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HANSA 02-2019

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Schifffahrt | Shipping

Schifffahrt | Shipping »When salvage becomes wreck removal« Discussions between owners, hull insurers and P&I insurers: What a salvor needs to bear in mind, when a salvage operation becomes a wreck removal. A short case study It is easy to think that in circumstances where a salvor has contracted to salve a vessel and her cargo, in the event that the vessel becomes a total loss under its hull insurance, the contract moves into a wreck removal contract fairly seamlessly. Of course, that can be the case but very often there are a number of discussion points between owners, hull insurers and P&I insurers that can mean that the salvor can be left in a period of »unknown« whilst decisions are made behind the scenes. Let’s try and put this into context by assuming a casualty of a general cargo vessel (20 years old) that has grounded on a fairly remote coast line. She is in ballast and grounded due to bad weather, having dragged anchor. Her market value is 3 mill. $ but her insured value is 5 mill.$ under an English law hull insurance policy. Salvors attend promptly and enter into an LOF contract with the Owners. Seeing that the vessel is quite badly damaged but not impossible to salve, Salvors invoke SCOPIC. Initial hopes to refloat the vessel are hampered by bad weather and as a result the vessel’s ground reaction increases; ultimately it becomes clear that she is going to become further damaged with repair and salvage costs increasing significantly. Owners’ surveyors are not completely sure how much repair work is going to be needed as, due to weather conditions, a dive survey cannot be carried out. They take the view, however, that the vessel is almost certainly going to be uneconomical to repair in terms of her commercial value. Their question is whether or not the repairs are going to exceed the insured value of the vessel and therefore whether she is a constructive total loss under her hull insurance policy. Various factors need to go into that calculation, including cost of repairs but also cost of salvage and, under a recent Court of Appeal decision of the »Renos«, SCOPIC costs are also a factor to be considered in assessment of constructive total loss under a hull insurance policy in the UK. The Owners submit Notice of Abandonment under their hull insurance pol- SKULD Germany EHRLICH – SOLIDE - NAH 36 HANSA International Maritime Journal – 156. Jahrgang – 2019 – Nr. 2

Schifffahrt | Shipping © Campbell Johnston icy to their underwriters for consideration and notify their P&I insurers but the hull underwriters need a little time to assess whether or not the vessel is actually a constructive total loss. In the meantime, the salvage contract continues to run and SCOPIC increases on a daily basis. Ultimately, though they also have to accept that notice will be given by P&I of five days to terminate SCOPIC or the possibility that the salvage contract itself can come to an end as there is no prospect of successfully salving the property with value. Local authorities may, however, insist that the LOF contract remains in place and salvors need to ensure that they have good dialogue with the owners, hull underwriters and particularly the P&I insurers to constantly assess costs and progress generally, plus what spread of equipment should remain on site. In our scenario, after a period of a week or so, the underwriters accept that the vessel is a constructive total loss under the hull policy and agree to pay her hull insurance value to the owners. With a total loss now agreed with the hull underwriters, the P&I club will now want to take a very active role in terms of wreck removal and also want to discuss with the salvor bringing the LOF contract and SCOPIC to an end and move »Everybody wants results and it is disappointing for a salvor who has secured an LOF contract to find that that contract comes to an end as a result of bad weather« towards a wreck removal. A salvor who has been involved in the project does have a slight advantage over other potential bidders for a wreck removal contract and the P&I club will be well aware of this. Familiarity with the status of the casualty and having equipment already mobilised and on site can result in a financial saving for P&I insurers funding the wreck removal. The key therefore for any salvor and any sub-contractors is to ensure that throughout the operation there is full and proper dialogue with the owners and their insurers. And to anticipate likely scenarios and work to them in terms of offering alternative services with a view to keeping outlay down but also ensuring that, sufficient equipment Alistair Johnston etc is there and on site in the event that a decision is promptly made for a wreck removal. Everybody wants results and obviously it is always disappointing for a salvor who has secured an LOF contract to find that that contract comes to an end as a result of bad weather etc causing further damage to a vessel unexpectedly. That is one of the risks but salvors will look to counter the financial impact of this and endeavour to use the advantages that they have in terms of being on site to their advantage. Author: Alistair Johnston Director, Campbell Johnston Clark WELTWEIT IM EINSATZ ZÖLLNER Signal GmbH | | HANSA International Maritime Journal – 156. Jahrgang – 2019 – Nr. 2 37

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