Law firm Clyde & Co has published an article on the lessons that can be learnt from the recent litigation involving an engine room fire and claim on board the RENOS. In particular, when assessing a constructive total loss of a ship, should the value of salvage services incurred prior to the issuance of a Notice of Abandonment be taken into account? Grant Pilkington of Clyde & Co wrote that in the case of Connect Shipping Inc. and another v Swedish Club and others [2016] the English High Court clarified the long unanswered question: When assessing a constructive total loss (CTL), should the value of salvage services incurred prior to the issuance of a Notice of abandonment (NOA) be taken into account?
In the RENOS case the assured brought a claim under a policy on the Institute Time Clauses (ITC) – Hulls for a CTL of the insured vessel following an engine room fire during a voyage along the Egyptian coast. Salvage services were rendered on Lloyd’s Open Form terms and the Special Compensation Protection and Indemnity Clause (SCOPIC) was invoked.
The court’s decision enabled two main principles to be drawn:
1) Salvage and General Average costs incurred prior to the issuance of an NOA may be included in the calculation of a CTL.
2) SCOPIC expenses paid to salvors are an integral part of necessary salvage operations that insurers accept as a cost of repair.
The English High Court noted that standard forms such as the ITC 1/10/83 do not draw any distinction between past and future costs of recovery and repair
Further, the forms do not contain express language limiting the costs of recovery or repair to costs incurred after the NOA has been tendered.
In light of this and the “pro-assured” approach of the UAE Courts, in a claim for a CTL under an H&M policy on standard institute forms, there would be significant scope for an assured to argue for salvage costs incurred prior to NOA and SCOPIC expenses to be taken into account.
With reference to Saudi Arabia, Pilkington noted that, from the experience of previous cases, it appeared they the country’s Insurance Disputes Committee (IDC) was “increasingly prepared to consider such arguments based on international market practice”.
Pilkington concluded that marine insurers underwriting H&M cover in the Middle East should be aware that:
Where cover is underwritten on institute clauses, domestic law is likely to be applied by the courts, despite any foreign choice of law and practice provisions;
Where there is limited (or no clear) guidance under domestic law, there is likely to be significant scope for an assured to argue for salvage costs incurred prior to NOA and SCOPIC expenses to be taken into account when calculating a CTL;
In theory, in KSA there is also scope for “comparative jurisprudence” and application of the English legal principles set down in the RENOS.
“Insurers may wish to consider amending standard market wordings to make clear that costs incurred prior to NOA and SCOPIC expenses are to be excluded from any CTL calculation. However, it is also recommended that legal advice be taken to ensure such provisions meet the formal and regulatory requirements for valid incorporation in insurance policies, and are therefore upheld under domestic law”. (Middle East Insurance Review, May 2017) http://www.clydeco.com/insight/article/what-marine-insurers-can-learn-from-the-renos-case