International Transport Intermediaries Club – a mutual insurer that provides professional indemnity cover for transport intermediaries operating in the marine, offshore, renewable and aviation industries – has advised ship managers to be wary of the risks and costs involved with claims of failing to meet contractual obligations.

The warning came as part of ITIC’s October 2023 Claims Review that cited a case of a ship manager managing two vessels for the same owner and allegedly failing to meet the required standards expected according to the signed BIMCO Shipman contracts.

You can access ITIC’s October 2023 Claims Review here.

For the first vessel, the owners alleged that the managers mismanaged their ships by failing to identify deficiencies, arrange and supervise maintenance and repairs, implement the onboard ISM and PMC systems, and communicate appropriately with the crew.

The owners further alleged that the managers failed to provide them with sufficient information in respect of ‘extraordinary’ expenditure to allow owners to make an informed decision on whether to approve incurring the cost.

For the second vessel, the owners made various allegations, including failure to plan a crew change and dismiss the crew for misconduct, which allegedly meant the crew were not suitably qualified, and failure to maintain the ship adequately.

Owners presented their claims under various heads of damages, including cost of repairs, loss of hire, cost of bunkers, and port and agency costs. The total claim was for US$ 9.5m. BIMCO Shipman contracts limited liability to US$ 1.5m for each ship.

The ship managers accepted that there had been some mismanagement on their part. Therefore, there was a significant litigation risk. Furthermore, costs incurred in fighting the claims would be substantial – in the hundreds of thousands, if not more. This also meant a lot of management time would be used to defend the claims. As a result, with ITIC’s assistance, the managers met with the owner for settlement talks.

Following several rounds of settlement talks, both ships were eventually settled at US$ 700,000 each (US$ 1.4m total), with ITIC paying this claim less the deductibles.

“It is of utmost importance that ship managers ensure they adhere to contractual obligations at all times and that maintenance works are kept up to date. Professional Indemnity (PI) insurance is part of our member’s risk management strategy, and it gives the ship manager peace of mind and protects them against claims such as this one. The benefit of having cover from a company such as ITIC is that you have an insurer who understands the business and risks ship managers face and speaks the ship manager’s language,” said Mark Brattman, Claims Director at ITIC.