Shipowners' right to limit their liability – Not without limits
Shipowners’ right to limit their liability
Vessels at sea are worldwide at risk of causing enormous damage to other parties, hereunder also the environment. This is an issue of international interest and has for many years been subject to international conventions between coast states which thereafter have been implemented in the states’ maritime laws.
Balancing different interests and to make such risks manageable for shipowners and insurers the shipowners have been given the right to limit their liability to fixed maximum amounts.
The limits implemented in the Norwegian Maritime Code section 175 are e.g. for claims in respect of personal injury to the ship’s own passengers SDR 175 000 multiplied by the number of passengers the ship is entitled to carry. (1 SDR is for the time being approx. NOK 11,70.)
The limit in respect of oil pollution is related to the ship’s tonnage, but shall never exceed the amount of SDR 89,770, 000. These limits are in accordance with the International Convention on Civil Liability for Oil Pollution Damage, 1992.
However, there are limits to which types of claims and which causes to the liability that are included in the limits. Some of these exceptions seem to have surprised the maritime insurance industry.
MT Prestige, an 81 500 dwt tanker built in 1976, sank in 2002 approx. 250 kilometers off the Spanish coast. The vessel split in half, released over 76,000 m3 of oil into the sea and resulted in the biggest environmental disaster in the history of both Portugal and Spain.
TradeWinds reported 5 May 2017 of a recent decision handed down by the Spanish Supreme Court. The court concluded that there was a reckless damage to the environment, thus, the shipowner’s right to limit the liability was lost.
As a result the P & I (Prevention and Indemnity) insurer will be liable to pay up to USD 1 billion. This is the maximum amount available for the pollution cover from the P& I clubs.
This ruling seems to have astonished parts of the Maritime Industry and especially the P & I insurers. The strict liability imposed on shipowners under the conventions was supposed to be balanced by what was thought to be an almost unbreakable right to limitation. This ruling shows otherwise.
MV Server ran aground January 2007 off Fedje on the west coast of Norway. The release of bunkers made a local small environmental disaster for the municipals affected.
The Norwegian Coastal Administration imposed the shipowner to remove the wreck. The shipowner and the P & I insurer invoked that the shipowner’s right to limit its liability should apply also to such order from the authorities.
The Norwegian Supreme Court handed down its decision 9 February 2017.
The Limitation Fund, constituted in accordance with the provisions of the Norwegian Maritime Act Chapter 12, did not limit the shipowner’s own obligation to remove the wreck.
The court inter alia referred to the Convention on Limitation of Liability for Maritime Claims, 1976. When this convention was discussed and agreed upon a proposal to include the shipowners’ own expenses to prevent and limit the damage was voted down.
Future risk assessments
It remains to be seen how these rulings will affect the insurance industry. Underwriters may certainly be more careful in their risk assessments and an increasing number of shipowners may experience that it may be more difficult to provide insurance for their vessels.