Enacted in 2002, MTSA and its international counterpart, the International Ship and Port Facilities Security Code, require all ships now entering ports to comply with a list of regulations, including a major new requirement--a 96-hour notice of arrival to the U.S. Coast Guard.
The notice must list more than 40 other items, such as vessel data, voyage information?cargo reports, crew and passenger data and compliance. Plus, the rules require a myriad of other vulnerability assessments. Each port, vessel and facility must prepare a security plan.
Other difficult issues may arise as well, including losses stemming from problems associated with delays due to new security requirements and the Coast Guard's enhanced powers to stop, search and even seize vessels suspected of harboring a terrorist threat.
It is still unclear whether the "free of capture and seizure" clause (which would normally exclude cover for delays due to seizure by a foreign sovereign), will apply because the losses are due to delays associated with the new regulations enforced by security officers or the Coast Guard.
However, clearly the implications are complex and far-reaching, so risk managers need to put comprehensive plans and checks in place to be compliant and avoid litigation. They should:
- Create a security team. The first task for risk managers of any company associated with the maritime industry, directly or indirectly, should be to designate a quality control individual or security officer to be responsible for the security plan, to make sure the plan is developed and implemented.
- Avoid potential litigation with clear, documented language. Risk managers can avoid possible litigation problems by planning ahead with language in charters or bills of lading. To account for potential shipping delays, consider incorporating a standard clause similar to the principle of maritime law of "force majeure," where a delay is excused due to extraordinary circumstances.
- Purchase liability coverage to prepare for unexpected shutdowns. Risk managers should also prepare for the unexpected shutdown of a port facility for some time due to a terrorism threat. Already we've seen airports closed and evacuated due to terrorism scares, and it's difficult to calculate the losses associated with those additional costs and shutdowns. TRIA only requires that insurers offer terrorism cover for property losses, so it would be wise to investigate the cost of coverage to cover the delays should a security-related incident shut down a port.
- Consider contingent business interruption insurance. Risk managers should evaluate contingent business interruption coverage to deal with unanticipated delays--when every activity is stopped, from unloading the vessel to shipping the goods to their ultimate destination.
It is vital for risk managers to focus on these indirect implications of the new security regulations.When the supply chain is tampered with, the costs associated with delays could run into the billions.
CHRISTOPHER KENDE, a member of the law firm of Cozen O'Connor, practices in the areas of maritime, insurance and reinsurance law. He has represented the French marine insurance market for more than 20 years.
April 15, 2005
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