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