Real Life Situation:
A vessel owned by Dalian Maritime University for which we arranged P&I insurance was fined in Korea due to smuggling by one of the crew members. The vessel is not arrested but prevented from sailing until the fine is settled.
The Club initially advised that this claim did not fall under the Club cover as it was directed at the crew and not against the owner. Therefore the Club did not cover the liabilities incurred by the crew. Furthermore, the Club advised that since the vessel is not arrested, the claim is not directed at the owner.
We wrote in to the client, stating our standpoint summarized as follows,
“In addition to commercial consideration, we do in any event consider this claim should be properly payable in full by the Club. We would like to stress that the claim is directed against the Shipowner since everyone knows (including Kunsan Authorities) that the ship is the property of the owner instead of crew who carried out the smuggling. It is a fact that the Authorities did prevent the ship, or at least threatened to prevent the ship from departing Kunsan, and this being the case, is equivalent to an arrest. It amounts to the same consequence that is a threat and action against the owner’s property, not against the crew. If the claim is directed at crew only, the authorities could have acted only against the crew and jailed that crew. There are many circumstances where the owners are vicariously liable for the acts of the crew. This is invariably the case in all ports. We agreed that the action is primarily against the crew because it was the crew who was the principal offender and caused the actus reus. However the Authorities does not waive their rights against the owner. In this case, it is very apparent that the Authorities are formulating their claims against the owner.
In addition, there is a smuggling deductible in the P&I cover, and invariable all cases of smuggling are carried out by crew. It must be carried out by the crew, otherwise if the owner were privy to this, there is no claim under the P&I cover anyway. The Club rules do specifically provide smuggling by crew is covered, and we think in this case the claim does fall under these rules, in any event surely under the Omibus Rule as this case is similar in nature, and was without the fault of the owner.
We thereafter telephoned the Claims Director to discuss this matter. The Club considered our submissions and agreed to settle this claim amount in full.