Direct liability

Direct actions under compensation regimes

Compulsory insurance regimes in the maritime sector typically allow claims to be brought directly against the insurer, who is not permitted to rely on any defences under the policy other than wilful misconduct.

On the other side of the coin, the insurer’s direct liability under the regime is in every case restricted (or should be restricted) to the liability limit applicable to the ship.  This is the case even if the incident has resulted from conduct of the owner which bars his own right of limitation.

Clear limits are important for a number of reasons, including the fact that neither insurance nor any other form of financial security is commercially viable or available on an open-ended basis.  Without support from insurers these arrangements to ensure payment of claims would not be tenable.

Compulsory insurance arrangements have worked in a relatively clear and straightforward manner under the Civil Liability Conventions, as these have their own self-contained limitation provisions which are dedicated to CLC claims.

The position under the Bunkers and Wreck Removal Conventions is more complex and relatively uncertain, as these rely on linkage to applicable national or international limitation regimes, such as the London Limitation Convention 1976 (LLMC), as amended.  In practice this can give rise to a number of complications, not all of which were necessarily foreseen when the Conventions were drawn up.  See further Limitation of Liability.

Direct actions under other laws

In many jurisdictions laws are in force, independently of compulsory insurance regimes, which allow claims to be brought directly against liability insurers.  Laws of this kind have sometimes been invoked after oil pollution incidents in support of attempts to make recoveries from insurers exceeding the limit of their direct liability under CLC.

In English law, which governs the rules of the majority of P&I insurers, legislation of this kind applies only when the assured is in liquidation, and its effect is to transfer to the claimant the assured’s rights of indemnity.  As these are subject to the terms of the policy they may be defeated if, as is usually the case, it contains any ‘pay to be paid’ provision.  Similar rules apply in other jurisdictions but are not universal.

These issues have arisen in a number of incidents involving tanker oil pollution governed by CLC 69, where owners’ rights of limitation are relatively fragile and have been more frequently in question.  Under CLC 92 the liability limits are much higher, but rights of limitation are intended to be far more secure: these should be lost only in very rare circumstances where claimants prove intent, or demonstrate recklessness with knowledge that pollution damage would probably result.

The prospect of owners’ rights of limitation being ‘broken’ on these grounds, and of unlimited claims being established against insurers under direct action legislation, should in theory be remote.  However it will be greater than previously thought if the decision in the Erika incident of the French Court of Cassation is treated as a precedent to follow.  The court found ‘recklessness with knowledge’ on the part of a number of defendants, and in circumstances which have normally been thought to fall well short of those required for this stringent test to be satisfied.

The risk of attempts being made to hold insurers directly liable for unlimited claims against the owners, operators or managers of a ship have also been highlighted by the Prestige incident.  The aftermath of this unfortunate case has included litigation involving disputes whether legislation in Spain and France has this effect, and as to jurisdiction to determine this issue.  Whilst attempts to impose direct liability above the CLC limit appear in that case to have failed, the issues are complex and provide a prospect of similar problems in future.