THIRD PARTY LIABILITY, CONTRACTUAL LIABILITY AND LIMITATION OF LIABILITY

An insurance policy is a contract. The insured is referred as first party to the contract. The insurer i.e. the insurance company is who issues the contract is the second party. A stranger to the contract who makes a claim against insured is known as third party.
THIRD PARTY LIABILITY:- It is obligation to compensate the another person harmed or injured or suffered a loss due to negligence or mistake or wrongful act of first party. When the insured – first party causes a loss then the second party assumes the insured liability up to the policy limit. Examples of third party liabilities are collision, third party injury or death claim, oil pollution liability, cargo claim, crew claim, unrecoverable general average contribution etc.
         When the agreement is signed by the parties, they agree on certain conditions and goals written in the agreement. They also get certain liability towards each other for successful achieving of the goals. But by any reason a third party gets affected, then liability towards the third party is called third party liability. E.g. compensation required to pay the affected coast during oil pollution becomes third party liability. There is no such agreement between ship owner and coast, but coast gets affected due to pollution. So, ship owner takes P&I insurance cover in respect to third party liability during ship operation.
CONTRACTUAL LIABILITY:- During any agreement both parties agree for certain terms and conditions for achieving particular goals and interests. So some liabilities are set towards achieving goals. As agreement is signed by them, the liabilities are called contractual liability. Liability does not come in picture if everything runs smoothly but if anything goes wrong, then liability comes into picture. Hence contractual liability is because of a contract, where involved parties agree usually in writing, to take on the liability of someone else, otherwise there would not have been a liability. This form of agreement where one party takes on the liability of another by contract is commonly termed as “Holder harmless” or indemnity agreement. Contractual liability is the express liability namely charter party, bill of lading, cargo insurance, contractual salvage, charterer agreement, towage e.t.c. Here the liability is documented for specific occasion and specific time. Contractual liability claim settlement takes place in a judiciary, arbitration, tribunal as in agreement.
LIMITATION OF LIABILITY:- A ship owner who as unlimited liability might be faced with a claim of such magnitude that it would bankrupt him and discourage him ( and other owner) from further participation in international trade. In respect of various maritime claim brought against ship owner, therefore, the ship owner, if found liable is entitled to limit his liability to the claimant. This right has been enshrined in ‘CONVENTION ON LIMITATION OF LIABILITY FOR MARITIME CLAIMS 1976’. A ship owner may seek to limit his liability under article 2 of 1976 convention and this includes:-
1) Claims in respect of loss of life or personal injury or loss of or damage to property, occurring on board or in direct connection with the operation of the ship or with salvage operation.
2) Claims in respect of loss resulting from delay in carriage by sea of cargo, passenger or their luggage.
3) Claims in respect of other loss resulting from infringement of rights other than contractual rights, occurring in direct connection with the operation of ship or salvage operation.
4) Claims in respect of raising, removal, destruction or rendering harmless of a ship which is sunk, wrecked, stranded or abandoned, including anything that is or has been on board such ships.
5) Claims in respect of removal, destruction or the rendering harmless of the cargo of the ship.
6) Claims of a person, other than the person liable in respect of measures taken in order to avert or minimize loss for which the person liable may limit his liability in accordance with convention and further loss caused by such measures.