‘Prevention is always better than cure’, ITIC advises

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The importance of in-depth and precise pre-management vessel inspections as part of a ship manager’s business risk strategy prior to taking on a vessel has been highlighted by International Transport Intermediaries Club (ITIC) in their latest Claims Review.

The professional indemnity (PI) insurer has noted that it has taken on numerous claims in recent months related to vessel condition and alleged poor vessel management, which has resulted in ship managers facing major repair costs that could have been avoided had a comprehensive inspection been undertaken prior to, or as close as possible to, commencing management services.

In a recent incident, highlighted in the Claims Review, a bulk carrier, purchased on an ‘unseen as is basis’, transitioned to new management without the due diligence of a pre-management survey. The bulk carrier soon found herself detained due to severe deficiencies, unveiling financial and operational difficulties.

Repair costs, claims, and lost earnings amounting to millions of dollars underlined the value of meticulous vessel assessments, emphasising that prevention is always better than cure in safeguarding against liability.

A third party previously managed the vessel before it was transitioned to new management. However, after the ship was detained, the Port State Control found specific issues with the ship, which required immediate rectification work amounting to US$400,000. The vessel then undertook a voyage to a repair yard, where repairs cost an additional US$3 million to meet the standards of Class, Flag, and Port State Control.

The ship’s owner claimed that the new ship manager’s mismanagement caused the high repair costs. However, after expert evaluations, it was established that the ship’s condition had been deteriorating prior to the management changeover. As a result, the repairs were necessary to meet regulatory requirements, resulting in the ship not being able to operate for 78 days. The manager was therefore not liable for the repair costs.

Following the incident, the owner filed a second claim of US$2 million against the ship manager for the lost earnings. Further expert analysis indicated that the off-hire period could have been reduced by 35 days if the ship had undergone a thorough inspection immediately, which would have allowed the manager to know the true condition of the vessel and act accordingly. This would have cut the total claim from US$2 million to about US$1 million. The maximum liability under the Shipman contract was US$1.2 million.

With the assistance of ITIC, negotiations resulted in a US$750,000 settlement to the shipowner.

Mark Brattman, (pictured) Claims Director at ITIC, said: “This case demonstrates the crucial role of comprehensive vessel inspections before management takeover. It’s not just about assessing a ship’s condition but also about helping managers defend against unjustified claims.”

Ship managers can refuse management of ships in poor condition, thereby avoiding potential liabilities and underscoring the importance of ship managers’ responsibility in the process.

“Ship managers worldwide should take note of this settlement as a reminder to conduct due diligence at the outset of their management tenure, considering the significant legal and financial implications of failing to do so,” Brattman concluded.

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