ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Tuesday, March 30, 2021

Assumption of Risk and the Suez Canal: The Insurance Angle

SuezCanal-EOWhenever I teach Transatlantic Financing, I say something about insurance.  Judge Skelly-Wright points out that, if he were to decide the allocation of risk in the case, he would likely find that Transatlantic bore the duty of insuring against the closing of the canal.  I hypothesize that the U.S. likely would have insured the cargo, the wheat it was sending to Iran.  I'm less certain about the insurance market for detours around the Cape.

The Business Standard provides some insights into the insurance squabbles that lie in the wake of the recently-freed container ship, the Ever Given.  There could be some pretty big fights.  A Taiwanese company chartered the ship; a Japanese company owns it.  It was piloted through the canal by people employed by the canal, but the canal provides pilots subject to a disclaimer of liability.  The owners of the cargo aboard the Ever Given likely insured their goods and can seek recovery for whatever costs incurred as a result of the one-week delay.  Are such costs a given?  Do they constitute a covered claim?

The article anticipates similar claims from the owners of goods aboard the vessels delayed by the bottleneck in Suez.  I'm uncertain about those.  My first guess was that the economic loss rule would bar recovery, but I suppose it is possible that there is a general insurance policy that covers all events that might delay delivery.  Time will tell.

Hat tip, Victor Goldberg.

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I think they were shipping wheat in Transatlantic.

Posted by: anthony schutz | Mar 30, 2021 1:04:37 PM

Quite right. Corrected now. Thanks!

Posted by: Jeremy Telman | Mar 30, 2021 1:25:36 PM

How would economic loss rule apply? The owners of the goods on other vessels and the various parties associated with the Ever Given were not contracting parties. And it was arguably foreseeable to the parties associated with the Ever Given that blocking the canal would injure other parties through inability to pass through the canal, thereby establishing a duty. But the owners of cargo on other vessels should also be covered under their own CGI policies if the delay led to breaches of their own contracts.

Posted by: Guest | Apr 5, 2021 11:25:58 AM

I don't understand the first part of your question. As you point out, there is no contractual relationship between the various parties waiting to get through the canal and the owners & charterers of the Ever Given. The only theory would be in tort. But the economic loss rule, as I understand it, bars recovery for economic loss absent some physical injury to person or property. There are cases quite similar to this one involving draw bridges that got stuck and ships that could not pass. They could not recover.

I agree with your last sentence.

Posted by: Jeremy Telman | Apr 5, 2021 11:52:34 AM

I understand the economic loss rule to be narrower. It applies when two parties have a contractual relationship but one party seeks to bring a tort claim for an economic loss that could have been contracted for. So for example someone purchasing a defective product that cannot be used because of its defect cannot bring a tort claim if the defect did not cause bodily injury or damage to property other than the product. Recovery for economic loss of the product should come only through the contractual warranty.

Posted by: Guest | Apr 5, 2021 12:19:21 PM

Now I see that there is a broader class of cases, which one author places under the category "Interference With Use of Resources." But cases in this area appear not to be uniform in their holdings.

Posted by: Guest | Apr 5, 2021 12:41:23 PM

The contractual part of the economic loss rule -- don't try to turn your K case into a torts case -- doesn't apply here. There is no contract. While there are differences among courts about the application of the economic loss case in the torts context, I think this falls within the uncontroversial part of the rule. Otherwise, each ship could be saddled with limitless exposure, and that would be ruinous.

You wrote that the harms to other ships is "reasonably foreseeable" in these circumstances. Under the economic loss rule, that's not enough to give rise to liability absent harm to person or property. The outlier cases usually involve harm to natural resources (e.g., fish) that nobody owns. Because people who harvest such resources cannot insure against their loss, courts have been reluctant to leave them unprotected against harms such as oil spills, which usually involve not ordinary negligence but recklessness.

Posted by: Jeremy Telman | Apr 5, 2021 2:35:19 PM