The London P&I Club warned that shipowners face a significant increase in exposure to claims and fines in jurisdictions suffering from high interest rates and protracted legal proceedings.
Brazil is an example of such a jurisdiction because the country’s prevailing interest rate is in the range of 12 percent and courts account for inflation, which can be as much as 6 percent, said the club. The mutual association of insurers underwrites shipping lines against protection and indemnity risks.
“In practice, this means that a club member’s exposure to a claim or fine can increase by almost 20 percent for each year that the matter is pending. Bearing in mind that it is not unusual for a claim to take five years from start to finish, this can result in a member’s ultimate exposure potentially doubling,” the club said in its StopLoss Bulletin.
The club warned that there are times when the effect may be even more severe. It cited one instance where a cargo claim, initially presented for an amount in the region of $1 million, ultimately resulted in an adverse judgment of just under $4 million, after protracted litigation.
“Careful consideration should be given to any opportunity to settle at a reasonable level at an early stage,” the club said.