—— Ping An Property&Casualty Insurance Company of China., Ltd. v. Taixing Transport Machinery Factory Shipbuilding Insurance Contract Subrogation Case 

Key Word： Safety production liability; Subcontracted work; Hot work; Shipbuilding insurance; Insurer’s recourse

Case Summary:

Yangzhou COSCO Heavy Industry Co., Ltd. (hereinafter referred to as "COSCO") signed a "Supply Contract" with Taixing Transport Machinery Factory (hereinafter referred to as "TaixingFactory "). According to the contract, Taixing Factory was responsible for the production and installation of the "desulfurization tower discharge pipe and exhaust pipe" for the vessel N944, and COSCO insured the shipbuilding with Ping An Property&Casualty Insurance Company of China., Ltd. (hereinafter referred to as "Ping An"). In June 2020, Taixing Factory arranged its personnel to conduct flange welding at the shipyard. Before starting the welding, the workers conducted an on-board survey to check fire prevention measures that iron sheets, fireproof cloth, and fire extinguishers, were properly placed below the welding points. Once everything was confirmed and after receiving directives from COSCO, the welding work commenced. However, they did not inspect and confirm the interior situation of the desulfurization tower. During the construction process, sparks fell into the interior of the desulfurization tower through a gap of the exhaust pipe, igniting the plastic packing material and causing a fire, resulting in property losses. After compensating COSCO, Ping An claimed Taixing Factory to pay compensation of CNY 5 million for the loss resulting from the ship's fire accident.

Judgment:

The court held that safety production liability in the shipbuilding factory does not entirely shift to the subcontractor during subcontracted construction work. In this case, Taixing factory, as the subcontractor, had performed its obligations of inspection, examination, and confirmation at the shipbuilding factory. They had also carried out construction under the direction of COSCO. Given these circumstances, when a fire caused by subcontracted construction results in property damage, and Ping An, as the insurer, was subrogated to claim compensation on behalf of the insured party (COSCO) from Taixing. The court did not support this claim. After the judgment, neither party filed an appeal.

Significance:

Shipbuilding processes involve multiple steps, complex construction environments, and significant property value. Hazards are prevalent in production operations such as high-altitude work, work in confined spaces, and hot work. Furthermore, shipbuilding companies often subcontract various high-risk and difficult tasks, such as the manufacturing and installation of pipelines, welding, ship outfitting, and painting. Clearly defining the primary safety production liability within ship construction becomes crucial. In this case, the court, by examining factors such as the qualifications of the construction workers, the implementation of fire safety measures, and the level of standardization in the work processes, determined that large shipbuilding companies, acting as the contracting party, should bear the primary liability for safety production. This is due to their comprehensive safety production management systems and their familiarity with the production processes and environment. The court emphasized that this responsibility for risk prevention should not shift to the subcontractor just because subcontracted construction is involved. This judgment serves to reinforce the primary safety production liability of shipyards, encourage effective safety supervision within shipyards, and ensure the safe, green, and intelligent development of the shipbuilding industry, which is of significant importance.