Following the disaster at Tianjin Port, we examine the impact of the events on the logistics and marine insurance sectors with particular focus on the issues insurers face when dealing with the potential liabilities that may arise, and any subsequent indemnity/recovery actions.
On 12 August 2015, Tianjin Port in northern China was rocked by two major explosions which killed at least 173 people. A number of people are still missing and hundreds more were injured.
The explosions took place at a warehouse which contained an estimated 3000 tonnes of hazardous and flammable chemicals. Photographs and videos published in the media showed extensive destruction in and around the port and the blast waves, together with their impact on buildings, were felt several kilometres from the port. The buildings of several surrounding logistics companies were destroyed and large quantities of shipping containers were either crumpled or catapulted through the air, some even being blown from the container yard to nearby highways.
Whilst it is not yet clear what triggered the blasts, 10 people linked to Tianjin Dongjiang Port Rui Hail International Logistics Co. Ltd (‘Rui Hai’), including the president and vice-president, were detained by police within eight hours of the blasts.
In addition to the significant damage and casualties, the effects of the blasts are also being felt in the logistics and insurance industries.
Tianjin Port is considered the fourth largest global port in terms of cargo throughput. It is the largest port in northern China for the export of hazardous chemicals and is the main logistics hub for most cargo transportation in northern China.
As a result of the blasts, the Tianjin Transport Committee currently requires all dangerous goods to be taken to other ports and specifically precludes all terminal operators from devanning dangerous goods in Tianjin. The import and export of other cargo has also been significantly affected. The port has resumed operations but the impact on transport in the surrounding areas is still being felt. As expected, a number of shipping lines, forwarders and cargo interests are currently using other ports and facilities, which will no doubt result in increased costs being incurred.
Chinese lawyers have described the incident as causing ‘an earthquake’ in the local insurance industry with the expected total indemnities ranging from RMB 5 billion to 10 billion (equivalent to circa £500 million - £1 billion), which would surpass any previous major incident.
The China Insurance Regulatory Commission has required Chinese insurers to set up dedicated workforces to deal solely with the claims arising from this incident. Many insurance companies have already set up ‘green channels’, actively contacting their insureds and offering interim payments. We understand that major Chinese insurers have already paid out significant sums.
The potential liability of carriers and freight forwarders may depend upon the outcome of the government authorities’ investigations. Subject to those findings, it is possible that carriers/forwarders may be able to rely upon a force majeure defence under Chinese law or any applicable international convention or pursuant to the underlying contract, given the nature of the incident.
If Rui Hai is found to be liable for the blast (after the conclusion of the current investigation) then cargo interests/insurers may be able to pursue their claims against this party and carriers/forwarders may be entitled to claim an indemnity. However, Rui Hai’s potential liability exposure is astronomical and it is therefore extremely doubtful that Rui Hai’s combined insurance cover and assets (both as yet unknown) will be sufficient to indemnify all affected parties in full.
In light of the significant number of casualties and losses arising from the disaster, any litigation will be politically sensitive. Chairman Xi Jinping and Premier Li Keqiang are already paying special attention to the events, with Chairman Xi Jinping instructing officials to ‘severely’ punish those responsible. Any litigation arising from these events is therefore likely to be influenced by the Chinese government, and Chinese lawyers Shanghai Kai-Rong expect that the relevant court judgments will be sanctioned by high ranking party officials before release.
Chinese lawyers further believe that the litigation in China will be handled in a uniform manner and Chinese courts may stay proceedings whilst the official investigation report is finalised. Thereafter, it is expected that the local court in Tianjin may run a ‘test case’ to establish a precedent, with subsequent liability and recovery and indemnity claims likely to follow that judgment.
The effects of the events at Tianjin, and the liability, recovery and indemnity actions arising out of the same, will likely be felt for some time to come. Although the timescale for the conclusion of the investigation is still to be finalised, and the extent of the litigation that will follow is unclear, we continue to liaise with Chinese lawyers and we will provide updates as and when they are received. In the meantime, if you have any queries or have been affected by the events at Tianjin, please do not hesitate to contact us and our dedicated team will be on hand to assist you.
Finally, we must thank Chinese lawyers Shanghai Kai-Rong Law Firm (www.skrlf.com), for their assistance to date and for their first-hand knowledge of the unfolding events in Tianjin.