Defence Insurance

Introduction to Defence Insurance and Claims

Philip Woodroffe, Senior Claims Adviser

October 2016

Learning goals• What is Defence insurance?

• Why does Gard sell it?

• What does it cover?

• Who is Gard’s Defence Team?

What is Defence insurance?DEFENCE

To help our members and clients in the marine industriesto manage risk and its consequences

Cornerstone of Gard’s product range

Mud wrestling…Legal and other costs necessarily incurred in establishing or resisting

claims concering the operation of the ship and acquisition or disposal of the ship

Defence insurance – exploding the myths

Freight, Demurrage, Defence insurance:

• is not an insurance cover for freight and demurrage

• does not cover a liability/loss but costs and expenses necessarily incurred

• is not only for defending a claim but also claiming

• is not only for legal costs and expenses

Defence insurance – exploding the mythsFreight, Demurrage, Defence insurance:

• is not only for the Members’ own costs and expenses

•is not a compulsory marine insurance

• is an additional cover – not sold as stand-alone

• is available for Owners, Charterers, Traders and MOU operators

Why do we sell it?

“The one great principle of Englishlaw is to make business for itself.”

Charles Dickens “Bleak House” 1853

What does Defence Insurance cover? The Named Risks

New building, purchase and sale disputesRules 66(a) and (b)

Loss of or damage to the ship or general average

Rule 65(d)

Salvage or towageRule 65(h)

Charterparty, Bill of LadingRule 65(a)

Agents or brokersRule 65(i)

Repairs or deliveries to the shipRule 65(g)

Conversion disputes Rule 66(c)

Insurance contractsRule 65(j)

Delay of the shipRule 65(e)

Property damageRule 65(f)

Loading, stowingdischarging of cargo

Rule 65(b)

Passengers andPassenger monies

Rule 65(c)Customs, harbour, quasi public authoritiesRule 65(k)

The Named RisksRule 65 a) “… contracts of affreightment, charterparties,

bills of lading and other contracts of carriage”

Rule 65 a) “… contracts of affreightment, charterparties, bills of lading and other contracts of carriage”

• Non-payment of hire or freight by a charterer under a charterparty

– Investigate the facts and review the contractual position– Advise Owner on merits of their claim– Draft messages to Charterers either for Gard or Owner to send– Negotiate with Charterers/their Club/their lawyers– Consider getting security for the claim – liening cargo?– Appoint a local lawyer at port of discharge to advise on exercising

lien– Instruct Gard correspondent to ascertain warehousing possibilites for

storing liened cargo– Appoint an arbitrator, draft arbitration submissions, obtain an Award– Enforce or appeal an Award

The Named RisksRule 65 “… loading, lightering, stowing, trimming and discharge of cargo

Rule 65 “… loading, lightering, stowing, trimming and discharge of cargo

• Charterers are responsible for loading the vessel but blame the stevedores for the collapsed stow:

– Appoint a surveyor to investigate the damage and its cause– Draft messages to the stevedores– Appoint local lawyer to advise on legal position under

contract/tort– Investigate whether stevedores have any assets– Take protective action – arrest the stevedores’ bank account– Start court proceedings against the stevedores– Manage the lawyer and litigation

The Named RisksRule 65 c) “… passengers and passenger monies”

Rule 65 c) “… passengers and passenger monies”

• Passenger is dissatisfied with his holiday onboard the Member’s cruise ship and decides to sue the Owner for damages for disappointment:

– Investigate the facts – Review the terms of the ticket – Advise on the merits of the passenger’s claim– Defend the claim

The Named RisksRule 65 d) “… loss of/or damage to the ship or general average”

Rule 65 d) “… loss of/or damage to the ship or general average”

• A vessel allides with the Member’s ship while at berth discharging causing minor damage

Rule 71(i)(a)“… costs relating to claims for damage sustained by the ship… to the

extent that such damage is not recoverable…by reason only of a deductible …”

- Instruct Gard Correspondent for assistance on the spot- Involve in-house expertise

- Appoint an expert- Agree a jurisdiction with owner of the other ship- Take protective action to secure the claim- Oversee the repairs- Litigate or settle the matter

The Named RisksRule 65 e) “… delay of the ship”

Rule 65 e) “… delay of the ship”

• Charterer has had to pay demurrage to an owner under its charterparty because the ship was delayed due to another vessel blocking the port entrance. Charterer wants to bring a recourse claim against the vessel that caused the delay

− Instruct Gard Correspondent to investigate cause of the delay− Inhouse advice on merits of the claim− Appoint and manage external lawyers− Provide a Gard LOU as security for the opponents’ costs− Manage legal proceedings

The Named RisksRule 65 f) “… property damage, personal injury and loss of

life”

Rule 65 f) “… property damage, personal injury and loss of life”

Some minor damage is caused to a quay by a vessel while maneuvering into berth in bad weather. The Port Authority arrests the vessel

• Instruct Gard Correspondent to investigate the circumstances

• Instruct a surveyor• Instruct local lawyer to evaluate merits/advise on

possible defences• Instruct an expert to assess the level of alleged losses• Obtain weather information• Manage lawyer and any litigation

The Named RisksRule 65 g) “… repairs and deliveries to the ship”

Rule 65 g) “…repairs and deliveries to the ship”

Bunker supplier delivers off-spec fuel to the ship, resulting in under performance/over consumption and main engine damage

– Investigate cause of performance issues and main engine damage – expert review of bunker samples and engine damage

– Evaluate merits of claim against bunker supplier – review contract terms in-house/external lawyer

– Establish losses due to under performance and time lost due to engine repairs

– Manage lawyers and legal proceedings in foreign jurisdiction

The Named RisksRule 65 h) “…salvage or towage unless ship is a

salvage vessel or tug”

Rule 65 h) “…salvage or towage unless ship is a salvage vessel or tug”

A ship’s mooring lines parted whilst at berth, a harbour tug assists in re-securing the vessel alongside and claims salvage

– Appoint local Gard Correspondent to fully investigate what happened

– Appoint local lawyer to advise on prospects of defending the salvage claim

– Manage the lawyer and any litigation – Mediate and resolve the dispute

The Named RisksRule 65 i) “… agents and brokers”

Rule 65 i) “… agents and brokers”

Owner’s local agent is failing to account for freight received and to perform its duties as per the agency agreement. Member wants to terminate the agency agreement and start proceedings against the agent to recover the sums due:

– Review clauses of an agency agreement if they are of concern

– Investigate the facts – Use local Gard Correspondent to – Carry out an asset search/check – Instruct local lawyer and manage them and any

litigation

The Named RisksRule 65 j) “…insurance contracts”

Rule 65 j) “…insurance contracts”

E.g., an owner is in dispute with its H&M insurer and wishes to challenge the adjustment

– Review the terms of the H&M policy– Evaluate the fact and advise on the merits of challenging the adjustment– Appoint an expert adjuster to review the adjustment– Appoint external lawyers for a second opinion– Draft messages to the insurers– Negotiate and settle the claim

The Named RisksRule 65 k) “…customs, harbour, quasi public authorities

”

Rule 65 k) “…customs, harbour, quasi public authorities

Drugs are found on board a vessel in South Africa and the vessel detained by the Customs authority. The Member has no P&I cover but wishes to challenge the detention

– Appoint local Gard Correspondent to investigate the circumstances

– Instruct local lawyer to advise on lawfulness of the detention and seek to get vessel released

– Evaluate possible claim against the authority for wrongful detention and consequential losses

The Named Risks Rule 66 – Pre Delivery Defence

Rule 66 – Pre Delivery Defence

a) “building, purchase or mortgaging of the ship”• cover is taken out before the contract has been signed• includes claims in connection with the future employment

of the ship

b) “sale of the entered ship”

c) “conversion of or alterations to the ship”• cover must be by separate agreement – special risk• cover is taken out before the contract has been signed• includes claims in connection with the future employment

of the ship

When don’t we cover?• No reasonable prospect of succeeding/enforcing a claim

• Legal costs unreasonably outweigh the amount in dispute

• Costs/expenses are covered under other insurance

• There has been wilful misconduct by the Member

• Costs which are incurred prior to notification of Gard

• Lawyers who are appointed without Gard’s approval

What do you get for your premium?

• Standard limit– USD 10 million per event

• Pre Delivery Defence*/MOU limit– USD 1 million

• Standard deductible– 25 per cent subject to minimum of USD 5,000

* Sale and purchase claims USD 10 million

Who are we? ‘‘Deep expertise guiding through stormy waters”

Who are we? ‘‘Deep expertise guiding through stormy waters”

• Dedicated team of 30+ competent and experienced lawyers in 7 offices

• Multi-jurisdictional• 80% Defence cases handled in-house: reduces cost for

Member• Every client assigned their own Gard lawyers• High degree of responsibility and authority• Minimum bureaucracy• Strong cost-control mechanisms

Trend settersPiracy, sanctions, civil unrest, tsunamis…

What have we learned?

• What Defence insurance is

• Why we sell it

• What it covers

• Who Gard’s Defence Team is

Read all about Defence Insurance!

• Statutes and Rules– Rules 65 and 66

• Gard Guidance to the Statutes and Rules

• Defence brochure on www.gard.no