A failure to arrange insurance

A ship manager was appointed commercial manager of a ship by its time charterers on the basis of BIMCO Shipman 1998. One of the ship manager’s duties was to arrange insurances if required. The time charterer gave a written instruction that insurance should be placed by the ship manager.

The time charterer had previously owned the ship but had entered into a sale and charter back agreement. The ship had been entered in a pool prior to the sale and this arrangement continued. The pool agreement provided that participants were to ensure that ships were insured adequately.

Some time later the ship grounded whilst entering a port in India. The owner commenced arbitration proceedings against the time charterer for allegedly directing the ship to an unsafe port/berth. At this time, it was realised that the ship manager had failed to arrange time charterers' liability insurance for the time charterer.

The ship manager was not a party to the underlying dispute between the shipowner and the time charterer. The proceedings were protracted and the dispute was ultimately settled on a drop hands basis with the shipowner and the time charterer agreeing to pay their own costs but without the time charterer having to pay any damages to the shipowner. Although the time charterer’s position in the litigation had been vindicated, considerable legal costs had been incurred in reaching the settlement. These costs would have been paid under a charterers' liability policy had one been in place.

The time charterer claimed against the ship manager and there was no question that the manager had failed to place the required insurance. Therefore, ITIC indemnified the ship manager for the time charterer’s claim.