Designated Person - Insurance or not?

This article is primarily concerned with a Designated Person within a ship manager’s office as it is their concerns that need to be addressed. The real question is not so much one of whether the Designated Person under the ISM Code can be sued and might in some circumstances have personal liability, but rather whether the potential liability is such that specialist cover is required.

The suggestion appears to be that cover is required for Designated Persons for the following risks:

1. misdirected arrow;

2. failure of primary insurances (in particular P&I cover);

3. failure of ship owning company (bankruptcy).

This may be true, but what is the real level of risk? It has always been the case that negligent individuals can be sued in their individual capacity, notwithstanding that the negligent act was performed in the course of employment or business.

Usually, individuals are not sued personally because the employer, who is vicariously liable, has more assets and in most cases the benefit of insurance cover. The ISM Code makes no difference to this point of principle, but there appears to be a growing belief that the “buck stops” with the Designated Person. The ISM Code did not create the role of Designated Person in order to provide a suitable target in the event that some negligence is involved in the operation of a vessel. This individual is not necessarily the person who is personally negligent if something goes wrong.

The concept of Designated Person was introduced because owners or senior management were able to distance themselves from events that occurred on board through the protection offered to them by the concept of “actual fault or privity”. From the perspective of maritime safety, a distancing of the owner or senior management from shipboard operations is unsatisfactory and the whole thrust of the ISM Code is to prevent senior management from being able to disassociate themselves from responsibility for an accident by claiming that they had left everything to a superintendent to manage and that they had no personal knowledge of what happened aboard the ship. The aim of the ISM Code was to create a clear chain between shipboard activities and the owner or senior management of a company by appointing a person who could “provide a link between the company and those on board” and that the company should appoint someone ashore who has “direct access to the highest level of management”. Thus the role of the Designated Person is to provide that link in responsibility between the ship and the highest level of management that was missing in many organisations prior to the implementation of the ISM Code. We believe it was not intended that the Designated Person should be the person who is deemed to be personally responsible if something goes wrong on board the ship. Clearly, that individual has responsibilities and could be negligent in a personal capacity, in the same way that any individual within the company could be negligent, but responsibility for that negligence is no different in principle to the position prior to the ISM Code. The fact that the Designated Person exists actually makes it rather more difficult for senior management to disassociate themselves in any event from the running of the ship. We believe it is important to recognise that the responsibility and authority of the Designated Person “should include monitoring the safety and pollution - prevention aspects of the operation of each ship....” This does not make the Designated Person responsible for the proper operation of the ship, which remains the ultimate responsibility of the senior management responsible for the proper operation of the ship, which in turn remains the ultimate responsibility of the senior management or owner. As a matter of practical reality, if Designated Persons do find themselves being sued, it will probably be because their identities are (or may be) easy to discover. At present the owner or senior management of, say, a Panamanian ship may be difficult to identify after a major casualty and finding the right superintendent or port captain may be equally difficult for the purposes of bringing legal proceedings. The Designated Person may be more a visible target.

That said, personal negligence will need to be proved. So far as general risks of suit are concerned, if a claimant commences proceedings and obtains judgement against a Designated Person (either alone, or as one of a number of defendants), so far as the ship’s insurers are concerned, any liability which falls upon the Designated Person would surely fall into the same category as a liability upon the ship’s managers or the master. In other words, the overall liability for the insurers would be no greater than if the ship owner alone had been held liable. Although it is common for managers to be named as coinsured, you would not expect to see an employee or master named in the policy. The role of Designated Person is not intended to interfere with the normal operation of the principle of vicarious liability and if anyone is at a greater risk of personal suit under the ISM Code, it is the owner or senior manager, because it is he (as a result of the existence of the Designated Person) who has less opportunity to defend himself in the event of a shipboard accident. It is he in the normal event to whom the claimant will most likely turn if personal liability is in issue. The circumstances in which a Designated Person will prove a valid target (except perhaps for tactical reasons in unusual circumstances) are limited and quite difficult to envisage (for example, the non-payment of premium by a failed company resulting in the loss of insurance at the time of an accident in respect of which the Designated Person was personally negligent in the exercise of his duties, leading to a loss to a third party). The position of Designated Person should not, in legal terms, attract personal liability any more than any other employee in a shipping company responsible for carrying out duties in relation to the operation of ship’s.

A further question worth touching on is that of limitation. In the event that a Designated Person was sued personally, he would presumably be entitled to the benefit of limitation. It would be a curious result if a claimant could circumvent the ship limitation by suing individuals. On balance, we are not convinced of the need for special cover for Designated Persons and actually think that the senior management is in a more vulnerable position in the event of a negligent action. Such a liability is covered by a ship manager’s liability policy with ITIC. It is true that there is some residual risk to the Designated Person in extreme circumstances, but we question whether that warrants separate cover in the way envisaged. However, such a cover is available from the Club at a very reasonable price. Please contact either the Club’s managers or your broker for details.