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The P&I Insurer's Role in Salvage

Baltic Ace
Bow of the Baltic Ace

By Eamon Moloney 2017-10-17 21:10:07

Major marine casualties are rare events but values are increasing and so are the liabilities that need to be addressed.

In every marine casualty the parties involved have a shared interest in bringing about the best outcome for the crew and vessel, and the most successful response efforts are usually those with the best level of communication and understanding. A P&I Club is only one of many parties, but the range of liabilities that we indemnify and the specialist knowledge that we contribute ensures that P&I involvement is always “from cradle to grave.”

In every casualty response, the safety of life (most often that of the crew) is paramount. This priority is not restricted to the immediate response, because the ever-present risk of criminalization means that crew members often remain in the front line even after the immediate dangers to life, the environment, and property have been addressed.

It is for the master and owners to assess the dangers facing the ship and crew and to take whatever steps are necessary to manage those risks; very often the appropriate response will be to bring in professional salvors. The master and owners must be confident that their insurers will support whatever professional help is needed to mitigate the dangers of the situation. In the face of “real and present danger,” time spent consulting or negotiating is time wasted and can only increase the dangers faced by the ship and crew. The standard casualty-response contracts, particularly Lloyd’s Open Form (“no cure-no pay”), avoid the need for consultation and negotiation in emergency situations, and masters and owners should not hesitate to agree them. When assessing danger, a good test is to ask yourself, “What will happen if I do not accept this assistance?” 

Casualty Response

On average, most owners will only experience a significant casualty every 10 years, and some will never do so. This is an encouraging statistic, but it often means that many members of owners’ response teams will be experiencing their first, live casualty and learning on the job. Conversely, insurers and brokers specializing in marine casualty will encounter these situations regularly.   

Despite any lack of direct experience in marine casualties, the standards of casualty response are improving steadily. This is partly due to better communications (there are still enough of us who remember telex), but is more down to greatly improved Safety Management Systems and, in particular, the value of drills and exercises.  

Practice makes perfect and for owners who are implementing or exercising a casualty response plan, good advice is not to be too ambitious too early. Initial exercises should test basic systems, teams and communications. Only when those are working properly should you introduce more lifelike exercises, in real time and involving a range of risks and responses. P&I Insurers are always happy to contribute our experience to marine-response training and drills.

For most crew members, experiencing a major casualty will reinforce the value of their skills and training.   A small minority may be adversely affected and they will need specialist assistance, which the P&I Insurer will be ready to provide.  

A significant feature of every casualty response is the period of chaos, which may be an hour or it may be three weeks, depending on the nature of the casualty, the location and the assistance required. A key feature of casualty response training is to ensure that during this period of chaos, the correct priorities are identified and the necessary and immediate steps are taken. If your priorities are first life, then the environment and then property, you will not go far wrong.

Casualty Management 

No two marine casualties are the same, but the similarities are greater than the differences and a number of useful techniques can be applied to almost every casualty. Here are a few of them:

Casualty management involves an ever-increasing number of parties, especially if there is a risk of damage to the environment. A key to good casualty management is liaison, and whilst this can be done by e-mail, there are some alternatives.  

Firstly, a daily telephone conference, ideally with a single dial-in number, a fixed time of day and a fixed agenda. The first two conferences may appear chaotic but very quickly the participants will learn the value of listening rather than talking. Do not use the conference to discuss what was done today, the important thing is to agree what will be done tomorrow - in this way conflicts and bottlenecks will be minimized. Because of our involvement across a range of issues, P&I insurers are often well placed to arrange and manage these conferences.  

Another valuable technique is the cup of coffee. In most casualties it is a good idea for the insurers and brokers to meet as soon as practicable, if only to put a face to each name. It is surprising how the investment of 30 minutes over a cup of coffee will help solve the myriad issues that will arise over the coming weeks and months. Again, this is something that P&I insurers can and will deliver, often in conjunction with the insurance brokers.  

A more ambitious technique is to attend on-site. The traditional view is that P&I insurers should not show their face at a casualty because we are “the money” and would therefore attract undesirable attention. A developing view is that there can be significant value in an early visit by the P&I Club, especially in those casualties involving regulatory and environmental agencies. Many local officials will not be particularly experienced in marine casualty response, and more often than not they welcome early and informed liaison with P&I insurers. This is an approach encouraged by the International Group of P&I Clubs.

Joint appointments of specialist advisors, including lawyers, surveyors and consultants will often deliver significant benefits. Shared advice will be better, quicker and cheaper and, with goodwill and clear analysis, any conflict of interest can be identified and managed. There is a developing trend for owners to identify their principal advisors in their Safety Management Systems, ideally these preferences will be discussed with property and liability insurers so that when a casualty occurs, there will be maximum sharing and minimum duplication. P&I insurers, with our global network of offices and correspondents are well placed to advise on appropriate appointments in any location and at any time.  

There are many other areas in which P&I insurers add significant value to casualty management but the last one that I will discuss here is the environment. In some jurisdictions, notably the U.S. and Australia, there are comprehensive plans to address environmental damage and these will be implemented automatically and without much input from the owner. However, in the majority of cases the coastal state will have much less well-developed environmental response plans and in these cases P&I insurers can add significant value. The International Tanker Owners Pollution Federation (ITOPF) is a not-for-profit environmental consultancy specializing in marine pollution. It is headquartered in London and 90 percent funded by P&I insurers. This arrangement gives all members of International Group Clubs automatic access to the full range of ITOPF’s technical and information services, usually at no cost.  

ITOPF maintain comprehensive databases of pollutants, ports and coastlines. For any incident, however small, they are able to advise on risks and response techniques. In larger cases they will attend on-site and offer their specialist advice freely to anyone who will listen; very often they will quickly be incorporated into the coastal state’s emergency response team. ITOPF do not conduct clean-up operations themselves but their advice and leadership can be critical in ensuring that appropriate response measures are put in place. ITOPF’s input is also important when assessing the reasonable cost of clean-up and restitution. Access to ITOPF’s unparalleled knowledge and experience is a material contribution that P&I insurers alone can provide.     

Claims

Once the casualty has been stabilized and the immediate risks to life, property and the environment have been addressed, casualty management generally moves to address the claims arising. Many of these are large, complicated and can take a surprisingly long time to resolve. Constant attention to detail is necessary and, as always, close liaison between all interested parties will deliver significant benefit.  Principal claims involving P&I insurers include:

Crew: Beside the liabilities attaching to death and personal injury, which should always have priority, crew claims may include loss of personal effects, repatriation and sometimes counseling. Careful attention to their welfare in the aftermath of a casualty will preserve crew loyalty and will mitigate the cost of claims. This is an area in which P&I insurers provide particularly valuable services.  

Criminalization: This remains a live issue and one in which P&I insurers can make a material contribution. It is now routine for seafarers to be detained by the coastal state pending satisfactory arrangements for addressing claims arising from the casualty. Deliberate ill-treatment is rare, but seafarers and their families can pay a high price in uncertainty and associated stress. Beside practical assistance such as legal representation and medical care, P&I Clubs can sometimes materially improve the situation of detained seafarers by establishing good, working relations with local authorities, addressing claims appropriately and placing reasonable security when required. The unparalleled flexibility of P&I indemnity insurance in responding to the infinite range of liabilities that can arise in the aftermath of a casualty is perhaps the P&I insurers’ greatest contribution to successful casualty management.  

Bunker removal: In many marine casualties the coastal state will immediately issue an order requiring bunker removal, irrespective of the fact that removal can present more risks than leaving bunkers on board, in properly designed spaces and with all facilities to keep them safe. If bunker removal is ordered for environmental protection rather than as a necessary part of salvage operations, the cost will generally be for P&I insurers. Careful liaison between P&I and Hull & Machinery insurers will ensure that the job is done economically and with minimum disruption to salvage operation.  

SCOPIC: If the salvage is conducted under LOF, P&I insurers may be directly involved via the Special Compensation P&I Clause (SCOPIC) under which P&I insurers are potentially liable to compensate salvors in the event that the value of salved property is insufficient to reward them properly. Having been introduced in 1999, the SCOPIC Clause is still relatively new but it is working well and delivers many benefits, not least of which is greatly improved communications via the relationship between the salvage master and the special casualty representative.   

Environmental damage claims are often difficult and more contentious. Some countries have implemented statutory methods of assessing damage and compensation and some have adopted the same principles informally and outside the strict operation of law. In other jurisdictions, the assessment of environmental damage is less certain and it is surprisingly difficult to predict which jurisdictions will take an informed approach and which will have unreasonable expectations. P&I insurers, assisted by ITOPF, have unparalleled experience in addressing environmental damage claims across the world, we also have a good understanding of the operation of the International Oil Pollution Fund and the other national and International bodies involved in the assessment and payment of environmental damage claims.  

Wreck removal is closely associated with the protection of the environment and is becoming increasingly common and increasingly expensive. In past times, wrecks would generally be left where they lay, sometimes because they were graves but also because they were not an obvious risk to navigation or the environment. Today, wreck removal is becoming more common, even when the wreck represents no realistic risk to anyone or anything.  International regulation of wreck removal via the Nairobi Convention is relatively new and relatively untested, but the convention does introduce the concept of reasonableness into removal requirements and efforts.  P&I insurers are sometimes responsibility for wreck removal and experience shows that early and respectful liaison with the coastal state may offer material benefits in ensuring that wreck removal orders are limited to reasonable efforts to address identifiable risks.  

A useful approach to these operations can be to work closely with local advisors and, where appropriate, employ local contractors, who have a better understanding of just what will satisfy local requirements. Again, P&I insurers have unparalleled experience in addressing wreck removal liabilities, including the ever-increasing range of contracts designed to manage risk.  

Finally, P&I insurers can assist owners with fines and penalties arising from the casualty. These can be significant but, as often as not, the scale of any fine will reflect the effectiveness of the response effort quite as much as the risk or danger. This is another area in which an informed, measured and appropriate casualty response has the potential to mitigate the ultimate liabilities.  

Conclusion

The unparalleled flexibility of P&I insurance and the extraordinary resources retained in-house by members of the International Group of P&I Clubs, including our worldwide network of P&I correspondents, means that P&I insurers are uniquely placed to give material assistance to ship owners, other insurers and all other parties involved in marine casualties. This expertise is increasingly delivered though our overseas offices and a developing feature of marine casualty response is that local solutions can often be the best answer to a local problem. Finally and as I hope I have demonstrated, communications are nearly, but not quite, as important as expertise.  

Eamon Moloney is North’s Deputy Director (Claims).

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