5 Limitation Rights of Insurers and Modalities
of Application
5.1 Preliminary Remarks
What is relevant to the present discussion is that most of the above-noted conventions have provisions relating to the right of the liability insurer to limit liability.
First, the relevant rule is presented followed by the methodology for its application.
The right of the insurer to limit liability, in the first instance, flows from the so-called
right of “direct action” allowing a party who has suffered loss, damage or injury and
has a cause of action against the shipowner, charterer or salvor, as the case may be, to
directly sue the insurer for compensation. That said, the manner in which “direct
action” as a term of art is to be construed requires some analytical thought. At any
rate, it is submitted that there are two different modalities discernible in convention
instruments which are correspondingly reflected in domestic legislation in different
jurisdictions. In this work, we are concerned with the legislation of the United
Kingdom and China. Their respective pros and cons are discussed analytically in
the text below.
5.2 The So-Called Parasitical Mode
The term “parasitical” is a metaphorism which derives from the nature of living
organisms known as parasites, to cling to other organisms to sustain their own
existence. In the present context, the term is used to describe the modality through
which a liability insurer is able to limit liability through dependence on his assured’s
legal right to do so when the insurer is subjected to direct action by a third party who
has a claim against the assured. In the LLMC 1976/1996 Convention, the right of
direct action can be derived from Article 1(6) which provides that “[A]n insurer of
liability for claims subject to limitation in accordance with the rules of this Convention shall be entitled to the benefits of this convention to the same extent as the
assured himself”. It is notable that no such provision exists in the global Limitation
Convention of 1957.
31 In the words of a duo of well-known authors, Article 1(6) of
the LLMC 1976/1996 Convention simply declares that:
the right to limitation to which the assured is entitled may be enjoyed by his insurer, whether
he be sued by the assured or the third party. In this sense, the benefit of limitation conferred
by Article 1(6) to the insurer could be described as parasitical in nature; one way or another,
either through the assured or the third party, he feeds upon the right to limitation which the
law has conferred upon his host, the assured.
32
31 Griggs et al. (2005), p. 15.
32 Hodges and Hill (2001), p. 539.
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Y. Xia
of Application
5.1 Preliminary Remarks
What is relevant to the present discussion is that most of the above-noted conventions have provisions relating to the right of the liability insurer to limit liability.
First, the relevant rule is presented followed by the methodology for its application.
The right of the insurer to limit liability, in the first instance, flows from the so-called
right of “direct action” allowing a party who has suffered loss, damage or injury and
has a cause of action against the shipowner, charterer or salvor, as the case may be, to
directly sue the insurer for compensation. That said, the manner in which “direct
action” as a term of art is to be construed requires some analytical thought. At any
rate, it is submitted that there are two different modalities discernible in convention
instruments which are correspondingly reflected in domestic legislation in different
jurisdictions. In this work, we are concerned with the legislation of the United
Kingdom and China. Their respective pros and cons are discussed analytically in
the text below.
5.2 The So-Called Parasitical Mode
The term “parasitical” is a metaphorism which derives from the nature of living
organisms known as parasites, to cling to other organisms to sustain their own
existence. In the present context, the term is used to describe the modality through
which a liability insurer is able to limit liability through dependence on his assured’s
legal right to do so when the insurer is subjected to direct action by a third party who
has a claim against the assured. In the LLMC 1976/1996 Convention, the right of
direct action can be derived from Article 1(6) which provides that “[A]n insurer of
liability for claims subject to limitation in accordance with the rules of this Convention shall be entitled to the benefits of this convention to the same extent as the
assured himself”. It is notable that no such provision exists in the global Limitation
Convention of 1957.
31 In the words of a duo of well-known authors, Article 1(6) of
the LLMC 1976/1996 Convention simply declares that:
the right to limitation to which the assured is entitled may be enjoyed by his insurer, whether
he be sued by the assured or the third party. In this sense, the benefit of limitation conferred
by Article 1(6) to the insurer could be described as parasitical in nature; one way or another,
either through the assured or the third party, he feeds upon the right to limitation which the
law has conferred upon his host, the assured.
32
31 Griggs et al. (2005), p. 15.
32 Hodges and Hill (2001), p. 539.
662
Y. Xia