Trouble with tugs

A naval architect's client commissioned the design of a tug but did not immediately build it. Two years later, the client contacted the naval architect and asked him to update the specification.

Four tugs were ordered. The client alleged that various defects in the revised specification had caused delays in the building of the tugs and claimed USD 2.5 million in damages.

The Club investigated the claim which was found to be without merit. After negotiations the client offered to accept a settlement of USD 500,000. This was felt to be excessive and the claim was finally settled on the basis of a nuisance value payment. However, the legal costs and experts' fees incurred in their defence amounted to USD 150,000.

Without cover the naval architect would have had to fund these fees himself.

One of the main reasons why professional liability insurance is so important is that even when a claim does not succeed, the costs of defending it can be substantial.