Improving the bottom line
Angelo Merialdi
Dublin 25/09/2015
2
Introduction: basic principles of subrogation
The case of subrogation against shipyards
The case of subrogation against classification
societies
www.siccardibregante.it
© 2015 Siccardi Bregante & C. All Rights Reserved.
3
Basic principles of
subrogation
Doctrine of subrogation applicable in most jurisdictions
MIA Sec. 79 (ref. handout Par. 1.1)
Juridical basis: indemnity principle, i.e. the insured cannot
recover loss more than once
Effect: the insurers acquires no better rights / remedies
than those the assured possessed
The right of subrogation can be waived or limited by the terms
of the policy: waiver of subrogation clauses
www.siccardibregante.it
© 2015 Siccardi Bregante & C. All Rights Reserved.
4
Circumstances which may exclude /
adversely affect the subrogation claim
against a shipyard
Shpiyard named as
co-assured
in the insurance
policy
Insurance policy
containing waiver of
subrogation
www.siccardibregante.it
© 2015 Siccardi Bregante & C. All Rights Reserved.
«Warranty of
quality» provisions
in the
shipbuilding/conver
sion/repair contract
5
Shipyard named as co-assured
TYPICAL CASE
OTHER CASES
Builders’ risk policies
covering ships under
construction: normally
shipyard is indicated as
a co-assured together
with owner.
E.g. conversion
contracts may require
owner to stipulate cover
during the conversion
work, also in favor of the
shipyard.
(ref: handout Par. 2.1)
• As a rule: no subrogation claim against named as co-assured
• Possible (unlikely?) exceptions: co-assured outside the
scope of cover in relation to the specific loss (National Oilwell (UK) Ltd
v. Davy Offshore Ltd. (1993); willful misconduct of the co-assured
www.siccardibregante.it
© 2015 Siccardi Bregante & C. All Rights Reserved.
6
Waiver of subrogation
against shipyard
in the ship conversion /repair contract
The ship conversion or repair contract may contain clauses whereby the
owner undertakes to:
1.maintain hull and machinery (and liability) insurance in respect of the ship
throughout the contract period;
2.procure from its insurers a waiver of subrogation against the shipyard (ref:
handout Par. 2.2).
Scope / extent of the waiver may be limited / qualified, for instance:
•waiver only “in excess of the limit of shipyard’s liability insurance”, or
“in excess of the Yard’s maximum liability under contract”;
•“this waiver will be ineffective in case of gross negligence or willful
misconduct of the shipyard”.
www.siccardibregante.it
© 2015 Siccardi Bregante & C. All Rights Reserved.
7
Waiver of subrogation
against shipyard
in the insurance contract
Insurers are not party to the underlying ship conversion / repair contract.
In order to become effective and binding for insurers, the waiver will have to
be incorporated in the insurance contract, e.g. by way of an endorsement to
the insurance policy (ref: handout Par. 2.3).
Content of the endorsement vary so to reflect the wording of correspondent
provision in the ship conversion / refit / repair contract.
If the waiver is not accepted by insurers, they will be still entitled to pursue a
subrogation action against the shipyard, who in turn will be entitled to claim
indemnity against owner.
www.siccardibregante.it
© 2015 Siccardi Bregante & C. All Rights Reserved.
8
Can the insurer still pursue a
subrogation claim in spite of
waiver?
To the extent allowed
by the specific
wording of waiver of
subrogation clause in
the policy.
When indemnified loss
is caused by the willful
misconduct of the
shipyard.
www.siccardibregante.it
© 2015 Siccardi Bregante & C. All Rights Reserved.
9
Subrogation affected by «warranty of
quality» provisions in the ship
building / conversion / repair contract
CASE STUDY
• Ship delivered in oct. 2006, covered by H+M policy
• March. 2009: failure rudder horn during navigation
• Vessel grounded assisted by local tugs
• Damages repaired by owners
• Underwriters paid indemnity for damage to the ship and salvage
remuneration
• Appointed surveyor concludeed that failure was caused by defective
workmanship of the shipyard during construction
• H+M underwriters considered a possible subrogation claim against the
shipyard.
www.siccardibregante.it
© 2015 Siccardi Bregante & C. All Rights Reserved.
Subrogation affected by «warranty of
quality» provisions in the ship
building / conversion / repair contract
Shipbuilding contract based on SAJ Form. Under art. IX:
•Builder’s guarantees to remedy any defects of the Vessel discovered within 12
months from delivery;
•No liability for any consequential loss, damage including loss of time, loss of
profit, loss of earning or demurrage directly or indirectly occasioned to the Buyer
by reason of the defects;
•“Guarantee under this article replaces and excludes any other guarantee and
warranty that may be provided by the law in relation to the construction and sale of
the vessel”.
China Shipbuilding v. NYKK (2000): no claim against shipyard for damages /
losses caused by defects discovered after the 12 month guarantee period, on the
ground that SAJ guarantee is a “comprehensive code” of responsibility for postdelivery defects, excluding shipyard’s liability other than arising from the
guarantee clause itself.
On the basis of the above, no subrogation claim was pursued against
the Yard.
www.siccardibregante.it
© 2015 Siccardi Bregante & C. All Rights Reserved.
10
Classification
Societies
What do they do?
Classification of ships pursuant to Class Rules (IACS
Unified requirements)
•hull
•machinery
•electrical appartuses
Statutory certification of ships upon delegation of Flag
State (IMO safety standards: SOLAS, Load Lines) (ref:
handout Par. 3.1-3.4).
Other safety related matters, e.g.:
•fire fighting
•radio communication
•life saving appliances …
Relationship between owner and classification society governed by a
contarct which usually incorporates the general terms and conditions of the
www.siccardibregante.it
© 2015 Siccardi Bregante & C. All Rights Reserved.
classification society.
11
12
Circumstances which may adversely
affect a subrogation claim against a
classification society
Delimitation of
responsibility of the
classification society
vis à vis owner: no
guarantee of
seaworthiness
Limitation of liability
clauses in the contract
www.siccardibregante.it
© 2015 Siccardi Bregante & C. All Rights Reserved.
Immunity from
jurisdiction
Delimitation of responsibility of the
Classification Society under the
contract: no guarantee of
seaworthiness
Under the contract, e.g. BV General Conditions art. 5 (ref:
handout Par. 3.5)
Certificates issued by the Society are statement on the level of
compliance of the Unit to its Rules;
Certificates are not express warranty of safety, fitness for the
purpose, seaworthiness of the Unit or of its value for sale,
insurance or chartering.
Court common law cases:
• the Tradeways III (Southern District Court of New York, 1972)
• the Sundancer (US Court of Appeal 2nd Circuit, 1993)
• Otto Candies vs NKK (US Court of Appeal 5th Circuit, 2003)
• The Nicholas H (House ofwww.siccardibregante.it
Lords, 1995)
© 2015 Siccardi Bregante & C. All Rights Reserved.
13
14
«The Sundancer»
US Court of Appeal, 2nd circuit
1993
Owners’ position against classification
society “somewhat similar to one who
causes a vehicle accident and then sues the
Motor Vehicle Bureau for damages to his car
because it issued him a driver's license that
falsely represented his fitness to drive” .
www.siccardibregante.it
© 2015 Siccardi Bregante & C. All Rights Reserved.
15
Limitation of liability clauses
in the contract
Example: BV General Conditions, art. 6 (ref: handout Par.
3.6)
liability for damages to client limited to 10 times the amount of fee paid
for the relevant service, this limit not to exceed the greater of € 800.000
and one and a half time the above mentioned fee
no liability for indirect or consequential losses (such as e.g. loss of
revenue, loss of profit, loss of production…)
Contractual limitation may be held unenforceable by a court on
different grounds, depending on the law applicable to the case:
was the limitation actually accepted by the owner?
in civil law jurisdiction clauses limiting liability in case of gross negligence and
willful misconduct may not be enforceable
public policy grounds (the “Sundancer”) / test of reasonableness (UCTA 77)
www.siccardibregante.it
© 2015 Siccardi Bregante & C. All Rights Reserved.
16
Immunity from
jurisdiction
Legal grounds:
•classification societies act as delegate of the Flag
State,
•in the performance of a sovreign activity (checking
compliance of national ships with international
safety stardards for the purpose of registration)
Immunity granted in some recent
cases:
•Erika (Cour d’Appeal Paris, 2010)
•Prestige (Tribunal de Grande Instance Bordeaux,
2014)
•Al Salam Bocaccio (Tribunale
Genova,
2012)
www.siccardibregante.it
© 2015 Siccardi Bregante & C. All Rights Reserved.
Thank you and have a
safe jurney home
Feel free to contact us for any further information
I - 16121 Genova
Via XX Settembre 37/6
I - 20122 Milano
Piazza E. Duse, 1
tel +39 010 543951
fax +39 010 590033
tel +39 02 76340372
www.siccardibregante.it
© 2015 Siccardi Bregante & C. All Rights Reserved.
www.siccardibregante.it
a.merialdi@siccardibregante.it
17