Responsibilities and Liabilities of Marine Surveyors

(June 1999)

Marine surveyors are greatly relied upon by the marine community to perform a wide range of tasks including:   

1.     advising purchasers, underwriters and lending institutions on the condition and valuation of  vessels[i];

2.     advising vessel owners on how to recover or salvage a vessel in distress;

3.     monitoring the salvage of vessels in distress for the benefit of underwriters;

4.     acting as the eyes and ears of underwriters with respect to the cause, nature and effect of losses;

5.     supervising the repair of vessels which have been damaged; and

6.     providing expert opinions to be tendered in court on matters within their field of expertise.

 One of the unfortunate side effects of this broad reliance which is placed upon marine surveyors, is that as soon as something goes wrong, they are often the first to be blamed. 

 The purpose of this paper is to review the legal principals underlying the legal liability of marine surveyors and provide some examples of how these principles have been or could be applied to the different functions performed by surveyors.

 A. Liability in Contract and Negligence

Generally speaking, marine surveyors are exposed to liability under both the law of contract and the law of negligence.  The exposure of a marine surveyor to liability under the law of contract will vary depending upon the terms of the individual contract between the surveyor and his customer.  However, courts will generally be prepared to imply a term into the contract that the survey will be conducted by the surveyor with the degree of skill and competence which is generally exercised by marine surveyors doing the type of survey which was requested.[ii]

Since marine surveyors for the most part act in an advisory capacity, the law of negligence as it is applied to marine surveyors is generally based upon the law with respect to negligent statements.  This additional basis of liability is significant because it exposes marine surveyors to liability to persons other than the persons who retain them.  In order to impose liability for a negligent statement, there are five requirements: [iii]

1. there must be a duty of care based on a ‘special relationship’ between the representor (surveyor) and the representee;

2. the representation in question must be untrue, inaccurate, or misleading;

3. the representor must have acted negligently in making the representation;

4. the representee must have relied, in a reasonable manner, on the negligent misrepresentation; and

5.  the reliance must have been detrimental to the representee in the sense that damages resulted.

The exposure of marine surveyors to liability in both contract and tort, varies depending upon the function which they are performing.

1.     Condition and Valuation Surveys

By far, the function which most exposes marine surveyors to liability is the performance of condition and valuation surveys.  A review of the decided cases involving these types of surveys illustrates the application of the principles of the law contract and negligent misstatement.

 (a) Cases Where Liability Imposed

 The clearest example of liability being imposed upon a marine surveyor is the case of the “Pacific Crown”[iv] decided by the British Columbia Supreme Court in 1978.  In this case the purchaser entered into a contract to purchase a 40-foot, wooden, West Coast fishing boat which had been converted to pleasure use.  Since the purchaser was not knowledgeable about wooden boats, he put a clause into the purchase contract, providing that the purchase was subject to a satisfactory marine survey.  By way of telephone call, he then retained a surveyor who was held out to be competent for the survey of wooden boats. After the survey was prepared, the purchaser met the surveyor and went over the survey report with him.  Neither the surveyor nor his report made any mention of the existence of dry rot on the boat.  Shortly after purchasing the boat, a shipwright doing some work on the boat easily noticed some dry rot.  An independent surveyor, who was retained without being alerted to the dry rot problem, also easily discovered the dry rot.  It was later discovered that the original surveyor had very little previous experience with wooden boats.

 With respect to the law of negligence, based upon the evidence of both the shipwright and the second marine surveyor, the court found that the surveyor was negligent in not discovering the dry rot.  Although the survey was a “condition and valuation” survey performed primarily for insurance purposes, the surveyor knew that the purchaser was going to be relying upon his survey for the purpose of deciding whether or not to purchase the boat.  Accordingly, there was a sufficient relationship between the purchaser and surveyor to impose liability for negligence.

With respect to the law of contract, the court found an implied term in the contract that “the survey would be conducted with that degree of skill which is generally exercised by marine surveyors advising an intending purchaser”[v]. 

 It is also noteworthy that the court also declined to enforce a clause in the survey report which purported to exclude liability for negligence because, among other things, the purchaser did not become aware of it until he reviewed the report, which was after the contract had been formed during the initial telephone call. 

A second case where liability was imposed upon a marine surveyor is the case of the “Triton”[vi], decided by the British Columbia Court of Appeal in 1984.  This case involved a survey of a  37-foot aluminium houseboat while it was undergoing a refit on dry land.  The survey was ordered by the owner for the purpose of obtaining insurance, although the owner testified that the survey was also obtained for the purpose of having a professional tell him what was needed for the vessel.  Subsequent to the refit, the boat capsized.  Although the cause of the capsizing was not immediately apparent, the most likely cause was reverse siphoning of the sump discharge lines after loading caused them to be submerged.  Based upon the evidence of another marine surveyor that he would have recommended that the sump hose be elevated, the Court of Appeal concluded that the surveyor who performed the original survey was negligent. 

 In this case, the court does not specifically address the issue of whether a survey prepared for insurance purposes should be relied upon by the owner of the boat.  However, it would appear that the court must have concluded that it was reasonable for the surveyor to have anticipated that the owner of the boat would be relying upon his insurance survey for the purpose of ensuring that his boat was safe and seaworthy. This assumption is reflected in the trial judge’s comments as adopted by the Court of Appeal:

I do not think it really matters whether the survey was intended to be a Condition and Detail survey or a Valuation survey or something in between.  If the location of the through hull fittings or the overboard discharge system created an unusual risk then that risk should have been disclosed in the survey report whatever the type of survey.[vii]

 The court’s decision in the “Triton” is also noteworthy for the fact that it imposes liability for negligence above and beyond merely inspecting a vessel for deterioration in its hull and original fittings.  In this case, the surveyor was held negligent for failing to note what could be categorized as a weakness in design.  Given the fact that most marine surveyors are not naval architects, I would suggest that this may be too high a standard of expertise to expect from marine surveyors.   The result in this case can perhaps be explained by the fact that the surveyor who gave the evidence that he would have recommended remedial action to raise the sump discharge line was the defendant’s own witness.[viii]

 (b) Cases Where No Liability Imposed

 A clear cut example of an unsuccessful attempt to impose liability upon a marine surveyor is the case of the “Con Brio”[ix], decided by the Supreme Court of British Columbia in 1986.  This case involved a pre-purchase survey of a sailboat, which was ordered as a requirement of a bank which was providing financing for the purchase.  The survey report noted that the forward and aft end of the keel section of the fibreglass hull contained fractures which were being repaired by a reputable fibreglass repairer.  A short time after the repairs were completed and the boat was delivered, the new purchaser discovered that the keel damage was merely patched, and not properly repaired.  In an action against both the sellers and the marine surveyor, the court dismissed the case against the marine surveyor and imposed liability upon the sellers.  In dismissing the case against the surveyor, the court said that the failure of the surveyor to describe the seriousness of the damage to the prospective purchaser was not fatal because of his statement that the repairs were being performed by someone whom he knew to be knowledgeable, competent and honest.  As an aside, the court did, however, suggest that it would have been prudent for the surveyor to suggest that a marine surveyor supervise the work.

 A good example of a case where a court refuses to extend liability beyond the original scope of a survey is the “Hiyu”[x].  In this case, the purchaser of a vessel required a satisfactory survey as a pre-condition to purchasing the vessel.  At the suggestion of the vendor, a surveyor of the vendor’s choice was retained by the vendor to perform a survey of the vessel, with the cost be split between the vendor and purchaser.  At the time the surveyor was retained, he was advised that the survey was required for a bank loan, but was not told of the proposed sale of the vessel or that his fee was to be partially paid by the proposed purchaser.  Despite the fact that his survey failed to detect considerable dry rot in the vessel, no liability to the purchaser was imposed.  In its reasons for judgement, the court said, “[l]iability for negligent advice is owed normally only to those persons the advisor knows, or should reasonably know, will rely upon his opinion.”[xi] .  This approach has more recently been endorsed by the British Columbia of in a case involving engineers[xii] and by the Supreme Court of Canada in a land mark ruling with respect to the liability of auditors of public companies.[xiii]

A recent example of an unsuccessful case against a marine surveyor is the “Key Largo”[xiv] decided by the Provincial Court of British Columbia (Small Claims Division) in June of 1998.  This case involved a pre-purchase survey of a 38-foot motor cruiser which recommended the boat as being suitable for cruising the “protected waters” of the Pacific Northwest.  Approximately seven months after the boat was purchased, it encountered unusually rough seas in English Bay and suffered damage to its hull including a cracked plank and two broken ribs.  A second marine surveyor, who was initially hired by the owner’s insurance underwriter, gave the opinion that the weakness of the hull should have been discovered during the original survey.  He also recommended that in addition to repairing the cracked hull and broken ribs, repairs were required to strengthen the hull so as to make it seaworthy.

Although an action was commenced by the boat owner against both the seller and the marine surveyor, the action against the seller was settled for an undisclosed amount.  As a result of the refusal of the marine surveyor to settle, the action proceeded to trial against him.  At trial, evidence was led to show that while the second marine surveyor had the benefit of inspecting the boat after it had been stripped to perform the repairs, the first marine surveyor had very limited access to the bilge area to inspect the hull.  Given the first surveyor’s limited access and the fact that the scope of the original survey was limited to examination of the hull by “means of visual alignment, sounding and probing at random”, the court found that it was “unable to conclude that . . . [the surveyor’s] . . . failure to note any weaknesses in the component of the vessel amounted to a guarantee to . . . [the purchaser] . . . that the hull would be free of defects”.[1]  With respect to the surveyor’s opinion that the boat was suitable for cruising in protected waters, the court concluded that the seas encountered in English bay, though a “freak occurrence . . . were the equivalent of unprotected waters or open sea.”   Accordingly, it did not award any damages against the marine surveyor.

  2.  Salvage and Vessels in Distress

 Although surveyors are often only retained to act for underwriters at the scene of a vessel in distress, it is not uncommon for vessel owners to seek advice from the underwriter’s surveyor and rely upon that advice.  Accordingly, there is a significant exposure to liability to the vessel owners in the event that the surveyor’s advice turns out to be negligent.  Given the fact that advice often has to be given quickly under difficult conditions, it is possible that a court would not impose too high a standard of care upon the advising surveyor.

 With respect to the relationship between the surveyor and the underwriter, the surveyor’s duties, as set out in the A.M.U.B.C. Guidelines (see Schedule One) include the following:

 1.     estimating salvage and repair costs to assist in determining whether or not to declare the vessel a constructive total loss;

2.     encouraging the owner to provide a course of action and providing comments regarding the same; and

3.     reviewing bids from potential salvers and providing comments to the vessel owner on the same.

  As noted in the A.M.U.B.C. Guidelines, unless specifically instructed by the underwriter, the surveyor should not authorize the salvage or repair of the vessel or in any other way confirm coverage.

3. Loss Surveys

 As set out in the A.M.U.B.C. Guidelines, the role of the marine surveyor when acting for an underwriter regarding a loss is to determine the cause, nature and extent of the loss.

 With respect to determining the cause of the loss, surveyors should be aware of the limits of their expertise and recommend retaining an outside expert when appropriate.  One function, which is often appreciated, is providing advice on whom would be the most appropriate expert to retain for a particular problem.

 Since expert opinion on the cause of the loss is often contentious, it is useful to try to keep this opinion confidential by having the report prepared for the underwriter’s lawyers so as to claim the benefit of solicitor client privilege.  While this does not guarantee that a claim of privilege will be upheld, it adds support for the contention that litigation was anticipated at the time the report was ordered.[xv]

 Another issue to consider is the preservation of evidence.  If the evidence is destroyed before the vessel owner has an opportunity to have it reviewed by his or her own expert, the underwriter’s surveyor may have to disclose his notes and photographs. 

 With respect to advising on the extent of the loss, the A.M.U.B.C. Guidelines suggest that surveyors should draw up repair specifications for the vessels.  Although I am aware of no case on point, if a vessel owner is relying upon a surveyor to draw up a complete list of required repairs, and he fails to do so.  There could be some exposure to liability if a required repair is not discovered until after a release is signed in favour of the underwriter.[xvi]

 If a marine surveyor is acting as agent of the underwriter, any suggestions that the loss will be covered, could be interpreted by the courts as an admission of liability.   Accordingly, the A.M.U.B.C. Guidelines caution against making any comments which could be interpreted as confirming coverage.  Since the surveyor is not generally aware of the terms of the individual policy, or the breaches of any warranties in the policy, he is in no position to comment on coverage.

4. Supervising Repairs

 Since underwriters only wish to pay bona fide claims, the surveyor should avoid taking any actions which could be interpreted as assuming responsibility for paying for the repairs on behalf of underwriters.  Accordingly the A.M.U.B.C. Guidelines caution against directing the vessel owner to a specific shipyard or otherwise taking control of the repairs.  

Surveyors should be careful to avoid directly instructing the shipyard, particularly with respect to extras which were not included in the original work estimate.  Since a vessel owner is not liable for repairs he does not authorize,[xvii] if a shipyard proceeds to perform extra work on the basis of instructions from a surveyor, it could be unable to collect for that work if the surveyor was not authorized by the vessel owner to order that work.  In such case, the shipyard could have a cause of action against the surveyor for breach of warranty of authority.[xviii] 

B.    General Comments

1.     Exclusion Clauses

 While a summary of the law on the use and enforceability of exclusion clauses is beyond the scope of this paper,  a few brief comments are warranted.

The extent to which marine surveyors use exclusion clauses varies significantly from surveyor to surveyor.  Some surveyors purport to exclude liability for all of the advice which they give, including negligent advice, while others merely attempt to limit the scope of their surveys to the inspection of those items which can be viewed with non destructive testing techniques.   Whatever the scope of the exclusion clause, as was pointed out in “Pacific Crown”, unless the customer is aware of the exclusion clause at the time the contract was entered into, it may not be enforceable. 

 This may not be a problem for surveyors who do repeat work for underwriters who are aware, through course of conduct, of exclusion clauses routinely placed in their surveys. However, this often creates a problem for purchase surveys where the advice is often given orally before the written survey is prepared. Probably the best way to avoid this problem is to follow the practise taken by most shipyards of having the customer sign a written work order containing an exclusion clause, prior to the commencement of the survey.

 Although exclusion clauses may protect marine surveyors from liability to the party who retains him, except in very limited circumstances, they can have no application to persons who were not a party to the contract.  For example in the case of an action by a vessel owner for advice given by a surveyor while acting for an underwriter in a salvage operation, the surveyor would have no protection.  Another example would be an action by an underwriter against a marine surveyor for negligently preparing a condition and valuation survey requested by the vessel owner. [xix]   

2. Defence Costs

 It is not unheard of for surveyors to be separately named in actions by vessel owners against their insurers.  In this type of situation, surveyors can be put to great expense if it is necessary for them to retain their own counsel.  In order reduce exposure to this kind of liability, surveyors might try to negotiate ahead of time an agreement with underwriters to cover their defence costs, subject to it being established in a court of law that they were negligent in their duty to the underwriter.

 3. Expected Standard of Care of a Marine Surveyor

 Surveyors in British Columbia have diverse backgrounds.  Ideally a marine surveyor would have prior experience as a shipwright, marine engineer, naval architect, and master mariner.  In addition, it would be desirable if there existed a widely recognised organization for the training and certification of marine surveyors.  Unfortunately, most surveyors do not have this broad background and we do not have a widely recognised certification process.   As a result, it can be problematic determining just what level of skill and competence is acceptable.  

 As a general rule, the courts assume that members of a profession are loath to appear in court and give evidence against each other.  Accordingly, if one marine surveyor is prepared to appear in court and give evidence against another, a court will give this evidence quite a lot of weight. However, when reviewing this type of evidence, it is always important to look beyond the opinions of the surveyors involved and scrutinize what qualifications they have to give their opinions.  On the one hand, if one is relying upon the report of a marine surveyor one should ensure that he has the necessary background to give the opinion.  On the other hand, if one is relying upon the report to sue another marine surveyor, one should insure that the surveyor presenting the report is not imposing an unacceptably high standard based upon his unique background experience. For example, on a basic purchase survey, one should not expect a level of expertise on the engine components that only a marine engineer could provide or a level of expertise on the design components that only a naval architect could provide.  On the other hand, as was pointed out in the case of the “Pacific Crown” a surveyor should not be taking on a job which he does not have the necessary qualifications to perform.  If he does so, he may be found liable for his customer’s losses.

4. Errors and Omissions Insurance Considerations

When considering bringing a subrogated action against a marine surveyor, it is always prudent to consider the prospects of collecting in the event that one is successful in obtaining a judgement. Given the lack of affordable errors and omissions insurance for marine surveyors doing purchase surveys, many marine surveyors in British Columbia to not have errors and omissions insurance.  Accordingly, collection against marine surveyors can be a significant problem. 

Conclusion

 As a result of the wide range of functions performed by marine surveyors, they are exposed to a wide range of liabilities to a wide range of persons.  Since by their nature, they are expected to be “jacks of all trades”, they run the risk of liability because they are often “masters of none.”  Marine surveyors have benefited from a recent decision of the Supreme Court of Canada which has implicitly confirmed earlier court decisions which have limited the liability of marine surveyors to those persons who the surveyor knows or might reasonably know will be relying upon his report.

An earlier version of this paper was presented to the Association of Marine Underwriters on May 26, 1999.  Brad M. Caldwell is a Vancouver based lawyer whose practise is primarily devoted to marine matters.