Rescue teams are still searching for survivors of the capsized Eastern Star cruise ship on the Yangtze River in Central China, and officials fear that over 400 fatalities may result from the tragic incident.
Reuters confirmed that PICC Property and Casualty Co. Ltd., a subsidiary of People’s Insurance Group of China Co Ltd, insured the vessel and is working to implement “emergency response measures” to mitigate damages as much as possible.
While many questions linger about the nature of this tragedy, many of which remain unaddressed due to pervasive Chinese censorship, marine experts can at least provide insights from an insurance perspective.
“In a situation like this where you have a vessel overturned accompanied by loss of life and trauma to survivors, typically you see two types of policies that would be involved: first, a hull and machinery which is akin to property coverage on a house or factory, and that would respond to any physical loss or damages to the vessel itself,” explains Ron Eldridge, senior vice president, marine practice,
Marsh Canada Limited.
In addition to this material coverage, legal liability insurance will also be activated.
“The other policy that would be triggered would be P&I, or protection and indemnity, and that’s the vessel’s legal liability policy. It would respond in respect of third party liabilities such as injury or loss of life, pollution and wreck removal,” Eldridge said.
Since China is a contracting member of the Athens Convention, the ship owner may be allowed to limit liability to 250,000 SDR (about $436,876 CAD), depending on who or what is found to be at fault of the shipping incident.
While Canada is also a contracting state to the Athens Convention, a marine incident on Canadian waters would produce a much different insurance outcome, particularly relative to the P&I insurance.
“If there were a similar accident here involving a vessel that resulted in 400 or more fatalities, the legal liability in most cases would be covered by one of 13 international P&I clubs, which are not Canadian or American entities but located offshore, typically in London or Bermuda,” said Eldridge.
As a result, a shipping disaster such as this would likely have no effect on the Canadian marketplace from a legal liability standpoint.
Hull and machinery insurance, on the other hand, may have a marginal influence on the insurance sphere.
“Most ships of any meaningful size would be insured on a subscription basis whereby no one insurer would write more than a certain percent – maybe 15, 20, 25 percent of the value of the ship – so you’d have multiple subscribing insurers,” said Eldridge. “When you consider that, the impact on any one insurer is minimized.”
In fact, it is dubious whether an insurer would even consider writing a cruise or passenger ship carrying more than 200 passengers at a time.
“There’s a reasonable chance that the domestic Canadian marketplace wouldn’t be interested in a vessel that size,” Eldridge said.
