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ITIC warns ship managers of the dangers of management mistakes

The International Transport Intermediaries Club (ITIC), a mutual insurer that provides professional indemnity cover for transport intermediaries in the marine, offshore, renewable, and aviation industries, has warned ship managers about the risks and costs associated with claims of inability to meet contractual obligations.

The warning was issued as part of ITIC's October 2023 Claims Review, which mentioned a case of a ship manager managing two vessels for the same owner who allegedly failed to achieve the required standards expected under signed BIMCO Shipman contracts.

"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," stated Mark Brattman, claims director at ITIC.

The owners of the first vessel claimed that managers mismanaged their ships by failing to recognise faults, plan and monitor maintenance and repairs, implement the onboard ISM and PMC systems, and communicate effectively with the crew.

The owners also claimed that the management failed to present them with enough information on 'extraordinary' expenditure to allow them to make an informed choice about whether to approve incurring the cost.

For the second vessel, the owners made various allegations, including failing to organise a crew change and fire the crew for misconduct, which allegedly meant the crew was not appropriately qualified and failed to effectively maintain the ship.

"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.

In addition, owners brought their claims under various heads of damages, such as repair expenses, loss of hiring, bunker costs, and port and agency charges. The total amount claimed was US$9.5 million. BIMCO Shipman contracts restrict liability to US$1.5 million per 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$1.4 million total), with ITIC paying this claim less the deductibles.

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