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IX. Salvage & Insurance Companies

Yet another area of frequent misunderstanding is the liability exposure of the hull underwriters in salvage situations. In cases of disabled vessels and groundings where the salvors performed so well that the vessel suffered no damage whatsoever, it is frequently argued that there can be no loss without damage and, thus, no liability on the part of the insurance company. Indeed, one company has argued that its hull policy provided no coverage for salvage claims whatsoever and it has no duty to provide a defense for its insured against an action brought by a salvor.

Such attitudes reflect a basic misunderstanding of the nature of salvage. Aetna was quickly disabused of its ill-conceived position by the Connecticut Superior Court which invited Aetna's attention to the well settled admiralty law that salvage claims are a covered loss. Indeed, the court correctly pointed out that the true beneficiary of the salvor's services was Aetna not the vessel owner. Thus, Aetna was not only required to provide a defense but to pay an award to the salvor.

Indeed, hull insurers are not only required to pay salvage claims and provide a defense to the insured but may be sued directly themselves for the amount of the salvage award. It has long been established that any party receiving a direct pecuniary benefit as a result of the salvor's services is liable to pay a salvage award. This includes the hull insurers and such actions are not barred by statutory prohibitions of direct actions against insurers under insurance policies.

The Cresci decision has proven very useful to salvors. With an insurance company as a co-defendant, it is usually not necessary to take the vessel into the custody of the U.S. Marshal. This expedites the case and avoids the posting of bonds as well as significantly reducing the costs of litigation and paperwork involved. It also obviates the necessity of conducting a sale of the vessel to collect the judgment and eliminates the risk that the proceeds of the sale will not cover the judgment. Indeed, the concept of a direct salvage claim against the hull underwriters provides a sort of self-executing letter of undertaking to the salvor. The better practice, however, is still to obtain a waiver of seizure from the vessel owner to preserve the lien in the event that the insurer becomes insolvent.

The concept also can significantly increase the amount of the salvage award. A salvage award against a vessel owner is usually based on the post-salvage, pre-repair market value of the vessel as the measure of the benefit bestowed by the salvage services on the owner. This is logical since market value is what the vessel is worth to the owner. Such a measure can be difficult, however. There will be arguments over depreciation, whether the market is high or low, etc. Market value can be an illusive concept.

With regard to the hull insurer, however, the benefit is much more easily calculated. If the vessel was at risk of becoming an actual or constructive total loss, the benefit bestowed on the insurer is the insured value of the vessel under the policy (since that is what the insurer would have had to pay) less the actual cost of repairs. If the vessel was not at risk of loss, the measure of benefit is what the cost of repairs would have been but for the actions of the salvors less the actual cost of repairs. Many times, the insured value far exceeds the market value. The cost of yacht repairs is also usually a high figure.

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