In-depth | PROFESSI TONAL INDEMNITY FEATURE HEME Naval architects uncovered?
Robert Sniffen, a senior account executive with International Transport Intermediaries Club (ITIC), explains how naval architects can protect their business from claims
T
he specialist responsibility of naval architects is to ensure that a safe, economic and seaworthy
vessel design is produced for their clients. As such, they face exposure to high levels of liability and need a good professional indemnity insurer who understands what they do. But, even before you reach for your insurance policy,
the first steps you
can take to protect your company from claims involve making sure that you contract correctly. Because of the increasingly litigious world in which we operate, deals and designs done on the back of an envelope, or equivalent, should be long gone. Naval architects should ensure that they
operate on standard terms and conditions, which clearly set out the scope of work – what they will, and will not, be responsible for. Te contract should also limit liability to a specific amount relative to the fee being earned for the project. Choice of jurisdiction and governing law may also help reduce or limit potential exposure. Finally, an exclusion or limitation clause should be included to account for any alterations made aſter the initial design. We are all human, and mistakes will
happen. When you are faced with a mistake, you need an insurance company alongside you to strike the balance between keeping your client as happy as possible and assisting you in your claim. Consider the following examples of claims made by companies insured by ITIC. A naval architect was contracted to
design a yacht for a race. When built, the yacht sailed over 10,000 miles without difficulties. However, when it was liſted from the water, several cracks were noticed along the keel. Both the manufacturers and the naval architect were notified that cracks had appeared. The naval architect subsequently realised that an error had occurred when transposing the design specifications onto
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of profits and diminution of value of the vessel. Expert evidence was obtained on behalf of the naval architect, but it was not particularly helpful to the defence. It became apparent that the owners
We are all human and mistakes can happen, that’s when you need an insurance company says ITIC executive Robert Sniffen
the blueprint drawings, which were then passed on to the manufacturers. Tis error in design meant that the keel did not meet the strict strength specifications required of a racing yacht. The naval architect informed the
company of its error. However, a subsequent
survey completed by a
third-party surveyor found the cracks to be caused by incorrect manufacturing techniques. Te manufacturers offered to repair the keel but, if they had done so, it would still have been unsuitable for racing due to the design error. ITIC agreed that a keel of the correct specification should be supplied and settled additional costs. In another case, a firm of naval
architects was instructed to design a vessel to be used for a new ferry service. When completed, the owners alleged that the vessel suffered from structural inadequacies, which included continued cracking of the hull. Tey said the vessel could not perform in certain weather conditions as they had requested it to do, even following repeated repairs. At one point the Maritime and Coastguard Agency had to reduce the amount of passengers the vessel could safely carry. Eventually, the ferry service was
completely suspended and the owners commenced legal action against the naval architects in the sum of US$600,000. Tis covered the cost of repairs, loss of use, loss
were suffering from financial difficulties, in part due to the fact that the ferry service could not run. On this basis, ITIC instructed lawyers to make an application for security for costs (to cover the defence costs incurred in the event that the owners became bankrupt) in the sum of £75,000 (US$121,500). Legal costs and expert witness fees had already exceeded £40,000 (US$65,000) and were estimated to exceed £100,000 (US$162,000)
if the matter
progressed to a full trial. Te application was granted in ITIC’s
favour, but unfortunately only to the sum of £25,000 (US$40,000), as the judge had some sympathy with the claimant’s argument that it was in dire financial straits due to the mistake of the naval architect. Despite pleading poverty, the owners did manage to obtain the funds and pay them into court. The naval architect was left in an
awkward situation whereby, if the matter progressed to full trial, even if the claim were successfully defended (which was very unlikely in light of the expert evidence received) the costs alone could have been in excess of £100,000 (US$162,000) and there was only £25,000 (US$40,000) security. Te judge suggested that the parties would benefit if they could reach a settlement between themselves, and aſter a full day of negotiations, the original claim of £370,000 (US$600,000) plus costs was settled for £142,000 (US$230,000) plus costs (which were a further £62,000 (US$100,000). Sadly, naval architects can find
themselves faced with claims even if they have not been negligent. In such circumstances, insurance which covers the cost of defence is invaluable. Te price of innocence can be high.
The Naval Architect October 2012
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