Professional liability insurance
- Date: 20/11/2013
Everyone makes mistakes. It is human to do so. Sadly some mistakes made by a ship agent or shipbroker result in financial loss for a principal or customer. This customer then expects you to pay for the damage. Claims can be significant, perhaps hundreds or millions of US dollars. ITIC’s professional liability insurance protects your company against such risks.
See some examples of professional liability claims insured by ITIC below:
Liabilities of ship owners attaching to ship agents
In many countries – including Taiwan - ship agents, and, in some cases ship managers, can find themselves involved in claims as a result of their joint and several liability with their principal, be that the ship owner or charterer. This liability arises as a result of either local law or port statute (statutory liabilities). Examples include cargo claims, payment of freight tax, customs duty and penalties, removal of wrecks, abandoned cargo, containers, etc., dock damage, immigration fines and repatriation costs, and oil pollution. These liabilities should, in the normal course of events, be handled by the principal and, where appropriate, their P&I Club.
In most jurisdictions, even where there is a joint and several liability, the principal, and not the agent, is the prime target for claims. However, in other jurisdictions the ship may be allowed to sail and the port authority will send their bill to the ship agent, who then has to obtain payment from his principal.
ITIC’s experience has revealed that the authorities in the following countries often look to the ship agent, rather than the principal, for various liabilities; Argentina, Australia, Bangladesh, Brazil, Canada, Chile, Ecuador, Colombia, Ecuador, India, Kuwait, Pakistan, Philippines, Spain, Taiwan, Turkey, United Kingdom, United States of America and Venezuela. This is not an exhaustive list, and consideration must be given to changing laws and revising port authority enactments.
Of the countries listed above, several have legal systems which take many years to process claims. This means that during the intervening years there is always the risk that the ship will be sold, or the owner will cease trading, in which case the agent will be left to deal with the claim.
Ship agent telex release goes wrong
Liner shipping agents frequently have to arrange for cargo to be released against bills of lading surrendered at the loadport – the so called “Telex Release”. This type of release is risky as no bill of lading is collected at the discharge port and frequently results in misdelivery of cargo.
In a recent case two containers were shipped to a port in the Netherlands by a shipper; both containers were consigned to the same company. The shipper gave instructions to the load port agent to release one of the containers and this authority was passed to the discharge port agent, who mistakenly released both containers.
The consignee never paid for the second container, and the shipper appointed lawyers to pursue recovery of EUR 76,000, the value of the cargo in the second container, from the shipping line. The claim was eventually settled, after negotiation, for EUR 66,000, which was claimed from the discharge port agent.
A tidal change for a ship agent
In early 2011 a ship agent at a tidal port in Japan was asked to provide a tide table to enable the owner of a ship to calculate the permissible drafts for the dates his ship was due to berth at the port. The ship agent duly scanned the tide table and sent it electronically to the owner. The ship arrived at the port with a draft of 8.56m, but was informed by the port authorities that the permissible draft was only 7.8m.
Unfortunately it emerged that the agent had inadvertently sent the owner the tide table for 2012 instead of 2011. The two tide tables were kept together in the same file, and during scanning the corner of the tide table had folded over, thereby obscuring the year. The excess draft meant that the ship could only discharge for about 4 hours in the morning and 2 hours in the afternoon. The ship had to shift anchorage three times during the four days it took her to discharge, which was twice as long as it should have taken had the shifting not had to occur. The owner claimed the pilotage and towage costs involved in shifting to the anchorage three times, plus two days hire, additional bunker consumption, additional stevedoring, which totalled USD 143,000. It was agreed by the owner that some of the costs would have been incurred in any event, and the claim for additional costs was settled at USD 120,000.
Broker’s fixture on behalf of non-existent or fictitious principal
Chartering brokers fixed a vessel on behalf of charterers in Panama. The vessel was time chartered for a voyage from Far Eastern ports to Arabian Gulf and Red Sea ports.
Soon after loading had been completed it became clear that the charterers were in serious financial difficulties and had not paid the owners' hire and other ancillary expenses. Furthermore, the owners were obliged to utilise their own funds to complete the contracted voyage and discharge at Red Sea ports.
Subsequently the brokers were advised by the ship's managers that their enquiries revealed that the charterers were not registered in Panama. ITIC made enquiries in Panama and China to establish the true status of the charterers were identical. In due course lawyers acting for the managers of the vessel served a writ for US$ 365,237 on the brokers alleging negligence in the negotiation of the charterparty and claiming that the charterers did not, in fact, legally exist. A defence to the claim was mounted and the case was set down for hearing before the Court. By this time interest and costs added to the original claim meant that an adverse judgement would result in a claim on the brokers in excess of US$ 500,000. As there was a real risk of judgement being given in favour of owners, negotiations were commenced which ultimately resulted in a settlement of the claim for US$ 170,000.
Finally, it should be noted that a not uncommon case is where a company is in the course of formation and the broker enters into a contract on behalf of the proposed company before it has in fact been incorporated. In such a case the broker is personally bound even if he expressly stipulates that he is only representing the company and qualifies his signature, e.g. signs adding the words "as agent only". The contract is then one between the broker as principal and the other party. When the company comes into existence it cannot ratify the contract purporting to have been entered into on its behalf before the date of its incorporation.
Misdescription of cargo capacity of vessel by shipbroker
A shipbroker acted for owners in the fixing of their ship to charterers. Unfortunately, when
describing the cargo capacity of the ship, the figure of 119,995 cubic metres was given by the shipbroker, whereas the correct capacity was 115,003 cubic metres.
The charterers submitted a claim for deadfreight, and the dispute was submitted to arbitration. The owners argued that the charterers had fixed the ship because it was of a well-known type, suitable for their purposes, and not because of any precise capacity figure. However, the arbitrators decided, by a two to one majority, that the error made by the brokers gave the charterers a right to recover damages from the owners. Damages were awarded to charterers plus their legal costs. The owners demanded an indemnity from the brokers for this amount plus their own costs. ITIC's lawyers advised that there was little defence to the claim, but were able to reduce the amounts claimed by the owners and charterers as costs. The claim against the ship broker was settled at a total of US$75,000.
Shipbroker's failure to pass voyage instructions to correct party
The broker acted for a chartering company with offices in the USA and Europe, and the agreement between them required the broker to advise the US company of the status of the charter arrangements for all shipments to the USA. The US company entered into a contract of affreightment with owners to ship a cargo from Algeria to Louisiana. Owners nominated their ship, which charterers confirmed, and charterers issued voyage instructions which provided that the ship was to be tendered by 13/14 November. On or about 10th November, owners advised the broker that the nominated ship was not in a position to reach the Algerian port on time and suggested a replacement with new laycan 14/15 November. The broker erroneously passed this information to his principal's European company instead of the US company.
On 11th November owners advised the broker that the replacement ship would not arrive until 15th November, which information was again passed to the European company in error. On 12th November the US company, having been advised by the European company of the change in the nominated ship, issued amended voyage instructions which still indicated laycan terms 13/14 November despite the fact that the European company had been advised that the ship would not arrive until 15th November.
The ship duly arrived at 20.18 hours on the 15th but no berth was available until 19th November when loading began. The ship sailed on 21st November. Subsequently, owners made a claim on the brokers representing demurrage for 3.6 days for US$54,000. In recognition of their partial responsibility in failing to pass information to the correct party, the broker offered to contribute one-third but this was rejected. Eventually, settlement was agreed with the ship broker paying US$36,000. Legal costs incurred were US$4,000.
Incorrect discharge port from shipbroker
Brokers had acted on behalf of charterers in respect of a voyage charter from Nigeria to the US Gulf. In subsequently negotiating the terms of a preliminary round trip whereby the charterers would discharge some cargo in Dakar, Senegal before returning to load the cargo in Nigeria, the broker mistakenly reported the discharge port as being in the Ivory Coast and agreed the preliminary voyage with owners on that basis. The error only came to light after the fixture had been agreed and the cargo sold. The owners agreed to perform the longer voyage to Dakar but at a higher rate than the one previously agreed. There was clearly no defence to the claim and ITIC negotiated a settlement at US$150,000. This claim is a reminder of the potential consequence of simple errors.
Message on mobile - US$900,000 claim on shipbroker
When fixing a tanker to carry vegoil the charterer asked whether the tanks had been washed. The owner's broker telephoned the charterer's broker to inform him that the tanks had been "washed but not fresh water rinsed". The charterer's broker, who was contacted on his mobile phone while having lunch in a restaurant, mistook the message as being "fresh water washed". Salt left on the tank walls from a seawater rinse contaminated the vegoil to the tune of US$ 900,000.