News of settlement of a particularly nasty road accident in the US is a timely reminder that ship operators continue to be exposed to extreme liabilities, even where they have largely divested themselves of chassis fleets.

For close to forty years, liner ship operators have provided their intermodal services in the United States through various models that followed one universal principle - that the container operators maintained a fleet of chassis they owned, leased or pooled, interchanging those chassis to intermodal motor carriers for the inland transport of containerised cargo. As a result of their interest in the equipment, liabilities for injury or death in the event of accidents arose, generally based on defects in the chassis.

Liability also arose under this model if the ship operator negligently hired or interchanged the equipment to an incompetent motor carrier, and, in some jurisdictions, ownership or long term lease interest in the equipment alone was sufficient to result in liability for the sole fault of the motor carrier.

The TT Club's cover for chassis liabilities under this earlier interchange model is structured to provide the broadest possible protection. In addition, the interchange agreements with the motor carriers, often drafted with the Club's assistance, require the motor carriers and their insurers to defend and indemnify against most claims (at least up to required limits).

At a pace that has accelerated over the last couple of years, however, a number of ship owners have almost completely reversed the old model and divested themselves of their ownership or long-term lease interests in many or, in some cases, all of the chassis used for inland transport. Under this new regime, the ship operators and the motor carriers contract with a third party chassis provider who agrees, for a daily use fee, to provide chassis to the motor carriers for the inland transport. These new arrangements come in varied forms, but the basic principle is that the third-party provider takes over responsibility, either directly or through a pool, for the ownership, lease, inspection, maintenance and repair of the chassis, and the ship operators' liability exposure to third parties based on an interest in the chassis is reduced, but it is not eliminated.

Disposal of asset does not dispose of liability

A residual risk of liability under the new chassis interchange model arises from the continued participation in the use of the chassis for inland motor carrier transport of containerised cargo. This participation includes the contract with the equipment provider, which may or may not require the ship operator to defend and indemnify the equipment provider against some or all claims arising out of the use of the chassis. Liability may also still be imposed if the liner operator hires an incompetent motor carrier. Further, a ship operator does not generally divest itself entirely of an interest in the chassis because, in many cases, it pays a daily rental fee to the provider. Finally, the mere fact that the equipment is provided to a motor carrier who is one link in the transportation chain in which the ocean carrier is a participant, may, in the future, give courts sufficient reason to impose liability on that ship operator participant.

The chassis liabilities described here can be limited by the contracts with the third party providers and with the motor carriers (most notably the Uniform Intermodal Interchange and Facilities Access Agreement). The TT Club continues to provide the broadest possible cover to its ship operator Members, while at the same time, minimising the risk of extending coverage to unintended third party beneficiaries such as motor carriers.

Nevertheless, the potential for liability remains. The motor carrier's insurance will typically not exceed USD1 million and can leave the ship operator, as a 'deep pocket' defendant, exposed in the cases with liabilities that exceed that amount. Examples of the most catastrophic cases involving trucks or chassis in the United States include an incident in the 1990s, settled in the region of USD100 million when a number of children were burned to death while their mother looked on after the tail piece of a chassis punctured the fuel tank of their minivan. More recently, a jury awarded USD178 million to a 13 year old girl in Los Angeles (later reduced to USD26 million by post trial settlement) in a case where the driver parked off the road in a designated emergency area and the girl's father negligently drove into the parked truck, killing himself and the girl's mother while she and her brother screamed from the back seat.

Risk management and insurance hand in hand

These cases demonstrate the underlying premise of the entire TT Club North American Chassis Insurance program:

• With the proper contracts and risk management practices, the cases in which a Member will be liable without recourse against the motor carrier are few, but the exposure in any particular case can be catastrophic. This is because the equipment involved is heavy duty mobile trucking units moving at high speeds along heavily travelled interstate highways. Juries have little difficulty sympathising and identifying with claimants where the sight of big rigs is so familiar.
• Regardless of how clear the case for no liability or limited damages may appear, and regardless of how well insulated the ship operator may seem to be from potential liability, each case presents its own unique potential for a disproportionate verdict and any case can go awry.

The structure of the TT Club cover terms, its sophisticated underwriting practices, and the detailed and knowledgeable management and assessment of any claim minimises the exposure to these kinds of liability - for both the ship operator and the Club.

We gratefully acknowledge the assistance in the preparation of this article of Erich Wise of Flynn, Delich & Wise LLP, Long Beach, California.

We hope that you have found the above interesting. If you would like further information, or have any comments, please email us, or take this opportunity to forward to any colleagues who you may feel would be interested.

We look forward to hearing from you.

Peregrine Storrs-Fox

Risk Management Director, TT Club