6.1 Arguments in Favor of the Parasitical Mode
It can be gleaned from the writings of Hodges and Hill that the parasitical mode of
the LLMC 1976/1996 Convention is the preferable one for providing limitation to
liability insurers.
42 The main grounds for this preference are as follows: First, it
conforms to the principle of indemnity in insurance law under which, the assured,
whether or not he can invoke limitation, is entitled to recover from his insurer the
amount of damages which he has in fact paid to the injured third party. If the insurer
of liability is allowed an independent or separate right of limitation, it may well be
that the amount recoverable by his assured from him will be less than the amount
paid to the third party. This would lead to an erosion of the principle of indemnity.
Second, the independent mode amounts to conferring on the insurer an unbreakable
or guaranteed right of limitation, as it is inconceivable that he would ever be guilty of
conduct barring limitation of the kind envisaged in Article 4 of the LLMC 1976/
1996 which provides that “[A] person liable 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.” As a result, “the defence made available to the party opposing
limitation under that Article would be effectively rendered otiose”.
43
6.2 Justification for the Independent Mode
Contrary to the views expressed above, the independent entitlement to limitation for
the liability insurer may be more suitable for the following reasons:
First, the parasitical mode would directly affect the liability insurer’s defences
under the insurance contract or the applicable law. As noted by one trio of authors,
Article 1(6) of the LLMC raises an interesting question under the law of the United
Kingdom.
44 On the one hand, a direct action can be brought in certain circumstances,
i.e., where the assured has failed to satisfy a judgment or has been wound up, by the
third party against the insurer of liability under the Third Parties (Rights against
Insurers) Act 2010. In these circumstances, the third-party creditor “steps into the
shoes” of the assured and takes over the rights the assured has against the insurer
under the liability policy. These rights are likely to be restricted either by the terms of
the policy itself or by the provisions of the Marine Insurance Act 1906 (MIA 1906)
or by the common law, for instance, the serious consequence of breach of warranties
42 See Hodges and Hill (2001), supra, note 32, p. 536.
43 See Ibid., p. 535.
44 Griggs et al. (2005), supra, note 31, p. 15.
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It can be gleaned from the writings of Hodges and Hill that the parasitical mode of
the LLMC 1976/1996 Convention is the preferable one for providing limitation to
liability insurers.
42 The main grounds for this preference are as follows: First, it
conforms to the principle of indemnity in insurance law under which, the assured,
whether or not he can invoke limitation, is entitled to recover from his insurer the
amount of damages which he has in fact paid to the injured third party. If the insurer
of liability is allowed an independent or separate right of limitation, it may well be
that the amount recoverable by his assured from him will be less than the amount
paid to the third party. This would lead to an erosion of the principle of indemnity.
Second, the independent mode amounts to conferring on the insurer an unbreakable
or guaranteed right of limitation, as it is inconceivable that he would ever be guilty of
conduct barring limitation of the kind envisaged in Article 4 of the LLMC 1976/
1996 which provides that “[A] person liable 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.” As a result, “the defence made available to the party opposing
limitation under that Article would be effectively rendered otiose”.
43
6.2 Justification for the Independent Mode
Contrary to the views expressed above, the independent entitlement to limitation for
the liability insurer may be more suitable for the following reasons:
First, the parasitical mode would directly affect the liability insurer’s defences
under the insurance contract or the applicable law. As noted by one trio of authors,
Article 1(6) of the LLMC raises an interesting question under the law of the United
Kingdom.
44 On the one hand, a direct action can be brought in certain circumstances,
i.e., where the assured has failed to satisfy a judgment or has been wound up, by the
third party against the insurer of liability under the Third Parties (Rights against
Insurers) Act 2010. In these circumstances, the third-party creditor “steps into the
shoes” of the assured and takes over the rights the assured has against the insurer
under the liability policy. These rights are likely to be restricted either by the terms of
the policy itself or by the provisions of the Marine Insurance Act 1906 (MIA 1906)
or by the common law, for instance, the serious consequence of breach of warranties
42 See Hodges and Hill (2001), supra, note 32, p. 536.
43 See Ibid., p. 535.
44 Griggs et al. (2005), supra, note 31, p. 15.
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