Regulations and insurance need to keep up with technology advances – Clyde

Legal firm Clyde & Co partnered with the Institute of Marine Science, Engineering and Technology (IMarEST) in 2017 to research the adoption of new technologies in the shipping sector. Clyde aid that its research on unmanned vessels revealed that, while the industry was in the early adoptive stages, best practice for regulating, insuring and managing liability needed to be clarified before the industry could see widespread adoption. While the technology for unmanned ships was gathering pace, the legal landscape for the use of such ships remained “largely uncharted waters”.

In June 2017, the Marine Safety Committee of the IMO agreed to include the issue of marine autonomous surface ships on its agenda. Clyde said that this scoping exercise was the first step towards determining how the IMO could promote the safe, secure and environmentally sound operation of autonomous vessels.

Clyde observed that the discussion and speculation on the legal aspects of unmanned shipping to date had largely focused on the regulatory backdrop and particular legal issues, such as collisions involving these ships. However, it was noted that use of such ships would impact on every single legal and insurance aspect of shipping, not least the carriage of goods by sea. The lawyers noted that, reviewing any standard charterparty, it was striking how many of the rights and obligations concerned operations or matters which involved the Master or crew. The contractual framework for carriage of goods would need to change to be fit for the purpose of carriage in unmanned vessels. Relevant insurances would develop and respond accordingly.

On Contractual risk:

Clyde noted that the shipping industry was still some years away from the first unmanned ship undertaking an international voyage. YARA BIRKLAND. due to come into service in 2020, was being built to sail within the coastal waters of Norway, but there would inevitably be significant differences between an unmanned 80m coastal container ship and, for example, a VLCC. Clyde said that understanding the design and operation of these ships was key to assessing how they would operate within a contractual context.

YARA BIRKLAND is designed for loading and discharging to be done automatically using electric cranes and equipment. The ship will also be equipped with an automatic mooring system; berthing and unberthing will be done without human intervention.

Clyde observed that whether or not an unmanned vessel was to undertake automatic cargo operations made a significant difference to the terms in the contract of carriage regarding these operations. Currently it was common for charterers to take the contractual risk of cargo operations. If these were to be done automatically by the ship, the contractual risk of these operations might logically transfer to owners. At first glance, Clyde said, this appeared to increase the risk burden on owners. However, removing the human element might significantly reduce the risk of error during cargo operations and thus the overall risk burden of cargo operations. Clyde anticipated that in many respects the rights and obligations within a contract of carriage would remain the same. However, the scope of obligations and warranties might change. In a seaworthiness context, it was likely that the new hardware onboard would be covered and also that updating the software and maintaining a cyber risk management system would be included in owners’ obligation. Owners would be expected to implement protocols to ensure that all relevant staff were properly trained and operationally competent in the new technology.

As regards the safe port warranty, Clyde & Co said that what constituted safety might be different for an unmanned vessel. From a physical perspective, the draft, safe mooring and fendering requirements of such vessels was likely to be different. If particular hardware was required at the port for the vessel to safely berth, a port might be unsafe if such hardware was not available. Clyde said that it seemed likely that the new ships would trade only between ports running compatible systems.

The industry also recognized technical differences between completely autonomous vessels and those controlled remotely from the shore. These differences might feed into the new contractual regime.

The legal firm said that, with so many unknowns on the technical side, any evaluation of the future contractual response was necessarily speculative. An unmanned shipping revolution might also form part of a more fundamental change in the shipping industry as part of the logistics supply chain. But, notwithstanding the uncertainty as to how these technological developments would play out in practice, Clyde felt that we were unlikely to see the complete eradication of the traditional owner/charterer/cargo owner relationship from all trades. The development of unmanned shipping trades was bound to impact on the contractual rights and obligations between these parties and thus the risk and insurance position. Whilst risk apportionment would require amendment as a result of the changes in the way ships operate, many of the changes would be “around the edges” and the fundamental scheme of operation of charterparties and bills of lading might look fairly similar to existing forms.

Claims

Clyde observed that it had been mooted that claims in respect of unmanned vessels were less likely to arise because of the removal of human error as a cause of incidents. This would be equally true for cargo and charterparty claims as for collisions. However, this would not necessarily mean that the number or value of overall claims would go down. It could simply mean a change in the nature of claims.

The legal firm said that what might emerge was a resolution of claims at an earlier stage because of the quality of evidence available. There would likely be a secure digital record of everything that happened onboard, meaning that, for any cargo claim, the logs for the relevant systems would be automatically generated, providing the parties with a complete answer to the cause of the loss or damage.

Clyde said that, if liability was easier to establish then this would cut down management time and legal costs in fighting claims.

Insurance

Clyde said that the insurance response to unmanned vessels would largely be governed by how safe and secure they were when they came into service. To the extent that unmanned vessels achieve good penetration into the shipping market, because they transpire to be more efficient, greener and more cost effective, their owners would be certain to find insurers comfortable to insure their liabilities, as well as the ships themselves.

Some current risks would be reduced or removed by virtue of the lack of human involvement onboard the vessel. Other risks would increase, such as the amount of highly technical hardware onboard which could malfunction or be open to cyber attack.

The amount of data available from these ships was likely to improve transparency from an underwriting perspective. As with blackbox insurance currently available in the automotive sector, if a shipowner could provide data and metrics showing how safely the ship operated, this might be more compelling even than loss record in reducing premiums.

Clyde said that the current position being adopted by international group P&I Clubs to cyber risks might be an early indicator of how the industry would approach unmanned ships. Cyber risks were defined as any risk of accidents, incidents, financial loss, business disruption or damage to the reputation of an organization through failure of its electronic systems or by the persons using those systems. IG poolable club cover did not exclude losses or liabilities arising as a result of cyber risks, so members benefited from the same level of P&I cover should a claim arise due to a cyber risk as they would from such a claim arising from a traditional risk. This is the case unless the cyber risk in question constitutes an excluded war risk, such as terrorism.

Third party liability caused by a failure of the navigation software onboard an unmanned ship would constitute a cyber risk and would not be excluded from IG P&I cover. Clyde said that it was also worth noting that separate cyber risks policies were available from commercial insurers covering data breaches and business interruption. Clyde said that top-up cyber cover was expected to become routine to respond to risks particular to increased reliance on technology.

Summary

Clyde said that the shipping industry was just beginning to explore the potential of unmanned vessels. If unmanned vessels were to be the future of shipping, the legal and insurance position would need to respond to the precise way in which the technology operated. In a carriage of goods context, the key contractual considerations were likely to remain broadly the same. Goods would still move from A to B onboard vessels. Parties would still own ships and buy, sell and finance cargoes onboard those ships. The operational and legal world of carriage of goods would continue to turn.

However, Clyde said that, in order for the industry to really capitalize on the opportunities that these developments might bring, the regulatory framework, contractual and insurance aspects of the vessels and their operations would have to keep pace with the rapidly developing technology.