his alter ego if he is a legal entity. The reason for this fundamental attribute is that in
the law of carriage of goods or passengers by sea, the persons liable, such as
shipowners or charterers etc., should bear, in most cases, vicarious liability for
their servants or agents, particularly, the master or crew members. This kind of
vicarious liability is conducive to the victim’s claim on the one hand, but brings to
the persons liable more risks or perils on the other, because in the early days it was
difficult for shipowners to effectively control their masters or crews while the ship
was at sea. To balance the interests between shipowners and merchants, the maritime
law confers the right of limitation on the persons liable.
50 If the law denies the right
of limitation of the persons liable due to the conduct of their servants or agents after
the balance is reached between vicarious liability and limitation, the scale would tilt
towards the merchants and, in this vein it is submitted, that the aim of limitation of
liability for protecting and encouraging the persons liable to involve themselves in
the shipping business, would fall through. A similar argument can be made in respect
of liability insurance in relation to shipping.
The effect of direct action which is designed to protect the third-party claimant
could also be deemed as a kind of vicarious liability taken by the liability insurer for
his assured, and it likewise comes to a balance with the limitation of liability
especially in consideration of the insurer’s difficulty in controlling his assured.
Therefore, it is unfair to the liability insurer to be involved and then be denied the
right of limitation due to his assured’s conduct barring limitation. To put it in precise
and concise terms, the parasitical mode of entitlement to limitation accords with the
principle of indemnity in appearance, but goes against the principle of fairness in
substance. Contrarily, the independent mode of entitlement to limitation may be
inconsistent with the principle of indemnity in appearance, but it embodies the
principle of fairness in substance. Undoubtedly, the principle of indemnity should
be subject to fairness.
Fourth, the parasitical mode may cause instability of the liability insurer’s right of
limitation. An interesting argument is introduced by Patrick Griggs et al. by reference to P & I insurance where the owner, demise charterer and manager are
frequently entered members in respect of the same ship. It may be that in such
circumstances, one assured is able to limit liability whereas another is not. Then the
right of the P & I insurer to limit liability may depend on which member is sued
under the parasitical mode of the LLMC 1976.
51 The instability of the right of
limitation is certainly neither what the legislators wish to see; nor what the shipping
industry, especially the liability insurers, wish to encounter, because it would make it
difficult for the insurer to evaluate the potential loss, to determine the rate of the
premium or call, and to carry out ordinary risk management. All these are not
desirable for further development of the regime of liability insurance in the shipping
field.
50 See Li (2004), p. 157.
51 Griggs et al. (2005), supra, note 31, p. 35.
Liability Insurer’s Right to Limit Liability for Maritime Claims:. . .
669
the law of carriage of goods or passengers by sea, the persons liable, such as
shipowners or charterers etc., should bear, in most cases, vicarious liability for
their servants or agents, particularly, the master or crew members. This kind of
vicarious liability is conducive to the victim’s claim on the one hand, but brings to
the persons liable more risks or perils on the other, because in the early days it was
difficult for shipowners to effectively control their masters or crews while the ship
was at sea. To balance the interests between shipowners and merchants, the maritime
law confers the right of limitation on the persons liable.
50 If the law denies the right
of limitation of the persons liable due to the conduct of their servants or agents after
the balance is reached between vicarious liability and limitation, the scale would tilt
towards the merchants and, in this vein it is submitted, that the aim of limitation of
liability for protecting and encouraging the persons liable to involve themselves in
the shipping business, would fall through. A similar argument can be made in respect
of liability insurance in relation to shipping.
The effect of direct action which is designed to protect the third-party claimant
could also be deemed as a kind of vicarious liability taken by the liability insurer for
his assured, and it likewise comes to a balance with the limitation of liability
especially in consideration of the insurer’s difficulty in controlling his assured.
Therefore, it is unfair to the liability insurer to be involved and then be denied the
right of limitation due to his assured’s conduct barring limitation. To put it in precise
and concise terms, the parasitical mode of entitlement to limitation accords with the
principle of indemnity in appearance, but goes against the principle of fairness in
substance. Contrarily, the independent mode of entitlement to limitation may be
inconsistent with the principle of indemnity in appearance, but it embodies the
principle of fairness in substance. Undoubtedly, the principle of indemnity should
be subject to fairness.
Fourth, the parasitical mode may cause instability of the liability insurer’s right of
limitation. An interesting argument is introduced by Patrick Griggs et al. by reference to P & I insurance where the owner, demise charterer and manager are
frequently entered members in respect of the same ship. It may be that in such
circumstances, one assured is able to limit liability whereas another is not. Then the
right of the P & I insurer to limit liability may depend on which member is sued
under the parasitical mode of the LLMC 1976.
51 The instability of the right of
limitation is certainly neither what the legislators wish to see; nor what the shipping
industry, especially the liability insurers, wish to encounter, because it would make it
difficult for the insurer to evaluate the potential loss, to determine the rate of the
premium or call, and to carry out ordinary risk management. All these are not
desirable for further development of the regime of liability insurance in the shipping
field.
50 See Li (2004), p. 157.
51 Griggs et al. (2005), supra, note 31, p. 35.
Liability Insurer’s Right to Limit Liability for Maritime Claims:. . .
669