Real Case 6: A Case of Smuggling

Real Life Situation: A vessel owned by the Dalian Maritime University for which we arranged P&I insurance was fined in Korea due to smuggling by one of the crew members.

The Problem: The Club initially advised that this claim did not fall under the Club cover as it was directed at the crew not against the member/owner. Therefore, the Club did not cover the liabilities incurred by the crew. Furthermore, the Club advised that as the vessel was not arrested, the claim was not directed against the owners.

The Claim: Although the vessel was not arrested, she was prevented from sailing until the fine had been settled.

Action taken: Andrew Liu & Co. Ltd wrote a submission to the Club containing the following, which is quoted below, summarizing nearly our argument:

“In addition to commercial considerations, we do in any event consider this claim should be properly payable in full by the Club. We would stress the claim is directed against the Shipowner in view everyone knows (and the Kunsan Authorities must know) that the ship is the property of the Owners., and not that 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. The authorities could have acted only against the crew and jailed that crew if it was so a fact that the claim was directed against the crew only. In addition., here are many circumstances where the Owners are vicariously liable for the acts of the crew, and invariably in all ports this is the situation. Of course the action is primarily against the crew because it was the crew who was the principal offender and caused the actus reus, but that does not mean the Authorities waive their rights against the Owners, which in this case it is very apparent the Authorities are formulating their claims against the Shipowner.

In addition you will also note there is smuggling deductible, and invariable in all cases smuggling is carried out by the crew. It must be carried out by the crew, otherwise if the Owners were privy to this , there is no claim under the P&I cover anyway. The Club rules do specifically provide smuggling by the crew is covered, and we think in this case the claim does fall under these rules, in any event surely under the Omnibus 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.

Settlement: The Club considered our submissions and agreed to settle this claim amount in full.