London brokers take a dim view

There is reason to be suspicious whenever London marine professionals express their opinion of markets and vendors outside the Square Mile, but I was struck by Tysers' very personal opinion of The American Club's 2009 Annual Report.

CEO Joe Hughes would make a very successful politician – an entertaining and educated speaker able to talk forever without actually answering any of the questions. Except for the entertaining bit, the Annual Report mirrors Joe’s personal

qualities. In the Report’s “highlights”, we are advised there was a small decline in tonnage but nowhere is the current tonnage figure mentioned (it is down to just over 13m GT, making them the smallest Club in the Group); we are also told that Standard and Poors has reaffirmed the Club’s financial strength – “stable outlook maintained” but no mention is made that the rating is only BB-. Elsewhere in the Report, we are told the Club’s “underwriting results continue to be at the

leading edge of market performance” Very Blairite and the failure to mention this is after unbudgeted calls in eight of the last nine years can only be an oversight. Finally, there is an intriguing note on the last page of the Accounts informing that on 17th December 2008 (the Club works to a calendar year end) the Club borrowed $10 million from Deutsche Bank on a line of credit. Perhaps the members would be interested to know the need for this line?

Producer Compensation Transparency

The Producer Compensation Transparency Regulation being discussed by the NY Insurance Department would require insurance agents and brokers in New York to notify buyers of their right to request information on the compensation the producers receive from insurers in connection with insurance placements.

Business Insurance's sources say it is likely to go into effect soon.

Website updates

I recently added links to several brokers' P&I Reports (Aon, A.J. Gallagher, and Tysers), updated the data in the Pool Claims table, and updated my list of reported cases.

Aon says Club behavior is "inexcusable"

I don't know Stephen Hawke, head of Aon's marine liability team in London; I've been away from the market too long. He's probably a decent fellow, but no broker has the right to criticize Club underwriters for running underwriting deficits.
In Aon's P&I Mid-Term Review, the Clubs are exhorted to seek only single-digit increases from shipowners at the next renewal and upbraded for continuing to run underwriting deficits when they know they can no longer rely on investment income. This pious nonsense was evidently printed over Mr. Hawke's signature.
The brokers are not only not the solution. They are a large part of the problem. Clubs know what the losses are likely to be. They have actuaries, and loads of data. They would not run underwriting deficits but for the pressure the brokers bring to bear on Clubs who dare to tell the brokers' precious risk managers that their loss record demands a greater than usual increase.
The rest of the problem is shipowners who think they can game the system. They're only cheating themselves. Mutuals don't make losses. Eventually, the members will have to make up the deficits. All they gain by not paying proper premiums up front is weaker Clubs.

Elysian is back

Roger Ingles emailed me today to say:

"I notice on your site that people have wondered where Elysian had got to – the answer is that we went walkabout for a while and have now returned with a totally new website, which is now just starting to fill up. Here one can read current news in the market and also run queries on financial data for all the clubs over the last 7 years. The global statistics will begin to appear over the next few months as the reporting cycle concludes and we move towards general increases. Same web address: www.elysian-insurance.com and the same slightly British accent !"

Welcome back. Elysian was one of the best sources of P&I news on the Web, if not the best, and the cheeky tone was a refreshing change from all of the piety in Club Circulars and Annual Reports. I hope it comes back, too.

P&I Clubs are likely to increase call levels

A report from A.M. Best Co. Inc. states the obvious after concluding that P&I clubs struggling with soaring claims are likely to increase call levels as they change their underwriting approaches.
Members of the International Group of P&I Clubs have collectively failed to make a technical profit in any financial year since 1999 despite large increases in call levels. Many Clubs have adopted more forward-looking approaches to pricing and those changes are likely to result in further increases in calls. The clubs are expected to rely less on investment income to produce surplus as equity markets have become volatile. High-value claims have had a big impact on the clubs’ underwriting results but it is unclear whether recent large claims mark the beginning of a long-term trend.
The report is free to BestWeek subscribers at http://www.bestweek.com/. Nonsubscribers can download it for $55.

Is there a similar maritime rule?

The Appellate Division, Second Department last week declined to recognize a claim based on the negligent issuance of an insurance policy. Katchalova v. Perchikov, 2007 NY Slip Op 06640.

In their words:

The wrongful death and pain and suffering causes of action, premised upon
the alleged negligent issuance of life insurance policies, fail to state a
cause of action. New York does not presently recognize such a theory of
recovery based on the negligent issuance of an insurance policy (see Katchalova v Borger, 7 Misc 3d 966). Indeed, the circumstances of this case [Perchikov allegedly murdered the plaintiff's decedent in order to obtain the proceeds of the life insurance policies that she took out naming him as the beneficiary -ed.] do not even fall under any of the scenarios pursuant to which other jurisdictions have recognized such a theory of recovery (see Katchalova v Borger, supra; Bajwa v Metropolitan Life Ins. Co., 208 Ill 2d 414; Bacon v Federal Kemper Life Assur. Co., 400 Mass 850; Life Ins. Co. of Georgia v Lopez, 443 So 2d 947, 948 [Fla. 1983]; Burton v John Hancock
Mut. Life Ins. Co., 164 Ga App 592 [1982]; Ramey v Carolina Life Ins. Co., 135
SE 2d 362 [S.C. 1964]; Liberty Natl Life Ins. Co. v Weldon, 100 So 2d 696 [Ala.
1957]). Thus, the plaintiff seeks to recover pursuant to a theory of negligent issuance of an insurance policy under circumstances in which no other court has recognized such a claim. We decline to recognize such a claim in this case.

No duty to disclose contingent commissions?

The Appellate Division, First Department (the intermediate appellate state court in Manhattan) has just dismissed several (but not all) of the causes of action in a case against brokers DeWitt Stern, holding that contingent commission agreements between brokers and insurers are not illegal, and, in the absence of a special relationship between the parties, the defendant brokers had no duty to disclose the existence of the contingent commission agreement. The broker/client relationship, even though it had existed for some time, was not sufficient to impose a fiduciary duty on the brokers. (Plaintiff's allegations of negligence and breach of contract survived the motion to dismiss.)

See Hersch v. DeWitt Stern Group, 2007 NY Slip Op 06567 (1st Dept., Sept. 6, 2007).

I have no idea whether this decision will have any effect on whatever proceedings Marsh, Aon, and Willis are still involved in as a result of the Spitzer investigations. Be interesting to watch.

The TUTOVA

This case was an attempt by Steamship Mutual to resist payment under a Club letter. The full text of the decision is here. I may have more about it later.

Russia

Gwen and I just got back from Russia.

We started in St. Petersburg where we stayed in a small hotel just across the little river from the Hermitage. Gwen had some meetings with publishing people, and I looked at paintings (they gave me a pass so I could go in and out of the staff entrances). When Gwen's meetings were over, we went back and looked at more paintings. The Hermitage has treasures, but it also has crowds, and the floor plan is difficult to follow.

(St. Petersburg is badly in need of public investment in its infrastructure; the place seems prosperous enough, but parts of it are crumbling. Unlike Moscow, where the government has turned the center of the city into a showplace.)

In the evenings, we went to concerts with one of the other museum couples travelling with us. St Petersburg audiences are passionate about classical music. They bring flowers for their favorite performers, they start clapping in unison to bring people out for encores, and they show more enthusiasm for music than I've ever seen in NY.

Because of the White Nights, St. Petersburg had several classical music festivals going on. We had a lot of concerts to choose from. The best was a performance of Mahler's 2d symphony, where we sat directly above and behind the orchestra, practically feeling every crash and bang the percussionists let loose.

Also because of the White Nights, we couldn't go to bed. It never gets dark. The sun is still high in the sky at 10:30 pm. By midnight, the sky is dusky, but that's about as dark as it ever gets. Sunlight is pouring in the windows again by 4:00 am, and possibly earlier. (There was one night I swore I didn't get to sleep.)

The Russians had a national holiday on Tuesday, June 12, and made a long weekend of it, so the Hermitage staff arranged for us to see Peter the Great's summer palace on the Gulf of Finland at Peterhof one day, and Catherine the Great's and Paul's palaces the next.

Peter's little summer retreat is the most tasteful royal palace I have ever seen. It is right by the sea, and it's done in a Dutch style with restraint not often seen in Russia.

Catherine's palace, by contrast, is pure excess. It is far larger than any palace in England. (I can't remember what Versailles was like, or even if I've ever seen it.) There is even a room completely decorated with amber.

After the palaces we went to Novgorod, a small city about 3 hours away, to see churches and icons. Novgorod was founded by Vikings who had a trade route to Byzantium, and it has a cathedral that was built in the 12th century. We heard part of a service with beautiful, haunting music. A lot of what makes the Russian art fascinating is the blend of Byzantine and Northern European influences, although you have to look hard to see the Viking influence, because the church did its best to adhere to the Byzantine forms.

Have you ever heard of the Old Testament Trinity? It's a popular theme in Russian art. (We think it refers to the angels who announced to Abraham and Sarah that they would have a son, an "intervention" said to prefigure the birth of Christ in the Orthodox tradition.)

After Novgorod, we looked at St. Petersburg, tried to follow Raskolnikov through Crime and Punishment, and packed up for our 5-hour train journey to Moscow.

The first thing we did in Moscow, however, was to drive 3 hours to see the towns of Vladimir and Suzdal, where there are more important cathedrals and churches. Vladimir, like Novgorod, has a 12th century cathedral, with little gargoyles that would not look out of place in Paris or Oxford. Suzdal, a small town now, has almost more churches than people. All of these churches have some icons and wall paintings,
although the most important icons have been taken to the museums in Moscow.

Once we were back in Moscow, we went to see the Pushkin Museum, which has the best collection of Gauguin, Van Gogh and Matisse paintings I have ever seen. These rooms are beautifully lit, simply laid out, and just have one masterpiece after another. We also saw the Tretyakov Museum with its religious art, and the Kremlin Museum with its
treasury of all the gold cases made for the icons. (The icons are in many places; the gold is all in the Kremlin.) We also got to the Bolshoi to see some ballet.

We spent our last day in Moscow looking at churches in the Kremlin. (4 cathedrals and 2 churches - inside the Kremlin itself. We didn't see all of them. One was under renovation.)

We found enough people who spoke English to get around. The hotel staff all speak English. Museum staff spoke either English or French. We all learned to read some of the Cyrillic signs by the time we left. (PECTOPAH means restaurant.) Most of the restaurant menus and museum signs used some English words in addition to the Russian.

Russia is not an easy place to visit, however. We had a lot of help from official organizers, who arranged for us to have cars and guides. Sometimes we had to wait in offices to talk to people, but never for long, and we never had to wait in any long lines to see anything. We would not have seen nearly as much as we did without all the help we received.

Russia is not exactly Western Europe, either. It has many peculiarities. Restaurants and street vendors often do not have all of the items they advertise. Prostitution is legal. Most restaurants have bouncers to see that drunk patrons do not cause disturbances. Restaurant food is good, but service is very slow by our standards.
There are different prices for Russians and for tourists. There are metal detectors and guards in all the museums, but the guards are bored, and enforcement is very erratic.

There is very little evidence of the Communist Party. There are some statues of Lenin, and carved hammer-and-sickle emblems on some buildings, and some of the older signs in the Kremlin museum were written by Marxists, but nobody talks about that period. (Many of the people we met were fairly young.) Now the official emphasis is Russian nationalism and the official emblem is the Romanov double-headed eagle.

Hard to go back to work after all that.

Affirmed by the Court of Appeals

Pavlou v. City of New York, 2007 NY Slip Op 03796 (May 3, 2007)

This was a Labor Law Section 241(6) case in which the plaintiff alleged that a violation of an Industrial Code provision prohibiting the overloading of cranes was a proximate cause of a crane collapse. The testimony at trial was that the crane had a pre-existing crack which made it unsafe to operate with any load. The jury found that the crane was overloaded, and that the overloading was negligent, but that the overloading was not a proximate cause of the accident.

After the jurors learned of the effect of their verdict, and expressed considerable remorse, the trial court set aside the verdict on the issue of proximate cause and ordered a new trial on that sole issue, leaving intact the ostensible damages award of more than $12 million. The Appellate Division (3-2) reversed, and reinstated the verdict.

The Court of Appeals initially dismissed plaintiff's appeal as of right, holding that the two-justice dissent in the Appellate Division was not on a question of law. Undeterred, the plaintiffs applied for leave to appeal, which was granted by the Appellate Division.

Unfortunately for the plaintiffs, the Court of Appeals, following review under Rule 500.11, held that the jury's finding was supported by the evidence, and that the issues of negligence and proximate cause were not so inextricably intertwined as to make the verdict inconsistent. The Court of Appeals therefore affirmed the Appellate Division order reinstating the jury verdict, commenting that plaintiff's other arguments were beyond its power to review.

Equasis is now working again

It was out of order for a long time, but I was probably out of touch for longer.

The new Blogger is pretty cool

I might get used to posting more often.

Which Club had this entry?

According to the U.S. Attorney's Office in San Francisco, on March 6, 2007, Twighlight Marine, Ltd., pleaded guilty to grossly negligent operation of a vessel and was sentenced to pay a $50,000 criminal fine, $100,000 in restitution to be added to the restoration fund, and ordered to comply with an Environmental Compliance Plan.

[When did that become a crime, as opposed to a P&I claim?]

Twighlight Marine is a Maltese corporation and owner of the motor vessel Warrior (“M/V Warrior”), a 38,880-ton ocean-going bulk cargo ship, registered in Malta.

In pleading guilty, Twighlight Marine admitted that in September 2006, the M/V Warrior crossed the Atlantic Ocean, traveling toward North America. During this crossing, several sailors onboard the M/V Warrior identified several small cracks and rust holes in the starboard side deck of the M/V Warrior. The crew immediately welded these cracks and holes. Soon after, several sailors identified two large cracks, each approximately three feet in length, on the port side deck of the vessel. Instead of directing that the cracks be welded, the vessel’s Master ordered these cracks to be covered with tape and painted over to blend in with the painting on the deck. Twighlight Marine admitted that it knew its vessel was in a hazardous condition during the Atlantic crossing in that these two cracks were not properly repaired.

[Maybe the crime is failing to repair the cracks after the Atlantic crossing.]

In November 2006, the M/V Warrior arrived in the San Francisco Bay. On November 22, 2006, the Coast Guard boarded the vessel to conduct an inspection. During this inspection, the Coast Guard discovered the two large cracks on the Port side of the deck which Twighlight Marine failed to disclose.

[Or is it the failure to disclose the cracks? It does make you wonder when they planned to repair the vessel.]

Pool Claims

I updated the website today with Pool claims data from Tysers 2006/07 Annual P&I Report. I had wanted to see whether the projections I made in 2004 were at all accurate, and I'm not crushed by the results. I overestimated the losses in 2001, but in retrospect, that looks like an anomalously low year, and my projection for 2002 seems to be on track.
I'm a little surprised, however, that there hasn't been more development since 2002. The old stairstepping pattern isn't there anymore. That can either mean that Clubs are putting up higher numbers at the outset, or that they are sitting on reserve increases that they are going to delay advising for as long as possible.
Thanks to Martin Hubbard for the new data, and to Bow Wave for telling me about Tysers' excellent report.

The British accent

Britons seem to have the advantage of accent: their exotic pronunciation can make even dubious observation sound like unimpeachable truth. They are also experts at the art of speaking coherently and with authority on topics they know little or nothing about. “Every Englishman can talk for 15 minutes on any subject without a note,” Norman Mailer has been quoted as saying.

Sarah Lyall, New York Times, December 11, 2006

The American Club's new website

The American Club has completely revamped its website, and not before time, as they are probably saying across the pond. And even though the site is new, the home page text describes the Club as it stood in mid-2005. Wassup with that, dude?

Okay, the site looks better than it did; it uses CSS, and it has drop-down menus. But it still doesn't validate as XHTML. (Tip: use the entity for the ampersand in "P&I".)

It's good you spruced up the site, but get an editor, guys.

Criminalization of marine liabilities

A hot topic these days. Joe Hughes touched on it when he spoke to the MLA Marine Insurance Committee. The Average Adjusters have made it the subject of their Annual Seminar this coming October. I wrote a bit about it here a while ago. More to come.

Average Adjusters Spring Luncheon

The Association of Average Adjusters of the United States held its annual spring luncheon at Moran's last Thursday, and the brokers didn't show. Attendance was way down, and folks are now worried about the likely turnout for the Fall Dinner.

MLA Spring Dinner

The MLA held its Annual Spring Dinner at Pier Sixty on the Hudson River last Friday night. The food was good, and the service was slow, but I had a great time. The weather, the deck above the river, and the company combined to create a lot of good feeling among the members of a professional association that has seen much better times.
I heard that the shipping industry itself is prospering right now, with the high demand for bulk commodities, but the lawyers who used to serve the industry in this country are looking elsewhere for work.