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    UK: English High Court Holds Vessel a Constructive Total Loss

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    In a lengthy judgment, Mr Justice Andrew Smith found that damage resulting from the grounding of the vessel “Irene EM” was caused by an insured peril and, as a consequence, was covered by insurance. The judge also held that the vessel was a constructive total loss (CTL).

    In Ventico Marine SA v International General Insurance Company Limited & ors [2013] EWHC 3644 (Comm) a claim was brought by the owners of the “Irene EM” who claimed that on 30 October 2009 the vessel grounded fortuitously and that the damage was caused by a peril of the seas. It was also claimed that as a result of the grounding, the vessel could not be towed, or safely and lawfully towed, to a place where she could be repaired and, even if she could have been repaired, the costs of repair would exceed $12 million (the hull and machinery of the vessel was insured for an agreed value of $12 million).

    The main issues raised by the defendant underwriters were that the claimants had not proved how the grounding happened and that the alleged damage to the vessel was not at the level claimed. Furthermore, it was alleged that the vessel could have been repaired for no more than $12 million, and so was not a CTL as a result of the grounding. The defendants pleaded a positive case that the proximate cause of the grounding was the defective state of the vessel’s engine and/or generators, which in turn meant that the vessel was incapable of producing enough power to hold her position against the tidal current.

    The facts relating to the case are lengthy and dealt with in detail by the judge. The events leading up to the grounding of the vessel included the seizure of the vessel by pirates in April 2009 (during which time the vessel was not fully maintained). Following the release of the vessel in September 2009, it berthed at Salalah for repairs but, due to over-capacity at the port, was only able to berth for 24 hours. The vessel was then ordered to proceed to the port of Dahej. On 8 October the vessel dropped anchor off the port in an area known for the strength of its currents and for the shifting of banks. It remained anchored off the port for a number of weeks, during which time the vessel was subject to dragging incidents and the grounding in question.

    The claimants submitted that the vessel grounded about 10:00am local time on 30 October 2009, before she had used or tried to use her engines (therefore on the claimants’ case any deficiencies in her machinery could not have played any part in the grounding or caused any damage). The defendants submitted that, prior to the grounding, the vessel had probably drifted without power either because the generators would not start the main engine or because the main engine was in disrepair and did not have sufficient power to overcome the current. In addition, the defendants submitted that if the claimants were correct that the vessel grounded at 10:00am then the negligence of the crew was “sufficiently serious and effective to displace any fortuitous element to the dragging as the proximate cause of the grounding.”

    Section 55(2) of the Marine Insurance Act 1906 provides that “ … unless the policy otherwise provides, [the insurer] is liable for any loss proximately caused by a peril insured against, even though the loss would not have happened but for the misconduct or negligence of the master or crew.” The judge held that the causal impact of the crew member’s negligent omissions (in not recognising that the vessel had drifted by some three nautical miles) was not “so potent in terms of efficiency as to displace as proximate causes of the damage the events that he did not prevent” i.e. the action of the current that made the vessel drift and ground itself.

    The judge rejected the claimants’ submissions that the vessel was an actual total loss. Turning to whether the vessel was a CTL, the judge held that the proper approach to the question of what was the cost of repairs is “what would be their cost to a prudent uninsured shipowner.” Issues arose concerning the claimants’ allegation that the only proper way to repair the vessel was to cut-away an existing section of the hull and to build a replacement section, which, according to the estimates obtained by the claimants, would cost substantially more than $12 million. The defendants disputed this and submitted that other methods of repair could be utilised for less than $12 million. It is of note that the judge found that there was “no persuasive evidence from the expert witnesses about what method of repairs was required to restore the [vessel] to her pre-grounding condition or an operating condition.” Despite this finding (and a finding that the costs estimates put forward by the claimants were probably exaggerated), the judge held that the defendants’ evidence about the costs of repairs was not of a good enough quality to undermine the evidence of the claimants.

    To view a copy of the judgment, please click here.

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