangerous cargoes in international shipments.

The U.S. Carriage of Goods by Sea Act (COGSA) governs a shipper’s liability when shipping dangerous cargo. COGSA is the starting point in the analysis of whether a shipper may be liable for shipment of dangerous cargo. A shipper may be strictly liable for loss or damage caused by its cargo. In particular, the shipper shall be strictly liable where the cargo was shipped without the carrier’s “consent” and “knowledge of [the] nature and character” of the dangerous cargo.

Further, a shipper may be held strictly liable for damages and expenses resulting directly or indirectly from shipments of inherently dangerous goods when neither the shipper nor the carrier had actual or constructive pre-shipment knowledge of the goods’ dangerous nature.

COGSA sets forth a risk-allocating rule that renders a shipper strictly liable for damages in the event that neither the shipper nor the carrier knew or should have known that shipped goods were inherently dangerous. Thus, a shipper will be strictly liable for shipping dangerous goods unless the carrier knew or should have known of their dangerous nature.

Additionally, even when the dangerous nature of the cargo is known to both parties, but the shipper is uniquely aware of some additional factor that would render the cargo even more dangerous than normal liability on the shipper will be imposed. For example, a shipper may create an additional danger by the manner in which it packaged its cargo which the carrier could not reasonably be expected to know.

Consequently, the shipper has an affirmative duty to warn the carrier of this heightened risk. By failing to give proper warning, the shipper is deemed to have breached its duty to the carrier.

Defending the parties is a fact intensive exercise, often very costly and often uninsured or underinsured. Companies that engage in trading commodities, such as bulk chemical and petroleum products, face exposure to liability for pollution-related property damage, personal injury or death, and environmental damage or clean-up costs resulting from the transportation or temporary in-transit storage.

These risks (legally or contractually assumed) are often misunderstood and inadequately insured. “Traditional” cargo policies only cover loss or damage to the cargo itself, and do not extend cover to third party liabilities. “Traditional” marine general liability insurance policies can provide some element of pollution coverage, however, most do not extend to protect the assured against contractually assumed liabilities.

Most recently, a product has come to market, a Transportation Pollution Liability Policy, which fills gaps that presently exist in today’s marine insurance package. Christopher Alviggi, of Alliant Insurance Services, Inc. describes the product as “stop gap environmental insurance policy which protects an assured’s interests while its good or products are migrating through a very complicated and sometime litigious supply chain”

William Bennett is a Partner in the firm of Blank Rome LP.

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.