Risks covered - Rule 36: Collision with other ships

1. The Association shall cover liability to pay damages to any other person incurred as a result of a collision with another ship, if and to the extent that such liability is not covered under the Hull Policies on the Ship, including:

   1. 1. one fourth of the liability incurred by the member; or

      2. four fourths, of such liability; or

      3. such other fraction of such liability as may be applicable and have been agreed with the Association;

   2. that part of the Member's liability which exceeds the sum recoverable under the Hull Policies solely by reason of the fact that the liability exceeds the sums insured under those policies, provided that:

      1. the Member shall not be entitled to recover from the Association any deductible borne under the Hull Policies; and

      2. the cover under this Rule shall exclude liability in respect of persons or property on board the Ship.

2. Unless otherwise agreed between the Member and the Association as a term of the Ship's entry in the Association, if both ships are to blame, then where the liability of either or both of the ships in collision becomes limited by law, claims under Rule 36.1 shall be settled upon the principle of single liability, but in all other cases claims under this Rule shall be settled upon the principle of cross-liabilities, as if the owner of each ship had been compelled to pay the owner of the other ship such proportion of the latter's damages as may have been properly allowed in ascertaining the balance or sum payable by or to the Member in consequence of the collision.

Guidance

For more detailed commentary on issues relating to collision claims see Chapter 6 of the Gard Guidance on Maritime Claims and Insurance. 

(A) …liability…incurred as a result of a collision… (Rule 36.1) Cover is available under Rule 36 for liabilities arising where a Ship that is entered with the Association is involved in a collision with another ship unless cover for such liability is available to the Member under the Ship’s Hull Policies.¹ Therefore, the Rule operates where two or more ships are involved in a collision,² but not where a collision occurs between a Ship and a fixed or floating object.³ 

Collision liability Liability in respect of ship collisions is usually founded on principles of negligence and breach of the duty of care. However, several countries give effect to the rules for the apportionment of liability set out in the Brussels Collision Convention of 1910,⁴ which convention has been enacted by the majority of maritime countries, although not by the United States.⁵ The Convention determines that where a collision is caused by the fault of one or more ships, the owners⁶ of those ships shall each pay damages to the other corresponding to the proportion of blame which each ship is to bear for the collision,⁷but the owners of both ships are jointly and severally liable to third parties in respect of claims for death or personal injury. Consequently, personal injury claimants may sue the owners of either or both ships for the entirety of their damages, which liability is then brought back into the collision adjustment between the two ships together with other claims which have arisen as a result of the collision. 

However, where damage is caused to property belonging to third parties, e.g. to cargo owners, the owner of each ship is liable to such third parties only to the degree that it is at fault for the collision.⁸Whilst the owners of cargo can also sue both ships, the owners of the cargo carrying ship will in most circumstances be exonerated from liability by virtue of the negligent navigation defence in the Hague and Hague-Visby Rules.⁹ However, no such defence exists under the Hamburg Rules, which operate on the basis of ‘presumed fault’ on the part of the carrier. In similar fashion, the Rotterdam Rules, although not yet in force, contain no such defence.

The shipowner is liable for the negligent acts, defaults and omissions of all persons for whom he is legally responsible, i.e. the officers and Crew, and also for pilots¹⁰ and tug operators. The question of whether or not there has been a failure to exercise due care in the navigation of a ship is generally assessed by reference to the International Regulations for Preventing Collisions at Sea 1972, as amended¹¹ (COLREGS), which set out the rules of navigation that all ships registered in countries that have accepted the COLREGS are bound to follow. However, local rules of navigation may also apply in certain ports, harbours, estuaries or tidal rivers and these may take precedence over the COLREGS or, at least, may be taken into consideration by the court when assessing the conduct of each party and the question of fault. 

A failure to exercise a duty of care in the navigation of a ship may also give rise to other liabilities, such as civil or criminal fines or other penalties for breach of safety regulations imposed, e.g. on the shipowner, master and/or other Crew. However, cover is not available under Rule 36 in respect of such fines or penalties but, depending on the circumstances, it may be available under Rule 47.1. If none of the four categories of fines that are covered as of right under Rule 47.1 are applicable, then the issue will fall to be determined in accordance with the Association’s discretion, as described in Rule 47.2. 

The owner of a ship who incurs liability as a result of a collision may be entitled to limit his liability under the applicable law for claims that are made against him by the owner of the other ship, e.g. pursuant to the provisions of the London Convention for the Limitation of Maritime Claims, 1976, or the 1996 Protocol to that Convention, or pursuant to domestic rules of law. Furthermore, the owners of such ships may also have a right to limit the liability that they may have to third parties for claims that are made against them by such third parties as a result of the collision, e.g. for loss of life or personal injury, or for loss of or damage to cargo or other property. However, the owners of neither of the ships are normally entitled to include in their (inter-ship) claim against the owners of the other ship any third party liability which exceeds the sum to which they are entitled to limit their liability in respect of such third party claim. Therefore, the claims that are made between the colliding ships inter se will be adjusted on the basis that any rights which are available to either ship to limit its liability for the claims brought against it by third parties will already have been taken into account. 

P&I cover for collision liability Rule 36 is intended to be a supplement to, and not a substitute for, the cover that is available to the Member under the Member’s Hull Policies for collision liability. Therefore, subject to any other relevant restrictions in the Rules, cover is available under Rule 36 to indemnify the Member for damages which the Member is legally liable to pay (and does pay) to other parties affected by the collision but only to the extent that such liability is not covered under his Hull Policies. Relevant other parties include those parties that have an interest in the other ship, or its cargo or any other property or persons on board the other ship.¹² However, cover is not available under Rule 36 for the Member’s liability in respect of property or persons on board the entered Ship although cover may be available under other Rules.¹³ 

(B) …damages… (Rule 36.1) The amount which is payable by way of damages may differ depending upon the law which governs the dispute between the parties. The governing law may be the law of the country where the collision occurred, or the law of the flag of each ship. Alternatively, the governing law and jurisdiction may be determined by an agreement entered into by the parties after the collision. 

The injured party is normally entitled to recover only that loss or damage which is the direct and foreseeable consequence of the collision. Furthermore, if the injured party has failed to take reasonable steps to avoid or minimise his loss or damage, i.e. he has failed to mitigate his losses, he will normally be entitled to be compensated only for that loss or damage for which he would have been entitled to receive compensation had he acted reasonably. 

The damages which are normally recoverable by one party from the other party include:

i The reasonable cost of both temporary and permanent repairs to the damaged ship or, where it is beyond economic repair, its insured value, market value or replacement cost;

ii The value of lost bunkers or equipment that was on board the damaged ship, or the cost of their replacement or repair if damaged;

iii Loss of earnings;

iv Liabilities to third parties caused by the collision, e.g. liability in respect of lost or damaged cargo, or personal injury to, or death of, persons that are on board the damaged ship;

v Costs and expenses reasonably incurred as a result of the collision, e.g. salvage and general average charges and agents’ and surveyors’ fees;

vi Liability to reimburse costs and expenses incurred in respect of any necessary measures that are taken to chart, mark, light, raise, remove or destroy the wreck of the (other) ship which has been lost as result of the collision. 

(C) …another ship… (Rule 36.1) Rule 36 applies only to collisions between ships. The test of what is a ‘ship’ is one of fact based upon a number of factors, e.g. was it intended for, or capable of, navigation or the transportation of persons and/or cargo by water? Consequently, cover would normally be available under Rule 36 for liabilities resulting from a collision between a Ship and a barge or a non-powered craft, whereas cover would not be available for a collision between a Ship and a landing stage or a buoy.¹⁴ 

(D) …such liability is not covered under the Hull Policies on the Ship… (Rule 36.1) Cover is available under Rule 36 for collision liability incurred by the Member only to the extent that such liability is not covered by his Hull Policies. This exclusion is based on the expectation and understanding that the Member will follow normal prudent practise and ensure that the Ship is fully insured for hull and machinery risks on ‘standard terms’ for not less than the market value of the Ship. 

The Association considers the Hull Policies which provide cover for hull and machinery risks on English, Scandinavian, American, German, Japanese or French terms and conditions to be on ‘standard terms’. Therefore, if the Ship is insured for hull and machinery risks on other terms and conditions, the Association will need to consider and evaluate such terms and conditions in order to determine whether they constitute ‘standard terms’ for the purposes of this Rule.¹⁵ 

Provided that the Association is satisfied that the Ship has been insured on ’standard terms,’ cover is available notwithstanding the fact that such ‘standard terms’ do not all provide exactly the same scope of cover for collision liability.¹⁶ The degree and extent of the cover that is provided varies and a rough comparison can be found at the end of the Guidance to this Rule. 

(E) …including…one-fourth…or…four-fourths…or…such other fraction… (Rule 36.1.a) When the Ship’s Hull Policies cover only three-fourths of the Ship’s collision liability,¹⁷ cover is available under Rule 36 for the remaining one-fourth of that liability. However, like most other P&I clubs, Gard also offers its Members the option of placing four-fourths’ collision liability cover with the Association.¹⁸ 

The Association may also agree to offer collision liability cover for a proportion other than one-fourth if the proportion of collision liability excluded under the Member’s Hull Policies is not one-fourth. However, such arrangements are unusual. 

(F) …that part of the Member’s liability which exceeds the sum recoverable under the Hull Policies solely by reason of the fact that the liability exceeds the sums insured under those policies… (Rule 36.b) A standard Hull Policy will usually limit the cover for collision liability to the proportion of liability insured¹⁹ multiplied by the insured value of the ship. 

Where the Member’s collision liability exceeds the sum recoverable under the Hull Policies solely by reason of such a limit on the sum insured, cover is available from the Association for the amount by which the collision liability exceeds that limit. This may occur, e.g. if the Ship has a relatively low value, but has to bear the major proportion of liability for a collision with another ship that has a very high value and is unable to limit that liability under the applicable law. Alternatively, the excess liability cover that is available from the Association under Rule 36 might be required if there was a large claim against the Ship as a result of the salvage or wreck removal of the other ship. 

It would be contrary to the concept and spirit of mutuality if a Member who fails to insure his Ship for its full market value and who, thereby, runs the risk that there will be a shortfall in the collision liability cover provided by the Hull Policies, could be allowed to remedy this in full by making a claim for the shortfall under his P&I insurance. Therefore, if the Ship is insured under the Hull Policies for a value that is lower than its true market value, i.e. under-insured, cover is available under Rule 36 only for the excess liability which would not have been recoverable under the Hull Policies had the Ship been insured for its true market value.²⁰ Such under-insurance can occur, e.g. if the market value of the ship increases over time, and the shipowner fails to declare a higher value to his hull insurers, or when the owner decides not to declare a higher value, but to increase the share of insurance placed under his hull interest (IV) policy. 

For example: Ship A collides with ship B and ship A is held 100 per cent to blame for the collision. Ship B suffers losses of USD 15 million which is less than the sum to which ship A can limit its liability. Consequently, ship A is liable to pay ship B its full claim of USD 15 million. However, the hull and machinery (H&M) policy of ship A is subject to the Nordic Plan 2013 which includes standard 4/4ths collision liability cover with an insured value of USD 12 million. Therefore, since the cover for collision liability under the H&M policy for ship A is limited to USD 12 million, i.e. the sum insured, ship A’s liability to pay the balance of USD 3 million is not covered by the H&M policy with the result that cover for that balance is available under Rule 36. 

The cover for collision liability is usually additional to the cover for loss of, or damage to, the insured ship. Therefore, the hull insurers may be liable for double the sum insured if the insured ship becomes an actual or constructive total loss as a result of the collision and the liability of that ship to the other ship(s) equals or exceeds the sum insured. Similarly, if the Hull Policies cover three-fourths of the collision liability, the maximum recovery would be three-fourths of the insured value of the ship. 

Finally, cover is not available under Rule 36 in circumstances where, although the Member has the right of recovery under the Hull Policies, he fails to make the recovery for some reason, e.g. due to the insolvency of one or more hull insurers. The reason for this is that the Association is not privy to, and has no control over, the manner in which the Member chooses to place his Hull Policies. Therefore, it would be contrary to the concept and spirit of mutuality to require other Members to bear the cost of the Member’s decision to place his Hull Policies on an unsatisfactory basis. 

(G) …the Member shall not be entitled to recover from the Association any deductible… (Rule 36.1.b proviso i) A Member may decide for many reasons to agree to accept a high or low deductible under the Hull Policies. This is a personal decision for the Member and the Association is not privy to that decision which is a matter that affects the Member’s private business arrangements and not something that should prejudice the interests of the other Members in the context of mutuality. Therefore, cover is not available under Rule 36 for any collision liability that falls within the deductible borne by the Member under the Hull Policies, but cover for the costs incurred in pursuing or defending a claim that falls within the deductible borne by the Member under the Hull Policies may be available under Defence cover, if such cover has been taken out with the Association.²¹ 

(H) …exclude liability in respect of persons or property on board the Ship… (Rule 36.1.b proviso ii) Cover for the Member’s liability to persons or property on board the Ship is not available under Rule 36, but may be available under Rules 27, 28 or 29, 34 or 50.²² 

(I) …if both ships are to blame… (Rule 36.2) Where both ships are damaged as a result of a collision caused by the fault of both ships, each ship is liable for the damage caused by it to the other. The starting point in most cases is that such liability is ascertained on the principle of cross liability. 

For example: If ship A is 60 per cent to blame for the collision and suffers damage of USD 20 million whilst ship B is 40 per cent to blame and suffers damage of USD 15 million, the ‘cross liability’ is calculated as follows:²³

– Ship A is liable to B for USD 9 million (i.e. 60 per cent of the damage to Ship B)

– Ship B is liable to A for USD 8 million (i.e. 40 per cent of the damage to Ship A) 

However, where either or both ships can limit their liability by law, the claims are resolved in accordance with the principle of single liability. This means that the claims will be set off against each other to produce a balance which is payable by one ship to the other. 

Liability arising as a result of a collision can be even more complicated. For example, if a collision were to occur between ship A and ship B, caused partly as a result of the unseaworthy state of ship A and partly as a result of the negligent navigation of ship B, the following claims might arise:

1 Hull damage to ship A – USD 1 million

2 Damage to cargo on ship A – USD 900,000

3 Hull damage to ship B – USD 4 million

4 Injury to passengers on ship B – USD 3 million 

Assuming that, pursuant to the Hague-Visby Rules, ship A is entitled to limit its liability for the damage to the cargo that is carried on ship A to the sum of USD 300,000 whilst, pursuant to the Athens Convention, ship B is entitled to limit its liability for injury to passengers carried on ship B to USD 1 million, the claim which ship A will make against ship B is USD 1.3 million and the cross claim which ship B will make against ship A is USD 5 million. 

If ships A and B are each 50 per cent to blame for the incident, the claims will be adjusted as follows:

– Ship A recovers 50 per cent of USD 1.3 million, i.e. USD 650,000 from ship B

– Ship B recovers 50 per cent of USD 5 million, i.e. USD 2.5 million from ship A 

Therefore, ship A is liable to ship B for USD 1.85 million 

Depending on the tonnage of ship A, ship A may then be able to limit its liability by law (for example under the 1976 Limitation Convention) for the claim brought against it by ship B to a sum lower than USD 1.85 million. 

However, this principle may not produce a fair result when claims are allocated between the shipowner, his hull underwriters and his P&I club. Consequently, for the purpose of ‘internal settlement’ between the assured and his different insurers, the claim is assessed as if each ship had actually made payment to the other ship of its full share of the other ship’s damages, i.e. on the ‘cross liability’ principle. But, where both ships are damaged as a result of a collision caused by the fault of both ships and one or both of them is/are able to limit its/their liability, the cover that is available from the Association for the Member’s claim is governed by the principle of single liability and not cross liability.²⁴ The reason for this exception is that, under the laws of most jurisdictions, an owner may limit only his net liability, as calculated under the single liability principle, and not his gross liability, as calculated under the cross liability principle. 

Liabilities covered by Hull Policies – collision with other ships 

1 See “P&I cover for collision liability” below and the Guidance to Rule 71.

2 Different countries may apply different criteria for what constitutes a ‘collision’. In the narrow sense a collision is the direct physical contact of the hulls of two or more ships in circumstances where one or both ships are moving. However, there may also be deemed to be a collision if there is physical contact between the equipment of one ship and the hull of another, or where a ship is damaged as a result of an emergency manoeuvre which is taken in order to avoid collision with another ship.

3 See the Guidance to Rule 37 in this regard

4 The International Convention for the Unification of Certain Rules of Law with respect to Collisions between Vessels, signed at Brussels, 3 September 1910.

5 The general rule under US law is that, if a collision occurs in non-US territorial waters, or if both ships involved in a collision in international waters have the same flag, or if their separate flag states apply the same law, liability and damages are determined according to the relevant non-US law. Consequently, if the collision has occurred outside US territorial waters and the flag states of the ships involved have ratified the Brussels Convention 1910, the US courts are likely to apply the rules of that Convention instead of US domestic rules of law concerning apportionment of liability.

6 If the vessel is bareboat or demise chartered, any liability is likely to rest with the bareboat (demise) charterer rather than the registered owner of the Ship, since the bareboat charterer is responsible for operation of the Ship, including navigation.

7 The Convention determines that each shipowner shall bear his own loss in circumstances where neither ship is considered to be at fault for the collision, e.g. two ships collide as a result of breaking their moorings or dragging their anchors following a sudden, unexpected and irresistible natural phenomenon such as a tsunami. The same principle applies in circumstances where it is impossible to establish who is to blame, e.g. two ships colliding in open sea with the loss of all hands and with no other witnesses or information.

8 Under US law the owners of both ships are also jointly and severally liable in respect of damage to property, including damage to cargo on each ship. In order to avoid certain difficulties which arise in such circumstances the Association has recommended that, even though this clause is probably not enforceable in the US in relation to public contracts of carriage, the ‘Both to Blame Collision Clause’ is included in Bills of Lading and charterparties and a failure so to do may prejudice cover. See the Guidance to Rule 55.b and Appendix VII. More information on this subject can be found in the Gard Handbook on P&I Insurance, 5th Ed., Arendal (2002).

9 See Article IV Rule 2 of the Hague-Visby Rules.

10 Pilots are professional navigation advisors and do not take over the command of the ship from the master while on board. However, there is an exception in the case of pilots in the Panama Canal who, according to local regulations, assume full command of the ship while in transit through the Canal.

11 The Convention on the International Regulations for Preventing Collisions at Sea, 1972 (COLREGS).

12 Liability for loss of life or personal injury caused to persons on board the other ship involved in the collision would be covered under Rule 36.

13 See Rules 27, 28 and 29 concerning, respectively, liability in respect of Crew, passengers and other persons carried on board the Ship, Rule 30 concerning liability for persons not carried on board the Ship, as well as Rule 34 concerning liability in respect of cargo on board the Ship.

14 A borderline case may be where a ship comes into contact with a stationary floating offshore vessel on the field, e.g. a shuttle tanker comes into contact with a floating storage and off-taking vessel (FSO). An FSO is stationary so long as it operating on the field, but may have propulsion and the ability to transport oil as cargo off the field.

15 The Association is entitled to request full details of the Member’s Hull Policies either before entry of the Ship or at any time thereafter for the purpose of assessing the premium rating, which may vary considerably due to various factors, e.g. the definition of ‘collision’ in the Hull Policies and whether the hull insurer covers only three-fourths’ collision liability. Under the terms of Rule 7 the Member must notify the Association of any changes in the Ship’s Hull Policies during the period of the P&I entry that can affect the liability exposure of the Association.

16 For example, for there to be a ‘collision’ under the English ITC Hull conditions, there must be physical contact between the hulls of the ships and/or their appurtenances, e.g. an anchor or cargo handling gear. By contrast, under the Nordic Marine Insurance Plan (NMIP), there may be a ‘collision’ in circumstances where a ship causes another ship to run aground as a result of taking avoiding action, without there being physical contact between the hulls of the ships. Furthermore, under the ITC Hulls, the hull insurers cover three-fourths of the assured’s collision liability whereas under the NMIP the hull insurers cover the collision liability in full, albeit limited to the insured value of the insured ship.

17 This is usually the case when the Ship is insured under English terms and conditions

18 Some Members find it beneficial to place full cover with the Association due to the following factors: the collision liability deductible is generally lower than that required by the hull underwriters; the prospect of paying one instead of two deductibles for collision liability; and access to the Association’s letters of undertaking that are widely accepted.

19 The relevant proportion may be e.g. three-fourths of the liability as is the case under ITC Hulls. See footnote 16 above.

20 The true market value is estimated after consultation with Sale and Purchase brokers who have experience of the type of ship in question.

21 See the Guidance to Rules in Part IV Defence Cover.

22 See the Guidance to these Rules.

23 The court will usually also award interest up to the date of judgment. For example, the English courts allow interest on both claims and the single liability is established by subtracting the lower claim plus interest from the higher claim plus interest to produce a net figure.

24 Unless otherwise agreed between the Member and the Association as a term of the Ship’s entry.