Article by Leslie J. Buglass
Perhaps it is unnecessary to say the principle of limitation of liability is important to marine liability underwriters. The fact of the matter is that the marine insurance industry relies on it; marine liability policies are written on the general premise that shipowners have the right to limit their liability and that such limitation will indirectly benefit underwriters. Indeed, some years ago it was estimated that liability insurance premiums might increase twenty-five to thirty percent if shipowners (and therefore underwriters) were deprived of this shield. An even more important reason for maintaining the principle of limitation of liability is that the commercial marine insurance market has only so much capacity at realistic rates. This was tacitly admitted by the United States Congress in 1970 when the Water Quality Improvement Act was passed. The limit of liability used in that Act ($ 14 million) was said to be the maximum capacity of the London marine insurance market at that time for that type of liability coverage. It is true that Protection & Indemnity Clubs, which provide the bulk of shipowners' liability coverage, often furnish unlimited coverage to their members. However, they can only do so because the laws of maritime nations stipulate a reasonable amount to which shipowners can usually limit their liabilities. Furthermore, Protection & Indemnity Clubs are dependent in turn on their reinsurance costs. The concept of unlimited liability ignores the problem of realistic insurable limits. The insurable limit is the maximum amount of overall coverage available at a realistic cost in respect of any one catastrophe, however it may be divided among primary underwriters, excess underwriters, bumbershoot underwriters, and those underwriters' reinsurers. That amount in turn determines the cost to the assured and, ultimately, the cost to the consumer of the goods being carried by the shipowner.
But this is the age of strict liability, or liability without fault. We see it in the world-wide oil pollution legislation and in the latest international convention dealing with the carriage of goods by sea (the Hamburg Rules), which is based upon the principle of the carrier's presumed fault or neglect. We live in times when politics reign supreme, when emerging nations with no merchant marine can and do outvote the traditional maritime powers. Thus, the United Nations was able to remodel the Hague Rules and produce the Hamburg Rules. Nor is the United Nations the only crusader against international shipping. In the United States, the courts have been "improving" the Hague Rules and eroding shipowners' right to limitation of liability for many years. However, it must be realized that every time shipowners' liability exposure is increased, underwriters at Lloyd's and throughout the world must revise their figures, both as to the amount of coverage available and, even more importantly, as to the cost of such coverage.
Marine insurance is an important element in maritime commerce and, as a former chairman of the Association of Average Adjusters pointed out, the insurance broker and average adjuster provide an essential link between shipowners and their underwriters and, he might have added, between the underwriters and shipowners' lawyers. It is in the capacity of an average adjuster that I am here today—a Daniel in a lawyers' den. My task is to reduce to simple language the principle of limitation of liability as it affects marine insurance. Admiralty law is a fascinating profession, but complicated, expensive law suits would soon go out of fashion if the litigants did not have the benefit of insurance.
About the Author
Leslie J. Buglass. Marine Insurance Consultant and Average Adjuster, Palm Beach. Former Chairman, Association of Average Adjusters of the United States.
Citation
53 Tul. L. Rev. 1364 (1979)