Thursday, February 5, 2009

Contemplating Values

photo: Ringo contemplates his contribution to the crew of Water Torture...

The salvage seminar at last week’s C-PORT conference included some discussion about “fair and reasonable” charges for salvage awards. I will argue about fair and reasonable in another post. Today, I want to correct what I feel was a serious error brought forth by the panel. This error was compounded when at least two members of the audience agreed with the underlying principal.

The error was this: a good way to determine if your salvage bill is fair and reasonable would be to consider how much that kind of service would be worth to you. To reinforce that idea, a panelist restated it this way: “How much would I be willing to pay for this salvage on my boat?” The implication is that if you feel the fee is more than you would be willing to pay, then it’s more than you should charge.

This thought process exhibits a failure to understand the underlying concept of salvage awards. The question is not how much is someone willing to pay for a service – the question is how much would you be willing to pay to prevent further damage or total destruction of your vessel. That is the essence of a salvage award. A salvage award is based more on what if, than it is on what happened. This is a critical distinction. Attendees of the seminar may be left with the mistaken idea that a salvor should wonder “how much would I have paid someone to toss me a line to keep my boat from hitting a bridge?”

Admiralty law poses a very different question – “what would the boat be worth if it did hit the bridge?” The real value of your effort is extracted from the answer to that question, and the final award may not always seem reasonable if you limit yourself to contemplating the value of services rendered.

The discussion further confused the issue by placing the cost burden on the boat owner instead of where it almost always falls: the insurance company. To be really precise, a well reasoned salvage award is based on this question: how much should the insurance company pony up to enjoy the fruits of your success? If you save a boat from hitting a bridge, it is well established in law that the insurance company is a direct beneficiary of your entire operation – the money you have invested in equipment, office space, your years of training and experience, your readiness and your skill - in addition to the value of your on-scene efforts. This is why professional salvors generally receive larger awards than Good Samaritans.

Considering how much you would pay for a job is an insufficient method for producing a well reasoned salvage demand, because it emphasizes what actually happened. A true salvor gets rewarded for what didn't happen.