An Arbitration Case for P&I Insurance of Inland Vessel
Addtime:2017-12-04     Browse:49     Author:admin


Sue and labour charges, legal expenses, P&I insurance for inland vessel.


B, a shipping company, purchases the coastal and inland water P&I insurance from an insurance company A. The insurance clause provides that “The Insurer shall bear the following liability, loss and expense during the policy period subject to the express terms of the insurance contract, the Insured shall chose all of or part of the following risks to be covered: personal injury and illness, wreck removal, cargo liability under Bs/L or waybills, collision liability and oil pollution liability, sue and labour charges and legal expenses.” However, the Insured has not chosen to cover sue and labour charges and legal expenses. Moreover, there is an exemption in the insurance policy that any cargo damage or shortage caused by force majeure shall be exempted. The Insurer issues the policy accordingly.

In 2014, the vessel, M.V. XIN YIN HE, suffered from No. 8 typhoon “Raccoon” in the coastal waters of Wenzhou city, Zhejiang Province. The typhoon caused 40 empty containers stowed at 34BAY, which are placed at the stem of the vessel, to fall down, 24 containers of them fell into the sea and 16 containers partly damaged. After the accident, B reports the case to A. But A rejects the case orally for the reason that this accident is not an insurance accident.


The owner of those containers files a lawsuit against B, claiming for RMB 3 million of tort damage. B retains a law firm to defence itself and the attorney fee is agreed in the amount of RMB 300,000.

Through first trial and second trial, the court judges that B shall not be responsible for the loss of the owner of containers. Later, B claim for the attorney fee occurred during the case between them and the owner of containers against the insurance company, but is rejected again by A. B commences arbitration against A.

The tribunal hold the view that, firstly, the insurance contract provides that A shall not be responsible for cargo damage or shortage due to force majeure, hence, this case is not an insurance accident; secondly, the “liability to cargo” under the clause “liability to cargo under Bs/L or waybills” means the compensation liability for the damage, loss, or shortage of the cargo, which focus on the liability that exerted upon the cargo itself, not including legal expenses resulting from it; thirdly, neither does B choose to purchase nor dose A underwrite the risk of “sue and labour cost and legal expense”, which substitute the circumstance of “where otherwise agreed to in the contract” in Article 66 of the Insurance Law. Thus, the Insurer has no liability to compensate for the legal expenses under the statutory law.


Firstly, article 240 of the Maritime Code stipulates that:

“The insurer shall pay, in addition to the indemnification to be paid with regard to the subject matter insured, the necessary and reasonable expenses incurred by the insured for avoiding or minimizing the loss recoverable under the contract, the reasonable expenses for survey and assessment of the value for the purpose of ascertaining the nature and extent of the peril insured against and the expenses incurred for acting on the special instructions of the insurer.”

The question arises that whether the legal expenses that B paid for the defence against the owner of containers can be listed in this regard?

The prerequisites to claim the fees listed in Art. 240 of the Maritime Code are that “expenses incurred by the insured for avoiding or minimizing the loss recoverable under the contract”, in other words, the precondition is that there is an insurance accident. In the present case, the court has judged that the cargo damage is caused by force majeure, and B shall not be responsible for that. It is obvious that the cause of accident is an exemption of the insurance contract. The arbitration tribunal verdict that no insurance accident covered by the insurance contract.

Secondly, the tribunal hold that the “cargo liability under Bs/L or waybills” covers by A does not include such legal expenses caused by cargo damage. In fact, B had never issued any B/L or waybill to the cargo-owner, and thus B shall not be responsible for any “cargo liability under Bs/L or waybills”.

Thirdly, Article 66 of the Insurance Law provides that:

“If an insured of a liability insurance contract is brought to arbitration or legal proceedings due to the occurrence of an incident covered by insurance which causes loss or damage to a third party, the insurer shall bear the cost of such arbitration or legal proceedings and other necessary and reasonable expenses paid by the insured, unless it is otherwise provided for in the insurance contract.”

In the present case, one of the listed risks in the insurance contract is the “sue and labour charges and legal expenses”, which B did not choose to purchase. Hence, it could be envisaged that it is the insured’s own choice to bear the legal expenses itself.

The nature of “legal expenses” and “sue and labour charges” is different. Sue and labour charges are exerted in taking urgent and effective measures so as to mitigate the loss after the insurance accident; however, legal expenses are limited to fees that related to legal actions, and it has nothing to do with mitigation of the loss of subject insured at the time the accident happens. Those two costs are different in nature.

We have to admit that it is improper to list “sue and labour charge” as a choice in the insurance policy. If the insured have not choose to cover “sue and labour charge”, does it mean that the insured can let the loss just happens, expand and do not take any measures? It is the insured’s obligation to mitigate the loss after the insurance accident, and it is accord with the benefits of insurance company. Article 57 of the Insurance Law provides that “At the occurrence of an insured incident, the insured shall take all necessary measures to prevent or mitigate loss or damage.” To mitigate loss is one of the obligations of the insured, and thus such related expenses belong to insured liability. If exclude this charge from the insured liabilities through contractual agreement (if the insured choose not to cover this risk), it will go against the stipulations in the Insurance Law.

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