Author: Peter L. Hilbert
Date: July 1, 2001
MARINE INSURANCE AND GENERAL AVERAGE
PETER L. HILBERT
NEW ORLEANS (1)
FINES, PENALTIES, MUTINY,
QUARANTINE, DEVIATION AND
GENERAL AVERAGE EXPENSES
(9) Liability for fines and penalties, including expenses
necessarily and reasonably incurred in avoiding or
mitigating same, for the violation of any of the laws of the
United States, or of any State thereof, or of any foreign
country; provided, however, that the Assurer shall not be
liable to indemnify the Assured against any such fines or
penalties resulting directly or indirectly from the failure,
neglect, or default of the Assured or his managing officers or
managing agents to exercise the highest degree of diligence
to prevent a violation of such laws.
Under this clause, an Assured may claim against the Insurer for all fines and
penalties assessed by a federal, state or foreign government. This may include fines imposed
by any court, tribunal or authority of competent jurisdiction for failure to maintain safe
working conditions, failure to comply with the regulations for declaration of goods or
documentation of cargo, smuggling or violation of any customs regulation, breach of
immigration regulations, any act of neglect of a seamen or any other servant or agent of the
master. Christopher Hill et al., Introduction to P & I Insurance,75 (2d ed. 1996), The member
may also recover fines imposed an any agent or seaman, but only if it is me the member may
be liable to reimburse. E.R. Hardy Ivamy, Marine Insurance, 219 (4th ed, 1985). A fine
resulting from the deliberate misconduct of a seaman will only be reimbursed if the member
is compelled by law to pay the fine or had reasonably paid the fine to obtain the release of
an arrested vessel. Hill, supra, at 7l.
While this clause has previously allowed recovery for fines incurred for oil
pollution, P & I Clubs have begun offering distinct pollution control liability insurance up
to a maximum of $500 million and up to an excess of $200 million for tanker-owner
members. Hill, supra, at 75. Oil pollution insurance from P & I Clubs covers the losses,
damages, costs and expenses caused by the discharge or escape of oil or any hazardous
substance from an insured vessel, or incurred due to the threat of such discharge or escape.
Id. at 71. This includes measures taken to avoid or minimize pollution or prevent an
impending discharge or escape of oil or my hazardous substance from the insured vessel. Id.
Because pollution coverage is generally quite broad, it may include recovery for defense
costs, fines and penalties, and possibly punitive damages, James P. Walsh, Environmental
Coverage Issues Under Marine Insurance Policies, 7 U.S.F., Mar. L.J. 1, 18 (Fall 1994).
Although the, P&I Clubs have continued to provide oil pollution coverage for ships operating
in U.S. waters, they have refused to issue evidence of financial responsibility for ships to
receive the Certificates of Financial Responsibility (COFRs) from the US Coast Guard, as
required by the Oil Pollution Act of 1990. Id. at 5. The Clubs have refused to back the OPA
90 certificates because of higher limits of liability under the Act, the ability to lose their right
to limit liability, broad recoverable damages and the allowance for similar state legislation.
John Trew and Robert Seward, The Britannia Guide to Oil Pollution Legislation, 85 (1999).
Further, they would submit to direct action which would change their traditional role of
indemnity underwriters. Id.
In some states, insurance coverage of punitive damages claims is contrary to
public policy. Id. at 20. For example, the Insurance. Code of California forbids payment of
insurance for a willful act. Id., Cal. Ins. Code § 533 (West 1993). On its face, Clause 9 has
been held not to exclude coverage for punitive damages, even when the punitive damages
arise out of personal injury or loss of life covered by Clause 1 of the SP-23. Punitive
damages are within the nature of fines and penalties covered by Clause 9. Taylor v. Lloyd's
Underwriters of London,1994 WL 118303 at *6 (E.D. La 1994).
If a ship is confiscated in lieu of the assessment of fines, some P & I Clubs will
pay an innocent ship owner market value of the confiscated ship. L. Buglass, Marine
Insurance and General Average in the United States 411 (3d ed. 1991). However, at the
discretion of the Club, it may provide a letter of undertaking to assist in securing the release
of a vessel which has been arrested for reasons such as customs penalties mid other state-imposed fines. The letter stipulates that in consideration for the release of the vessel, the Club
will pay such sums as may be awarded against the member in proceedings before a court of
competent jurisdiction up to a maximum amount, although in some countries, clearance is
refused until a fine is paid. Hill, supra, 120-121.
P & I Clubs ordinarily reimburse their members for the expenses incurred in
keeping stowaways on board until they can be released on share, and the costs of repatriating
them to their country of origin, even though Clause 9 does not expressly cover such costs.
Hill, supra, at 84. Recently, stowaway coverage bas also reimbursed the costs of a ship that
picked up "boat people, in South East Asia and maintained them on board until they were
allowed on shore. Id.
The policy does not define "highest degree of diligence," but presumably this
standard requires more care than mere "due diligence" or reasonable fitness," the standards
for seaworthiness. Further, under this c1ause, "the Assured or his managing officers or
managing agents" as well as the master and his crew would be charged with the knowledge
of all laws and government regulations if they could be ascertained by using the "highest
degree of diligence."
(10) Expenses incurred in resisting any unfounded claim by
the master or crew or other persons employed on the vessel
named herein, or prosecuting such persons in case of mutiny
or other misconduct.
Mutiny requires the commission of in overt act by one or more crew members,
including the Mate and any other officer subordinate to the master, While on a US vessel
either on the high seas or on any "waters within the admiralty and maritime jurisdiction of
the United States." Benedict on Admiralty, § 117 at 9-37 (7th ed. Rev. 1996). A mutiny
does not require intent to usurp the master's command. Concerted disobedience or
encouraging disobedience in other members of the crew is sufficient. Id. Currently, mutiny
is frequently associated with labor disputes as some settlement methods attempted by
crewmembers have been deemed mutiny. Benedict, supra, §117 at 9-38; Southern S.S. Co.
v. National Labor Relations Board, 316 U.S. 31, 62 S. Ct. 886, 86 L. Ed 1246, 1942 A.M.C.
515 (1942); Algic 1938 A.M.C. 531 (4th Cir. 1938).
Other misconduct of the master or crew would include charges of barratry.
Barratry is an act committed by the master or mariners of a ship involving "deliberate and
willful disobeyance by the master or mariners of an owner's oral or written instructions."
Albany Ins. Co. v. Jones, 1996 WL 904756 (D. Alaska) at *4 quoting U.S. Fire Ins. Co. v.
Cavanaugh, 732 F.2d 832, 835 (11th Cir.). cert. denied, 469 U.S. 1036 (1984). Barratry
"comprehends all wrong done by master or mariners against interests of the owner of the
ship, but it does not include errors in judgment or ordinary cases of negligence." E.R. Hardy
Ivamy, Maine Insurance, 161 (4th ed. 1985). In order for conduct to constitute batrratry,
there must be intentional fraud, breach of trust or a willful violation of the law. Compania
de Navigacion, La Flecha v. Brauer, 168 U.S. 104, 124, 18 S.Ct. 12, 17 (1897). Under this
clause, the costs of prosecuting the master or crew on charges of barratry would be covered
Barratry has been held to include smuggling off-eases, other breaches of municipal or
international law which results in a loss to the Assured, breach of an embargo, trading with
the enemy, deviation for the purposes of the master, changing sides during a civil war and
deliberately sinking the ship. Id. at 161-68.
As an aside, the applicable standard which the Assured may be required to
meet in order to recover such expenses may be provided by Federal Rule of Civil Procedure
11. In other words, it may be necessary for the Assured to establish that the claim was
without merit. Under U.S. law, this requirement is tantamount to a judicial determination
that the attorney representing the master and/or crew did not comply with Federal Rule of
Civil Procedure 11. Rule 11 imposes three affirmative duties on an attorney. (1) to conduct
a reasonable inquiry into the fads which support any pleading, motion or other document
signed by the attorney, (2) to conduct a reasonable inquiry into the law such that the
document embodies existing legal principals or a good faith argument for the extension,
modification, or reversal of existing law; and (3) that the document is not submitted to delay,
or harass, or increase the costs of litigation. Childs v. State Farm Mutual Auto. Ins. Co., 29
F.3d 1018, 1023 (5th Cir. 1994). If the claim is unfounded and the Insurer settles the claim
with the Assured, the Insurer may, through subrogation, seek recovery from the master
and/or crew's attorney under Federal Rule of Civil Procedure 11. There are similar
provisions under the laws of various states and foreign countries.
(11) Liability for extraordinary expenses resulting from
outbreak of plague or other contagious disease, including
such expenses incurred for disinfection of the vessel named
herein or persons on board, or for quarantine, but excluding
the ordinary expenses of loading and/or discharging, and the
wages and provisions of crew and passengers; each claim
under this provision is subject to a deduction of Two
Hundred ($200) Dollars. It is provided further, however,
that if the vessel named herein be ordered to proceed to a
port when it is or should be known that calling there will
subject the vessel to the extraordinary expenses above
mentioned, or to quarantine or disinfection there or
elsewhere, the Assurer shall be under no obligation to
indemnify the Assured for any such expenses.
Quarantine expenses are recoverable if incurred because of an outbreak of a
contagious disease on board and an attendant order that the ship be disinfected. In order to
recover under this clause, the disease requiring quarantine or disinfection must be contagious,
not merely infectious. Thus. any expenses incurred because of Acquired Immune Deficiency
Syndrome (AIDS) or other sexually transmitted diseases would not be covered. In contrast,
the rules governing most P&I Clubs in Scandinavia and the United Kingdom use the term
"Infectious" instead of "contagious" and may be interpreted more broadly. See Britannia
P&I Club Rule 19(16), Skuld P&I Club Rule 21. 1. The SP-23 does not address the risks the
AIDS epidemic poses to seamen and passengers. See generally, Mindy James, Article, The
Availability of Maintenance and Cure to Seamen with AIDS, 11 U.S.F. Mar. L.J. 333 (1998-1999)(discussing the legal ramifications of AIDS in the maritime community). The owner
may recover costs for disinfection of the ship or of persons on board under quarantine or
public health requirements. E.R. Hardy Ivamy Marine Insurance 218-219 (4th ed. 1985).
The: Clubs will reimburse the net expense of the quarantine; their liability is reduced by the
wages and cost of provisions for the crew and passengers and expense of loading or
unloading. The costs included are bunkers, insurance and port charges. Christopher Hill et
al., Introduction to P & I Insurance, 84 (2d ed. 1996).
(12) Net loss due to deviation incurred solely for the
purpose of landing an injured or sick seaman in respect of
port charges, incurred, insurance, bunkers, stores, and
provisions consumed as a result of the deviation.
A deviation is an intentional departure from the stated or customary route not
contemplated by the parties at the formation of the contract. ADA, 1926 A.M.C. 1 (Ct. App.
NY 1925). In the case of an inexcusable deviation from the anticipated route, the insurer is
discharged from liability as from the time of the deviation. However, because a master is
obligated "to bear away to some port of distress as soon as possible" to obtain medical
assistance for a seriously injured or dangerously ill seaman, a deviation for that purpose is
considered reasonable. The Iroquois, 118 F. 1003, (9th Cir, 1902); 70 Am. Jur. 2d Shipping
§ 366 (1987). The Marine Insurance Act of 1906 excuses reasonable deviation "for the
purpose of saving human life, or aiding a ship in distress where human life may be in danger;
or where reasonably necessary for the purposes of obtaining medical or surgical aid for any
person on board the ship."
If the ship must deviate to seek medical care for someone who is injured or ill,
"the owner can recover port and other charges solely incurred for the purpose of landing or
securing the necessary treatment for an injured or sick person being carried in the ship
including the net loss to the owner in respect of fuel, insurance, wages, stores and provisions
incurred for such purpose or while awaiting a substitute for such person." Ivamy, supra at
217. Deviation expenses can also be recovered by a ship with an on-board hospital facility
which comes to the aid of an ill seaman aboard another ship. Peninsular and Oriental Steam
Navigation Co. v. Overseas Oil Carriers, 553 F.2d 830 (2nd Cir. 1977).
(13) Liability for, or loss of, cargo's portion of general
average, including special charges, in so far as the Assured
cannot recover same from any other source; subject
however, to the exclusions of Section (8) and provided, that
if the Charter Party, Bill of Lading, or Contract of
Affreightment does not contain the quoted clause under
Section 8 (bb) the Assured's liability hereunder shall be
limited to such as would exist if such clause were contained
Under this clause, the Assured is protected from the inability to recover cargo's
proportion of general average even if the Assured failed to exercise due diligence to make
the vessel seaworthy or if the Assured breached another provision of the contract of
affreightment not specifically delineated in the exclusions clauses. This protection is limited
to the Assured's liability as determined by the inclusion of Clause 8(bb) in all contracts of
affreightment entered into by the Assured. See, L. Buglass, Marine Insurance and General
Average in the United States, 413-414 (3d ed. 1991); J. Moore, Liability for Damage to
Property Carried, to be Carried or which Has Been Carried; Both-to-Blame Cases -and
Liability for Recovery over by Non-Carrier, Liability for Cargo's Proportion of General
Average Not Otherwis Collectible Policy Exclusions and Protective Clauses, 43 Tul. L. Rev.
581, 590 (1969). Because P&I Insurance is not intended to overlap in anyway with any other
type of insurance carried by the Assured, ordinarily, the Clubs' underwriters will not
reimburse the assured for the ship's sacrifices, which should be reimbursed by a ship's hull
underwriters. Christopher Hill et al., Introduction to P & I Insurance, 93 (2d ed. 1996).
The insolvency of the cargo owner does not prevent the Assured from recovering, but the
Insurer is not liable for any sacrifices. Therefore, if the uncollectible general average
contained any sacrifices, the amount recoverable will be reduced accordingly, Buglass, supra,
There is no coverage "which will indemnify the assured against a loss which
he may purposely and willfully create or which may arise from his immoral, fraudulent or
felonious conduct." Rose Murphy, 1933 AMC 444 (Ala. 1933).