ITIC says hold-harmless clauses may not be so harmless

ITIC has warned that the so-called ‘hold harmless’ clauses in many of the contracts entered into by its members may contain pitfalls which could prejudice their rights.

A mutual hold-harmless indemnity clause should provide that each party to the contract agrees to take responsibility for - and to indemnify the other against - injury and loss to its own personnel and property and its own consequential losses, even if the accident and related losses are caused by negligence. But ITIC notes that, in many of the contracts it reviews, the party with the greater bargaining power will naturally seek to swing the balance back in its favour.

Writing in the latest issue of The Wire, the ITIC newsletter for the offshore and hydrographic sector, Robert Hodge, Senior Underwriter for the Offshore Sector, says, “It is staggering how often we see contracts stipulating that ‘the consultant shall indemnify the company against any and all losses’, yet there is no reciprocal benefit to the consultant. The clause must have a mutual provision.”

Meanwhile, the mutual hold-harmless clauses seen by ITIC often leave the distribution of third-party liabilities unclear. Hodge says, “A hydrographic consultant on a survey vessel, for example, should be protected from third-party claims arising from the operation of the vessel. The consultant should not be responsible for potentially multi-million-dollar pollution liabilities or collision damages to third-party property. These should fall on the party which has insurance for these liabilities.”

ITIC notes that, in some cases, it sees hold-harmless clauses amended to state that if one of the parties is found to be grossly negligent it will not be held harmless. Robert Hodge emphasises, “There is no true concept of gross negligence under English law. The line between negligence and gross negligence can become blurred, and cases will turn on facts and expert evidence. The inclusion of gross negligence within a hold-harmless clause in a contract pursuant to English law can lead to uncertainty and increased litigation costs.”

ITIC also warns that the distinction between indirect and direct loss can be complicated. Robert Hodge says, “A common misconception is that all ‘loss of profits’ is indirect loss. This is wrong. Loss of profits can be either direct or indirect, depending on the facts of the case. If, for example, a consultant was providing design work for sub-sea equipment and carried out the design negligently, this could cause not only damage to property but also lost drilling time, leading to lost revenue and profit. In such a case, a tribunal could find that the loss of profit arose naturally from the breach and was therefore a direct loss not excluded under the hold-harmless clause.

“Taking into account the current day rates of drill rigs, this could form a substantial part of any claim. The clause should be amended to state that loss of profits is excluded, whether direct or indirect.”

ITIC concludes that hold-harmless clauses should be carefully reviewed to ensure that they are actually mutual.

The Wire also includes a contract checklist for offshore and hydrographic consultants, and an explanation of why there is a growing need for them to take out professional indemnity insurance in an increasingly litigious business environment. Copies of the newsletter can be requested from: chris@merlinco.com

ITIC, the leading professional indemnity insurer for the offshore and hydrographic sector, will be exhibiting at Oceanology International 2014 at London Excel from 11 to 14 March. You can find us on Stand N550, where we will be holding a daily competition inviting visitors to complete a lap on a racing-car simulator. Participants will be entered into a champagne draw.

ITIC is managed by Thomas Miller. More details about the club and the services it offers can be found on ITIC’s website at www.itic-insure.com


For more information:
Charlotte Kirk
ITIC
Tel. +44 (0)20 7338 0150
Fax. +44 (0)20 7338 0151
charlotte.kirk@thomasmiller.com

P&I club correspondents under pressure to take out indemnity insurance

ITIC says P&I correspondents are coming under increasing pressure from clubs and from third parties to ensure that they have taken out professional indemnity insurance.

In the latest issue of its newsletter, The Wire, ITIC says it is aware that at least one International Group P&I club is considering asking all its correspondents to obtain professional indemnity cover, and anticipates that a number of other clubs will follow suit.

ITIC has recently commented on a proposed P&I club contract for its correspondents, and has highlighted areas where it believes the correspondent should not be held liable. It has also commented on what it considers to be a reasonable limit of liability for a P&I correspondent.

To illustrate the importance of adequate insurance cover, ITIC cites the case of a correspondent asked to survey a cargo of 2,000 metric tonnes of bulk fertilizer which had been contaminated by residues from a previous cargo. The correspondent, having carried out the survey - and following several telephone conversations with the P&I club - obtained verbal agreement to offer the cargo interests a depreciation allowance of $22 per tonne, which was accepted.

When the cargo interests submitted their claim for $44,000 to the P&I club, the club refused to pay, maintaining that the correspondent had acted without authority in offering settlement. The consignees therefore sued the P&I club and the shipowner. The correspondent was also involved, on the grounds that, if the court found that it had no authority, then it would be liable under the doctrine of breach of warranty of authority.

The case went to court in London. As the correspondent had no confirmation in writing, the dispute turned on which witness was believed. On this occasion the court found that the correspondent had been authorised to make the offer. However, if the correspondent had not made a convincing witness, and had not kept contemporaneous notes, it would have had to pay the claim, plus interest, plus the costs of some of the other parties involved, and would have faced a liability of more than $100,000.

ITIC insures more than seventy P&I club correspondents globally, on whose behalf it has handled claims arising out of missed time-bars and acting without the principal’s authority in conducting settlement discussions. It emphasises that, irrespective of whether correspondents are required by the clubs for whom they act to take out insurance, they clearly face an exposure to claims from both their principals and from third parties in respect of the work they undertake in investigating and responding to incidents.

Copies of the The Wire can be requested from: chris@merlinco.com

ITIC is managed by Thomas Miller. More details about the club and the services it offers can be found on ITIC’s website at www.itic-insure.com

For more information:                             

Charlotte Kirk                                              

ITIC                                                               

Tel. +44 (0)20 7338 0150                          

Fax. +44 (0)20 7338 0151                         

charlotte.kirk@thomasmiller.com           

ITIC continues to reward loyalty with renewal credit payments to members

FOR the seventeenth year in succession, International Transport Intermediaries Club (ITIC) has paid a renewal credit to its members. For the year ended 31 May, 2012, members received a total of $5.2m. In the past seventeen years, ITIC has returned more than $67.3m to members in credits.

ITIC Chairman Peter French says, “One of the unique strengths of a mutual is the absence of shareholders, allowing its members to benefit from any financial surplus.  Solvency II, the new regulatory regime with which all insurers within the EU will have to comply by 1 January, 2014, will have an impact on the future capital requirements of the business.  This will necessitate our maintaining strong reserves not only to ensure compliance, but also to sustain continuity credits at renewals in the future.” 

From 1 June 2012, ITIC has reduced the level of the continuity credit for renewing members to either 2.5 per cent or 5.0 per cent of their expiring premium. This reflects both the tougher investment environment and the challenging claims market, whilst also preserving the strength of its reserves. ITIC’s combined reserves, at $78.4m, continue to remain comfortably higher than current and anticipated future regulatory requirements. 

Professional indemnity insurers tend to see a sharp increase in both the number and the value of claims during an economic downturn and ITIC is experiencing claims inflation of ten per cent each year. French says, “It is often easier for a client to sue or counter-sue its service provider than to settle an invoice or a claim. Claims increased significantly in 2009, levelled off a little in 2010 and initially showed an increase again in 2011. However, there are now signs that this higher claims activity may be starting to reduce.”

 

At renewal, ITIC introduced special deductibles for those types of claims that occur most frequently, such as demurrage claims for ship brokers, refrigerated cargo claims for ship agents and legal costs in US litigation for ship managers.  In this way, the club has increased its premium income while continuing to retain approximately 95 per cent of its members at renewal each year.  

ITIC emphasises that this is an excellent result in the prevailing economic climate.

l ITIC is managed by Thomas Miller. More details about the club and the services it offers can be found on ITIC’s website at www.itic-insure.com

For more information:                             

Charlotte Kirk                                              

ITIC                                                                

Tel: +44 (0)20 7204 2928                          

Fax: +44 (0)20 7338 0151                         

charlotte.kirk@thomasmiller.com