Yu-Lai Jin October 13 2021 Shanghai Maritime Court illustrates subrogation claims raised by cruise delay insurer KaiRong Law Firm | Shipping & Transport - China Yu-Lai Jin Shipping & Transport IntroductionFactsDecisionCommentIntroductionTo minimise losses arising from delays and cancellations, many cruise companies purchase specific insurance products from insurers, which can lead to legal issues, such as whether the insurer can pursue its subrogation rights against a third party after it indemnifies the passengers.This article discusses a typical case, heard by the Shanghai Maritime Court in 2019, concerning a subrogation claim raised by an insurer that underwrote the cruise delay and comprehensive cancellation policy.FactsOn 10 May 2017, 37 containers carried by a ship fell into the Wusongkou warning area off the coast of Wusong port, which constituted a general-level water traffic accident (the accident). The Wusong Maritime Safety Administration (MSA) and the Wusong Vessel Transportation Services (VTS) issued navigation warnings and enforced temporary traffic controls to varying degrees. Navigation was affected for 67 hours, resulting in the delay of five international cruises involved in this case.According to the investigation report issued by the Wusong MSA, the ship had to take full responsibility for the accident. The ship was owned by A, registered under the name of B, and time-chartered to C via D at the time of the accident.The insurer had issued personal accident travel insurance policies for the five subject cruises, with the cruise companies as the policyholders and the passengers on board the cruises as the insured. It was a personal accident travel insurance policy, with additional personal travel inconvenience cover, comprising accidental personal injury and travel delays. For travel delays, the policies stated a fixed amount of indemnity for each passenger in particular circumstances, such as necessary expenses for transport, accommodation and food that would be incurred during a stay on shore due to the delay of the cruises. These would be reimbursed based on actual expenses incurred, subject to the limited indemnity.After the accident, the insurer indemnified the passengers on board the cruises for travel delays based on the policies. The insurer then raised a subrogation claim on the ground of tort against A, B, C and D, which were responsible for the accident and thus allegedly responsible for the delay of the cruises.DecisionThe Shanghai Maritime Court addressed the following issues.Was the insurer is entitled to bring a subrogation claim?Specifically, it had to be determined whether the insurance was characterised as personal or property insurance, since only property insurers have subrogation rights.The Court affirmed the insurer's subrogation rights. Although the policies were named as "personal accident travel insurance policies" and the special agreement attached as personal travel inconvenience insurance cover was connected to the passengers personally, based on their coverage and contents, it was more proper to determine them as property insurance policies. Therefore, since the insurer had indemnified the insured, the insurer acquired subrogation rights.Was there causation between the accident and damages that passengers suffered due to the delay of the cruises? Without such causation, the defendants would not be liable for the damages due to the delay of the cruises.The Court answered the question in the negative. It held that the accident had not directly or necessarily led to the delay of the cruises as a matter of law. Instead, the temporary traffic control enforced by the Wusong MSA had directly led to the delay of the cruises. Therefore, there was no direct causation between the accident and the losses that the passengers suffered due to the delay of the cruises.Were the pure economy losses alleged by the insurer included in tort law?The Court also answered this question in the negative, based on the principle that actual damages can be recovered under the law of tort, while pure economic losses cannot, unless otherwise provided for by law.In the case at hand, what the insurer had indemnified the passengers against was not actual damages suffered by the passengers due to the delay of the cruises. Instead, the insurer had indemnified the passengers based on the fixed amount stated in the policies, regardless of actual damages. Also, although the policies specified that necessary expenses for transport, accommodation and food incurred during a stay on shore due to the delay of the cruises would be reimbursed based on actual expenses incurred, such reimbursement would be subject to an upper limit. The insurer had indemnified the insured based on that upper amount, rather than actual damages.In conclusion, the Court held that even though the insurer had subrogation rights, it could not recover from the defendants because there was no legal causation between the damages claimed by the insurer and the accident for which the defendants were responsible. Also, the damages claimed by the insurer were pure economic losses.CommentThe Shanghai Maritime Court clarified that cruise travel delay insurance fell within the category of property insurance, and thus the insurer that underwrote the cancellation and travel delay insurance could obtain subrogation rights after it had indemnified the insured, according to law. However, whether the subrogation claim will be supported will depend on many other factors, such as:the causation between the damage and infringement;the nature of the losses;the amount of such losses; andimportantly, whether such losses could be supported by tort law if the claim is brought on the basis of tort.For further information on this topic please contact Jin Yu-Lai at KaiRong Law Firm by telephone (+86 21 5396 1065) or email ([email protected]). The KaiRong Law Firm website can be accessed at www.skrlf.com.