In an event of a collision, the company’s liabilities and risks are covered by the ocean marine insurance policy purchased by the company. A marine insurance policy provides protection against losses for ships. Such policies also cover the shipping industry in the event of damage to the ship’s hull and/or the ship’s freight.
A part of the Marine insurance policy comes with a ‘both to blame’ collision clause. The ‘both to blame’ clause is acted upon when a ship collides with another ship due to the negligence of both parties. In such an instance owners and shippers of both vessels must share in the losses. The loss-sharing is in accordance with the monetary values of their damaged cargo and interest.
Following are the parties required to pay for losses:
- Owners of the cargo
- The company responsible for shipment
The purpose of the ‘both to blame’ collision clause in a marine insurance policy is:
- Restore the position of the shipowner/carrier who was traditionally not liable to compensate the owner of the cargo on the ship for errors in navigation or management of the vessel.
Damage caused due to negligence can be because of the following parties:
- Servants of the carrier in the navigation
In spite of modern technology, shipping accidents still occur at sea. When such accidents happen, both ship captains can be at fault. Due to the negligence of both the captains or any other responsible person, the ships crash into each other. So, in simple words, both parties become responsible for causing the accident as directed by the ‘both to blame’ collision clause in the marine insurance policy.
Thus, the advantage of both to blame collision clauses comes when both parties have ocean marine insurance policies with both-to-blame clauses. In such a scenario, each party can burden the other with a portion of the losses from the accident.
Established in 2001, A.J Construction company in Mumbai had made a big name for itself in the industry in a short span of time. The company got a contract for constructing roadways in Malaysia. The company decided to send a consignment of equipment and machinery to Malaysia via water.
Transportation by waterways had its own risks and hence A.J Constructions decided to purchase a marine insurance policy to avert any risks or losses which prevailed in water transport. All the construction material was properly inspected before the journey.
During the journey, the ship carrying the construction material of A.J Constructions came close to another ship, loaded with its own cargo. The captain of both the ships left the helm of the ship unattended and the ships crashed into each other.
Both the parties filed the claim under the marine insurance. Luckily the owners of both the cargo had a marine policy with a ‘both to blame’ collision clause.
Here the total loss was Rs 20 lakhs. Both the insurers carefully reviewed the claim form along with the other policy documents and agreed to divide the claim amount equally based on the ‘both to blame collision clause’ in their marine insurance policy. Divided the total claim of Rs 20 lakhs between both the insurers as 10 lakhs each.
Case Study: 2
Consider the same ship carrying the cargo of construction material of A.J Constructions to Malaysia. But now there was no collusion between any ships. Upon the delivery of the cargo in Malaysia, found it damaged. In such a situation, it will be important to ascertain whether the damage comes under a Marine insurance policy or construction all-risk policy.
Even after the investigation, found out the damage took place during the transportation by waterways, the ‘both to blame’ clause may not apply here as there was no collision between two ships.
Additional Read: Understand Your Duties as Insured Under a Marine Insurance Policy