Forgoing the 'usual suspects': cargo and hull insurers can pursue alternate recovery routes when maritime disasters strike.

When extensive cargo losses are caused by a sinking, fire or other casualty, the maritime equivalent of "rounding up the usual suspects" generally entails prosecuting a claim against the vessel and its owner. Unfortunately, this narrow approach can leave marine insurers with a bleak recovery prospect.

Limitation of liability statutes permit the owner to limit its liability to the vessel's value after the casualty, plus freight. In addition, the Hague Rules have codified substantive defenses which enable common carriers to avoid liability altogether, such as the Error in Navigation/ Management, Peril of the Sea and Due Diligence defenses. Recent decisions, however, have exhibited an increased willingness among cargo and hull insurers to pursue alternate theories of recovery.

These actions have included suits against classification societies: entities that conduct ship inspections in accordance with schedules and criteria set forth in the society's rules. Hull and cargo insurers have argued that if an unsea-worthy condition caused or contributed to a casualty, the classification society is liable if the defect should have been discovered during a scheduled inspection.

While superficially appealing, the success of this approach has been limited. In the United States, a number of cases have been dismissed before trial. In Cargill Incorporated vs. Bureau Veritas, the court dismissed a suit by the subrogated cargo insurer, finding there had been no reliance by the cargo owner on the classification certificates issued by the defendant to the vessel owner.

A number of other cases have reached the same result, but the pattern is not uniform. One exception, Otto Candies LLC vs. NKK, affirmed a cause of action against the classification society based on the claim that it negligently misrepresented the condition of a vessel in connection with its sale.

The viability of these claims has not been uniformly embraced in other countries. In the United Kingdom, the House of Lords held that a classification society does not owe any duty to a cargo owner and dismissed the suit (Marc Rich & Co. vs. Bishop Rock Marine Co. Ltd.).

In contrast, Greek law appears to recognize suits against classification societies. (Sealord Marine vs. American Bureau of Shipping) Ultimately, the success of each case heavily depends on its peculiar facts and the law of the country that is found to apply.

Another course pursued by hull and marine insurers entails prosecution of a shipper when a catastrophic loss can be traced to its cargo. In two recent decisions, hull and cargo insurers filed claims against the shipper of containerized calcium hypochlorite hydrated ("cal-hypo"), which ignited during transit. In both cases, the cal-hypo was stowed below deck, adjacent to bunker tanks that caused the chemical to become heated and spontaneously combust. Asserting that only the shipper knew this characteristic--at the time of the casualties--the plaintiffs sought to impose liability on the shipper for the losses that followed.

The outcomes were mixed: the judge in Contship Containerlines Ltd. vs. PPG Industries Inc. issued a decision from the bench, which is unreported, in the shipper's favor; whereas in In re M/V DG Harmony 394 E Supp. 2d 649, the court held that the shipper was in the best position to know the dangerous characteristics of its cargo and rendered judgment for the cargo and hull insurers. Both decisions are being appealed.

In another case, insurers of the ship and its cargo brought suit against a shipyard. After discovering that a fracture attributed to substandard welding may have contributed to the destruction of the MSC CARLA--a container vessel that broke in half during rough weather in the North Atlantic--the P&I and cargo insurers filed suit against a Korean shipyard that had manufactured and installed an additional cargo hold in the mid-section of the ship approximately 13 years earlier.

Following a prolonged litigation, the trial judge held the shipyard liable for the damage. (Rationis vs. Hyundai Mipo Dockyard). But the following year the Second Circuit reversed, holding that the claims were subject to Korean law and, in accordance with that country's laws, were time-barred.

All of these cases were hard fought, many through trial and appeals. So when faced with a catastrophic loss, these alternative paths, and the potential costs to pursue them, must be weighed carefully by experienced counsel against the potential for a successful recovery.

Christopher Raleigh, a Best's Review contributor, is a member of the New York downtown office of law firm Cozen O'Connor. He can be reached at [e-mail].