When a ship allides with port infrastructure, causing damage to the berth itself or equipment located on it, it is important that the port take prompt steps to protect its interests. From experience, TT Club has developed protocols - detailing actions to be taken, which seek to maximise the probability of recovering damage costs.

This article provides a summary of the protocols adopted by TT and which it has worked with ports to see incorporated into emergency response procedures.

First steps when damage occurs

When a ship causes damage to port infrastructure, it is necessary to be aware of the risk that the ship owner may seek to avoid paying the cost of repair. For example, since many ships are owned by ‘one-ship companies’, it is possible for a ship owner to sell their only asset (i.e. the ship that caused the damage), after which there may be no ability to make a recovery.  Thus, it is key to ensure that a letter of undertaking, which acknowledges a potential claim (without necessarily admitting liability) and is suitably guaranteed by a bank or insurance company, is rapidly put in place.

It is necessary to be aware of the risk that the ship owner may seek to avoid paying the cost of repair

The first step in the process is to issue notice to the Ships’ Master, Charterer and Owner of the damage and the ship is being held responsible. It is then strongly recommended that the following letter of undertaking be guaranteed by the ship’s liability insurer, generally a P&I Club, in order to preclude coverage issues and engage the insurer in the claims process at an early stage.

Obtaining a letter of undertaking from a P&I insurer (preferably) or a bank in respect of the claim will avoid the problem of a ship owner ceasing trading or divesting its assets prior to the point of enforcing any negotiated settlement or court judgment. This will also allow the claim for berth or equipment repair and business interruption to be made directly against the ship’s insurer or the bank regardless of the status of the ship at that point.

If security is not forthcoming, it is necessary to take steps to detain or arrest the ship. The processes involved will be dependent on the applicable jurisdiction and local legal assistance required to ensure that the port interests are adequately protected.

Notifying the insurer

After the incident, but before the ship leaves the port, the port needs to notify its broker and insurer, providing the date of the incident, the name of the ship, the precise location and a description of what happened. The port should quickly compile an estimate of the quantum of physical damage and likely business interruption losses. 

For the purpose of obtaining security, as well as for insurance notification and estimating, it will be necessary to obtain advice from port engineers regarding property damage and from the finance manager regarding potential business interruption losses. If the damage cost is likely to remain below the applicable deductible, the port itself will need to send the ship owner a letter of demand holding them liable for damage; TT or your insurer can assist with suggested wording.

If the cost is above deductible, it would be usual for your insurer to send the letter of demand. The insurer will ordinarily investigate the ownership and value of the ship and any possible implications of statutory limitations before proceeding to negotiate security and obtain a letter of undertaking.

Assessing and repairing the damage

Promptly after the incident, your insurer will appoint a surveyor or assessor if the damage is more than minor. The P&I insurer is also likely to appoint an assessor. The port, in conjunction with the assessors (both port insurer and P&I assessors, if applicable), will call for tenders for the wharf and equipment repairs as the port will be the contracting party. Once at least two (ideally more) tenders are received, the port needs to review these, in conjunction with your insurer and assessor, and then proceed to accept the most appropriate tender. The ship’s P&I insurer should participate in the tender review and ideally should agree with the outcome of the review process.

The port will arrange to undertake repairs and settle the contractor invoices directly. Once these invoices are approved by the appointed assessor, the port will be reimbursed for amounts exceeding the deductible. Note that the insurer will not reimburse the port for any improvements made during the repair process. The port's insurer (or the port itself, where the claim remains below deductible) should continue to maintain transparency with ship owner’s P&I insurer to maximise recovery prospects.

Recovery and settlement

Once the repairs have been completed it is necessary to negotiate recovery or settlement. A direct claim on the P&I insurer can be made where a letter of undertaking was issued. It may be that, despite all efforts to keep the ship owner and the ship’s P&I insurer informed and engaged, there remains dispute about the quantum or aspects of liability. Where negotiations are not successful, litigation may need to be commenced; this is another reason to involve your insurer at the earliest point or appoint lawyers locally, to ensure that the claim is protected and properly made.

Once the repairs have been completed it is necessary to negotiate recovery/settlement

After obtaining payment of the agreed settlement (or judgment) the port will normally be required to sign a release in favour of the liable party, confirming that they have no further claims against that party. Any security (the original letter of undertaking) should then be returned to the ship’s P&I insurer.

Inevitably, each incident will have individual characteristics. However, the steps outlined above should maximise the chances of successful recovery of incident costs.

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If you would like further information, or have any comments, please email us, or take this opportunity to forward to any others who you may feel would be interested.