Personal Injury Claims and Loss of Life Compensation within P&I Insurance

Once every five years BIMCO, together with the International Chamber of Shipping, conducts the most comprehensive assessment of global supply of and demand for seafarers. Last year BIMCO and ICS published the Manpower Report illustrating the current worldwide situation and trends on the market for 2010-2015. According to the Manpower Report, Ukraine occupied 6th place among states of seamen suppliers and delivered to the world labor market 39,000 officers and 30,000 ratings, which is 4.18% of the total. These statistics cannot help but be reflected on the quantity of insurance events occurred with Ukrainian seamen working under foreign flags.

P&I Insurance and MLC Convention 2006

All risks connected with personal injury, permanent or temporary disability or loss of life by the seaman on board are traditionally covered by the protection and indemnity insurance more commonly known as “P&I”. According to Directive No. 2009/20/EC on the Insurance of Shipowners for Maritime Claims, any vessel calling EU port or entering the waters of EU shall have valid P&I coverage. Foreign vessels, which do not comply with the Directive, may be refused on entering into any EU port. Besides, the MLC Convention requires from shipowners the arranging of due insurance of seafarers in case of injury, illness or death during their employment. Although Ukraine has not ratified the MLC Convention yet, these provisions have high importance both for Ukrainian seamen and Ukrainian shipowners operating the vessels through offshore companies registered in the states, which have ratified the MLC Convention.

As ANK experience shows, typically the conflicts between seafarers and the shipowners arise in the process of payment of compensation caused by permanent or temporary disability received due to injury or accident on board the vessel. A separate group is formed by the claims related to payment of compensations for the death of a seafarer during the employment period or due to being missing at sea. What should shipowners and P&I clubs be aware of during the resolution of these conflicts?

Foreign Law and Ukrainian Courts

Many employment contracts have reference to foreign law. Some shipowners and crewing managers include into the contract of employment an  arbitration clause, upon which any disputes that arise out of the employment contract shall be referred to a foreign court or arbitration. The shipowners and crewing managers mistakenly believe that reference to  foreign law and foreign court (arbitration) will secure from possible court proceedings in a Ukrainian court, which still do not have enough confidence and authority before foreign employers and insurers.

Along with that, according to Article 8 of the Labor Code of Ukraine, labour relations of Ukrainian citizens employed outside Ukraine shall be regulated by Law of Ukraine No. 2709-IV On International Private Law adopted on 23 June 2005 (the Law). According to the Article 52 of the Law, labor relations shall be governed by the law of the state where the work is conducted unless otherwise is prescribed by the law or by an international treaty to which Ukraine is a party. In international maritime law the legislation of the flag of state shall have exclusive jurisdiction on board of the vessel flying this flag. Therefore, by default the relations between the seafarer and the shipowner shall be regulated by the flag of the state or by the legislation of the state indicated in the contract of employment. Along with that, Article 76 of the Law provides for the categories of cases, which could be examined by Ukrainian courts. This category includes cases on payment of damages when the claimant is registered in Ukraine on a permanent basis. In addition to aforesaid, part 3 of Article 110 of the Civil Procedural Code clearly prescribes the possibility of submission of a court claim to the local court under the place of claimant’s residence for the cases related to compensation of damages caused by the injury, disability or death of an individual. The aforesaid legislative regulations enable Ukrainian seamen and their successors to easily submit court claims against shipowners, P&I clubs, which are registered outside Ukraine and the courts accept such claims for examination on a grand scale. As the practice of recent years shows, during examination of these cases Ukrainian court often ignore the references to foreign law and the International Private Law Act, using the laws of Ukraine for labour relationships of a Ukrainian citizen with a foreign employer.

When Conflicts Arise

Nobody in Ukraine officially records statistics on the death of Ukrainian seamen working on vessels flying foreign flags. Nevertheless, as our practice shows, about 60%-70% of disputes related to the payment of loss of life compensation to the successors of the seamen are resolved in out-of-court procedure. We can indicate the following reasons of conflict situations in these cases: (i) non-appointment of “next of kin” by the seafarer; (ii) the conflict between the lawful successors of the seaman; (iii) if the death was caused by  suicide, use of alcohol, drugs of through other wrongful acts of the deceased seaman.

Who is “next of kin”?

Ukrainian legislation does not have the definition of “next of kin”, which is widely used in  contracts of employment with seafarers. In maritime insurance “next of kin” traditionally means the person appointed by the seafarer for receiving the compensation in the event of death in the course of employment. Although the word for word translation of “next of kin” could be interpreted as the nearest relative, in reality the appointed person could not be the relative of the seafarer at all. We have seen employment contracts where the line “next of kin” contained a few persons (beneficiaries) with an indication of the percentage of compensation to be paid to each beneficiary in case of the seaman’s death. If, however, the line “next of kin” has not been properly filled in by the seaman or there is no such line, the compensation for the loss of life shall be paid to the successors empowered by law. In such situations the order of succession should be determined by the Civil Code of Ukraine. Some shipowners and P&I clubs usually ask relatives to come into inheritance and receive the certificate of inheritance rights and only after that pay the insurance compensation.

Missing at Sea: Evidence Problems

Some employment contracts and collective agreements directly prescribe the insurance of the seaman in the event of a seafarer going missing at sea. The main question, where the discussion between the seafarer’s lawyers and the owner’s lawyers starts, is what legal document shall prove the fact of being missing at sea for the purpose of recognizing  maritime perils as an insurance event? As our experience shows, the majority of insurers insist on recognizing the seaman as deceased through the relevant court procedure and receiving a court judgment with further issuing the death certificate by the authorities. This procedure shall take not less than 6 months because Ukrainian legislation allows the starting of this court procedure not earlier than the passing of 6 months after the seaman went missing at sea. Special interest and attention of maritime lawyers should be given to  cases where there are reasonable grounds to believe that a seaman has committed suicide by jumping into the sea. The shipowner usually refers to statements from crew members, which describes possible suicide. From another side, the successors of the missing  seafarer, willing to receive compensation at any cost, do not recognize the suicide and threaten the shipowner and its P&I club with possible criminal proceedings against the crew members and court litigation. It is worth noting that if a suicide note or other valuable written evidence proving suicide have not been found and the body of the deceased seaman not discovered, it is quite difficult to prove the fact of suicide.

Receipt & Release Statement: Legal Nature

Maritime lawyers are well aware of the practice of leading P&I clubs on payment of compensation to seafarers and their successors. The clubs recommend the execution of receipt & release statements proving not only the mere fact of receipt of compensation and amount thereof, but also fixing the seaman’s waiver from all future claims to shipowner, crewmembers, P&I club and other persons, which could have a property interest regarding the vessel. Large P&I clubs have approved “recommended forms” of receipt & release statements. Ukrainian legislation does not regulate the content or the form of these statements. Our experience shows that 10-15 years ago the majority of these statements were executed in written form and were certified by the signatures of two witnesses. Nowadays, more than 90% of receipt & release statements are subject of notarization. This is connected with continuous attempts by seafarers to appeal against statements executed in written form and request payment of compensation again. In these court claims the seafarers usually state that they have signed the R&R Statement under pressure from shipowners or crewing agency staff and that they did it because of desperation (otherwise the shipowners would not pay them). At the same time, on many occasions we have faced refusals of notarization of R&R Statements by Ukrainian notaries because they do believe that the content of the document contradicts the law. These notaries argue that such a receipt and release statement is a clear waiver (refusal) of the seaman from constitutional right of recourse to the court, which should be null and void. Another group of notaries consider the R&R Statement as a written statement (application) by a citizen, which is addressed to the unlimited scope of persons. In addition to the aforesaid functions, the R&R Statement has another important role. It clearly prescribes the undertaking of the successor of the seafarer to indemnify the shipowner and the insurer from claims, which could arise from third parties due to an insurance event. That is why we strongly recommend that special attention is paid to the drafting of the receipt and release statements and to its notarization in due course.