nclude Industry wise Cases.

 Include cases on

- CHITRA ship accident case which took place near to Mumbai cost in recent
past.

http://sampspeak.blogspot.com/2010/08/collision-of-msc-chitra-with-mv.html

- BRITISH PETROLEUM case, in which U.S has asked BP to pay for

environment hazards caused by them.

http://www.uniteforsight.org/environmental-health/module20

- SOMALIAN Pirates case, because of which the ships have to take a longer
route.

http://www.closeprotectionworld.co.uk/maritime-security-forum/28544-somali-
piracy-effect-ship-hijacking-marine-insurance-policies.html

http://www.rmmag.com/Magazine/PrintTemplate.cfm?AID=3959

- Cases from ICFAI insurance cases booklet.

-

3. by John Knott, of Holman Fenwick Willan LLP

The judgment of Mr Justice Steel, delivered in the English Commercial Court
on 18 February 2010 in Masefield AG v. Amlin Corporate Member Ltd,
[2010] EWHC 280 (Comm), resolved an issue between the parties as to
whether or not the hijacking of the tanker Bunga Melati Dua by Somali
pirates justified a claim under an open cover marine insurance policy for the
total loss of cargo, alternatively its constructive total loss, notwithstanding
that the cargo was eventually recovered. In the course of his judgment the
learned judge made a number of observations that will be of interest to
anyone having to deal with legal or insurance issues arising from a ship
hijacking.

The Hijacking

The chemical/palm oil tanker Bunga Melati Dua was hijacked in the Gulf of
Aden on 19 August 2008, while on passage from Sumatra to Rotterdam.
During the attack one of the 39-member crew (29 Malaysians and 10
Filipinos) was killed. The owners negotiated a ransom payment and the
vessel, the remaining crew, and the cargo were released on 29 September, six
weeks after capture.
The Claim

The claimants were the owners of two parcels of bio-diesel, with a declared
value of over US$13 million, which had been shipped onboard the vessel. The
defendants were their insurers. Masefield’s primary claim was for an actual
total loss (“ATL”) in the sum of US$7 million, representing their net loss after
giving credit for the proceeds from the disposal of the recovered cargo at
Rotterdam. The claimants asserted that an ATL occurred when the vessel was
hijacked because, in terms of s57(1) of the Marine Insurance Act 1906, they
had been “irretrievably deprived” of the cargo, notwithstanding its ultimate
recovery. In the alternative, Masefield claimed on the basis of a constructive
total loss (“CTL”) within the terms of s60(1) of the 1906 Act, contending that
the cargo had been reasonably abandoned because its actual loss appeared to
be unavoidable.
Insurance Cover and Exclusions

The all risks insurance policy contained a war risks exclusion for “loss,
damage or expense caused by … capture, seizure, arrest restraint or
detainment (piracy excepted), and the consequences thereof or any attempt
thereat.” A further clause avoided cover for a CTL except where “the subject-
matter insured is reasonably abandoned either on account of its actual loss
appearing to be unavoidable or because the cost of recovering, reconditioning
and forwarding the subject-matter to the destination to which it is insured
would exceed its value on arrival.”
Main Issue

The main issue was whether, on 18 September 2008, when the claimants
served notice of abandonment, they had been “irretrievably deprived” of the
cargo—regardless of the fact that they recovered it after the shipowners paid a
ransom. At first sight, given that the claimants did later recover the cargo, this
may seem to be a rather startling proposition. To support it, the claimants
sought to rely on a statement made by Mr Justice Rix in Kuwait Airways v
Kuwait Insurance [1996] 1 Lloyd’s Rep. 664, approving a mid-19th century
decision dealing with the effect of capture of a merchant vessel by pirates, the
vessel subsequently being recaptured by an English warship and treated as a
prize ship in proceedings in the Admiralty Court. Rix J had said:
“In case of capture, because the intent is from the first to take dominion over a
ship, there is an actual total loss straightaway, even though there later be a
recovery: see Dean v. Hornby, (1854) 3 El. & Bl. 179 (a case of piratical
seizure).”

The Court’s Finding

Steel J, however, considered that this statement could not be regarded as being
of universal application. In his view, there was a fallacy in the claimants’
reliance on it, because the impact and the fact of a capture was very fact
sensitive; and whereas in Dean v. Hornby title to the captured vessel passed
lawfully when she became a prize ship, title to Bunga Melati Dua had not
passed to the Somali pirates: they merely acquired unlawful possession of the
ship. Quite apart from that, Steel J considered that the claim in Dean v.
Hornby had really been not for an ATL, but for a CTL. And in the present
case he held that there had not been a CTL, as the cargo had not been
abandoned within the meaning of s60 of the Marine Insurance Act, because
“the shipowners and the cargo owners had every intention of recovering their
property and were fully hopeful of doing so.” As, in light of the history of
Somali hijackings, they had good reason to believe that they would be
successful in achieving a recovery, there was no reasonable basis for
considering that an ATL was unavoidable.
Public Policy in relation to Ransom Payments

The claimants had a further argument, which was that the recovery of the
Bunga Melati Dua and its cargo by the payment of a ransom should be
ignored, because the payment of the ransom, although not illegal under
English law, was, in the claimants’ submission, contrary to public policy.
This, they contended, had a bearing on whether the ship and cargo should be
treated as “irretrievable” in practice.
On this issue, Steel J followed the approach in Fender v. St John Mildmay
[1938] AC 1, where Lord Atkin had said:
“The doctrine [of public policy] should only be invoked in clear cases in
which the harm to the public is substantially incontestable, and does not
depend upon the idiosyncratic inferences of a few judicial minds.”
Among the reasons why Steel J was persuaded that payment of the ransom
was an appropriate action for the shipowners to take, were that a payment was
not illegal, and that, although payment would encourage further hijackings—
particularly where there was insurance cover—there was no other feasible
method available to the shipowners to take the crew out of harm’s way. In the
circumstances, the learned judge felt that there was no clear and urgent reason
for categorising the activity as contrary to public policy. He also pointed out
that a contrary finding would have a catastrophic effect upon the kidnap and
ransom insurance market.
Duty to Pay a Ransom

Steel J dismissed a further argument by the claimants, who sought in the

alternative to have the payment disregarded on the ground that they were not
under a duty to pay a ransom. The learned judge considered the argument to
be misconceived, and that the existence or otherwise of a duty was irrelevant.
The real issue was whether a payment would or might lead to a recovery. And
a related consideration was that the amount paid was in fact reasonable, given
that it represented only a small proportion of the value of the property.

Sue and Labour

 In the course of his judgment, Steel J noted that a ransom payment was in
principle recoverable as a sue and labour expense by reason of the decision in
Royal Boskalis Westminster NV v. Mountain [1999] QB 674, where the
majority of the Court of Appeal approved the view to that effect expressed in
Arnould: The Law of Marine Insurance.

Conclusion

The learned judge’s robust approach to the issues in the case will give
welcome reassurance to shipowners faced with the appalling situation of
having a vessel attacked and captured, and their crew held hostage.
Additionally, Steel J’s observation that a shipowner has virtually no option but
to pay a ransom to take his crew out of harm’s way is sound common sense,
and comes as a refreshing change from the increasingly strong vocal stance
taken by the American administration against the payment of ransoms to
pirates, and the concern expressed by the United Nations Security Council in
its Resolution 1897 passed in December 2009. As shown in an earlier article,
the payment of a ransom is not in itself illegal under English law, and
concerns about money laundering and supporting terrorism by making such
payments to Somali pirates, do not stand up to careful analysis.

Piracy's Impact on Insurance

by Rene L. Siemens, Joshua J. Pollack and Jessica L. Freiheit

There has been a devastating surge of piracy in the wake of Somalia's civil war. As a
result, the Gulf of Aden-or "pirate alley"-has turned into the world's most dangerous
waterway. In 2008, there were 111 pirate attacks in the Gulf of Aden and off the
east coast Somalia, including 42 vessel hijackings. By mid-May, there had already
been more attacks in the area in 2009 than during all of 2008, including 29
successful hijackings. In November 2008, the Sirius Star, carrying two million barrels
of crude oil from Saudi Arabia to the United States (worth approximately $100
million) became the largest oil tanker to be seized by pirates. It was held for two
months until being released upon payment of a ransom.

More than 10% of all seaborne oil passes through the Gulf of Aden to the Suez
Canal. The alternate route, traveling around the southern tip of Africa, is significantly
longer and more expensive. Routing a single tanker from Saudi Arabia to the United
States around the Cape of Good Hope adds approximately 2,700 miles to each
voyage and about $3.5 million in annual fuel costs.

The dramatic rise of piracy in the Gulf of Aden is changing the insurance landscape.
While piracy is not a new insured risk, the increase in pirate attacks along the Gulf
has affected premiums and coverage. According to a recent report, insurance
premiums for ships traveling through the Gulf have rose from between 0.05% and
0.175% of the value of their cargo, compared to between 0% and 0.05% in May
2008, an increase of 350%. Premiums for kidnap and ransom coverage have
reportedly increased by as much as 1,000%.

Large ships typically carry three separate types of insurance. Hull insurance covers
physical risks to the insured vessel, machinery and provisions. Cargo insurance
covers transported goods or merchandise. Protection and indemnity (P&I) insurance
covers liability to crew, passengers and other third parties. Some shippers also carry
business interruption ("loss of hire") insurance to cover lost earnings due to delays.

Historically, coverage for piracy has been a mixed story. Clause 2.1.5 of the
International Hull Clauses, for example, covers piracy as an included peril: "This
insurance covers loss of or damage to the subject-matter insured caused by piracy."
The American Institute Hull Clauses, which were established in 1977, list pirates as a
covered peril. In 2005, however, marine underwriters in London began a transition
from covering piracy under hull policies to covering it under separate war risk
policies.

Some cargo policies expressly cover damage to cargo as a result of piracy. The most
common London form of marine cargo insurance, Institute Cargo Clauses (A), covers
"all risks of loss of or damage to the subject matter insured except as provided in
Clauses 4, 5, 6 and 7." Clause 6.2 excludes coverage for "capture, seizure, arrest,
restraint or detainment," but expressly excepts piracy from this exclusion. Other
London and American cargo clauses, however, expressly exclude piracy. Some P&I
policies also expressly cover piracy. Others exclude it, and some are silent.

If all this was not confusing enough, Somali piracy has added some new wrinkles.
Given that the pirate attacks are a consequence of civil war and often carried out by
heavily armed paramilitary groups, policyholders are beginning to fear that, even
where policies promise to cover piracy, insurers may invoke the various "war," "civil
war" and "riot" clauses in their policies to deny coverage. It is not clear that this
approach will be successful, but the uncertainty has led many brokers and insurers
to urge policyholders to purchase war risk policies just in case.

Unlike hull policies, premiums for war risk policies are typically paid per transit and
underwriters often charge extra for trips through high-risk areas. (The Gulf of Aden
has been on the high-risk list of the London Market Association's Joint War
Committee since May 2008.) While other policies tend to allow ships to move freely
around the world, war risk policies require policyholders to contact their insurer if
they intend to trade in dangerous areas. In these ways, war risk policies can help
insurers contain their exposure to piracy risk while pricing it more accurately.

A Pirate's Motivation

Another wrinkle is that Somali pirates have been motivated by kidnap and ransom
payments, not the value of the vessels or cargo. It has long been understood that
ransom may be covered by "general averages," a voluntary agreement by the owner,
charterers, insurers and other interests to pay a proportionate share of a ship's
expenses. Under Rule A of the 2004 York-Antwerp Rules (which codify the principles
of general averages), "there is a general average act when, and only when, any
extraordinary sacrifice or expenditure is intentionally and reasonably made or
incurred for the common safety for the purpose of preserving from peril the property
involved in a common maritime adventure."

Marine insurance policies, moreover, typically cover "general average" costs and may
therefore reimburse the insured for ransom if piracy losses are not expressly
excluded. Where ransom is paid to protect the vessel, cargo or crew, the cost might
also be covered under a marine policy's "sue and labor" clause, which provides
coverage for the costs that an insured incurs to diminish or avert a loss.

Insurers may respond to ransom coverage claims by disputing whether the ransom
cost was reasonable, subject to a war or terrorism exclusion or even uninsurable as a
matter of public policy. Policyholders wanting to nip such disputes in the bud have
the option of purchasing kidnap and ransom coverage, under which the insurer will
even provide a response team to take charge of ransom negotiations.

Despite the widespread availability of coverage for physical damage, loss of cargo
and ransom-related costs, many policyholders face a potential gap in insurance
coverage for the financial impact of business interruption or loss of earnings due to
delays. Clause 4.5 of Institute Cargo Clauses (A), for example, provides that "in no
case shall this insurance cover loss damage or expense proximately caused by delay,
even though the delay be caused by a risk insured against." General averages
similarly do not cover losses resulting from delays. Rule C of the 2004 York-Antwerp
Rules provides in pertinent part that "any loss or damage sustained or expense
incurred by reason of delay, whether on the voyage or subsequently, and any
indirect loss whatsoever, shall not be allowed as general average." The International
Hull Clauses (01/11/03) appear to be silent as to whether delay-related damages are
covered, and as already noted, many policyholders do not purchase insurance to
specifically cover business interruption or "loss of hire."

Shipping delays due to piracy, kidnapping or re-routing are an increasingly serious

risk for ships navigating the Gulf of Aden, however. Ship owners and charterers face
loss of revenue and increased charter costs. Late delivery of cargo may be
detrimental to cargo owners who face a decline in the value of their cargo or
cancellation of contracts due to the delay. Oil is common cargo for ships traveling
this highly pirated waterway, and its value can be time-sensitive given the
fluctuating prices in the commodities markets.

Recognizing the potential coverage gap for damages caused by piracy-related delays,
several brokers in the London market have announced new insurance products that
are tailor-made to cover these losses. In December 2008, for example, Aon
announced a new policy designed to cover the "financial impact of business
interruption or loss of earnings" suffered by charterers, who are paying for hiring the
vessel even while the vessel is detained; ship owners, who, in the event of contract
frustration, may lose out on charter revenues; and cargo owners, particularly of
seasonal goods, who face cancelled contracts if the goods are held up. According to
Aon, the coverage is triggered from day one of a pirate attack with no deductible and
is a contained in a standalone policy to complement existing hull, war, cargo and P&I
policies.

Who Pays?
An interesting question that has been raised recently is whether the insurer or the
insured must bear the loss when pirates seize a ship's cargo, the cargo is later
released, but due to the piracy-related delay, the cargo cannot be sold or
dramatically loses its value. Is this a total loss, such that the insurer must pay and
then try to recoup what it can through salvage after the cargo is released? Or is it
not an insured loss at all?

This is the question at issue in a February 2009 lawsuit filed in the United Kingdom
by Masefield A.G., a Swiss commodities trading company, against Lloyd's underwriter
Amlin Corporate Member Ltd. Masefield claims that it incurred $13.3 million in losses
(plus damages and interest) from the seizure of 9,000 metric tons of palm methyl
ester (PME), a form of biodiesel that was aboard the Bunga Melati Dua tanker, which
was taken hostage by Somali pirates on August 19, 2008 while travelling from
Malaysia to Rotterdam.

Approximately six weeks after the ship was captured, its owners paid a ransom and
the ship was released, eventually arriving in Rotterdam almost two months late on
October 26, 2008. Masefield claims that: (a) the instant the pirates seized the ship,
the PME became a "total loss" under its cargo policy with Amlin; and (b) when the
cargo arrived in Rotterdam it could not be sold because, with the approach of winter,
the market for PME falls dramatically. Amlin denied any liability under its policy on
the grounds that Masefield did not abandon, and was not "irretrievably deprived" of,
physical possession of its cargo.

As this dispute shows, there are numerous risks in sailing the high seas. Companies
should take into account the importance of the timely delivery of cargo aboard ships
navigating the dangerous Gulf of Aden, the increased risk of vessels being detained
by pirates until a ransom is paid and the gap in many marine insurance programs for
delay damages due to acts of piracy. Cargo owners, charterers and ship owners are
advised to consider seeking specific coverage for delay damages in advance of any
perilous voyages in the Gulf of Aden or other pirated waters.

Rene L. Siemens, a partner in Proskauer Rose LLP's Los Angeles office, is a

member of the firm's litigation and dispute resolution department and its insurance
recovery and counseling practice group. Joshua J. Pollack is a senior associate in
the litigation and dispute resolution department of Proskauer Rose LLP's Los Angeles
office. Jessica L. Freiheit is an associate in the litigation and dispute resolution
department of Proskauer Rose LLP's Los Angeles office, and a member of its
international practice and intellectual property practice groups.

The Year of the Pirate

by Emily Holbrook

Since mid-2008, there has been an unprecedented amount of pirate activity off the
coast of eastern Africa. According to the International Maritime Bureau, piracy
attacks around the world more than doubled to 240 from 114 during the first six
months of 2009 compared to the same period in 2008. The following are some of the
most notorious incidents.
Bunga Melati Dua
August 18, 2008
This Malaysian oil tanker was taken hostage by a crew of Somali pirates while en
route to Rotterdam. The pirates demanded a ransom of $4.7 million for the release
of Bunga Melati 5 and its sister ship Bunga Melati Dua. In late September, the ship
and its crew were released in exchange for a $2.9 million ransom.

Faina
September 25, 2008
In a hijacking that made headlines worldwide, the MV Faina was holding 33 military
tanks, along with various weapons, when it was accosted by pirates in the Gulf of
Aden. The Ukrainian ship and its crew of 17 was released four months later, on
February 5, after a $3.2 million ransom was paid.

Yasa Neslihan
October 29, 2008
The Yasa Neslihan was en route from Canada to China with 77,000 tons of iron ore
when it was captured by Somali pirates. The crew of 20 was released January 6, with
an undisclosed ransom amount paid out.

Karagol
November 12, 2008
This Turkish tanker was carrying 4,500 tons of chemicals and 14 crew members
when it was hijacked off the coast of Yemen. The India-bound ship and its crew was
released January 13 with ship owners paying an undisclosed ransom amount.

Sirius Star
November 15, 2008
In the mother of all hijackings, Somali pirates took this Saudi Arabian "supertanker,"
which was carrying close to $100 million of crude oil when it was commandeered
420 miles off the coast of Somalia. The pirates demanded $25 million in ransom for
release of the ship and its 25 crew members. A $3 million ransom was negotiated
and the ship was freed January 9.

Hansa Stavanger
April 4, 2009
This 20,000-ton German vessel was seized about 400 miles east of Mombasa, in an
area where pirates had not previously been active. Ship owners paid a $2.7 million
ransom for release of the vessel and crew, which occurred August 3.

2. The BP Oil Crisis

In April 2010, oil began gushing from an exploded pipe at British Petroleum's Deepwater
Horizon drilling rig into the Gulf of Mexico. What seemed to be a problem that BP could
fix relatively easily soon turned into one of the largest environmental disasters in history.
According to Nature, the oil-well blowout leaked 4.9 million barrels of crude oil at the
time of the disaster along the Gulf shoreline, host to numerous fishing communities and a
vast diversity of wildlife species. BP has been highly criticized for not stopping the leak
and cleaning up the spill before it reached land. Environmental activists argue that it is
the company’s full responsibility to anticipate leakage disasters and to have appropriate
measures in place to handle such situations.(9) Cleanup crews struggled to cope with the
massive oil slick leaking from the well. When an explosion caused the deepwater drill to
blow, workers tried to activate the blowout preventer, or B.O.P., which is designed to seal
the well quickly in the event of a burst of pressure. It did not work, and a failsafe switch
also failed to employ. A cap was finally successfully placed on the well on July 15, which
stopped the release of oil into the Gulf. However, for three months, the massive slick
threatened the shores of Louisiana and other southern Gulf Coast states.

1. Government orders MSC Chitra to pay

damages
Even as efforts were on to resume navigation in Mumbai harbour by Saturday, the Centre
has ordered that MSC Chitra pay damages for its collision with the MV Khalijia III last
week.

Ministry of Shipping secretary K. Mohandas told The Hindu that the Panamanian owner
and the insurers would have to bear the costs. What ever the terms of the insurance of the
vessel, the government would seek third party damages.

The Ministry of Shipping has appointed the Mumbai Port Trust as the nodal agency to
work out the third party insurance claims. The various kinds of damage suffered,
including environment costs, were being assessed.

The owner of MSC Chitra has engaged a Singapore-based salvage agency and it would
be his responsibility to clean up the thick film of oil that had spread across the surface of
the Arabian Sea in the vicinity of the collision.

Mr. Mohandas said the government was monitoring the situation to ensure that the owner
carried out all the necessary measures.

Much like the BP having to bear the cost of the Mexico Gulf incident, the fact that the
government directed the ship owner to bear damages was a clear indication that the vessel
was being held responsible for the collision.

About one million tonnes of oil had spilled in the Mexico Gulf, whereas in comparison
the oil slick was around 500 to 800 tonnes at the Mumbai harbour.

To a question, Mr. Mohandas said that in case the Director-General of Shipping found the
m.v.Khalijia III was also responsible for the collision then it would also have to bear the
cost as well.
Admitting that Khalijia had a problem last year, Mr. Mohandas said that it had drifted
and it was being investigated how this vessel had been allowed to enter the harbour.

As regards the Chitra which was 30 years old, he clarified that it had been allowed to
enter the port based on the valid inspection certification it possessed. The captains of both
these ships, incidentally, are Indians.

Both are single hull ships which the International Maritime Organisation (IMO) has
banned. The secretary said such ships had been permitted to enter Indian ports till the end
of 2010 and from 2011 they would stand banned. No ship with single hull would be
registered in India. The existing Indian ships have been given a grace time to operate till
2015.

The key concern of the Ministry is to clear the thick oil sheet and resume the use of the
channel. The rough weather is breaking up the oil slick, limiting the damage to marine
life and environment in general. It will, however, take some time to neutralise the impact
of the slick.

Cabinet Secretary K.M. Chandrasekhar held a meeting of the committee of secretaries

and reviewed the situation and the assessment was that it would take at least three more
days to clear the containers which had fallen off the listed vessel.

Mr. Mohandas said the channel would be made navigable by Saturday. Some ships have
been diverted and oil tankers carrying crude for refineries have been asked to move to
Cochin or Mangalore ports. Other cargo ships have been told to choose ports convenient
for them.

Because of its huge tilt, about 400 out of the 512 containers placed on the deck had fallen
off. There was no way to prevent these from slipping into the sea and the only solution
was picking them out of the water. Another 707 containers are placed in the ship's hold.

Authorities were busy assessing whether they could ballast the ship, which was resting on
its port (left) side, and put it on the star board (right) side so as to easily draw the 2000
tonnes of fuel out.

Mr. Mohandas said there was no need to panic on account of what was being termed as
hazardous cargo. There are 31 containers in this category of which 25 were carrying solid
sodium hydrochloride, which the secretary pointed out were not hazardous in sea water.

The other six contained pesticides but these have been packed in sealed cylinders before
being put in the containers and hence, the secretary ruled out any immediate danger. It
was not known whether they had fallen off or had been placed in the ship's hold.

Meanwhile, Environment Minister Jairam Ramesh in identical statements in both the

Houses of Parliament said that the entire salvage was expected to take about 45 days and
hoped that the channel would be made navigable by August 15.
Collision of MSC Chitra with MV Khalijia III - the Insurance Angle -
Who is the real loser ??
Dear (s)

The collision between vessels MSC Chitra and MV Khalijia III has thrown open many
issues - the nature and extent of damages to vessels, whether Chitra would salved, if it
sinks will it pose hazard for navigation, hazard posed by floating containers to boats and
ships, containment of oil spill, loss to cargo, the business loss arising out of closure of
Ports, the damage to cargo awaiting shipment arising out of delay and the financial loss
arising out of commitments not being meant, the logistics, expenses and trouble involved
in shifting the cargo for operations to nearby Ports, as also receiving the goods intended
for delivery at Mumbai in nearby Ports - there could be numerous other angles also.

Chitra in listed and Khalijia in damaged condition

My first post was more about the collision news - collision near mumbai ; The second
one arose from news item of floating containers and consignments of biscuits, pesticides
and chemicals hitting the shore and wondered on floatation of containers : - will
containers float ? . The present one is more about the Insurance angle
The cargo owners would be keeping their fingers crossed as the whereabouts of the
container carrying cargo would remain unknown longer – whether they are on board the
vessel, fallen into sea whether they can be saved – whether the delay would impact the
consignee accepting cargo and making payment, would there market fluctuations in
exchange that might affect – whether any other competitor would plunge closing their
share in the market – more questions would remain unanswered.

From the Insurance angle the losses could be : claim for cargo, claim for container, claim
for hull, loss of stoppage of business in Port and more. Of course, delay is an excluded
peril and loss arising out of this is not indemnifiable. The coverage under Cargo Policies
subject to Institute Cargo Clauses, the vessel insured under Institute Hull clauses all
provide indemnity for loss or damage arising out of collision. In fact in some ways, the
policies offer protection against liability also going by the ‘Both to blame clause’ of
cargo policies and 3/4th Collision liability in Hull Policy, the coverage by Protection &
Indemnity Clubs all would be in play.

The cargo owners, Vessel owners, Insurers, P&I Club, Port, Govt. Agency and other
varied interests look forward to salvaging of the vessel and floating containers. The
salvage contract is given to SMIT who boast to have a good record in maritime salvage.
Years ago, this Company salved Tasman Spirit, the afromax tanker which ran aground
near Karachi Port.

That the professional Salvors could not make much headway and had to be abandoned
due to choppy sea, barge breaking anchor and bottles of pesticides started hitting the
shores of Raigad and Mumbai – is not encouraging news. The floating containers
blocking the navigational channel has prevented crude liners entering the Port. The
bottles of pesticides that reportedly were washed ashore could be from an opened up
container.

This being a loss arising out of collision, the blame will have to be fixed – but the blame
game appears to be already on. It is a news to me that Ships also have the black box that
is so famously associated with aircrafts. They are known as Voyage data recorder – the
maritime black box. The IMO specifies that every ship should have VDR located in
suitable enclosure capable of data storage and retrieval. Some reports suggests that MSC
Chitra was proceeding outbound within main navigation channel when Khalijia 3 crossed
the fairway ahead. This struck Chitra on the Port side while it was navigating in the main
channel. There are also reports of Khalijia crew stating they they did not receive any
signal from the Port Vessel Traffic management system. As ill-luck would have it the
bulk carrier Khalijia 3 was right out of another accident that occurred on July 19th.

The web of Mediterranean Shipping Company SA – the owners of MSC Chitra states that
Khalijia 3 had recently been salvaged from 3 week long grounding and was proceeding
into Port to discharge her cargo, still under the control of professional salvors. The report
further states that there were no injuries to crew but Chitra suffered extensive damage and
grounded close to the point of collision. Assistance of professional salvors have been
sought as some containers are floating. Some of the fuel tanks were ruptured by the
collision and stopping pollution was their priority. They claim to have formulated plans
to stabilise the vessel and recover the cargo laden containers. It concludes that going by
the preliminary review, MSC Chitra was properly navigating and it would appear that
Khalijia 3 was significantly in error.

There are newspaper reports that master of MSC Chitra has secured anticipatory bail,
even as Mumbai Police are said to have registered cases against Master and Crew of both
vessels under IPC.

The Exporters apprehend that some point of time, traders might be asked to pay
demurrage, detention and other charges like congestion for no fault of theirs. An
informed source suggested that Chitra was carrying dangerous cargo ‘Sodium Meta’ -
Sodium silicate (Na2SiO3) better known as water glass or liquid glass would mix with
water easily and contaminate it easily.
************** ********* ****************
**************

From Insurance point of view, whether it was the containers or the cargo inside, mostly
would have been insured under the terms of Institute Cargo Clauses (A)

Loss or damage arising out of collision would indeed present a valid claim under the
cargo policy. Whilst liability is almost unknown in many forms of insurance, Marine
Cargo policies do provide for liability arising out of cargo – again caused by a marine
peril arising during the transit covered by the Policy.

Cl 3 is Both to Blame Collision clause. It reads “ This insurance is extended to indemnify

the Assured against such proportion of liability under the contract of affreightment “Both
to Blame Collision” Clause as is in respect of a loss recoverable hereunder. In the event
of any claim by shipowners under the said Clause the Assured agree to notify the
Underwriters who shall have the right, at their own cost and expense, to defend the
Assured against such claim.”

AS could easily be understood, this is a policy where the subject matter insured is cargo
carried in one vessel and this clause actually speaks of liability of the assured (cargo
owner when covering consignment of cargo). Why and how the cargo owner would
become liable for something is the primary question.
• The first prerequisite is the collision that too ‘both to blame collision’ occurring.
• When two vessels collide, it is possible that one of the vessels were to be blamed
entirely i.e., loss occasioned entirely by the mistake of one of the vessel involved. In
another angle, the collision could have been occasioned by both the vessels (or more
vessels) – though the blame need not be 50:50.
• Also there is specific reference to contract of affreightment – which in effect is the
clause contained in the Bill of lading
• Though this is unlikely to be attracted under normal circumstances, this would become
applicable when the collision liability is determined to American legislation. In general,
the settlement of liability in case of collision is determined by the degree of blame of
each vessel. This is the so called proportional responsibility. When vessel LMN is found
guilty of 40%, the owner of goods from vessel PQR will be able to claim that 40% share
from vessel LMN. The owner of goods on vessel LMN cannot claim anything from the
same vessel as the provisions of the contract of carriage will provide immunity to them
for faults committed in navigation of the ship.
• It is stated that American Courts instead of determining and fixing the % of blame
according to the extent of fault committed, would hold each vessel responsible for 50%
(both equally to blame)
• BUT, the Shipper of goods have the right to claim 100% of their damage from the non
carrying vessel, notwithstanding the 50% blame. The non carrying vessel, would then
reclaim 50% of compensation paid from the carrying vessel – in the end both vessel
would end up paying 50% of damage of the cargo carried by themselves.
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Complicated as it might appear, it affects the recovery prospects of the Insurer also. Here
is what the Both to Blame collision clause incorporated in Bill of Lading :

Both to Blame Collision Clause. If the Vessel comes into collision with another ship as a
result of the negligence of the other ship and any act, neglect or fault of the master,
mariner, pilot or servant of the Carrier in the navigation or in the management of the
Vessel, the Merchant will indemnify the Carrier against all loss of liability to the other or
non-carrying ship or her owners insofar as such loss or liability represent loss of, or
damage to, or any claim whatsoever of the Merchant paid or payable by the other or non-
carrying ship of her owners as part of their claim against the Vessel or the Carrier. The
foregoing provisions shall also apply where the owners, operators or those in charge of
any ship or ships or objects other than, or in addition to, the colliding ships or objects are
at fault in respect of a collision or contract.
- By incorporating such clause, the Carriers clearly ensure their right of proportionate
recovery from the cargo owner (merchant) – subject ofcourse to
- There being a collision – arising out of result of negligence of other ship, neglect or
fault of the master, mariner, pilot or servant……
- Loss or liability of any claim payable to other or non carrying ship.

However, in the same collision, they by law have excuse of not paying their liability as
the Hague Visby Rules (COGSA also) provide that

Neither the Carrier nor the ship shall be liable for loss or damage arising or resulting from
unseaworthiness unless caused by want of due diligence ……… further
(a) act, neglect, or default of the master, mariner, pilot or the servants of the carrier in the
navigation or in the management of the ship;
(b) fire, unless caused by the actual fault or privity of the carrier;
(c) perils, dangers and accidents of the sea or other navigable waters; &…………
Thus it is a double edged protection excepting the carrier of any liability but at the same
time providing them enough ammunition to recover their share of liability to the other
ship from the unassuming cargo owner.
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The Institute Time Hull Clauses under which the Ships are normally protected provide
for, in addition to indemnity for loss or damage to the ship – liability arising out of
collision also.

This clause known as Running Down clause provides only 3/4th liability (the balance
1/4th is recoverable from P&I Club) The Hull clause reads :
8.1 The Underwriters agree to indemnify the Assured for three-fourths of any sum or
sums paid by the
Assured to any other person or persons by reason of the Assured becoming legally liable
by way of
damages for
8.1.1 loss of or damage to any other vessel or property on any other vessel
8.1.2 delay to or loss of use of any such other vessel or property thereon
8.1.3 general average of, salvage of, or salvage under contract of, any such other vessel or
property
thereon,
where such payment by the Assured is in consequence of the Vessel hereby insured
coming into
collision with any other vessel.
The sum insured is not the restriction as the indemnity provided by this clause 8 is in
addition to the indemnity provided by the other terms and conditions of this insurance.
This clause further adds that in case of both to blame, unless the liability of one or both
the vessels become limited by law, the indemnity under this section shall be calculated on
the principle of cross-liability as if the respective owner had been compelled to pay each
other such proportion of each other’s damages as may have been properly allowed in
ascertaining the balance or sum payable by or to the Assured in consequence
of the collision

However, it comes with the restriction that the Underwriter’s total liability under this
clause shall not exceed their proportionate part of 3/4th of the insured value of the vessel
hereby insured arising out of any one collision.
This Section of the Hull Policy has specific exclusions one of which is ‘the cargo or other
property on, or engagements of the insured vessel’ as also ‘removal or disposal of
obstructions, wrecks, cargoes’.

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In the end, the cargo owner gets full indemnity. The Carrier and Ship owner who are
responsible for the loss are immune and have incorporated clauses to exempt and protect
themselves. The only affected person who seemingly suffers on all counts is the poor
INSURER - who many a times finds that even the rating is not under his control, having
divested his authority to market forces.

it is another irony that quite often the Insurer is criticized for having terms in fine prints –
rules of construction stating that wherever there is ambiguity, it will be construed against
the party who has drafted it. The odds are always against the Insurer and every loss
makes him poorer.