Running clause or 3/4th collision liability clause in marine insurance offers a shipowner with some kind of coverage which is necessary in case of third-party liability in the event of a collision. It is a clause within marine insurance policy which offers legal coverage if the insured vessel collides with another vessel.
If the insured vessel needs to blame for a collision with another vessel, insurers would be required to pay for up to a maximum of three-fourth of the value of the insured vessel as stated in the marine insurance policy document.
If the running down clause makes insurers liable to pay the full coverage, it would be called as 4/4th running down clause.
Here, the marine insurance company agrees to indemnify the policyholder for three-fourth of sum insured paid to another person for
- Loss or damage happens to any other property or vessel
- Delay or loss of property or vessel
It is necessary to note that the 3/4th collision liability cause depends on the settlement by cross-liabilities, and there is no single liability which affects it. As per the concept of cross-liability, when there is a collision between two ships, it is essential to establish a level of blame between the two ships. It is done to decide the amount each ship would pay as a proportion of the total damage which is sustained by both the ships.
It is essential to understand, 3/4th of a proportionate amount of the damage which is to be borne by the insured, that amount would depend on the degree of blame which is attached to the policyholder’s vessel. It means, if the policyholder is 100% to be blamed, then the insurer’s liability is 3/4th of the total damage which is sustained by the other vessel. Similarly, if the insured is 30% to be blamed, the insurer’s liability becomes 3/4th of 30% of the total damages as sustained by the other vessel.
There are various events which are excluded from running down clause. Like, wreck removal liability is excluded from the policy along with the loss of life or property involved on board of the ship involved.
Read more: What is Open Marine Insurance Policy?
Also, the liability of the insurer under the 3/4th collision liability arises only the when the insured vessel collides with any other vessel.
The owner of 5,000-ton steamship, ‘Jazz’ insured it with the comprehensive marine insurance policy. Last year, it was used to transport goods from India o Sri Lanka. While proceeding in the sea water, Jazz signalled to overtake a slower moving vessel, ‘Timer’. During the overtaking, Jazz struck Timer, due to which it got seriously damaged. The Timer vessel suffered heavy damages and asked Jazz owner for compensation. The owner of Jazz accepted its liability, and as they had a marine insurance policy, they approached the insurer for the claim settlement. Here, the insurer considered the claim under running down clause and agreed to pay compensation for the losses or damages which happened to the third-party, i.e., Timer vessel due to the fault of the insured steamship, i.e., Jazz.
T.J Shipping was the owner of 3,000-ton steamship, ABC, which the company insured under a marine insurance policy. While proceeding in the river, ABC signalled to overtake the other slower moving vessel, XYZ. While ABC was overtaking, it struck with XYZ and caused little damages. However, due to this, XYZ veered off course and collided with another vessel, LJ, which got seriously damaged. Both the owners of XYZ and LJ approached the owners of ABC for claim settlement.
The owners of ABC accepted their liability, and as they have a marine insurance policy, they approached their marine insurance policy for the damages done to both the vessels. However, the insurer refused to settle the claim for the damages done to LJ on the basis that there was no physical contact involved between ABC and LJ, which came into the direct contact with XYZ vessel only. Here, the insurer covered only those losses which happened to XYZ.