Navigating a Risk-Filled Sea: Insights on How the Law and Insurance Chart a Course by Allocating Liabilities and Creating Incentives

Risk can be defined as the probability and extent of liability. Risk management involves identifying, evaluating, and minimizing liabilities, which is critical to the success of a wide range of enterprises. Managers often turn to insurance to reallocate risk, and to experts such as surveyors, engineers, attorneys, and accountants to identify and evaluate risks and to advise on how to reduce them. The law also ascertains, allocates, and liquidates liabilities, and affects how insurance reallocates them. Policymakers-both industrial and legal-must be aware of how industry practices, expert services, insurance provisions, and legal structures are intertwined to achieve diverse, and perhaps competing, goals. Changing a condition to support one outcome will likely impact others. Systemic analysis can identify these intertwined impacts, which is critical to feasibly furthering these goals by developing and successfully implementing changes to these practices and services, insurance, and the law. This Article focuses on safety management in the maritime context, but similar issues apply to rating and reducing risks of many types in varied fields: credit, trade, construction, securities, medicine, manufacturing, and political risks-to name a few. This Article first details how marine insurance coverage is placed on ships in the United States and in England, and considers the role of surveyors in placing insurance coverage. It outlines how liability is determined by American and English courts, including the duties of a shipowner and the impacts of a breach-which can void an insurance policy. Further, this Article discusses the duties of underwriters and of surveyors who support underwriters and shipowners-with particular emphasis on the potential liabilities of surveyors, and how American and English courts have agreed and diverged on imposing them. These duties stem from common law, statute, tort, and contract. Finally, this Article suggests changes to the current risk management system to reduce conflicts of interest and increase safety incentives. Policymakers include courts in the United States and England, as admiralty is among the few remaining areas of federal common law. As the British Parliament recently updated the United Kingdom\u27s century-old statute on marine insurance law, the Article outlines how those updates might influence risk management going forward