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Rule 37 Damage to fixed or floating objects

The Association shall cover:

a liability for loss of or damage to any fixed or floating object by reason of contact between the Ship and such object, when not covered under the Hull Policies;

b that part of the Member’s liability which exceeds the amount recoverable under the Hull Policies solely by reason of the fact that the liability exceeds the sums insured under those policies,

provided that there shall be no recovery under this Rule 37 in respect of any deductible borne by the Member under the Hull Policies.

 

Guidance

For more detailed commentary see Chapter 9 of the Gard Guidance on Maritime Claims and Insurance

(A) …any fixed or floating object… (Rule 37.a)
Cover is available under Rule 37 for liability for contact between a Ship and fixed or floating objects unless cover for such liability is available to the Member under the Ship’s Hull Policies.1 

A ‘fixed object’ is a structure that does not float and, therefore, is not designed to move or be moved on water, e.g. a harbour, quay, dock, pier, jetty, crane or bridge or a fixed offshore platform, subsea pipeline or power or telecommunication cable. A ‘floating object’ is a structure other than a ship2 that is designed to have buoyancy, e.g. a buoy or a semi-submersible drilling rig, and that may be designed to move on water, e.g. a floating storage and off-loading vessel. 

Fixed and floating objects include both:

i Man-made structures that are erected or installed in areas exposed to maritime risks; and

ii Natural habitat resources with direct or derived economic value which can be damaged by physical contact with ships, e.g. coral reefs, and which may result in a claim for restoration costs and natural resource damages.

Cover is available for liability to both types of object but the distinction between ‘fixed’ and ‘floating’ objects may be important in relation to the liability of the Member.3 Similarly, whilst the distinction between a ship and a floating object other than a ship is an important one, it is often difficult to draw.4 

(B) …by reason of contact between the Ship and such object… (Rule 37.a)
Cover is available under Rule 37 only where there has been physical contact between the Ship and the fixed or floating object and liability for such damage is not covered under the Ship’s H&M policy (see section (E) for further commentary on this point). 

The Association regards The Nordic Marine Insurance Plan 2013 (Nordic Plan 2013) hull and machinery (H&M) conditions as one of the ’standard terms‘ 5 for the application and interpretation of Rule 37. The commentary to H&M cover under the Nordic Plan (Chapter 13-1)6 makes it clear that liability for contact damage (striking) involves physical contact between the Ship and another object as a consequence of a movement which results in pressure, e.g. where the ship causes damage by bumping against a jetty. Contact ’striking’ may also be the result of ’pulling’ or ’sucking’, e.g. where the ship sucks or draws an object towards itself. The act of the Ship ’pulling’ the object and thereby causing a ’striking’ (i.e. physical contact) falls within the scope of contact damage under the Nordic Plan 2013 H&M cover, but ’pulling’ without ’striking’ does not, and is, therefore, not the subject of cover under Rule 37 but under Rule 39. A typical example is damage caused by waves or backwash (so called wash damage) which cannot be described as contact ‘striking’ damage and is therefore the subject of cover under Rule 39.7 

For there to be cover under Rule 37 there must be contact between the Ship and the other object. However, for these purposes, the word ‘Ship’ is construed broadly and includes not merely the hull, but any part of the Ship’s fixed structure, e.g. accommodation, bridge wings, as well as equipment such as cranes, booms, deck equipment, gangways, anchors, chains, mooring ropes, towing lines etc and also appurtenances that are used regularly by the Ship for its intended purpose, such as a fishing trawl attached to a trawler vessel or sonar ‘streamers’ applied to a seismic vessel. 

Cover for liability for contact (striking) damage caused by the ships equipment, e.g. cranes, booms, gangways, anchors, chains, mooring ropes, towing lines and other similar equipment, is available under Rule 37 only in situations where contact (striking) damage has been caused by the ship’s movement being transmitted through the medium of such equipment. For example, if a lifeboat, derrick or deck cargo that protrudes out over the ship’s side whilst the ship is maneuvering to go alongside makes contact with, and causes damage to, a shore installation, cover is available for the liability that the Member may have for the contact damage to the shore installation under Rule 37. Similarly, if a gangway which has been hoisted up and fastened makes contact with, and causes damage to, the jetty whilst the Ship is still manoeuvring, cover for such liability for contact damage to the jetty is available under Rule 37. 

In contrast, cover is not available under Rule 37 if the contact (striking) damage has been caused by movements of the Ship’s equipment such as cranes, booms, gangways, anchors, chains, mooring ropes, towing lines and other similar equipment, that have not been caused by the movement of the Ship but merely as a result of the separate and independent use of such equipment. For example, should the Ship’s cranes be negligently operated whilst the Ship is safely secured at a berth so that damage is caused to shore equipment, cover is not available under Rule 37 since such damage has not been caused by any movement of the Ship but as a result of the separate and independent use of the Ship’s cranes. However, cover might be available under Rule 39. 

Similarly, if the Ship is alongside and the Ship’s Crew incorrectly (i.e. excessively) tighten the ship’s mooring ropes by using the Ship’s winches with the result that a bollard is torn loose and the jetty is damaged, cover is not available under Rule 37 but possibly under Rule 39. However, by way of contrast, if the Ship is still moving and a fastened mooring rope were to pull loose a bollard and thereby cause damage to the jetty, cover is available under Rule 37 since the contact damage has been caused by the movements of the Ship being transmitted via the mooring ropes. 

Cover is not available under Rule 37 where there has been no physical contact between the Ship, or any part of it, or equipment used by it, and the damaged object, e.g. as a result of contamination by oil, chemicals or other substances which have been discharged from, or which have escaped from, the Ship,8 or where damage has been caused by waves, wakes or swirls caused by the Ship’s movement or by the use of its propellers.9 

(C) Liability for loss or damage to… (Rule 37.a)

A shipowner’s liability for damage to a fixed or floating object arises most often in tort but may also arise under contract10 or under statute or other regulations. 

In the case of liability in tort, a shipowner has, both personally and through his servants and agents, a duty to exercise care to ensure that his Ship does not cause damage to others. Therefore, it is found that a sufficient degree of care has not been exercised, and that this has caused the Ship to strike a fixed or floating object, it is likely that the Member will be held liable to compensate the owner of that object for losses sustained as a result. 

Where a Ship that is in motion makes contact with an object that is stationary, particularly where the object is fixed or, if floating, incapable of moving to avoid contact, there will usually be a presumption that the Ship is to blame for having caused the contact. For example, where a Ship makes contact with a fixed oil platform, it is likely that the shipowner will be held liable for the consequent damage caused to the platform. However, it is possible that liability can be avoided or reduced in some circumstances if the Member is able to prove that the contact was not caused by any fault or negligence on the part of the Ship, e.g. because it lost power for reasons that were beyond the Crew’s control and drifted onto the platform as a ‘dead ship’.11 

Furthermore, the fact that an object is stationary on or in the water does not necessarily mean that some contributory blame cannot be attributed to its owner in the event of contact with a Ship. The owner or operator of that object is obliged to comply with rules that govern the adequate charting, marking, lighting of, and/or emission of signals from, such objects, and if it is considered likely that contact with the Ship would not have occurred had the owner or operator of the object complied with such rules, this may affect the apportionment of liability for the incident. 

Liability for loss of, or damage to, fixed and floating objects may also arise under contract. For example, it can be a pre-condition for the Ship’s use of a dock, port, berth, terminal or similar facility that the Member must agree to standard ‘terms of use’ before being allowed to use the facility. Alternatively, such ‘terms of use’ may be considered to be binding on the shipowner under the applicable law even though he does not sign a contract before using the dock, port etc., if he has in fact used the facility on previous occasions subject to similar contractual terms, i.e. as a result of a prior course of dealing. Alternatively, the ‘terms of use’ may take the form of local, legally binding regulations which provide that the use of the facility constitutes an implied acceptance of the terms, provided that the Member has been made aware of them, or it can be shown that the Ship has in fact used the facility on previous occasions subject to similar terms. 

In practice, there is a variety of such ‘terms of use’ which can differ substantially both in relation to the basis of liability and in relation to the degree of liability that is imposed on the ‘user’. It is usual for ‘terms of use’ to impose strict liability for any damage caused by the ‘user’ and to give the owner or operator of the facility a right to be indemnified in respect of any resulting loss or damage. Indeed, liability may be imposed even in circumstances where the owner or operator of the facility is solely to blame for the incident, e.g. due to the negligence of harbour tugs and/or the mooring master during berthing operations. However, should the Member incur liabilities solely by virtue of the applicability of ‘terms of use’, cover is available only to the extent that the Association has given prior approval to those terms.12 

(D) …loss of or damage to any fixed or floating object… (Rule 37.a)
The damages that may be claimed after an incident which has caused the loss of, or damage to, a fixed or floating object include:

i The reasonable cost of both temporary and permanent repairs to the object and ancillary equipment or, where the object has become damaged beyond economic repair, its insured value, or market value, or replacement cost;

ii Compensation for the loss of use of the object, i.e. the loss of revenue suffered by its owner or operator by reason of the fact that the object is out of (normal) use as a result of the damage caused by the Ship;

iii Third party liabilities, whether arising under contract, statute or in tort, which are incurred by the owner or operator of the object as a result of the contact damages. For example, a terminal operator may be liable under contract to pay compensation to other users of the terminal as a result of the inoperability of loading and discharging equipment caused by the contact incident;

iv Various costs and expenses reasonably incurred by the owner or operator of the object as a result of the damage caused, e.g. survey and inspection fees and costs. 

If the object is lost as a result of the contact with the Ship, e.g. it sinks to the seabed, it is possible that the owner or operator of the object may be ordered to chart, mark, raise and/or remove it, and may, therefore, claim reimbursement of the resulting removal costs and expenses from the Member. 

However, cover is available for such liability only to the extent that it is not covered under Hull Policies that are on ‘standard terms.’ (See (E) below). 

The Member, master and/or Crew may not only incur liability to compensate the owner of a fixed or floating object for the financial loss sustained as a result of damage, but may also become liable to pay fines and penalties. However, cover is not available for such fines and penalties under Rule 37 but, depending on the circumstances, it may be available under Rule 47.1. If none of the four categories of fines that are covered as of right under Rule 47.1 are applicable, then the issue will fall to be determined in accordance with the Association’s discretion, as described in Rule 47.2. 

(E) …when not covered under the Hull Policies… (Rule 37.a)
Cover is available for the legal liability that a Member has incurred as a result of physical contact between the Ship and a fixed or floating object provided that such liability is not covered under the Ship’s H&M policies. Therefore, cover is available in such circumstances under Rule 37 subject to the following exceptions:

i damages which are covered under the Hull Policies or which would have been covered under the Hull Policies had the Ship been insured for hull and machinery risks on ‘standard terms’; and

ii damages which fall within the deductible actually borne by the Member under his Hull Policies. 

These exceptions reflect the fact that this cover, like the cover which is available under Rule 36 for collision liability,13 is a supplement to, and not a substitute for, the Member’s Hull Policies. 

There are significant differences between Hull Policy terms and conditions in this regard. The standard Nordic,14 German or French terms all include cover for such liability to a varying degree, whereas the English,15 American and Japanese terms do not do so. Therefore, please see the comparison table which can be found at the end of the Guidance to this Rule. 

If the actual Hull Policy that the Member has for the Ship provides more limited cover for liability to fixed and floating objects than is the case under other Hull Polices which are considered to be on ‘standard terms’, cover is not available for liability that would have been covered under a Hull Policy which is on such ‘standard terms’. However, in view of the fact that the available cover for such liability under differing Hull Policies is less standardised, the Association will wish to review the applicable Hull Policy terms and conditions in the light of their governing law and market practice in order to determine whether cover is available. 

(F) …liability which exceeds the amount recoverable under the Hull Policies… (Rule 37.b)
Standard Hull Policies normally limit the insurer’s liability cover to the insured value of the ship.16 Therefore, should the Member’s liability for loss of or damage to fixed and floating objects exceed the sum recoverable under the Hull Policies solely by reason of such a limit P&I cover is available under Rule 37 for the amount by which the liability exceeds the maximum sum recoverable under the Hull Policies. This may occur, for example, if the Ship has a relatively low value and causes major damage to, or even the total loss of, an object or installation with a high value, and is unable to limit its liability for such a claim under the applicable law. 

It would be contrary to the concept and spirit of mutuality if a Member who has failed to insure his Ship for its full market value and who, thereby, runs a risk that there will be a shortfall in the cover available under the Hull Policies for liability for loss of damage to fixed and floating objects, could be allowed to remedy this in full by making a claim for the shortfall under his P&I insurance. Therefore, if the Ship is insured under the Hull Policies for a value that is lower than its true market value, i.e. under-insured, cover is available under Rule 37 only for the excess liability which would not have been recoverable from the hull insurers had the Ship been insured for its true market value.17 Such under-insurance can occur where the market value of the ship increases over time, and the shipowner fails to declare a higher value to his hull insurers, or when an owner decides not to declare a higher value, but to increase the share of insurance placed under his hull interest (IV) policy. 

Finally, cover is not available under Rule 37 in circumstances where, although the Member has the right of recovery under the Hull Policies, he fails to make the recovery for some reason, e.g. due to the insolvency of one or more hull insurers. The reason for this is that the Association is not privy to, and has no control over, the manner in which the Member chooses to place his Hull Policies. Therefore, it would be contrary to the concept and spirit of mutuality to require other Members to bear the cost of the Member’s decision to place his Hull Policies on an unsatisfactory basis. 

(G) …there shall be no recovery under this Rule 37 in respect of any deductible borne by the Member under the Hull Policies… (Rule 37.b)
A Member may decide for many reasons to agree to accept a high or low deductible under the Hull Policies. This is a personal decision for the Member and the Association is not privy to that decision which is a matter that affects the Member’s private business arrangements and not something that should prejudice the interests of the other Members in the context of mutuality. Therefore, cover is not available under Rule 37 in respect of any liability that falls within the deductible borne by the Member under the Hull Policies. 

FFO liabilities and Hull Policy Cover 

√ = Covered by Hull Policy

English conditions

 

 

(Institute Time

Clauses-Hulls 1983, 3/4ths cover)

Nordic conditions

 

 

(The Nordic Marine Insurance Plan 2013)

United States conditions

 

(American Institute  Hull Clauses)

German conditions

 

(DTV Hull Clauses)

Damage to a fixed or floating object (FFO) (as a consequence of striking by the Ship)

 

 

Loss of use of FFO (as a consequence of striking by the Ship)

 

 

Removal of wreck of FFO (as a consequence of striking by the Ship)

 

 

Damage to FFO without physical contact with the Ship (e.g. surge damage)

 

 

 

 


 

1 See (E) below and the Guidance to Rule 71.
2 There is no universal definition of a ‘ship’. One common definition is that used in Paragraph 12 of Part I to Schedule 7 of Section 185 (1) of the Merchant Shipping Act 1995 of the United Kingdom, i.e.,“any structure (whether completed or in the course of completion) launched and intended for use in avigation as a ship or part of a ship.”
3 See (C) below.
4 Depending on the circumstances, contact between the Ship and a floating offshore installation may be onsidered to be a collision between ships, cover for which is available under Rule 36 not Rule 37.
5 See (D) in the Guidance to Rule 36 for a further discussion of what constitute ‘standard terms’ in his regard.
6 http://www.nordicplan.org/Commentary/Part-Two/Chapter-13/#Clause-13-1.
7 See the Guidance to Rule 39.
8 Cover for such liability would rather be covered under Rule 38 – Pollution.
9 This is commonly denoted ‘wash damage’ and cover for such liability is available under Rule 39 unless covered under the Hull Policy.
10 For example, a contract between the operator of an oil platform and the owner of an anchor handling vessel providing services to the platform.
11 However, depending on the applicable law, the Member may not be able to escape liability even if it can be proved that the contact and damage was not caused by his fault since some rules of law provide for strict liability. For example, under English law, a shipowner may be held liable for damage caused by his ship to a harbour, dock or pier, or any quay or associated works, even if neither he nor his ship is at fault. Under Norwegian law the shipowner is strictly liable for FFO damage caused by a technical failure of the ship’s reversing mechanism. Another example of strict liability is found in the Norwegian Seawater Fishing Act of 1983, section 42, concerning damage to fishing gear.
12 See the Guidance to Rule 55. The Pooling Agreement contains Guidelines which clarify the extent to which liabilities arising as a result of the use of such terms and conditions will be poolable. For example, liabilities arising solely as a result of the fact that the ‘user’ has agreed to indemnify the owner or operator of the port or terminal for loss or damage caused by the intentional acts or the gross negligence of the owner or operator, or his servants or agents, will not be poolable. The same applies to contractual provisions which have the effect of depriving the ‘user’ of a right to limit liability that would otherwise apply under the applicable law.
13 See the Guidance to Rule 36.
14 See, for example, Chapter 13 of The Nordic Marine Insurance Plan 2013.
15 See, for example, ITC Hulls 1983 with amendments.
16 See (F) in the Guidance to Rule 36.
17 The true market value is estimated after consultation with Sale and Purchase brokers who have experience of the type of ship in question.