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Differentiate between third party liability and contractual liability. When may the ship seek to limit his liability? List the persons entitled to limit liability and claims entrusted.

An insurance policy is a contract. The insured is referred to as the first party to the contract. The insurer i.e. the insurance company is who issues the contract is the second party. A stranger to the contract who makes a claim against the insured is known as the third party.

Third-party liabilities:
  1. It is an obligation to compensate another person harmed or injured or suffered a loss due to negligence or mistake or wrongful act of first party.
  2. Third-party liabilities are those liabilities which are caused to any other persons or his property not included in any contract.
  3. The contract takes place between two parties hence any third person not a member of this contract is a third party or person.
  4. When the insured – first party causes a loss then the second party assumes the insured liability up to the policy limit.
  5. Examples of third party liabilities are collision, third party injury or death claim, oil pollution liability, cargo claim, crew claim, unrecoverable general average contribution etc.
  6. When the agreement is signed by the parties, they agree on certain conditions and goals written in the agreement. They also get certain liability towards each other for successful achievement of the goals. But by any reason a third party gets affected, then liability towards the third party is called third party liability. E.g. compensation required to pay the affected coast during oil pollution becomes third party liability.
  7. There is no such agreement between shipowner and coast, but coast gets affected due to pollution. So, shipowner takes P&I insurance cover with respect to third party liability during ship operation.
  8. For each defined peril there is a fixed premium. More cover means more premium required by the parties.
  9. There is no mandatory requirement for the party to take any type of policy except Liabilities for pollution damage. Rest is left to the shipowner and cargo owner or any other party involved in the maritime adventure to take cover for various liabilities and bear themselves.

Contractual liability:
  1. During any agreement, both parties agree for certain terms and conditions for achieving particular goals and interests. So some liabilities are set towards achieving goals. As the agreement is signed by them, the liabilities are called contractual liability.
  2. Contractual liabilities for a shipowner are those by which he winds himself under some contract with the second party.
  3. This form of agreement where one party takes on the liability of another by contract is commonly termed as “Holder harmless” or indemnity agreement. Contractual liability is the express liability namely charter party, bill of lading, cargo insurance, contractual salvage, charterer agreement, storage e.t.c.
  4. Here the liability is documented for a specific occasion and specific time. Contractual liability claim settlement takes place in a judiciary, arbitration, tribunal as in agreement.
  5. Shipowner takes the following types of contract:
a. With employee
b. With flag state administration for safe operation, to comply with national /international regulations/conventions.
c. Contract with cargo owner
d. Contract with salver or tug owner
e. Contract with class and his fees and survey
f. Repair contract etc.

The following are some typical contracts that a shipowner undertakes and Shipowner may limit his liability covering:-
i. Contract with employees: undertakes that he will provide the safe plant, equipment and safe environment and their due care, hence he would like to limit the liabilities with regards to
a) Their medical expenses
b) Compensations to be paid in case of injury or death
c) Breaches to any thing intentionally or unintentionally caused by his employees which could land him in trouble.
ii. Contract with flag State administration: He registers his vessel under flag state administration, hence he undertakes the responsibility for safe operation and compliances with relevant conventions rules and regulations. Hence he will like to limit his liabilities with regards to
a) Any breaches caused by the ship
b) Any fines imposed for non-compliance with regards to documents or violation of rules & regulations
c) Oil pollution caused in their territory
d) Other expenses involved in landing people and stoways.
e) Expenses occurred for rendering those states service to ship and its complements
iii. Contract with local agents and agency: He himself land up in this contract in order to meet local requirements at port of call. He takes their service, which a ship requires at port of call. He would like to limit his liabilities with regards to
a) Agency fees
b) Claims by agents
c) Claim arises when agent breaches the contract
d) Any dame injury caused to their personnel
iv. Contract with salver or tug hire: These services are required by a ship owner during a port of call to assist their ship and during distress when the ship looses its main propulsion plants. Hence he would like to limit his liabilities with regard to
a) The hire rate
b) Damage cause3d to the tug and their personnel
c) Salver‘s award
d) Any other claims made by salver in rendering his service
v. Contract with stevedores and workshops: In case the ship requires shore personnel services then ship owner land up in these service contracts and would like to limit his liabilities with regards to
a) Their hire rate
b) Injury medical expenses etc
c) Damage or loss to their equipments
d) Any other claims placed by them
vi. Contract with the cargo owner (shipper): He undertakes this ―contract of carriage that will carry the goods in a manner received to the agreed destination within the agreed time frame. During such contracts, he would like to limit his liabilities with regards to
a) Loss/ leakage/ damaged caused due the negligence of his employees
b) Losses caused to the cargo owner due to delay
c) Losses caused to the cargo owner due to delivering the cargo other than agreed destination
d) Any other claim made by cargo owner in this regard. i.e, damage/ loss/
delay to cargo during the duration when it was under the custody of ship
6. The shipowner makes a contract with others such as class, charterer, pilotage, repair contract etc. In all the cases he will limit his liabilities. Apart from these he has to take care of himself. i.e,
a) Damaged caused to his own ship
b) Total or constructive total loss of his vessel
c) Freight not paid.


  1. If a company hires a consultant or outside consultancy firm, a consultancy service agreement consultancy agreement is a legal document that is used. These consultants can be hired on a temporary basis as part of a particular program.


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