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US salvage contract


towing and salvage

Reprinted with permission of BoatUS.com


TowBoatUS Tarpon Springs, FL


TowBoatUS Pensacola, FL
 

"The thin veneer we call civilization can disappear where a shipwreck is concerned."
Richard Loran, Shipwrecks of Great Britain and Ireland

Understanding the difference between towing and salvage can save boaters money and aggravation. Historically and legally, salvage is any voluntary and successful rescue of a boat., its cargo and/or its passengers from a peril at sea.

The distinction between towing and salvage is reflected in the different types of programs available to boaters. The far more expensive salvage claims are covered only by yacht insurance policies.

If the salvor wants to do the job but does not know what the cost will be but will make claim afterwards, the final amount will be decided one of three ways -- negotiation with your insurance company; binding arbitration or, rarely, through litigation in federal admiralty courts.

All boaters should review their marine insurance coverage with their agent. The best protection against a salvage bill is adequate insurance. Boaters should make sure the policy provides for salvage up to the full value of the boat, not a percentage of its value, and that there is no deductible for salvage costs.

The Difference Between Towing and Salvage

What To Know If You Think It's Just A Tow:

As millions of recreational boat owners get ready to launch their vessels this season, knowing the difference between towing and salvage could save them boatloads of money should they need help on the water.

Historically and legally, salvage is any voluntary and successful rescue of a boat, its cargo and/or its passengers from a peril at sea. Salvage often results in a "demand" for a percentage of the boat's post-casualty value - sometimes a considerable amount of money. Towing costs much less and is billed by the hour.

The distinction between towing and salvage is reflected in the different types of programs available to boaters.

Since the same marine assistance company often provides both towing and salvage services, it is essential that the boat owner reach an understanding with the marine assistance provider before action is taken.

TowBoat companies should inform the captain of a boat before beginning any work if the procedure is salvage, not towing. If this isn't possible due to wind and sea conditions, the towing company should tell the captain as soon as possible.

However, boaters should not assume they will always be told. Boaters should always ask whether the job is towing or salvage before they accept a tow.

If the answer is "salvage," the boater should ask if the company - or "salvor" - will give a fixed price or one based on time and materials before beginning the job. If so, get the price in writing or, if an oral agreement, try to have someone witness it.

If the salvor wants to do the job first and says he does not know what the cost will be but will make a salvage claim afterwards, the final charge will be decided one of three ways: negotiation with the boater's insurance company; binding arbitration or - rarely - through litigation in federal admiralty courts.

If the salvor does not give a price before doing the job, the boater should ask the salvor if he uses or will agree to use the BoatU.S. Open Form Yacht Salvage Contract or LLoyds open contract, which assures any claim can go to binding arbitration if negotiation fails.

As long as the situation is not dangerous and not deteriorating, boaters should feel free to look for another company by radio.

Towing is any operation not involving immediate danger to the boat or to a legally protected marine environment. It requires just one towing vessel with lines attached to a grounded boat to refloat it or to the disabled boat to tow it. If a grounded boat can rest without peril until the tide returns to float her free, or a boat is drifting in calm conditions after losing power, it almost always calls for towing, not salvage.

Salvage, on the other hand, involves imminent peril to a grounded, sinking or stranded boat or to a protected marine environment, or the use of more than one towing vessel and/or special salvage equipment such as air bags or high capacity pumps.

Boaters should review their boat insurance coverage. The best protection against a salvage bill is adequate insurance. Boaters should make sure their policy provides for salvage up to the full value of the boat, not a percentage of its value, and that there is no deductible for salvage costs.

Lloyds Open Form

Maritime commerce has been the backbone of all of great societies. Even though the modes of transportation have changed dramatically, what hasn't changed are the risks associated with the sea.

Historically, the only chance of survival for a vessel in peril was the willingness of another ship nearby to render assistance. Countless lives and millions of dollars in cargo were saved because another vessel was willing to go out of her way to respond to a call for help. To reward these acts of heroism, the vessel was generously awarded an amount that reflected a percentage of the value of what was saved.

As is often the case, there were disagreements as to what was a proper reward for the efforts of the rescue vessel. And to complicate matters even further, the rescued vessel and the rescuer were often from two different countries. Disputes were common as to what country's laws applied, and how the matter would be settled.

Often, the only thing the vessels had in common was that they were insured through Lloyd's of London. So Lloyd's developed a "Standard Open Form Salvage Contract" which set to paper the criteria on which the salvage award would be based, and where and how any disputes would be settled. This program was very successful and continues to this day, being utilized by Lloyds underwriters for both commercial vessel and yachts. The Lloyds contract is still the recognized standard for salvage contracts in the international maritime community.

Unfortunately, for recreational boats in the United States which did need to be "rescued" the Lloyds Contract has proven to be a difficult and disadvantageous route to dispute resolution. First of all, the Lloyd's Open Form Salvage Contract is hard to read, -with a lot of thee's and thou's- and even harder to understand. Ever more daunting was the requirement that any dispute be arbitrated in London England. This meant that a dispute involving two Americans and a salvage in American waters had to go to London, hire English barristers (lawyers) and pay substantial amounts of money to prepare a case to be heard by the Lloyd's Arbitration Committee.

To make matters even more expensive, the Lloyd's system was based on English law, which includes the provision that the loser pays both sides' attorneys' fees. Salvage claims are almost always a matter of negotiation, since the price is usually not established before the work is done. So if the boat owner's offer to settle a salvage claim was further away from the award than the demand of the salvor (and it often was), the boat owner would also be responsible for the salvor's legal fees as well. Concern over becoming responsible for the salvor's barrister fees adds pressure to the boat owner (or his insurance company) to settle the salvage claim at a higher amount than they would other wise think is reasonable. Of course this pressure exists for the salvor as well.

The American judicial system recognized the inequities in this approach, and ruled that if both parties (the boat owner and the salvor) were U.S. citizens, they could not be forced into arbitration in a foreign country. What remained was how to give both the salvor and the boat owner the same protections provided in the Lloyd's Open Form Salvage Contract. BoatU.S. drafted a model " Open Form Salvage Contract" in 1989, which provided the needed protections and required domestic arbitration of any dispute.

Domestic arbitration refers to United States arbitration forums, including one available through BoatU.S. , The Boat Owners Association of The United States' Salvage Arbitration Plan, created at the same time as the Open Form Salvage Agreement. The Society of Maritime Arbitrators (SMA) in New York and Miami Maritime Arbitration in Florida also have salvage arbitration forums.

Q: What does the term "Open Form" mean?

A: When the price or reward for the salvage effort is left open in the agreement, to be decided later when the boat is safe and the two parties can calmly discuss the matter, that agreement is referred to as an "open form salvage agreement".

Q: What if I don't sign a contract before my boat is salvaged? Can the salvor still make a claim?

A: It is important to understand that a contract is not necessary in order for a salvor to make a salvage claim. The salvor only needs to demonstrate that the effort was voluntary (he had no pre-existing obligation to come to the rescue), that he was successful and that the vessel rescued was in peril. This type of salvage claim is often referred to as "pure salvage".

Q: So what if you find yourself in the predicament of needing a salvor to save your boat, you allow him to do it and now he wants you to sign a contract. Do you have to sign any contract just because the salvor puts it in front of you?

A: NO. The salvor still has a pure salvage claim against your boat. He must have your permission to render assistance if you are on board (you can not be forced into anything), but the absence of a signed agreement may mean that there will be some convincing necessary to get the salvor to resolve any dispute by arbitration as opposed to litigation. There is always litigation in Federal Court and, while not the most economical method of resolving the value of a boats "rescue", it is tried and true.

Q: What if a salvor insists that you sign a Lloyd's Open Form Salvage Contract?

A: BoatU.S. recommends that you refuse. Offer as an alternative the attached BoatU.S. Open Form Salvage Contract, or simply suggest that the salvor does not need a contract at all. You can always refuse his services and call for other commercial assistance.

the aftermath

Losing a vessel to the forces of nature, or worse, through navigational error, is traumatic and disheartening.

But you will almost certainly discover a new low point when you first receive the salvor's bill for salvage work or wreck removal. The phrase "sticker shock" comes to mind, but understates the case. The salvors expectations are created by 200 years of Admiralty Court decisions - including recent ones - where judicious minds felt that significant "rewards" were necessary to encourage people to invest their capital and risk their lives to save others in peril on the sea.

PAYING FOR WRECK REMOVAL

Contrary to popular myth, you cannot abandon a vessel at sea or on a reef, collect your insurance and forget about it. The Owner of a vessel remains liable for subsequent problems associated with that vessel.

One such problem will be immediately visited upon you - somewhat akin to Scrooge's experience with the Ghost from Christmas Future. If your boat went down in, or near a navigable channel, the U.S. Coast Guard will require its removal. If the Owner fails to respond, the Coast Guard will remove it for them and expect the Owner to pay the bill (large bill) along with a possible fine.

This can all be avoided with a marine insurance "protection and indemnity" policy that specifically provides coverage for removal of wreck. Boaters should confirm with their agents that:

1.  Their insurance company's claims department is experienced at raising sunken boats and removing wrecks from reefs, beaches and other places they don't belong. Such a company's marine insurance claims specialist would help you locate the right type of assistance, and very importantly handle all negotiations, arbitration or litigation associated with a wreck removal bill.

2.  Their boat insurance policy specifically includes a removal of wreck feature in their liability (protection and indemnity section) equivalent to the normal limit of liability ($300,000 recommended) which would pay the bill and the cost of litigation.

3.  There is no deductible or other adjustment to the cost of removing the wreck.