Does reduction in terrorism cover leaves port operators open to liability?

by Canadian Shipper

Inadequate, or even non-existent, insurance cover will leave port operators vulnerable to liability in the event of a terrorist attack, Dan Negron, vice president of TT Club (Americas) has warned in a speech to the California State Lands Commission Marine Facilities Division.

American officials believe terrorists are aiming not only to cause death and destruction within the US, but also to cripple the country economically by targeting its trade; a terrorist incident at a major port would produce devastating consequences to our economy. If such an event were to occur, government officials have indicated its response might be to shut down trade.

"In the wake of events in the US, there has been an increasing awareness of the vulnerability of the nation’s infrastructure to clandestine activities unrelated to traditional safety and security concerns," Negron said. "Today, port authorities and terminal operators must be mindful of the impact that these newly perceived risks, and the risks associated with the actions of their customers, contractors, cargo owners, and even unknown persons, will have on their obligation to maintain safe and secure premises. The risks associated with these exposures will impact on the insurance that these operators are required to maintain."

If an event, which could be attributed to a terrorist’s actions, were to take place at a port installation, two questions would arise: “Is there liability?” and “Is it covered?”

"An operator who provides services to the public is responsible for any act or omission which he sets in motion and which results in injury to another," Negron said. "As long as there is an obligation of due care running from the operator to others, and the operator fails in that obligation, he will be responsible for the resulting damages. This is the risk that a general liability policy is ordinarily designed to insure."

He added that courts around the country have ruled that an act carried out by someone unrelated to an operator does not break the operator’s responsibility if it is foreseeable that the act can come about as a result of his failure to
exercise due care.

"While it is still unresolved as to whether a port operator will be held liable for failing to safeguard against a terrorist act, or for negligence in responding to an emergency situation, until September 11, it was reasonable to assume that a terrorist act involving a port facility was, at best, remote. But in the wake of the World Trade Center bombings, and the subsequent covert activities that have been uncovered globally, this is a dangerous assumption to make," Negron warned.

"A potential liability for such an event does exist; this potential alone will be sufficient to trigger a liability policy’s insuring provisions – provided that coverage is afforded under the policy for this risk. In today’s insurance market, this may be easier said than done"

He said market analyst reports conclude that reinsurance capacity will diminish significantly in the foreseeable future and many weaker insurers are either restricting their coverages, or consolidating with others to maintain their capacity. Those insurers remaining in the market are imposing significant increases in their premiums.

"Liability insurers today can differ significantly as to the coverages they will provide. Because of these differences, care must be exercised to ensure that a port operator has adequate coverage for the risks associated with their operations. A policy written for the specific exposures facing ports and terminal operators, will protect against the direct losses arising from the ownership or use of the port facilities," Negron said.

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