Who can make a recovery?

Generally it is a party who has a contractual relationship with the wrongdoer or, where no direct contractual relationship exists, the party whose position has been financially prejudiced by the negligent actions of the wrongdoer. Generally this will be the receiver or owner of the cargo. (The position changes when underwriters have paid a claim under a policy of insurance. This is dealt with in 8.2).

A common difficulty in cargo insurance is that many cargo Assureds show little interest in any recovery action against third parties when they expect to recover their losses under the policy of insurance.

chapter 8

Recoveries

Remember what we said earlier about the cargo interests making that decision about whether to claim on insurance or claim from the carrier. For many cargo insureds, the prospect of claiming from their insurers is appealing because it is so much easier.

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For this reason, Institute Cargo Clauses contain a Duty of Assured Clause which, among other things, places a positive duty upon the Assured …

“… to ensure that all rights against carriers, bailees or other third parties are properly preserved and exercised.”

This clause is often supplemented by additional wording added to the policy that sets out more specifically what the underwriter expects the Assured to do, on discovery of a loss, to preserve the position against third parties who were, or may have been, responsible for the loss.

The form entitled Lodging a Claim Against a Third Party/Invitation to Attend for Joint Survey Guidance Notes, is available for use by Lloyd’s Agents.

It also provides information to a claimant on what steps to take to preserve rights against carriers and other third parties.

In circumstances where the cargo owner is or will be paid for their loss under the cargo insurance policy, it is mostly for the underwriter’s benefit that recovery prospects are preserved and investigated.

A competent surveyor will appreciate this at the time of conducting the survey and encourage the Assured to attach proper importance to this duty.

Where the Assured fails to perform this duty, with the result that recovery prospects are lost or impaired, the underwriter is entitled to reduce any claim under the cargo policy by the amount estimated that might have been recovered had the Assured acted properly.

So far as claims against third parties arising from breach of contract are concerned, these will mostly be claims against a shipowner arising under a Bill of Lading or charter party. Such claims will, in many cases, be defended on the shipowner’s behalf by the Protection and Indemnity Association (P&I Club) with which the ship is entered. Sometimes claims for recovery will be pursued against other carriers such as road hauliers, railway companies or inland water carriers.

Other contractual parties against whom it might be necessary to take recovery action could include freight forwarders, warehousemen, port authorities, stevedores, container owners and other parties with a contractual duty of care towards the cargo.

There will be occasions when a cargo owner or insurer will seek compensation from a third party who has no direct contractual relationship with the cargo or its owner. Two common examples are the owners of a ship which has collided with the ship on which the cargo is being carried and owners of other cargoes which have caused damage to the subject cargo. Claims against a third party with whom there is no direct contractual relationship are known as claims in tort. There will be circumstances where claims against the parties mentioned in the previous paragraph arise in tort rather than under contract.

chapter 8 Recoveries

8.2 Subrogation

As above, it is usually the Assured in the first instance who is the party entitled to claim against the third party wrongdoer. The situation changes as soon as the insurer pays a claim under the policy in respect of the loss which is the subject of the claim against the third party.

The passing to an insurer of the right to claim compensation from a responsible third party is known as subrogation. The effects of subrogation are that, on payment of a loss:

a. the insurer legally acquires the same rights and remedies against other parties that the Assured has in respect of the cargo for which the loss was paid, but;

b. in respect of a successful recovery, the insurer is entitled to keep only so much as has been paid to the Assured, passing to the Assured any amount recovered in excess thereof.

In respect of point b., where the Assured has borne a policy deductible, or where the underwriter receives a recovery that includes both insured and uninsured losses, it may be that the Assured is entitled to a proportionate share of the amount recovered, even where the total amount recovered is less than the amount paid by the insurer under the policy.

Additionally, where interest is included in the recovery, the Assured is entitled to receive all interest accruing to the period prior to the date the insurer paid the claim. Thereafter, the Assured is entitled to the proportion of the interest received which attaches to any deductible or other uninsured loss.

It is doubtful whether these rules are consistently followed in practice.

Any Lloyd’s Agent who undertakes a recovery on behalf of an underwriter or other principal should pass to the principal the whole of the net funds received and leave the principal to determine whether there should be any sharing of the recovery with the Assured – it is not a decision for the Lloyd’s Agent personally.

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On payment of the claim under the policy, it is standard practice for the insurer to obtain a signed Subrogation Receipt from the Assured. There is no standard form of Subrogation Receipt, although all insurers’ forms follow a similar pattern. The document generally contains:

■ Brief details of the cargo, the vessel, the policy number and other salient information identifying the cargo and the loss being claimed for.

■ An acknowledgement by the Assured of having received from the insurer the stated amount as payment of the claim under the cargo policy.

■ An acknowledgement by the Assured that the insurer has become entitled to the same rights and remedies in the cargo as the Assured.

■ An acknowledgement by the Assured that the insurer is entitled to use the Assured’s name in any action against third parties in respect of the cargo and loss referred to in the document.

The signed Subrogation Receipt is the insurer’s evidence of having paid the claim and thereby being legally entitled to pursue the recovery. The third parties being claimed against will invariably request sight of this document before entering into any negotiations with the insurer or the insurer’s representative.

8.3 What the Assured should do on