Abstract
In a developed society, most individuals and corporations purchase insurance against any possible liability they might incur in a host of activities they engage themselves in. Ship owners are no exception in this regard. In fact, ship owners’ liability insurance is one of the most extensive liability insurance in the world. There is hardly any aspect of maritime liability which is not covered by the corresponding liability insurance. Yet, there is little discussion on various questions related to the effect of insurance’s absence or its presence on maritime liability law. What benefits insurance in general and liability insurance in particular have in our commercial activities including shipping? If insurance is a beneficial risk-management strategy, what are the other alternative risk-management measures ship owners and policymakers devised in the pre-insurance era? Should those measures continue to exist today when commercial insurance is available? What should be the goal of liability law when both liability claimants and liable parties are usually insured against their respective losses and liabilities? Does the presence of liability insurance reduce the deterrent effect of liability law? Or can we say that the presence of liability insurance actually improves deterrence? These are the questions we will attempt to answer in this book and we will do so in the context of maritime law and from the perspective of law and economics.
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Notes
- 1.
In 2011, Canadians paid over $5.27 billion in premium for liability insurance alone. See Insurance Bureau of Canada (2013), p. 7.
- 2.
Ship owners usually purchase liability insurance from their own mutual insurance companies, known as Protection and Indemnity (P&I) clubs. Thirteen of the P&I clubs jointed together to form the International Group of P&I Clubs. Through a pooling agreement among the clubs, the group can provide coverage up to US$7.5 billion per liability incident. See http://www.igpandi.org/Group+Agreements/The+Pooling+Agreement. Accessed 01 September 2013.
- 3.
Gilmore and Black (1975), pp. 17–18, 53.
- 4.
See Donovan (1979), p. 999.
- 5.
See Birkley v. Presgrave, (1801), 1 East. 220 at 228, 102 E.R. 86 at 89; Cooke and Cornah (2008), p. 1.
- 6.
See infra Sect. 3.4.3.1.
- 7.
The simple reason why these principles may lead to increased social loss is that they may reduce the liability of negligent ship owners. Reduced liability may in turn fail to deter such ship owners from future negligence. Chapters 2 and 3 will have detailed analysis of this point.
- 8.
- 9.
See International Maritime Organization’s (IMO) legal document, LEG/CONF.5/C.1/SR.8 (5 Nov. 1976); reproduced in IMO (1983), p. 266. However, sometimes the only claimant would be the government of a state which incurs expenses for cleanup after an incident of oil pollution.
- 10.
See article III.1 of International Convention on Civil Liability for Oil Pollution Damage, 1969, 973 U.N.T.S.3, (1970) 9 I.L.M. 45, as amended by its 1992 Protocol, LEG/CONF.9/15 [hereinafter the CLC]. Another reason for this difference is that the victims of oil pollution are third parties and thus cannot negotiate mutually satisfactory arrangements with tanker owners before pollution incidents, while cargo owners as liability claimants have contractual relationship with ship owners and can decide their respective share of loss or liability beforehand.
- 11.
See articles III and IV.1 of the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading, Aug. 25, 1924, 51 Stat. 233, 120 L.N.T.S. 155 [hereinafter the Hague Rules]; and its 1968 Protocol, 2 U.N. Register of Texts ch. 2, at 180 [hereinafter together the Hague-Visby Rules]; article 5.1 of the United Nations Convention on the Carriage of Goods by Sea, Hamburg, Mar. 31, 1978, U.N. Doc. A/Conf. 89/5, (1978) 17 I.L.M. 608 [hereinafter the Hamburg Rules].
- 12.
Compensation and deterrence are the two main goals of liability law under traditional analysis of liability law. See Brown (1978–1979), p. 111.
- 13.
See articles IV.5(a) and V of the Hague-Visby Rules; articles 6.1(a) and 24 of the Hamburg Rules.
- 14.
See article IV.2(a) and (b).
- 15.
See the preamble to the CLC which reads, “The State Parties to the present Convention…. convinced of the need to ensure that adequate compensation is available….” (emphasis added).
- 16.
See infra Sect. 6.5.
- 17.
- 18.
For a somewhat similar observation, see James (1948), p. 549.
- 19.
Shavell (2004), p. 4.
- 20.
Some figures are also based on statistical data and empirical evidence.
- 21.
It does not really matter whether we use the figure $1,000 or 100,000 for the loss and $500 or 50,000 for the cost of care. The purpose of using these figures is to show more clearly that the cost of care is less than the loss.
- 22.
See Posner (1972), pp. 32–33.
- 23.
159 F.2d 169 at 173 (2d Cir. 1947); see Posner (2003), p. 168.
- 24.
Under economic analysis, people are assumed to be rational profit-maximizing individuals. See Shavell (2004), pp. 1–2.
- 25.
Shavell (2004), p. 244.
- 26.
- 27.
Shavell (2004), p. 178.
- 28.
Shavell (1987), pp. 11–12.
- 29.
- 30.
Shavell (2004), p. 266.
- 31.
Traditionally, the goal of liability both under torts and contract laws has been to restore the claimants to their pre-incident level as far as money can do. It is expressed retrospectively in tort (to put the victim back where he would have been had the tort not occurred) and prospectively in contract (to put the promisee in a position where he would have been had the contract been performed). See Rose (2004), p. 487.
- 32.
Although it would be very difficult to deprive ship owners of the benefit of limited liability under the present law, a court may be lenient in construing the relevant provision of the law i.e., Article 4 of the Convention on Limitation of Liability for Maritime Claims, 1976, (1977) 16 I.L.M. 606 [hereinafter LLMC 1976]. “A person shall not be entitled to limit his liability if it is proved that the loss resulted from his personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result.” (emphasis added).
- 33.
See the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1971, 16 I.L.M 621 (1972), as amended by 1992 Protocol, LEG/CONF.9/16, and 2003 Protocol, LEG/CONF.14/20 [hereinafter the Fund Convention].
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Billah, M.M. (2014). Introduction. In: Effects of Insurance on Maritime Liability Law. Springer, Cham. https://doi.org/10.1007/978-3-319-03488-1_1
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