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Fifty Years after England v Germany at Wembley…

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Burkhard Fischer (left) and Dr Tim Schommer

Burkhard Fischer (left) and Dr Tim Schommer

Fifty Years after England v Germany at Wembley:  the Association of Average Adjusters ponders “how to score under the DTV-Hull Clauses”

A call for a mediation forum to help settle some of the basic disparities in marine hull claims practice has come from Burkhard Fischer, vice-chairman of the Association of Average Adjusters.

Speaking at a meeting jointly organised by the average adjusters’ association and the International Underwriting Association, Mr Fischer outlined fundamental differences between English and German hull and machinery clauses, and rifts in interpretation within the latter. The London meeting was also addressed by Dr Tim Schommer, a Hamburg-based partner with law firm Ince & Co.

Mr Fischer told the event: “It would be immensely beneficial for shipowners, underwriters and adjusters if there were a forum with the authority to provide mutually acceptable solutions to controversial issues.”

Mr Fischer, who is a partner with Albatross Adjusters of Limassol, kicked off his presentation by referring to the contentious third goal for England in the 1966 World Cup Final at Wembley, “probably the most discussed and disputed goal in football history. Did the ball cross the line or not? No doubt that is a matter of interpretation.” It served to demonstrate that the Germans and English viewed certain things differently.

Following Dr Schommer’s brief introduction to the legal background of the German hull conditions, Mr Fischer highlighted distinctive points of Germany’s widely-used DTV-Hull Clauses. They provided all risks cover with named exclusions; wide third party liability cover, including some items traditionally covered by P&I; and the wording of some clauses was ambiguous and allowed different interpretations, partly because of a lack of relevant court judgments. Even after decades of use there were still discussions about the correct “German” interpretation of certain points.

A case illustrating one of the basic differences between the English “named perils” in the Institute Time Clauses (Hulls) 1983 and the German “all risks” approach was the Popi M. That was the name of a ship which sank mysteriously in calm seas off the coast of Algeria in August 1978 when water got into the engine room through the port side shell plating. Earlier, the ship had passed through bad conditions in the Bay of Biscay.

The underwriters maintained that the ship had simply fallen apart. The owners were unable to prove a specific cause which could be described as a “peril of the sea,” saying the vessel must have hit a submerged object. The English court ruled that neither seaworthiness nor unseaworthiness was proven. It was improbable that the loss was caused by a peril of the sea and impossible that the sudden and violent effect on the vessel could have resulted from wear and tear.  As the proximate cause of the loss remained in doubt, the shipowners failed to discharge their burden of proof.

Most likely, the German approach would have been different. If the owners could prove that there was damage or loss, its extent, and that the loss was within the policy period, there would in principle be a claim, and it would be for underwriters to disprove it.

Mr Fischer listed differences between the English and German hull conditions, elaborating four of them:

The line between defect and consequence.  German practice since introduction of the DTV-Hull Clauses has been to consider insurance cover only for damage on parts other than those with a material, manufacturing or design defect. Dr Schommer explained how a 1999 judgment of the Hanseatic Court of Appeal showed that the court was unimpressed by 20 years of adjusting tradition, holding that there was nothing in the wording that would exclude a wrongly constructed or designed part from cover. The German insurance market reacted by introducing a document which re-established prior market practice, although not many shipowners accepted it.

Ordinary and extraordinary wear and tear.  Suppose a manufacturing fault causes extraordinary corrosion, as a result of which another part fails, how would a German court look at that? In principle the clause excludes cover for damage caused by corrosion, even if the corrosion was extraordinary. In contrast, some authorities agreed that only ordinary wear and tear was excluded.

No deductible applied to sue and labour charges.  Unlike in the ITC, a DTV clause clearly allowed several types of claim without the application of the deductible. In particular, under a clause on sue and labour charges, the deductible would not apply to expenses. Mr Fischer said: “There are contradicting opinions as to whether sue and labour charges are recoverable under the policy if you are saving something, or attempting to save something that would fall below the policy deductible…  The obvious and perhaps only equitable solution, i.e. applying the policy deductible to the total sum of the Particular Average claim and the sue and labour charges, is unfortunately not supported by the ADS /DTV-Hull Clauses.” The ADS are the German General Rules of Marine Insurance.

When is a ship moving?  Contrary to ITC clause 8, which covers only legal liability arising from collision with other vessels, DTV clause 34 is a third party liability clause that provides much wider cover, even for items traditionally absorbed by P&I clubs. One of the basic criteria that triggers third party liability under clause 34 is that damage was caused either by movements of the vessel or by the vessel’s participation in shipping traffic. The expression “movement of the vessel” should be quite clear, but it was not. The majority of German adjusters would consider the definition of such movement as being of an active nature in a navigational context, but not in a passive or technical or cargo operations sense. On that basis damage caused to a berth whilst the vessel is fast and safely alongside would not fall under cover provided by DTV clause 34.

Despite this, said Dr Schommer, a literal interpretation suggested that movement could be relative to water or to the ground: it could be ahead, astern or sideways. Damage to a fender by a moored vessel is caused by movement. A ship could be moving vertically (for instance, a ship berthed at a tidal location damages a shore gantry crane, or capsizing at berth damages shore installations). On the other hand, movement of a single component such as the ship’s crane that causes damage to a shore crane or the crane of another vessel, could not in this context be considered as movement.

Summing up, Mr Fischer said that literal interpretations of clauses were perhaps convenient to a non-expert, or to a court of law, but there should be more to it. “As adjusters, we take into consideration the historical development of a clause including its previous market practice, the various commentaries and – not forgetting – we will always apply common sense.”

Paul Silver, a former chairman of the Association of Average Adjusters, who chaired the packed meeting, praised the speakers for their clear exposition of complex issues.

 The Association of Average Adjusters promotes professional principles in the adjustment of marine claims, uniformity of adjusting practice, and the maintenance of high standards of professional conduct. Irrespective of the identity of the instructing party, the average adjuster is bound to act in an impartial and independent manner. The Association plays an important part in London insurance market committees, and has strong relationships with international associations and insurance markets.

Please see www.average-adjusters.com

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