A cross-liability clause in marine insurance provides cover to multiple parties in case one party claims the other. The clause allows each party to be treated as if they have their own separate marine insurance.

When two covered parties obtain cross-liability coverage, one insured party can sue the other insured party, even when both parties are insured under the same policy. Standard liability insurance includes cross-liability coverage, commonly referred to as a “separation of insureds” agreement.

It should be noted that a marine insurance contract that has cross-liability cover includes phrases similar to “every insured party claimed against under this insurance policy will be treated, during the claim procedure, as if they were the only insured under the policy.”

Small business insurance, like marine insurance, typically has a cross-liability clause, as it allows different parties involved in the insurance contract to be treated separately in certain situations (while under certain circumstances they will be treated as the same).

However, it should be noted that in cases where parties are treated separately during the claim procedure, they are not all given separate coverage limits. This difference means that an aggregate limit is still applicable to the total coverage provided by the insurance.

Also Read: Institute Cargo Clauses in Marine Insurance Policy

Now that the cross-liability clause insurance meaning is clear, with these examples, businesses can gain a better understanding of how it works.

Example 1 - Charterer and Shipowner Liability

Suppose in an accident, the charterer’s cargo operations damage the shipowner’s vessel. With a cross-liability clause in marine and transit insurance, the insurer is allowed to treat the charterer and shipowner as two separate parties insured separately. It means the shipowner can claim compensation from the insurer for the vessel damage caused by the charterer.

Example 2 - Two Vessels Owned by the Same Insured

An insured party owns and operates two different vessels, say Vessel A and Vessel B. During a port manoeuvre, Vessel A collides with Vessel B. In a case without any cross-liability cover, there would have been no claim, as the owner would be claiming against themselves.

However, with a cross-liability clause placed in marine insurance, the policy treats each vessel as separately insured. Thus, allowing Vessel B’s damages to be compensated like any other third-party liability.

Example 3 - Terminal Operator and Shipping Line

Now, suppose a terminal operator and a shipping line are both insured under one marine insurance policy (similar to a logistics provider’s umbrella policy). In a loading accident caused by a terminal operator, damage is done to a cargo owned by a shipping line.

With a cross-liability clause in marine insurance, the insurer is allowed to process the claim, as both parties are independently insured. So now, the shipping line can be indemnified for cargo
loss due to negligence by the terminal operator.

Example 4 - Joint Insured Tug and Barge Operators

Say a tug boat and a barge (operated by different companies) are both insured under the same marine insurance policy. One day, the tug collides with the barge due to the tug operator’s error.

The cross-liability in such a case will allow the barge owner to claim against the tug operator as if they are separately insured, maintaining the internal accountability of loss even when both parties are insured under the same policy.

Also Read: Concealed Damage Clause in Marine Insurance

Having cross-liability endorsement in marine insurance is beneficial for all the parties insured under the same policy. Treating all the insured parties as if they were insured separately allows the losses and concerns of every party to be heard and seen indiscriminately.

A cross-liability clause is especially necessary for marine and transit insurance, as its operations involve several parties, including shipowners, port operators, cargo handlers and charterers. Thus, it is necessary that marine businesses wanting cross-liability cover must ensure that their marine insurance includes this clause.

TATA AIG marine insurance policy provides coverage against marine losses, including fires, collisions, explosions, ship sinking, total loss of the ship, and overturning of the ship, as well as losses due to natural calamities.

Businesses can further protect their operations against interruptions and financial losses like fire, burglary and workplace injuries with the suite of small business insurance policies offered by TATA AIG.

Also Read: Marine Insurance Clauses: Key Terms and Coverage Explained