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THE 3/4THS COLLISION LIABILITY CLAUSE

CHAPTER 13


THE 3/4THS COLLISION LIABILITY CLAUSE


INTRODUCTION


The purpose of the 3/4ths Collision Liability Clause, more frequently referred to as the Running Down Clause, is to provide a shipowner with some insurance cover for third party liability in the event of a collision.1 It is necessary, at the outset, to note that two distinct types of loss may arise as a result of a collision.


First, it is to be recalled that the damage suffered by the insured vessel is recoverable as a loss by ‘perils of the seas’, as defined in r 7 of the Rules for Construction read with the celebrated case of Wilson, Sons and Co v Owners of Cargo per ‘Xantho’ [1887] 12 App Cas 503.2 Such a loss, if arising as a result of the ‘negligence of Master Officers Crew or Pilots’ in navigation, is also recoverable under cl 6.2.2 of the ITCH(95).3


The second type of loss, known as third party liability, incurred by the assured in the form of damages payable to the owner of the other vessel, is also recoverable under this Clause. Such a consequential loss was not, however, prior to the decision of De Vaux v Salvador [1836] 4 Ad&E 420, by reason of its remoteness, considered as a loss by a peril of the sea. The Running Down Clause was thus introduced to provide a shipowner with cover for such a monetary loss resulting from a collision of his vessel with another vessel.


By cl 8 of the ITCH(95),4 underwriters agree to indemnify the assured to the amount of 3/4ths of the damage inflicted upon the other vessel in the event of a collision; the other 1/4th being borne by the assured. But, in practice, the shipowner is usually a member of a Protection and Indemnity Club, who will meet the shortfall in the third party cover. It is significant to note that in no circumstances will the underwriters’ liability for damages amount to more than 3/4ths of the insured value of the vessel insured.5 However, they have also agreed to pay 3/4ths of the assured’s legal costs when contesting liability or taking proceedings to limit their liability.6 This commitment by the underwriters is dependent upon their prior written consent, and is only intended to cover the costs of the assured when defending a claim, and not when the assured pursues a claim against a third party. Furthermore, unlike a claim for damages, there is, under this head of claim, no limit to the underwriter’s liability in relation to the insured value of the vessel.


Clause 8.4 of the ITCH(95)7 lists the exclusions to the 3/4ths Collision Liability Clause. A new exclusion can be found in cl 8.4.5, which has been incorporated to complement cl 7, the Pollution Hazard Clause.8 Whereas the Pollution Hazard Clause allows recovery for loss or damage sustained by the assured’s vessel caused by the actions of governmental authority taken in order to prevent or mitigate damage to the environment, the purpose of cl 8.4 is to exclude the insurer from liability for certain types of loss, the most notable of which is contained in cl 8.4.5, which relates to any sum which the Assured may have incurred in respect of pollution, contamination or damage to the environment, or threat thereof. Suffice it here to mention that there are exceptions within the exceptions contained in cl 8.4.5.9


It is also to be noted that the 3/4ths Collision Liability Clause is subordinate to the provisions contained within the Paramount Clause, cll 24 to 27 of the ITCH(95) and cll 21 to 24 of the IVCH(95).


The Sister Ship Clause, cl 9 of the ITCH(95) and cl 6 of the IVCH(95), is included to ensure that, when a collision occurs between two ships belonging to the same owner, the relationship between the two parties, although actually one and the same, may be considered as being no different from that between strangers. Without this provision, any claim made by one vessel against the other would be out of the question, because, under common law, it is not possible for a person to sue himself. In addition, the Clause ensures that any such claims made against sister ships are referred to a sole arbitrator.


It is significant to note that the 3/4ths Collision Liability Clause is based upon settlement by cross-liabilities, and not single liability.10 Under the concept of cross-liability, when two ships collide, a level of blame is apportioned between the two ships, which then determines the amount each ship will pay as a proportion of the total damage sustained by both vessels.


In practice, when a collision occurs, the assured’s underwriter is liable for the full amount (up to the insured value) of the loss suffered by the assured’s vessel plus, under the 3/4ths Collision Liability Clause, 3/4ths of a proportionate amount of the damage suffered by the other vessel, that amount being dependent upon the degree of blame attached to the assured’s vessel. If, for example, the assured is 100% to blame, then the underwriter’s liability is 3/4ths of the total damage sustained by the other vessel. If the assured is 50% to blame, then the underwriter’s liability becomes 3/4ths of 50% of the total damage sustained by the other vessel.


The assured’s underwriter can then, by way of subrogation, recover from the owner (or his underwriter) of the other vessel a proportion (depending on the degree of blame apportioned) of the damage sustained by the assured’s vessel. If the assured is 100% to blame, the amount recoverable is 0%; if the assured is 50% to blame, the amount recoverable by the assured’s underwriter is 50% of the total damage sustained by the assured’s vessel; if the assured is blameless, then the amount recoverable is 100% of the total damage sustained by the assured’s vessel.


When cargo insured under the ICC (A) is damaged as result of a collision, the loss is recoverable by virtue of the policy being for all risks. Loss of, or damage sustained by, cargo insured under the ICC (B) and ICC (C) are, however, recoverable under cl 1.1.4 which states:


This insurance covers…loss of or damage to the subject matter insured reasonably attributable to collision or contact of vessel, craft, or conveyance with any external object other than water.


The meaning of the word ‘contact’ was recently considered, albeit briefly, and in a different context, in connection with an express warranty, in Costain-Blankevoort (UK) Dredging Co Ltd v Davenport, ‘Nassau Bay’ [1979] 1 Lloyd’s Rep 395.11 And, should the vessel or craft, in which the cargoes are carried, ‘strand, ground, sink, or capsize’ as a result of a collision, cl 1.1.2 of the ITCH(95) and IVCH(95) may also be invoked.


THE 3/4THS COLLISION LIABILITY CLAUSE


Clause 8 of the ITCH(95) and cl 6 of the IVCH(95) state:


The Underwriters agree to indemnify the Assured for 3/4ths of any sum or sums paid by the Assured to any other person or persons by reason of the Assured becoming legally liable by way of damages for…where such payment by the Assured is in consequence of the Vessel hereby insured coming into collision with any other vessel.


Particular attention is drawn to the words ‘collision’, ‘in consequence of, ‘vessel,’ ‘by way of damages’, ‘paid by’, and ‘payment by’. The courts have deliberated to some length on their correct application and interpretation.


Collision


Although the following case is strictly one relating to carriage of goods by sea, concerning the litigation between a cargo-owner and a carrier over contractual matters, the affirmation by the House of Lords that ‘collision’ is a peril of the sea is equally pertinent to marine insurance. It should be noted that, in the Xantho case, the court only pronounced about a collision where there was negligence on the part of the other vessel. In this regard, reference should be made to s 55(2)(a) of the Marine Insurance Act 1906, which, clearly, does not exclude an insurer from liability when there is negligence aboard the assured’s vessel. Section 55(2)(a) states:


…unless the policy otherwise provides, he is liable for any loss proximately caused by a peril insured against, even though the loss would not have happened but for the misconduct or negligence of the master or crew.


Wilson, Sons and Co v Owners of Cargo per ‘Xantho’ (1887) 12 App Cas 503


The appellants were the owners of the steamship Xantho, which sank after a collision, in fog, with another vessel whilst on a voyage from Cronstadt to Hull. The owners lodged their appeal against the cargo-owners on the basis that, inter alia, the loss of the ship was due to a collision which was, in this case, an excepted peril, namely, a peril of the sea.


The House of Lords, in reversing the decision of the Court of Appeal, decided that collision was, in fact, a peril of the sea and ruled in favour of the appellants.


Lord Herschell: [p 509] …It is beyond question, that if a vessel strikes upon a sunken rock in fair weather and sinks, this is a loss by perils of the sea. And a loss by foundering, owing to a vessel coming into collision with another vessel, even when the collision results from the negligence of that other vessel, falls within the same category.


Furthermore, as was illustrated in the Niobe case, below, the 3/4ths Collision Liability Clause covers loss or damage sustained by a third party vessel even when that loss or damage is caused by a tug towing the insured vessel.


M’Cowan v Baine and Johnson and Others, ‘Niobe’ [1891] AC 401, HL


The respondent owners of the sailing ship Niobe insured her with the appellant underwriter (David M’Cowan) for a voyage from the Clyde, under tow, to South Wales and thence to Singapore. Included in the policy of insurance was a clause providing indemnity to the assured should the insured vessel be involved in a collision. During the voyage to Cardiff, the tug towing Niobe collided with and sank another vessel, the owners of which recovered damages from both the tug and Niobe. The owners of Niobe then pressed a claim against their insurers to recoup their proportion of the payment. The insurers declined to pay, on the basis that the tug, and not Niobe, had actually been in the collision, and that the policy of insurance did not cover losses brought about by the actions of the tug.


The House of Lords, affirming the decision of the lower court, ruled that the tug and Niobe were one and the same within the meaning of the policy and the insurers were liable for the loss caused by the tug whilst Niobe was being towed.


Earl of Selborne: [p 403] …The words of this contract are: ‘If the ship hereby insured shall come into collision with any other ship or vessel, and the insured shall, in consequence thereof, become liable to pay to the persons interested in such other ship or vessel, or in the freight thereof, or in the goods or effects on board thereof, any sum or sums of money, not exceeding the value of the ship hereby assured.’ If a ship cannot be said to ‘come into collision with any other ship’ except by direct contact, causing damage, between the two hulls (including, under the term hull, all parts of a ship’s structure), there was in this case no such contact, and the appellants ought to succeed.


But I cannot adopt so narrow a construction of those words. I should hold them to extend to cases in which the injury was caused by the impact, not only of the hull of the ship insured, but of her boats or steam launch, even if those accessories were not (as in this case) insured as being, in effect, parts of the ship. I should also hold them to cover an indirect collision, through the impact of the ship insured upon another vessel or thing capable of doing damage, which might by such impact be driven against the ship suffering damage. I should take the same view, as against insurers in similar terms, of a tug towing one or more barges (in which case, the barge owners would not be liable for a collision) if damage to any vessel were caused by the barge or barges being driven against it through the improper navigation of the tug, although there might have been no impact of the tug itself upon the injured vessel. And, after full consideration, it seems to me to be no more than a reasonable extension of the same principle to include within them such a case as the present.


Where a ship in tow has control over, and is answerable for, the navigation of the tug, the two vessels—each physically attached to the other for a common operation, that of the voyage of the ship in tow, for which the tug supplies the motive power—have been said, by high authority, to be for many purposes properly regarded as one vessel.


Notes


The above case illustrates the point that actual bodily contact between the insured vessel and the third vessel is not necessary to invoke the 3/4ths Collision Liability Clause.


In Union Marine Insurance Co v Borwick [1895] 2 QB 279, though the clause in question was much wider in scope than the standard Running Down Clause (as it included, inter alia, damage sustained through collision with ‘harbours or wharves or piers or stages or similar structures’), nevertheless, the remarks of Mathew J are cited, as they are useful for a better understanding of the term ‘collision’.


Mathew J: [p 281] …the only question for my decision is, whether the facts which occurred in the cases of these two vessels amounted to loss or damage through collision…I cannot distinguish collision with from striking against. It has been contended on behalf of the defendant that, in order to constitute a collision, the upper works of the ship must strike some one of the things referred to in the clause in the contract, and that there were not collisions in the present case, because it appears that it was the keels of these two vessels which struck against the toe of the breakwater. According to the view which I have expressed as to the meaning of the words, that argument must be unavailing; and I am therefore satisfied that this was a case of damage by collision…


In the early case of Woodrop-Sims (1815) 2 Dods 83, two ships, Industry and Woodrop-Sims, collided off the South Foreland and, in his judgment, Sir W Scott expanded on the principle of the apportionment of blame:


[p 85] …There are four possibilities under which an accident of this sort may occur. In the first place, it may happen without blame being imputable to either party; as where the loss is occasioned by a storm, or any other vis major: in that case, the misfortune must be borne by the party on whom it happens to light; the other not being responsible to him in any degree. Secondly, a misfortune of this kind may arise where both parties are to blame; where there has been a want of due diligence or of skill on both sides: in such a case, the rule of law is that the loss must be apportioned between them, as having been occasioned by the fault of both of them. Thirdly, it may happen by the misconduct of the suffering party only; and then the rule is, that the sufferer must bear his own burden. Lastly, it may have been the fault of the ship which ran the other down; and, in this case, the injured party would be entitled to an entire compensation from the other.


In consequence of


The liability of the insurer under the 3/4ths Collision Liability Clause can only arise where the payments made by the assured is ‘in consequence of the insured vessel coming into collision with any other vessel. The significance of the words ‘in consequence of’ was highlighted in France, Fenwick and Co v Merchants Marine Insurance Co Ltd, below.


France, Fenwick and Co v Merchants Marine Insurance Co Ltd [1915] 3 KB 290


The plaintiff owners of the 5,000 ton steamship Cornwood insured her with the defendant underwriters under a policy of insurance incorporating the Institute Time Clauses. Whilst proceeding up the River Seine, Cornwood signalled to overtake a slower moving vessel, Rouen. During the overtaking manoeuvre, Cornwood struck Rouen a glancing blow, which did little actual damage, but did result in Rouen veering off course and colliding with an oncoming vessel, Galatee, which was seriously damaged. The owners of Cornwood accepted liability, and claimed on their policy of insurance for the damage done to both the other vessels; the insurers rejected the claim for damage done to Galatee on the basis that there had been no physical contact between Cornwood and Galatee.


The Court of Appeal upheld the decision of the trial judge and ruled for the owners. The collision between Rouen and Galatee was a ‘consequence’ of the original slight collision, and the insurers were liable.


Swinfen Eady LJ: [p 299] …The question raised by this appeal turns upon the construction and true effect of part of the Running Down Clause in The Institute Time Clauses which is attached to a policy of insurance. By the terms of that clause, it was agreed that if the ship insured should come into collision with any other ship or vessel ‘and the assured shall in consequence thereof become liable to pay, and shall pay by way of damages to any other person or persons any sum or sums not exceeding in respect of any one such collision the value of the ship hereby insured’, then the company will pay. The material words that have to be construed and dealt with in this clause are the words ‘in consequence thereof.


[p 301] …In my opinion, according to the true construction of a clause such as the present, an assured may become liable to pay damages in consequence of a collision between his ship and another ship, although the damage is not immediately and directly caused by the actual impact between the two colliding vessels…Under these circumstances, I am of the opinion that the damage occasioned to Galatee arose in consequence of the collision between Cornwood and Rouen, although not the direct and immediate consequence of the impact—although one ship was not, by the force of the impact, driven directly against the other. The collision, with what has to be taken as part of the collision—the attendant incidents of the collision—produced the subsequent result. For these reasons, I am of opinion that the judgment below was right, and that the appeal should be dismissed.


Vessel


An assured can only claim under the 3/4ths Collision Liability Clause for any sum or sums which he has paid for the ‘loss of or damage to any other vessel or property on any other vessel’. The Clause may be invoked only when a collision occurs with a ‘vessel’. What constitutes a ‘vessel’ within the meaning of the 3/4ths Collision Liability Clause is most important, for the insurer is clearly not liable for damage or loss arising as a result of collision with any ‘object’ other than a ‘vessel’.


A number of cases are presented, to illustrate not only the problem of determining what exactly constitutes a ‘vessel’, but also, the relationship between hull insurers and P & I Clubs. As will be seen, one of the criteria which has been employed by the courts for the purpose of determining whether a particular ‘object’ is or is not a ‘vessel’ is the test of navigability, proposed in Chandler v Blogg. This test was, however, rejected by Greer J, in Pelton SS Co v North of England Protection and Indemnity Association, also cited below.


Chandler v Blogg [1898] 1 QB 32