SURVEYING MARINE DAMAGE A HANDBOOK FOR MARINE SURVEYORS AND LOSS ADJUSTERS AND A GUIDE FOR UNDERWRITERS, SHIPOWNERS AND LAWYERS PARTICULARLY FOR INSURANCE CLAIMS BY CAPTAIN C B THOMPSON RD FNI Hon FIIMS Hull and Cargo Surveyor Formerly a Lloyd’s Agent and Salvage Association Consultant Surveyor WITH THE ASSISTANCE OF CAPTAIN M AUSTIN FAMINZ MIIMS Hull and Cargo Surveyor Lloyd’s Agent, Auckland First Published 1994 Second Edition 2006 Third Edition 2016 ISBN 13: 978 1 85609 608 9 © C B Thompson 1994, 2006 and 2016 British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library. Notice of Terms of Use All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher and copyright owner. While the principles discussed and the details given in this book are the product of careful study, the author and publisher cannot in any way guarantee the suitability of recommendations made in this book for individual problems, and they shall not be under any legal liability of any kind in respect of or arising out of the form of contents of this book or any error therein, or the reliance of any person thereon. Printed by Trade Colour Printing, Penrith, UK Published in 2016 by Witherby Publishing Group Ltd 4 Dunlop Square, Livingston Edinburgh, EH54 8SB Scotland, UK Tel No: +44(0)1506 463 227 Email: info[email protected] Web: www.witherbys.com iii THE AUTHORS Barry Thompson Brought up with a love of the sea and some experience in small boats in the South of England, Barry embarked upon a career at sea when he commenced his secondary education at Pangbourne Nautical College and later joined Port Line as an apprentice. After obtaining his Second Mate’s certificate, he joined P&O as a junior officer. He went on to serve the company in cargo and passenger ships, leaving after brief periods as Staff Captain and in command, to settle in Auckland, New Zealand. He then became a marine surveyor and shortly afterwards started his own surveying firm which, in due course, developed successfully and was appointed the Lloyd’s Agent covering the two largest ports in the country. After selling his business, he became a Director and Consultant Surveyor with GAB Robins New Zealand Ltd, then a member of the worldwide Société Générale de Surveillance (SGS Group), until he retired from full-time employment to act as a Marine Consultant to the insurance and shipping industries in New Zealand. An honorary Fellow of the International Institute of Marine Surveying, he has written Units of their Diploma Courses and continues to write for the Institute, having earlier written for Informa (now Lloyd’s Maritime Academy). During most of his seafaring years, and later after coming ashore, Captain Thompson served with the Naval Reserve. He is a Liveryman of the Honourable Company of Master Mariners, a Freeman of the City of London and a Fellow of the Nautical Institute. He was for a time Deputy Chairman of the NZ Committee of Lloyd’s Register of Shipping and a consultant surveyor appointed by the Salvage Association. With an interest in sail training and youth development, he has served on the Boats Committee of the New Zealand Outward Bound School, as Deputy Chairman (now a Vice Patron) of the Spirit of Adventure Trust and as a relieving master of New Zealand’s two principal sail training ships which the Trust has operated. Michael Austin A master mariner, Michael served at sea with the New Zealand Shipping Company. Following several years in commerce, he became a surveyor in 1974 and has been the Auckland Lloyd’s Agent for the past 25 years. He is a Fellow of the Arbitration and Mediation Institute of New Zealand and a Member of the International Institute of Marine Surveying. A yachtsman, he too has been a relieving master of the two principal New Zealand sail training ships and a trustee of the Spirit of Adventure Trust. iv FOREWORD TO THE FIRST EDITION Captain Thompson has had a busy and distinguished career which has embraced a mainly maritime involvement, be it as Master Mariner, Hull Surveyor, Cargo Surveyor, Loss Adjuster, Salvor, Lloyd’s Agent and Consultant; his wide experience making him well qualified to write a book on the subject of Surveying Marine Damage. It is refreshing and gratifying when one finds a person who will dedicate his efforts to producing a volume encapsulating the value of his know how in the various fields of endeavour for the benefit of future generations of surveyors, thus putting something back into an industry that has been his lifeline. Besides being of great value to the student or junior surveyor, this book will be appreciated by surveyors who are commissioned to carry out tasks, such as loss adjusting, to which they have not been accustomed in their every day work. Throughout the book great stress is placed upon the necessity of obtaining and abiding by clear instructions for whatever task is to be performed. Perhaps similar stress would be warranted to see that surveyors understand that no survey can be held on property without the owner’s, or his representative’s, permission. When this permission is not forthcoming the surveyor should inform his principal who will probably be able to get the necessary clearance. It gives me great pleasure to commend this book to all readers and especially to those engaged in the education of young potential entrants into the survey field. Further, as an ‘Old Salt’ myself, might I add that I have enjoyed reading this book. C A Sinclair OBE Formerly Chief Surveyor of the Salvage Association Past President of The Society of Consulting Marine Engineers and Ship Surveyors Past President of The Federation of European Maritime Associations of Surveyors and Consultants v PREFACE TO THE FIRST EDITION The carriage of goods, the operation of ships and the requirement for surveys that accompany them are essentially international in nature – I have therefore endeavoured not to limit any discussion of them too much to any particular geographical region. Marine insurance too is largely international but the laws that govern its practice are national and, to that extent, it has been necessary to place some restrictions on the comments on surveyors’ activities where they are concerned with insurance. English law underlies most insurance and legal comments in this book but as English law forms the basis of the legal systems of the majority of English speaking countries this has not placed too much geographical restraint on any references to the marine surveyor’s role in relation to insurance and commercial law. Inevitably there are some general statements as to common practice and the legal position; these can be expected to vary to some extent from country to country. Such statements, whilst probably applicable to most situations in the English speaking world, may not apply to all. They must therefore be accepted as being general statements and not necessarily applicable to all situations regardless of location. The surveyor must be conversant with his own national laws and apply them in any cases where the general statement may need to be varied. Survey practices often vary from country to country, even from place to place. In some parts of the world, too frequently due to political or military intervention or commercial expediency, they may be outside the control of the surveyor. Experience in the practice of surveying has taught me that it is very difficult to be absolutely specific as to the ‘correct’ role of the surveyor of the way he should carry out his duties on all matters and in all circumstances. The best that can be done is to provide the principles, and the surveyor must adapt them as necessary to his situation. Whilst there is uniformity with regard to certain expectations of a marine surveyor and the role that he is required to perform, there is also a great deal of variation of opinion, as a recent survey of surveyors in several English speaking countries has revealed. This survey has clearly shown that people see the role differently and nowhere is this more apparent than in North America where some hold fast to the traditional role whilst others are equally firm in their opinion that the surveyor needs to be adaptable and to provide a wider service to the shipping and insurance industries. This book is intended to act as a guide to the work of the marine surveyor who is principally, but not exclusively, involved with damage surveys on cargo and commercial or pleasure craft hulls on behalf of underwriters. vi SURVEYING MARINE DAMAGE Above all it is intended to provide: (a) A source of basic information for: (i) the less experienced regular and occasional surveyors (ii) the training of future surveyors (b) A source of reference for: (i) the more experienced surveyors (ii) lawyers, underwriters, insurance brokers, shipowners, charterers, P&I Clubs and others who, from time to time, work with or employ surveyors. There is often a marked gulf between theory and practice and many text books understandably concentrate on the theory on the basis that, if understood, then the practice will follow naturally and any variations called for in practice can be measured against the yardstick of the theory. To some extent this book does explain the theory but I have recognised that there may be many variations in practice and some surveyors may find that the practice with which they are familiar differs from that which appears in this book. This is inevitable as there are variations in local custom and anyway there is often more than one satisfactory way to fulfil a task. The seaman’s expression “different ships; different long splices” is often applicable. This book is not intended to give technical advice on the survey of particular types of cargoes or vessels. Some of this information is available in several texts mentioned in the bibliography but much of it is really only available from experience in appropriate disciplines. As will become apparent the surveyor must tailor his role to some extent to fit the requirements of his instructing principal, but he will also be dictated to by the situation which confronts him and by a number of other factors which can often not be foreseen. Whilst being firm enough in holding to sound basic principles he must be flexible enough to adapt when required. He requires the judgment of Solomon and the hide of a rhinoceros! It is a well known adage that “there is no substitute for experience” but there is no reason why all the experience need to be gained the hard way and this book is intended to pass on some of the experience of a lifetime in dealing with ships, their cargoes and their surveying, in the hope that it will be of assistance to others who carry on the essential, and mostly enjoyable, functions of marine surveying. Mention is made in many places of the practice of surveyors becoming involved in the adjusting of claims and even in the pursuing of recoveries; Part III covers the basics of adjusting and recoveries. No mention is made of adjusting commercial or large cargo claims as the surveyor will almost never take on this function. Even the suggestion that surveyors take on any adjusting role will be completely alien to many of them, and to many underwriters too, but it is a fact of life that in many parts of the world this is the requirement, principally with small cargo and pleasure craft claims. This often arises due to the lack of marine insurance expertise amongst claims staff in some underwriters’ offices and is especially so in regions where insurance company marine portfolios are small and fire and general insurance predominates. It also arises where service vii PREFACE TO THE FIRST EDITION companies have deliberately set out to provide underwriters with as comprehensive a service as possible. This book is intended to provide helpful and practical advice on the carrying out of a surveyor’s role. It has been written by a practising surveyor and as a consequence recommends practical procedures rather than theoretical ones, although not without some regard for the legal risks to which the surveyor is inevitably exposed. It is not written by a lawyer who might be expected to view some of the recommendations from the position of an advocate in a courtroom seeking to prove legal liability rather than to finding practical solutions to an immediate problem. Much of the surveyor’s ‘modus operandi’ has, in the past, simply been passed on from one generation of surveyors to another with little attempt having been made to open it up to wider scrutiny, as for example by means of a standard text book on surveying. In the past few years there has been a welcome increase in the amount of literature on the surveyor’s work, with some good books and seminar papers covering various aspects. However to the best of my knowledge no book has been published, at least in the English language, that particularly concerns marine insurance claims in any depth considered primarily from the surveyor’s point of view. It is likely, therefore, that this book will raise more than a few comments with some differences of opinion being expressed by those most experienced in the field of marine damage surveying. Should this prove to be the case it can only be stimulating to the profession and will help to achieve one of my principal aims in writing the book, namely that of assisting to raise the standards of surveying in the maritime world which is today more than ever dependent upon reliable surveys and good survey reports. C B THOMPSON Auckland, New Zealand October 1994 3 CHAPTER 1 INTRODUCTION General Marine surveys cover a very wide spectrum and no surveyor can expect to be competent in all types of surveys. The primary skill of a surveyor is the ability to look, examine and record a situation, and accompany it with a keen and perceptive inquiry. From this, the surveyor becomes familiar with the subject, whatever that may be. The world’s principal ports and marine insurance centres are generally well served by competent, specialist and experienced surveyors, but in the smaller ports and more remote parts of the world there is a sparsity of such expertise and those seeking to appoint surveyors have to choose between appointing local surveyors, who are likely to be generalists, or seeking the services of specialist surveyors from elsewhere, often overseas. Nevertheless, there is still a need for marine surveys and, where claims are large, they may warrant the expense of flying an experienced surveyor to the scene. Where this is not economic, surveys may be conducted by less experienced surveyors; in some cases they may be very much more familiar with non-marine claims as general loss adjusters. Whilst a major proportion of the very large hull and cargo claims worldwide are probably surveyed by United Kingdom or United States based surveyors in whose countries most of the accepted practices have been developed, there remains an enormous number of claims occurring around the world with which only local surveyors are involved. Not all surveys are carried out strictly to the London or New York pattern and this particularly applies to the more routine cargo and pleasure craft hull claims where a modified approach is often sought by underwriters and which may extend the role of the surveyor beyond that which is considered to be the surveyor’s customary one. The complexity of the problem, the monetary value at risk and other factors will influence the decision as to the expertise required or appropriate in the circumstances. Too often a party engaging a surveyor’s services has little realistic idea of what he can expect from the surveyor’s work or, sometimes, even of what he actually requires the surveyor to do. Many instructions to surveyors are extremely vague, giving him little guidance as to his terms of reference and the extent of his expected role. Some aspects of the surveyor’s work may be considered as customary and this book attempts to show what is generally considered to be customary in the larger ports where marine surveyors are readily available, but even this is not something that can really be taken entirely for granted. 4 SURVEYING MARINE DAMAGE Customary can take on a quite different meaning in some places and, with the increase of worldwide communication, the position needs careful consideration. In the more sophisticated shipping and insurance markets of Europe and North America, the limited, traditional role is customary, but in some places the customary role of the surveyor may be quite different. For example, in the smaller ports, and particularly inland, in many of the less densely populated areas, the loss adjuster, rather than the marine surveyor, is the familiar figure often attending to small marine insurance claims. In some of these places, customary tends to mean that the person carrying out the survey is expected to fulfil the traditional role and then, probably after the underwriter’s admission of liability, adjust the claim, make recommendations to underwriters concerning settlement and, quite possibly, pursue liabilities on the underwriter’s behalf under his subrogated rights. Even in the larger ports, if the appointing underwriter, or his claims staff, is not familiar with the customary marine procedures, he may require the surveyor to perform much the same role as he expects of the loss adjuster. There are significant differences between the way in which experienced marine surveyors and loss adjusters generally handle claims. Traditionally, in the centres of marine insurance, the surveyor’s role is confined almost entirely to the consideration of the nature, extent and cause of the loss and in presenting the facts, with soundly-based opinion if requested, in a report to the party that appointed him. This report is usually prepared in such a manner that it can later be made available to any other party with an interest in the property. Certainly this is the traditional role of the surveyor, but there are occasions when sensitive matters are omitted from a report and contained in a separate confidential memorandum intended only for the appointing party. In practice, however, the surveyor’s role may be very much wider and it might well be said that, in widening it, the role is no longer simply that of a marine surveyor. Since this wider role is sometimes required by those who appoint surveyors to assist in the resolution of marine insurance claims, it has received consideration in this book. Indeed, some might contend that the total scope of the book extends beyond the strict boundaries of marine damage surveying. Because of its long international history, marine insurance has been, and continues to be, practised in a very much more traditional manner than most other branches of insurance. This traditional approach extends to the handling of claims under marine policies and, as a consequence, marine surveying per se has a very much more traditional role to play in them than is the case where the non-marine counterpart of the marine surveyor becomes involved very much more widely in claims resolution. Due to the tremendous growth of travel, transport and pleasure boating in the latter part of the 20th and now in the 21st century, marine insurance has extended more and more into the daily lives of the average citizen. At least in the developed countries this is so, whereas in the past it was largely confined to the commercial activities of shipowners and merchants. The result of this growth is that a multiplicity of insurers, many of whom previously were not marine underwriters, now write marine business and, when claims arise, there is a 5 INTRODUCTION requirement for more and more claims specialists including surveyors, adjusters, marine lawyers and recovery agents. Changes in the mode of cargo transport involving containers, pleasure craft on trailers and sailing on inland waters, all of which frequently require claims surveys well away from ports, together with the extension of marine underwriting into the fire and general insurance companies has, in many cases, resulted in significant changes in the handling of claims. Although the traditional marine survey roles are still very much called for, particularly with the larger cargo and commercial hull claims, there is a tendency by some underwriters to use non- marine loss adjusters. Where they do use marine surveyors, they expect them to perform a similar role to that of loss adjusters but using their more specialised marine expertise. Thus in some cases, particularly in North America, in the less traditional marine insurance markets and the smaller ports of the world, surveyors are often required to adjust the claims that they have surveyed. Very often they are also expected to pursue recoveries against third parties where these can be effected without recourse to litigation. The extent to which surveyors extend beyond the traditional role is a matter for their principals to determine and much emphasis has been laid throughout this book upon the prime importance of careful observance of the principals’ instructions. It is in fulfilment of their principals’ instructions that surveyors earn their fees and, whilst there must always be ethical principles to which any self-respecting surveyor must adhere, they must carefully consider their principals’ wishes. The wider role of the surveyor, as required by some principals and extending to the adjustment of claims and recoveries from carriers or other third parties, may sound abhorrent to traditionalists. Any deviation from the straight and narrow role of the true marine surveyor may be seen as heresy by many underwriters, particularly those in the larger marine insurance markets. These views must be respected and woe betide the surveyor who strays from this well-charted path when the traditional role is the only requirement of his principal. The past few years have seen a significant move towards the establishment of quality assurance in the shipping and related industries. The introduction of the International Safety Management (ISM) Code is a good example and has shifted the responsibility for good ship maintenance and operation more heavily onto owners and managers, who now have to monitor their own performance on a continuing basis rather than relying on periodic surveys by others. This has had some impact on the work of the marine surveyor since, in many cases, there is less emphasis on the concept of third party inspections and a shift to first party inspections. The effect on some surveyors is that, to some extent, their role has seen a shift in emphasis to that of an auditor monitoring owner’s records. For some owners, this has meant a greater awareness of good practices and, in the view of some, has resulted in better loss prevention measures. Surveyors have seen a change of emphasis on some aspects of their work but certainly no overall diminution in their value to the shipping and insurance industries. Indeed, other factors have probably brought about a greater need than ever for their services. 6 SURVEYING MARINE DAMAGE These changes have probably had more impact on the work of the statutory and other regulatory surveyors than on the surveyor concerned with damage surveys. However, it is to be hoped that they may have created a greater awareness of good practices, which may result in better loss prevention measures in due course. Trend towards a wider role for the surveyor The 20th century, and now already the early years of the 21st, have seen dramatic improvements in rapid communications, the steady development of the network of insurance companies, the growth of the loss adjusting profession, the introduction in many cases of simplified marine policies, the universal availability of motor vehicle insurance and an explosion in pleasure craft ownership. Most of these factors have combined to bring about the much more extensive retention of surveyors by underwriters rather than by other parties. For many years, most marine insurance was upon cargo or commercial hulls. The late 20th century growth, in terms of numbers, and in some cases even in values of small yachts and runabouts, together with containerisation often leading to the first sighting of damaged goods occurring well inland and miles away from a port, has led to the appointing of non-marine loss adjusters to survey and report upon marine damage. Such appointments are usually by underwriters, with reports being confidential to the underwriters. The survey of commercial hulls requires surveyors who have a sound technical knowledge of ship construction, operation and marine engineering. Such knowledge, usually gained over a lifetime in a discipline closely associated with seagoing, shipbuilding or ship repair, is not often combined with any depth of knowledge of marine hull insurance. Although the commercial hull surveyor may be appointed by the underwriter, his report, for practical reasons, is devoted solely to the technical aspects of the casualty without any reference to the policy terms and conditions. It is the traditional requirement of the surveyor that his report will provide only an unbiased appraisal of the nature, extent and cause of any loss or damage. The survey of casualty damage that has arisen out of the growth of yachting and pleasure boating as a pastime has not been entirely accompanied by the same philosophy. Although there are specialist yacht surveyors who only report on the technical aspects of the casualty and its repair, many small craft claims are now handled by more generalist surveyors and loss adjusters. Some of these loss adjusters, and others, possess adequate marine insurance knowledge to cope with the simplified marine policies under which small yachts and runabouts are frequently underwritten, but unfortunately this may not always be accompanied by the requisite technical knowledge of small craft. Many of the run-of-the-mill cargo claims that occur do not require the specialist knowledge of the London or other specialist surveyor with his vast experience in certain commodities, and these are often handled in a similar manner to the pleasure craft claims mentioned above. 7 INTRODUCTION In some places where the call for specialist surveying is minimal, and where there is also a corresponding lack of adjusting expertise both within insurance companies and independently, there is a tendency for underwriters to expect surveyors to practise as both surveyors and adjusters, even extending the service to include claims recoveries. These generalists vary considerably in their competence, but in the case of the more experienced ones, usually those whose early training was seafaring or marine insurance orientated, they are often very capable but lack the specialist marine surveying expertise of their brethren in the main centres. They have instead a wide general knowledge of surveying, often accompanied by sound general adjusting and recovery knowledge. Many pleasure craft and some cargo policies are written by insurance companies whose principal business is fire and general insurance and in many cases lacking any depth of marine insurance expertise. Some appoint loss adjusters to attend to their claims and others, whilst appointing marine surveyors, will nevertheless expect them to provide very much more service than that customarily associated with the provision of a traditional survey report. Their expectation is often that the surveyor, like the loss adjuster, will manage the claim on their behalf, attending to its adjustment and very probably also seeing it right through to recovery against carriers or third parties if this can be achieved by negotiation rather than by litigation. At one time it could be said that the surveyor was universally seen as having fulfilled his appointed task as soon as he had provided his survey report. As has been shown, this still applies in many cases but by no means all. This broader role may be said to apply to many of the smaller claims where the underwriter so requires. The adjustment and recovery in commercial hull claims is still very much a specialist activity of average adjusters and marine lawyers. The surveyor who strays into these arenas does so at his peril. And of course, if he is wise, it is only the surveyor who knows what he is doing who becomes involved with any cargo and pleasure craft adjusting and recoveries. Many who are concerned with the resolution of marine insurance claims today see a requirement for surveyors to widen their involvement and knowledge to include that of marine insurance. They tend to see the traditional view as being outdated. Time alone will tell which view will prevail. Probably the truth is that there will long remain a place and a need for both. However, with the wider requirement of many companies writing marine business, there have grown up in the United Kingdom and North American markets in particular a number of companies that offer a wide range of insurance services to satisfy the needs. These services include claims surveying, adjusting, settling, recoveries and other allied activities. Many of these firms are large international names. They employ specialists in each area in which they offer services and are heavily relied upon by some insurance companies to handle claims on their behalf in their entirety. Others are smaller, relying on the same individual to 8 SURVEYING MARINE DAMAGE take care of all aspects of a claim but often reporting back to the underwriters to enable them to make their own decisions on liability and settlement. Marine damage surveys This book could not hope to do justice to the wide range of subjects confronting the surveyor. The type of surveys that constitute the principal subject covered in it are those that relate to enquiries into the nature, extent and cause of damage that has occurred to ship or cargo prior to the surveyor’s appointment, ie marine damage surveys. (‘Ships’ also includes small craft.) These surveys constitute a very significant portion of the total number of surveys carried out daily by marine surveyors worldwide. Damage is suffered by ships and cargoes from a number of different causes and to varying extent. Although almost all references in this book are to the surveys of ships and their cargoes, it should not be overlooked that today substantial quantities of goods are carried by air and their survey following damage, but not the aircraft itself, is usually carried out by marine cargo surveyors. The Surveyor’s traditional role: Survey and Report ?Nature ?Cause ?Extent Possible additional roles: Adjust the claim Pursue recoveries against: Cargo claim: Carriers (primary and secondary) Bailees Stevedores H&M claim: Other vessel and Oversee ‘own’ vessel repairs Air cargo is almost entirely palletised or containerised and surveyors need to become familiar with airport handling equipment and methods together with details of aircraft stowage arrangements and their attendant problems. While conditions and some of the problems associated with air transit are different, there are few fundamental differences that cause the marine surveyor any concern. When damage occurs, whether to sea or air freight, it is usually necessary to have the circumstances and the degree of damage verified and carefully recorded. This is necessary 9 INTRODUCTION so that, firstly, consideration can be given to the possible restoration to sound condition and, secondly, so that the financial losses can be recovered from other parties. These may be the parties responsible for causing the damage, eg carriers, bailees and others, or those who agree to indemnify the owners, or others having a financial interest in their losses such as underwriters and financiers. Employment of surveyors When this loss or damage occurs, it is usual for both the insured party and/or his underwriters, assuming that the interest is insured, together with the defending party, to retain surveyors to assist them in proving or refuting claims. Generally the surveyors act in a largely independent capacity to record the facts concerning the cause of the loss or damage and to agree its extent. A surveyor may be instructed by a number of different parties who require a damage survey. They will often be underwriters, shipowners, charterers, P&I Clubs, shippers, consignees, carriers or lawyers. When the surveyor’s instructions are to act within the customary limitations, it makes little difference to his duties which party retains his services as they are fundamentally the same. Although each may vary its instructions slightly, the requirements of damage surveys are to ascertain the circumstances, to mitigate the loss or damage, consider the cause and extent of it, and then submit a report on the findings. Most damage surveys for carriers’ and third party liabilities require that, if possible, the surveyor attends a joint survey with the claimant and usually his underwriter’s surveyor. The claimant, as the party with the responsibility of establishing the claim, is required to take the active part whilst the third party surveyor’s role is more passive and is largely to observe and record. The underwriter’s surveyor may be expected to take a slightly less passive role than any other surveyor present as the underwriter will usually be subrogated in due course to the claimant’s rights of recovery against the other parties. However, the onus at the time rests with the claimant to prove his claim against the underwriter and the other parties. Following the survey, the surveyors will be expected to report to their respective principals and each report will usually be required to refer to the nature, extent and cause of the loss or damage. If a preliminary advice of survey is given, the extent of the loss at this stage may be in general terms only with an estimate, since more work may be required to determine its full extent. A later report will have to provide the final figure. With cargo and pleasure craft claims, there is a greater emphasis than in commercial hull claims on the surveyor’s investigation as to the cause. In the former, he is generally expected to state in his report his opinions as to cause as well as the extent of the loss. (See Chapters 3 and 4.) In commercial hull claims, it is more common for the underwriter’s surveyor to omit from his final report any opinion other than that of concurring with the claimant’s allegation. If he does 10 SURVEYING MARINE DAMAGE not agree with it, he is expected to submit a second report or letter of a confidential nature expressing his views and reasons for disagreement with the claimant’s allegation. The underwriter’s surveyor’s report frequently becomes a public document and forms the basis of the adjustment of the claim under the policy of insurance. This is not the case with the reports of carriers’ and third party surveyors whose role, as mentioned above, is more passive. Their reports are often of a less formal nature and may often include opinions as to the cause and comment upon the claimant’s allegation. The principal parties who instruct surveyors ?Shipowners ?Charterers ?Underwriters ?P&I Clubs ?Shippers ?Consignees ?Secondary Carriers ?Lawyers Regular and occasional surveyors Those who carry out marine surveys tend to fall into two distinct categories as far as their time commitment to surveying is concerned; those who are more or less fully engaged in survey work as a full-time occupation and those who are only occasionally called upon, perhaps because of their narrow specialist skills or because of a largely full-time occupation in another role or because of their remoteness in geographical regions where surveys are only infrequently required. For example, it is not uncommon in a small port where there is no marine surveyor in regular practice for a harbour master or a hospital/hotel chief engineer, many of whom are qualified marine engineers, to be asked to carry out a survey after a relatively minor casualty has occurred to a vessel, her machinery or equipment, or to her cargo. Such a surveyor however may have difficulty in knowing: (a) how to go about arranging and conducting a survey (b) who should be involved at the survey (c) how he should report, what form it should take and what he should include and exclude (d) what, if anything, he should do as a follow-up to the survey. The occasional surveyor (and the regular surveyor in the early years of his training) may sometimes find himself without much knowledge of how to evaluate his observations and present his findings in the most useful manner to the party retaining his services. 11 INTRODUCTION Distinction between commercial and non-commercial claims The property insured under a marine policy may be either commercial or non-commercial. For example, ‘the interest’, the marine insurance term for that which is insured, may be a commercial vessel or a private yacht. In theory, this should make little difference to the surveyor’s approach to the task which is, traditionally, to carry out his investigations impartially and objectively. However, in practice, since the underwriters tend to consider their liabilities under the two categories of claims slightly differently, there is perhaps a natural tendency for surveyors to do so too. It might reasonably be said that most underwriters would wish their surveyors to adopt a slightly different approach to commercial and non-commercial claims. Commercial claims are nearly always concerned with a business enterprise having a profit motive. The claimants are professional people and they are expected to understand the operation of their businesses. This is particularly so with ships and the larger cargo claims, and surveyors can expect to be dealing with knowledgeable representatives of the operators and claimants. With non-commercial claims, principally household and personal effects claims and pleasure craft claims, the assured is rarely experienced and knowledgeable with regard to insurance or in the making good of their losses. Consequently, underwriters tend to view their problems in presenting their claims more sympathetically. This, in turn, tends to influence the surveyor’s approach and a less rigid or ‘correct’ procedure can often be quite acceptable, with the surveyor often being seen as being more helpful towards the assured. The degree to which a surveyor may adopt this more relaxed approach in either type of claim will largely depend on the known attitude of the party appointing him. Whilst a book can perhaps refer to the ‘correct’ procedure, the surveyor’s interpretation of it must be governed to some degree by a number of factors, of which his principal’s wishes must be an important one and which no book can properly take into account. EXPLANATION OF SOME TERMS USED Terminology can present a problem to those unfamiliar with shipping and marine insurance, and a dictionary of these commercial terms can be helpful. A few of the terms in use throughout this book are defined here (not in alphabetical order) and it will be observed that many relating to the parties shipping and receiving goods tend to go by more than one name. This may, at first, appear confusing but in practice the context in which the terms are used will usually not cause much difficulty in understanding to whom and to what they refer. Average This term is used extensively in marine insurance and means ‘loss’. Average may be either ‘general’ or ‘partial’ and simple definitions of each of these important forms of average are: 12 SURVEYING MARINE DAMAGE General Average (GA) A marine insurance term denoting a loss arising from an expense or sacrifice intentionally incurred to preserve a maritime venture from peril. (A fuller explanation is given in Chapter 5.) Particular Average ( PA) A marine insurance term denoting a partial loss. General Average Loss from an expense or sacrifice intentionally incurred to preserve a maritime venture Particular Average Partial loss Subrogation The insurer, on payment of a loss, becomes entitled to ‘stand in the shoes’ of the assured and obtain the latter’s rights and remedies. It is another frequently used insurance term. Assured In marine insurance, the term ‘assured’ is generally used in preference to ‘insured’ and is used in this book to refer to the party to whom the insurance policy has been issued or to whom it has subsequently been assigned and who has the right to settlement in the event of loss recoverable under it. In marine cargo insurance, extensive use is made of certificates of insurance issued under cover of the master policy, usually known as marine open cover. The rightful holder of a certificate can obtain settlement from the underwriter in lieu of the actual policy holder. He is therefore then referred to as the assured. Claimant In the case of an insurance claim, this term is used throughout the book to refer to the party who is taking the principal steps towards seeking redress. He may be the assured and directly entitled to a settlement under the insurance cover or he may actually be another party to whom, in the case of a cargo claim, goods have been delivered in damaged condition. The claimant will usually be the party who represents the goods at the survey and liaises with the surveyor. He may not strictly be entitled to the proceeds of the insurance policy but, having paid for the goods to another party from or through whom he purchased them, he will expect reimbursement for his loss. This reimbursement may come from the assured who 13 INTRODUCTION recovers his loss under the policy or, by agreement, it is sometimes made by the underwriter directly to the claimant. Depending on the arrangement, the assured may receive the policy settlement from the underwriter and pay the buyer or, in cases where the goods are insured under the importer’s master policy with a local underwriter, the assured may request the settlement be made directly to the buyer. This occurs quite often when an importer arranges distribution of goods to local buyers after the arrival of a shipment from overseas and without taking possession of them into his own warehouse. Damage to the goods may be unknown to the assured at this time and it may only be after final delivery and unpacking by the eventual purchaser that the damage becomes known. Consignor This is the party who originates the sending of the goods and consigns them to their destination. He is one of the parties to the contract of carriage, although in practice an agent may appear on the documents as having arranged the carriage contract on behalf of the true consignor. The term ‘shipper’ is, in most cases, synonymous with consignor and this party may also be ‘the seller’ where the seller or his agent initiates the shipping arrangements. Consignee This is the party to whom the goods are consigned as stated on the bill of lading. However, in practice, bills of lading are often made ‘to order’ and do not show an actual consignee, with the goods often changing hands in the course of transit. The party who eventually has the right to receive the goods at the final destination is then usually referred to as the consignee. Understanding the term for the party to whom goods are delivered can often be further complicated when an importer or distributor, noted on the bill of lading as the consignee and with title to the goods, arranges a separate sale to a local buyer without the consignee sighting them. In this case, a local carrier is contracted to deliver the goods to his local buyer (or buyers) from the port warehouse or container depot where the main contract of carriage ended. The local buyer(s) may then be referred to as ‘the ultimate consignee’ although he is not a party to the bill of lading. Receiver Strictly speaking, this refers to the party who receives the goods at the destination named in the bill of lading, but the term is often used for the party who takes actual delivery and receives the goods into his care. The term has much the same meaning as ‘consignee’. 14 SURVEYING MARINE DAMAGE Although the former is initially the receiver, the actual party receiving the goods can often be another party as the goods may be sold in the course of transit and the latter will often be the first to become aware of their actual delivered condition following unpacking. Principal and agent When an agency relationship exists between two parties in a legal sense, as in ‘principal and agent’, the agent has authority or capacity to act on behalf of his principal to create legal relations between the principal and third parties. However, the extent of that authority can vary considerably. It may be very limited or very wide, and its existence and extent may be clearly expressed or merely implied. It is sometimes stated that a surveyor is the agent of the party appointing him, but this will generally depend on what he has been instructed to do. If it is simply to carry out the traditional functions, and neither party asserts or implies otherwise, it does not really involve this type of agency role. Even when it is involved, any authority accompanying it is usually very limited indeed. (See also paragraphs on Agency in Chapter 4.) Marine surveyors Although the term ‘marine surveyor’ is used extensively in the marine field, and throughout this book when referring to the professionals who carry out marine damage surveying, it should be understood that it can be used very widely and loosely within the marine industries. Many consider it a rather meaningless term because it is so all-embracing. It does not specifically describe the surveyor’s function beyond indicating an involvement in the marine sphere, and there is no single role or discipline reflected in it. It is essentially a generic term only. Marine surveyors operate in a very wide environment and as a consequence there needs to be specialisation within it. For some surveyors, their field of operation is very specialised but for others it may be much wider and come with less expertise in any one field. The principal categories in which marine surveyors operate ?Commercial hull surveys ?Yacht and small craft surveys ?Machinery surveys ?Nautical surveys ?Cargo surveys ?Environmental surveys Within each category, there are several subcategories arising from the various purposes for which the surveys are carried out, eg Classification Society surveys, statutory surveys, insurance surveys, etc. 15 INTRODUCTION The majority of marine surveyors involved with surveys on board commercial vessels, or closely associated with them, come from a seafaring background as deck officers or engineers, although this is less the case than it used to be. Many university graduates now become surveyors, particularly those with training in naval architecture. In the yacht and small craft field, the surveyor’s background will generally be from within this specialised industry. Claims adjusters Claims adjuster is the term applied generally to those who adjust claims but who do not fall within the description of average adjuster or loss adjuster, being usually employed in the claims department of insurance companies and brokers. In the case of Lloyd’s, they are employed by the Corporation of Lloyd’s (not by Lloyd’s underwriters but as a service to them) in the department now known as Xchanging Claims Services, previously Lloyd’s Claims Office. Claims adjusters are occasionally also engaged in business as independents in the adjustment of marine claims. Claims adjusters principally differ from average adjusters in that they are not usually independents and are involved only with Particular Average ( PA) and not with General Average (GA). They often lack the same degree of expertise and training and, except in the case of those independently employed, lack the impartiality due to being more closely involved with the underwriters on whose staff they are employed. As a general rule, it may be said that claims adjusters handle the less complex and controversial claims for their own underwriters. They differ from loss adjusters in that their involvement is almost entirely with the adjustment under the policy, and in some cases also with the settlement and recoveries of claims. They rarely become involved with the survey aspects. Average adjusters Average adjusters may be individuals working either on their own account or as employees of a firm. They are highly qualified and the majority are partners or directors in the well- known firms of average adjusters. Their training usually consists of a lengthy period under the supervision of a qualified adjuster, followed by examination. Average adjusters are involved with the resolution of claims involving both Particular Average and General Average. Most PA commercial hull claims call for an average adjuster’s expertise but, except in the case of large and complex claims, there is not a lot of call on their services for PA cargo losses. When a GA has been declared, their role with its adjustment is usually massive and in many cases their work on it may go on for several years. The Association of Average Adjusters was formed in the UK in 1869. It sets standards, including examinations, for its members, who are generally appointed by shipowners and underwriters, principally the former, where a need arises for advice and the adjustment of 16 SURVEYING MARINE DAMAGE General Average and Particular Average claims. Several other countries have their own associations, particularly in North America and in Continental Europe. One of the principal aims of the Association of Average Adjusters is to provide a forum for discussion so as to achieve uniformity of practice amongst average adjusters. To this end, it has established its Rules of Practice which act as a guide for all concerned with the adjustment of marine claims. Average adjusters are often consulted by those in the shipping and insurance community as soon as a notification of a casualty is received, whereupon they advise on the appointment of surveyors, notification of relevant parties, the collection of securities, and on procedures. In due course they will advise on the formulation of claims, the requirement for the appropriate documentation and other matters towards the successful preparation of a Statement of Claim, which is the ultimate objective of their involvement. In preparing the Statement of Claim, average adjusters will take into account any relevant terms and conditions in a contract of carriage, the insurance policy, the appropriate law and current adjusting practices. Average adjusters are often asked to provide an independent opinion on claims following the provision of documents and in cases of dispute they may be requested to act as arbitrators. Independence and integrity are essential qualities of average adjusters and the rules of the Association are intended to maintain the highest standards in their work. Loss adjusters As a general rule, loss adjusters do not become involved with marine claims. A major exception to this is in the offshore oil and gas industries. However, there is an increasing tendency for non-marine loss adjusters to be appointed to the smaller cargo and pleasure craft claims when inland or well away from the main ports. Whilst average adjusters are only concerned with marine claims, in most other fields of insurance, loss adjusters, who are also independent professionals, are appointed. Average adjusters are more often appointed by the assured, but the reverse is the case with loss adjusters. Most of their instructions come from underwriters. Loss adjusters are expected to adjust and state claims under a wide variety of non-marine insurance policies and are usually also required to attend to the investigation of them, using experts where necessary on technical matters not within their knowledge or experience. Their role in the non-marine field tends to be one which, in most marine claims, would often combine the separate roles of surveyor, adjuster and recovery agent. They are usually required to ‘manage’ the claims from the time of their appointment until they finally advise on the recommended settlement and, if they have not successfully recovered from third parties, also refer back to insurers for recovery by lawyers. 17 INTRODUCTION The principal organisation offering membership in the UK, and in some other parts of the Commonwealth, is the Chartered Institute of Loss Adjusters founded in 1941. It assists members, and the public at large, in the maintenance of high standards in all aspects of loss adjusting. Its exams do not include marine insurance. Almost all average adjusters are members of the Association of Average Adjusters, but a very much smaller proportion of those who carry out the profession of loss adjusting are members of the Chartered Institute but its membership, in terms of actual numbers, is much larger. Loss adjusters are required to have expert knowledge of non-marine insurance policies and of the law in general as far as it affects claims. As their involvement can cover a very wide field, many loss adjusters tend to specialise in specific types of claims but in the smaller communities they tend to work on a wide range of them. In some countries, a hybrid type of loss adjuster has developed, best described as a ‘marine loss adjuster’, a term that has received little recognition. Underwriters who seek many of the functions of the non-marine loss adjuster but with competence in handling marine claims, particularly those involving small craft, often instruct them. They are frequently professional mariners who, lacking the industry training and experience of yacht surveyors, nevertheless have an understanding of small craft and of marine insurance. They receive further mention in later chapters. Assessors There are three quite distinct and separate uses of this term in connection with the subject of this book. One is concerned with the determination of liability in the courts, another with the quantum of loss and the third in connection with the International Safety Management (ISM) Code. A court, acting in its Admiralty jurisdiction, can appoint assessors to sit with a judge to advise him upon technical matters associated with the evidence that is adduced. In the UK, when the expertise required is that of a shipmaster, Elder Brethren of Trinity House will usually be appointed, but elsewhere experienced and respected master mariners will generally be appointed. Marine engineers, naval officers and naval architects will also be appointed as assessors by the court where their disciplines are appropriate to the matters under examination. In another application of the term, where they are more appropriately referred to as loss assessors, these individuals are experts in the field of assessing or valuing a loss. The term is most often applied to those who attend a damaged motor vehicle, appraise the damage, discuss it with a repairer and report on its extent after determining whether the quantum of the loss calls for repair or write-off. They may be independent or they may be employees of insurance companies and, if the former, may be instructed by either the insurer or the insured. The role of the loss assessor may be confined to ascertaining the damage alone. He will usually not be required to concern himself with consideration of an insurance policy or of a claim 18 SURVEYING MARINE DAMAGE against a third party. Because of the public’s familiarity with motor vehicle claims, the term may sometimes be applied to a yacht or small craft surveyor attending a small marine claim as he may also have a similarly limited role. In fire insurance, the term generally refers to the person who is appointed by the insured. This distinguishes him from the insurer’s appointee who is usually referred to as the loss adjuster. (See Chapter 4, ‘Relationship with the underwriter’.) A third use of the term ‘assessor’ entered the marine field following the introduction of the International Safety Management (ISM) Code. An appropriately skilled person who assesses others for work in this field is known as a ‘lead assessor’ or as an ‘assessor’. Recovery agents Firms or individuals with a sound knowledge of the theory and practice of claims and in particular with common, statute and contract law are often retained to recover losses arising from damage caused by carriers and other third parties. Underwriters are frequently the appointing parties following their acquisition of subrogated rights after settling claims, but other parties suffering losses make use of their services too. They usually work on a ‘no cure, no pay’ basis and their remuneration is usually on an agreed scale dependent upon the quantum of the loss recovered. (See Lloyd’s scale in Chapter 9.) The Corporation of Lloyd’s operates a recoveries office principally for the use of Lloyd’s underwriters but there are several well-respected firms offering services in the field. Underwriters As is probably widely known to those with a knowledge of marine insurance, the underwriter is literally the person who underwrites a risk by placing his signature on the placing slip under the stated risk. This is the person with the insurance expertise who acts to ‘write’ the business on behalf of those employing him to do so. ‘The underwriter’ is a term also used in a slightly wider context when referring to Lloyd’s syndicates or individual ‘names’ (those putting up the money) and sometimes also to companies. In this book, for the sake of uniformity, the term is used, unless clearly indicated otherwise, to refer to the party or parties who provide the insurance, and sometimes also to members of their staff involved with either securing the business or settling claims. It is used regardless of whether the insurer is a Lloyd’s syndicate or a company although the term ‘insurer’ may occasionally be used in the same sense. Underwriting agencies There are a number of firms with expertise, usually in specialised areas of marine insurance such as yacht insurance, who write business on behalf of those who actually underwrite it. The 19 INTRODUCTION latter may be syndicates or companies and these agencies provide the front for their business and handle most aspects of it on their behalf. They are sometimes said to ‘hold the pen’, ie they have freedom to write the business for those who underwrite it. For the purpose of this book and the handling of claims, these firms are also referred to as underwriters. Insurance brokers These firms or individuals act as intermediaries in the bringing together of the parties to an insurance contract. Whilst generally acting as agents of the assured, their position can vary according to the provisions of the law and the circumstances in which they act. Some countries have enacted legislation that may vary the position and make them the agents of the underwriter when arranging the policy but later becoming agents of their client, the assured. A small number of brokers are approved to arrange insurance at Lloyd’s. They are commonly referred to as ‘Lloyd’s brokers’ but they have only an indirect association with Lloyd’s. They are not restricted to placing their risks with Lloyd’s underwriters and may place them in other markets. Business may only be placed with Lloyd’s underwriters through Lloyd’s brokers and there is no direct approach for other firms or the public. Other brokers are known by the more general term of ‘insurance brokers’ but of course the term applies also to Lloyd’s brokers. Brokers have their professional associations to which they belong. Surveyors often receive their appointments from brokers who may have been requested by underwriters to arrange for their services on the underwriter’s behalf. Occasionally a broker acting for an assured will appoint the surveyor on the assured’s behalf. In the case of most broker instructions, (unless otherwise instructed) the surveyor sends his report to the broker, and surveyors should be careful to ascertain who will be responsible for their fee and take appropriate steps to secure payment if necessary. Insurance agents Usually these firms or individuals obtain their business specifically for one insurance company for whom they act as a selling agent. However, this is not always the case and sometimes an insurance agent may have the choice of introducing a client to more than one insurer. The term tends to have several connotations and the role of insurance agent can vary considerably but it is principally concerned with procuring the business and passing it on to the principal, for which the agent earns a commission. The term ‘underwriter’ does not apply to this type of agent. Surveyors rarely have any dealings with insurance agents as most appointments and discussions on claims where an agent has introduced the business tend to be with the actual insurer. 20 SURVEYING MARINE DAMAGE Lawyers Marine lawyers, as a general rule, only become involved with claims concerning liability under an insurance policy where there may be a dispute over the application of its terms and conditions, where fraud is suspected or proved, or where it is anticipated that legal recovery proceedings may be required against third parties. Their involvement most commonly arises in cargo claims where the liability of a carrier, bailee or other third party arises under a contract of carriage, or in hull claims in tort where they may be appointed in pursuing or defending a claim following a collision or other casualty involving a third party. Their appointment may be made by any party involved and is often made by an underwriter in anticipation of, or following, the acquisition of subrogated rights. A claimant disputing a settlement is also likely to employ a lawyer. Marine lawyers become involved much more widely than with insurance claims alone. Contracts of carriage, charter parties and the contravention of conventions and regulations play a large part in their work. There is a vast difference between having the ability to handle a claim under a contract of carriage and a matrimonial settlement. Even within the marine field, there is a requirement for specialist skills within its different areas. As with other professionals, the experience and competence of marine lawyers varies considerably and, as with surveyors, there is a particular need to select them carefully for the specific requirement. Survey agents These are firms or individuals who act as agents for underwriters lacking other local representation to appoint a surveyor when required. Some employ their own surveyors or may arrange for the appointment of other surveyors as necessary. Policies or certificates of insurance will usually show the name and address of the underwriter’s survey agents worldwide to whom application should be made for survey. These firms are used extensively where underwriters do not have an associated company or other nominated agent at any particular place. Lloyd’s Agents, in addition to acting on behalf of the Corporation of Lloyd’s or following a request for survey by a Lloyd’s broker or policy holder, often act as survey agents for other underwriters worldwide. Settling agents, Average agents It is often convenient for the settlement of claims