Take cover

Toppled: ports may face claims for personal injury some time after the actual accident Toppled: ports may face claims for personal injury some time after the actual accident
Industry Database

The Tianjin disaster is a timely reminder for ports to check their insurance liabilities, explains Dave MacIntyre

The risk that ports and terminals face for insurance claims was underlined when a toxic chemical warehouse in Tianjin exploded in August, releasing not just an immediate catastrophic event in which over 100 people died but a myriad of subsequent insurance liabilities.

Estimates as to the size of the insured loss have suggested it could be in a similar category as the Costa Concordia cruiseship casualty of 2012, for which liabilities are thought to total about $2bn. Credit Suisse has put the likely losses from the Tianjin accident at $1bn-$1.5bn, and ratings agency Fitch has pitched its estimate higher.

The breadth of insurance claims is likely to be wide, and the parties affected similarly diverse. Cargo containers were destroyed, the global auto manufacturing industry hard hit with estimates of over 10,000 vehicles burned, property was damaged, vessel schedules put out of kilter, supply chains disrupted and cargo contracts for supply and delivery were nullified.

Obvious marine areas of claim will surround container destruction, which could involve for example the TT Club, which insures risks arising from loss or damage to owned or leased equipment. This protection extends to the increased costs of working following an accident. P&I Clubs may be involved if claims are made for cargo losses under the contracts of carriage.

Terminal insurers could face potential exposure to liability claims and there could be extensive non-marine claims such as death and personal injury and business interruption.

 

Cover check

However on the broader scale, Tianjin is possibly a reminder to port and terminal companies that extensive insurance cover is an essential part of their business portfolio. One area which may be worth a closer look is reducing exposure to employers’ liability and workers’ compensation, where claims may materialise some time after an actual event. These could be health problems such as back injuries resulting from moving cargo, exposure to base metals or asbestos, or noise.

Some insurers prefer not to offer coverage in this area. The TT Club for example currently don’t provide it and have no historic experience of doing so.

One company which does have specialisation in this area is Allianz Australia. Michael Berg, the company’s underwriting manager - corporate workers’ compensation, says that in reviewing their portfolio of port clients over the last ten years, it has not found evidence of claims materialising many years after an actual event – but they can relate to personal injury sustained over a prolonged period.

“Approximately 2% of the claims we have received over this time were received a year or more after the specified date of injury. Of these claims a good portion (approximately 40%) are ‘hearing loss’ claims,” says Mr Berg.

“These claims generally are not the result of an actual event, but rather have manifested over many years due to a long-term exposure to a noisy work environment. The average cost of these claims is low in comparison to the overall average claim size of all ‘port’ claims. It is not unusual for these types of claims to be lodged as a worker retires or sometime after a worker has retired.”

 

High costs

That said, Mr Berg says about 10% of these are significant cost claims (incurring costs of A$100,000 plus). This represents 0.2% of the total claim numbers. “Like the hearing loss claims, most of these claims have manifested over many years due to the natures and conditions of the work undertaken.

“Some of these injuries were initially triggered by an actual event, not significant enough at the time to result in a claim, but with deterioration over time due to the ongoing nature of their work, resulted in a claim being lodged.”

Mr Berg advises that while the cost of these claims can be high, the numbers are very low and therefore are not a material issue for the employers Alliianz Australia insure.

In terms of time lag, Alliianz Australia has observed that the number of claims being reported a year or more after the specified date of injury has reduced significantly over the last five years. “This can be attributed in part to an awareness by port employers of the potential for injuries to result from the long-term ‘natures and conditions’ of the work being undertaken and putting in place appropriate programmes to address them,” says Mr Berg.

Over in New Zealand, the legal position in relation to the potential exposure of ports and terminals is different because of the country’s ACC (Accident Compensation Commission) legislation, which provides comprehensive, no-fault personal injury cover for all New Zealand residents and visitors.

This means anyone can apply for help, no matter how they got injured, or whose fault it was. Importantly for ports and terminals – and their insurers - people can’t sue for personal injury in New Zealand, except for exemplary damages.

 

Combination act

However there are changes happening in New Zealand law which have major implications affecting the insurance industry, and also port managers and port company directors.

Neil Beadle and Crossley Gates, partners at DLA Piper New Zealand, say the combined effects of the New Zealand Health and Safety Reform Act 2015 and the Sentencing Amendment Act 2014 are akin to a “perfect storm”.

One of the key changes emanating from the Health and Safety Reform Act is the change in personal responsibility for officers in business, says Mr Beadle.

“‘Officer’ has been defined as ‘a person occupying a position that allows them to exercise significant influence over the management of a business’. So in big organisations it may not be the directors of a company but regional, branch, country, or site managers,” he said. “Those people may fall into this officer definition.”

New exposures emanating from the change in legislation include manufacturers, importers, suppliers, installers and instructors and not just employers.

“There are all sorts of rules now about making sure we don’t inhibit Health and Safety at work which has given rise to new criminal offences,” Mr Beadle says. “And a big thing is a six-fold increase in penalties.”

For ports and terminals, a major point to absorb is that while fines cannot be insured against, defence costs and awards compensation for victims can be insured. With company directors and officers having personal responsibility and broader duties it could change the course of courtroom proceedings, says Mr Beadle.

“You’ve got these new offences, and huge new fines, so I think there will be a bit of a focus on whether people defend or plead guilty because, let’s face it, if the fine’s going to be NZ$600,000 per person some people would say ‘I’d rather roll the dice and go to trial’. So there’s a big impact on the approach by insureds in terms of having cover under their policy.”

For insurance providers, the flow-on effect is that the policy is worth more - “so you can go out and sell more and charge more for it", says Mr Beadle.

 

Brewing of a perfect insurance storm

New Zealand’s Sentencing Amendment Act marks an interesting intersection between criminal law and insurance, says Crossley Gates, partner of DLA Piper New Zealand.

When a person has been prosecuted, convicted and punished in a criminal court, the court is also charged with considering civil reparation to the victim.

Three types of compensation can be paid, covering property damage, emotional harm and the loss consequential on those plus physical harm. While the consequences of physical injury are covered by ACC, there is debate about whether reparation sentences ought to be able to top up ACC.

New Zealand judges have a number of “discretions” they can consider, including taking into account the offender’s ability to pay. If an insurance company is providing cover, it may make a judge more inclined to use that discretion, says Mr Gates.

“That’s being a bit cynical but that’s the kind of thinking that might start happening if this thing progresses over time and awareness by lawyers acting for victims becomes greater and greater.

“So we have what we call a perfect storm brewing in this situation. We have increased exposure through the Health & Safety Reform Act, a whole basket of people that probably weren’t exposed to that previously who now will be and then the exposure of reparation sentences to top up ACC where if people are very badly injured there is the possibility of very large lump sums being ordered to be paid.”

Mr Gates says that insurers could impose higher deductibles or just adjust the premiums, while brokers could seize on the opportunity by pointing out clients’ increased exposures or the need for reviewing their sum insured to higher amounts.

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