On 8 February 2023, the Rotterdam District Court handed down a judgment in a dispute over the coverage of a yard liability insurance policy (ECLI:NL:RBROT:2023:882).
Presented facts
Shortly after a shipyard installed a propulsion system on board a sailing ship, the propulsion line broke, causing the ship’s propeller to sink to the seabed. The shipowner held the shipyard liable, after which the yard carried out repair work on the ship in Italy. t
The yard claimed the costs associated with that work under its shipyard liability insurance. However, the insurer rejected coverage, partly because the expert appointed by the insurer believed that the driveline was not defective, although metal fatigue appeared to be present.
Shortly after a shipyard installed a propulsion system on board a sailing ship, the propulsion line broke, causing the ship’s propeller to sink to the seabed. The shipowner held the shipyard liable, after which the yard carried out repair work on the ship in Italy. The yard claimed the costs associated with that work under its shipyard liability insurance. However, the insurer rejected coverage, partly because the expert appointed by the insurer believed that the driveline was not defective, although metal fatigue appeared to be present.
The court considered that the shipyard liability insurance does not provide coverage, or only provides additional coverage, if the damage is also covered by another insurance policy. However, the shipyard had shown that its business liability insurance did not cover damage related to “critical parts” of vessels and that the damage was also not covered under any of the shipowner’s insurance policies.
The court also considered that, although the yard liability insurance provided cover only to the extent that the yard was liable to the shipowner under its contracting agreement, the yard’s work was defective because the propulsion line broke shortly after installation. That the insurer’s expert could not determine the exact cause of the metal fatigue was irrelevant because no external cause could be found either. According to the court, the metal fatigue was therefore at the yard’s risk. As such, the damage is covered under the shipyard liability insurance.
The court further considered that the scope of insurance coverage is limited by the fact that the contracting agreement excludes liability for ‘consequential damages’. These include various cost items related to work performed abroad. The court concludes that certain items claimed by the yard (such as the cost of a temporary solution) are eligible for compensation but rejects the rest (including travel and accommodation costs of yard and shipowner personnel, transport costs of materials to Italy and shipowner inspection costs).
This judgment demonstrates that an insured who, knowingly or unknowingly, provides more warranty to its client than it is contractually obligated to do, may not get its associated costs fully reimbursed under its liability insurance policy.
Do you have any questions about warranty clauses in your contracting agreement or other contract, or do you have any questions about your insurance coverage? If so, please feel free to contact us.
