Disasters like the Prestige mean tankers are finding their movements restricted. But can the tightening of exclusion zones be challenged? Paul Wordley and Alistair Johnston report
The sinking of the tanker Prestige off the coast of Spain in November 2002 triggered disaster and change. France, Spain and Portugal have all taken steps domestically to attempt to exclude single-hull tankers over 15 years old, carrying crude or heavy fuel oil, from entering their respective 200-mile exclusive economic zones (EEZ). These actions have resulted in more than half a dozen vessels already having been escorted out of the EEZ by military vessels. The unilateral action taken by France, Spain and Portugal seems inconsistent with the right of innocent passage through the EEZ pursuant to Article 17 of the Law of the Sea . This states that "ships of all states, whether coastal or landlocked, enjoy the right of innocent passage through the territorial sea." But, the three countries rely on Article 19 and say that they are entitled to enforce this ban because these vessels prejudice the "peace, good order or security of the coastal state". It is difficult to see how banning a vessel from an area of 200 miles off your own coast can fall within this provision. The vessels so far excluded have all been fully classed and regularly inspected. There is no evidence at all of any questions as to the structural integrity. Ironically, the first vessel that was excluded under this law, the Moskovy Festival, was escorted from Spanish waters, but was inspected in Spain just over a month previously and was given clearance to sail.
Unnecessary deviationEvery vessel that has been subjected to the ban has obviously incurred losses as a result of the unnecessary deviation that they have had to make. In many cases the losses will be substantial (there will be both direct and consequential losses). Just imagine, for example, an incident where a vessel, booked some months ago to load heavy oil cargo in Spain, is refused permission to sail further towards the coast when it encounters the EEZ. The shippers of the cargo will have a contract for carriage that has to be fulfilled. They will not pay for the freight and those with an interest in the ship will lose that. The receivers of the cargo will not receive their goods, which they may require to run their business. The total losses could therefore be considerable. It is almost inevitable that there would be substantial disputes between the three interested parties to decide who bears the brunt of those losses. This will necessarily mean the involvement of P&I Clubs (perhaps on the FD&D side) and also charterers' liability underwriters. This, all resulting from what appears to be a rather questionable domestic law which is, nevertheless, being enforced with vigour at present. A claim of this magnitude comes at an unfortunate time for the insurance market, given the large number of losses that have hit the market in recent years and, perhaps more significantly, the loss of the near consistent 20% annual increase in underwriting assets when equity markets were performing admirably.
Limit liabilitiesOne important question is: will the claim be capable of surviving an attack on limitation given the condition of the vessel and the jurisdiction in which the incident occurred? If limitation is breached the claim will be significant. France is already calling for laws to be introduced, so that owners of vessels of this type should no longer be able to limit their liability at present levels. In the event that the claim is significant, then there will be a question as to whether underwriters can reduce their net loss by subrogation or contribution claims against other potentially responsible parties. One of the parties inline in the Prestige case is the classification society that signed off on the ship as being in class. Classification societies generally carry errors and omissions cover placed predominately in the London Market. Although this is by nature a professional indemnity insurance, it has in the past been written by the marine market, because it is considered a marine risk by the very nature of its subject matter. This could be a circular claim if the same underwriters on the underlying claim are also underwriters of the classification society concerned. However, this circular route may be taken if there are different reinsurers, and given that reinsurers of marine liabilities are not necessarily the same as those of professional negligence liabilities, which is in itself a specialist market, then such a subrogation/recovery attempt may be made.There is, as mentioned above, a possible alternative source of recoveries, namely the government agencies involved in the immediate response to the problems facing the Prestige and the several occasions on which it was ordered to steam away from a potential safe haven. Such recovery if successful would be most unlikely to trigger appropriate insurances for obvious reasons that government agencies normally self-insure. If so, this would generally reduce the net insurance claim on the market.Whatever happens going forward, there will clearly be a considerable amount of legal activity once the facts have fully emerged as to who is responsible and who should contribute to the claim. In the meantime the clean-up continues at significant cost. Paul Wordley and Alistair Johnston are partners of Holman Fenwick & Willan