Expert failings

A fire had caused substantial damage to the insured vessel. Owners claimed the ship was a Constructive Total Loss (“CTL”) alleging the cost of repairing her was in excess of her insured value. The insurers rejected this claim alleging that the vessel was capable of economic repair. The vessel was scrapped and the dispute was solely as to the amount the insurers were obliged to pay out under the policy.

At an early stage the owners made an offer to settle the claim by accepting US$1,136,000 plus their legal costs. The underwriters did not accept the offer and litigation was commenced by the owners.

The consultants were appointed by the insurers to provide expert advice/evidence on what it would have cost to repair the vessel.

On accepting the engagement, the consultants were provided with considerable documentation. This included two independent quotations from Chinese shipyards on the cost of repairs and some calculations from the builder of the vessel that indicated the steel weight for the accommodation block was 312 tonnes.

The consultants issued a report, advising that the vessel was not a CTL.

The report was based on the quotes from the two shipyards and the steel weight the insurers had obtained from the ship builder.

In due course the owners served the report of their technical expert. This had been prepared using a different methodology (a “new-build approach”) to the one adopted by the consultants. The owners’ report contrasted significantly with the consultants’ one in using an estimated steel weight total of 542 tonnes to repair the accommodation block and concluded that the total cost of repairing the vessel was US$6m. A figure that would have made the vessel a CTL.

Following a joint experts’ meeting, at which there was considerable disagreement between the experts, the underwriter’s counsel asked the consultants to prepare their own steel weight calculations (inclusive of the accommodation block) in order to rebut the owners’ report. Drawing from their own calculations, the consultants concluded that the ship builder’s initial steel weight figure was, in fact, inaccurate and that the cost of repairing the vessel was circa US$3.9m in excess of the total insured value.

On the basis of the consultants’ new advice underwriters settled the proceedings with owners for US$1.3 million plus the owners’ costs.

Underwriters then commenced proceedings against the consultants on the basis that they had been negligent in not properly reviewing the shipyard quotes. The underwriters claimed that, had they been properly advised, they would have been able to settle for a lower amount at an earlier stage. This would have reduced both their own costs and their liability for the owners’ costs.

The consultants pointed out that the underwriters had rejected the owners’ earlier offer before they were engaged. They had relied on the figures provided by the underwriters and it was not until after the joint experts’ report that they were asked to make their own assessment.

The matter was settled at mediation. A feature of the dispute was that there was no document specifying what the consultants had been engaged to do. A large number of disputes involving consultants and other advisers would be avoided if the scope of work is clearly defined beforehand. See ITC’s terms and conditions.

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