British insurer International Transport Intermediaries Club (ITIC) has warned managers to be on their guard after a client was caught up in a lengthy court case stemming from a tanker explosion in 2012.
A ship manager’s liability cannot always arise from the negligent performance of his services, the insurer said.
Nine years ago, an unnamed tanker suffered an explosion while under repair in the United Arab Emirates (UAE).
After an investigation by the authorities of the United Arab Emirates, the case was closed without any action being taken against the captain, owner or manager.
The ship was sold, not repaired, and a settlement was reached between the owner and the insurer without the participation of the anonymous shipowner.
Although the company was named as co-insured, neither the owner nor the insurer asserted a claim against the ship’s manager, who assumed the case was now closed.
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Unaware of the lawsuits
However, in 2019, the official learned that in 2013 in the United Arab Emirates, insurers filed a lawsuit for $26 million against the company and five other defendants.
The other defendants were able to appoint lawyers to represent them in court, but as the shipowner was unaware of the request, he did not do so.
The lawsuit against the other defendants was dropped, leaving the ship’s manager liable for $20 million plus interest at 9%.
ITIC was moved to appeal the claim, but its efforts were twice rebuffed.
“However, given that the vessel manager has no presence or assets in the UAE, and the UAE does not have reciprocal enforcement agreements with relevant jurisdictions, it was deemed extremely difficult for insurers to enforce the decision,” the ITIC said.
The ITIC then initiated arbitration proceedings on behalf of the manager against the shipowner in order to obtain compensation against the legal proceedings.
A “hands off” offer was made by the manager, where both parties would agree to cover their own costs and walk away. It was rejected.
“In mid-2020, following extensive discussion, the vessel manager offered a ‘without prejudice’ settlement of $540,000, this amount being the manager’s contractual liability limit under the management agreement” , said ITIC.
After a counter-offer from the insurer of $12.5 million and numerous other negotiations, a full and final settlement of $1 million was made and accepted.
As the legal costs amounted to nearly $500,000, ITIC covered the full $1.5 million.
“In this case, the ship’s manager had done nothing wrong but was caught up in extremely complex and drawn-out legal proceedings,” ITIC said.
“Vessel managers should be aware of the pitfalls surrounding their position as third parties and fully understand the associated responsibilities and limitations,” the insurer added.