Press Release: October 2015 - Underwriters fall out with expert witness over valuation of fire-damaged vessel

International Transport Intermediaries Club (ITIC) has reported a case in which hull & machinery insurance underwriters instituted proceedings against a marine consultancy firm for alleged negligence in failing to properly review shipyard quotes in respect of the cost of repairing a fire-damaged vessel.

The insured vessel had suffered extensive fire damage. The owners claimed that the ship was a Constructive Total Loss (CTL), alleging that the cost of repairing it was in excess of its insured value. The insurers rejected this claim, maintaining that the vessel was capable of economic repair. The vessel was ultimately scrapped, and the only remaining dispute was over the amount which the insurers were obliged to pay under the policy. 

At an early stage, the owners made an offer to settle the claim by accepting $1.136m, plus their legal costs. Underwriters did not accept the offer, and litigation was started by the owners. The underwriters engaged a marine consultancy firm to provide expert advice/evidence on what it would have cost to repair the vessel. The consultants issued a report stating that the vessel was not a CTL. This report was based, among other information, on two independent quotations from Chinese shipyards and detailed calculations from the builder of the vessel which indicated that the steel weight for the vessel’s accommodation block was 312 tonnes. 

The owners in turn submitted the report of their technical expert, which had been prepared using a different, ‘newbuild’ approach. This report used an estimated steel weight total of 542 tonnes to repair the accommodation block, and concluded that the total cost of repairing the vessel was $6m, a figure that would have made the vessel a CTL. 

Following a joint experts’ meeting, underwriters’ counsel asked the consultants to prepare their own steel weight calculations, inclusive of the accommodation block, in order to rebut the owners’ report. Drawing from their own calculations, the consultants concluded that the shipbuilder’s initial steel weight figure was inaccurate and that the cost of repairing the vessel was about $3.9m in excess of the total insured value. On the basis of this new advice, underwriters settled with the owners for $1.3m, plus the owners’ costs. 

Underwriters then started proceedings against the consultants on the basis that they had been negligent in not properly reviewing the shipyard quotes. The underwriters claimed that, had they been properly advised, they would have been able to settle for a lower amount at an earlier stage. This would have reduced their own costs and their liability for the owners’ costs. 

The consultants pointed out that the underwriters had rejected the owners’ earlier offer before they had been engaged, and argued that, for their part, they had relied on the figures provided by the underwriters. Moreover, it was not until after the joint experts’ report that they were asked to make their own assessment. 

Reporting that the issue was finally settled at mediation, ITIC says, “It is four years since the English Supreme Court held that expert witnesses involved in legal proceedings no longer enjoy protection from liability for negligence. It was a feature of this dispute that there was no document specifying what the consultants had been engaged to do. A large number of disputes involving consultants and other advisers would be avoided if the scope of work was clearly defined beforehand.”