Commodities firms face third-party liability gap: panel

Commodities brokers and other supply chain-reliant companies are failing to purchase sufficient liability cover and are being left exposed by contracts with third parties, according to an industry panel.

Speaking Monday on a panel at the Houston Marine and Energy insurance conference, NFP’s environmental practice senior vice president Chris Alviggi said firms often found their clauses in their insurance policies that resulted in full or partial limitation of payouts if an environmental spill was caused by a contractor.

 “What I see is that often clients don’t realise these limits apply until after signing a contract,” the executive said.

Commodities brokers and the logistics firms often use contractors in order to ship goods but remain liable for at least a portion of payouts and fines stemming from environmental disasters.

Speaking on the panel, Munich Re specialty group senior vice president Steven Weiss said under-insurance across the supply chain often led to the watering down of payments when insureds went to submit claims.

In many cases sub-contractors had failed to purchase sufficient cover, the underwriter added.

“You sub-contract with XYZ logistics company, and they sub-contract with two other people.”

“You can almost guarantee there will be a watering down of the level of insurance down the line,” he said.

Alviggi also highlighted the uptick in punitive fines levied by governments seeking financial remediation in the wake of major disasters.

“Who’s going to pay to clear up the mess?” he said.

Earlier this year, the marine liability market was left reeling when a 225-metre vessel carrying bauxite ran aground off the coast of the US Marshall Islands.

The bulk carrier was insured by the Korea P&I Club, which is not a member of the International Group, and market sources speaking to this publication said it was likely to cost at least $20mn.

In a statement following the collision the Australian government said it would “monitor the clean-up and hold responsible entities to account.”

Related articles