A hidden cost for American crews

A hidden cost for American crews

Buried in the costs of operating vessels employing U.S. citizen crews are protection-and-indemnity insurance premiums. These premiums, coupled with injury and illness claims and our litigious environment, are probably the main factor in ship managers' decisions not to employ U.S. citizen crews on foreign-flag ships.

The maritime environment has become more litigious during the last 30 to 40 years. The adjudication of seamen's injury and illness claims involves four entities - the seaman, owner-manager, insurance carrier and lawyer. When the seafarer is injured or contracts an illness, he files a re-port with the vessel, thus putting the owner-manager on notice. The seafarer is sent to a doctor, clinic or hospital to be examined. If he is determined fit for duty, he returns to his vessel. If not, he is given medical treatment.

The owner-manager, to protect himself under his P&I policies, notifies his insurance carrier of a possible claim. Although it is denied by the legal profession, the seafarer often is approached by a lawyer who after reviewing the medical documentation advises whether to try to settle the claim directly with the owner-manager, reserving the right to sue if a settlement can't be reached.

At this point, the owner-manager's cost exposure is his insurance deductible. If the proposed settlement exceeds the deductible, the owner-manager must seek his insurance carrier's approval to settle the claim with the insurance carrier paying the excess. If the insurance carrier declines to settle, the lawyer representing the seafarer files suit. The court then settles the claim, generally in the seafarer's favor.

Aside from the settlement costs, the system appears to be straightforward. However, that is not the case.

The seafarer has three years in which to file an injury or illness claim. That means the owner-manager and insurance carrier must keep their files open for that period - an unnecessary accounting burden.

When the owner-manager at-tempts to settle the claim with the seafarer, the negotiations usually are conducted with and through the seafarer's lawyer. This creates a bargaining situation, since the lawyer usually is working on a contingency basis. At this point, the seaman has probably been made whole as to wages, benefits and medical expenses. Legal expenses also are minimal at this point.

The seaman states the facts and circumstances of the claim, plus the damages he is seeking. The damages usually are set very high, for two reasons. First, the seaman and his lawyer hope the owner-manager and insurer will negotiate an out-of-court settlement. And if that fails, the setting of artificially high damages sets a high benchmark for a court or arbitrator.

At this point, the owner-manager's expenses against the claim are his P&I deductible. The insurance carrier pays to defend against the claim and covers any award, expenses, fees and sundry costs that the court or arbitrator hands down. The seafarer has minuscule expenses, except for loss of earnings. The lawyer recovers his expenses in the settlement. The claim process can take five years or more to settle.

The foreign owner-manager, when approached to employ U.S. crews, invariably cites the cost of P&I insurance to cover seamen's illness and injury claims, as well as the time involved and the astronomical settlements by U.S. courts or arbitrators.

There is no question that U.S. seafarers who are injured or become ill while employed on a U.S.-flag or foreign-flag vessel should be entitled to be made whole. If they can return to industry employment, they should not receive pain-and-suffering awards. If they can't work as a seafarer, they should receive a disability pension.

Current labor contracts provide for the owner-manager to pay into a medical fund or trust for seafarers employed on a ship. Such funds generally cover the seafarer and his family for illness, medical problems, eyeglasses and dental work when the seafarer is not employed on a contracted vessel. The medical trust payments should be adjusted to cover the seafarer only during recovery from an injury or illness.

To provide increased employment of seafarers, it would be advantageous for the major maritime unions to set up a joint fund to reduce P&I costs.

Properly administered, an arms-length P&I fund with guidelines covering seafarers' injuries and illnesses could benefit the U.S. seafarer, his union, and U.S. and foreign owner-managers. If such action is not taken, employment opportunities for U.S. seafarers on foreign-flag ships will be few and far between.