Towing Contracts and the Limits of Liability: Knock-for-Knock and the Bisso Doctrine

A tug is assisting a loaded barge into a berth. The tug’s master misjudges the approach, the barge strikes the dock, and there is damage to the barge, the dock, and the cargo.

Who pays depends almost entirely on two things. Which contract form governs, and which side of the Atlantic you are on.

International towage has settled on a risk allocation that the United States Supreme Court declared void as a matter of public policy in 1955 and has never retreated from. That decision still governs domestic towage in U.S. waters, which means a Gulf Coast harbor towing company and a deepsea tug operator working the same equipment under different contracts are in materially different positions.

This article covers what knock-for-knock does, how the international forms handle it, why Bisso makes U.S. practice different, what survives that decision, and the insurance consequences of getting the contract wrong.

What Knock-for-Knock Actually Does

Knock-for-knock allocates risk by ownership rather than by fault. Each party bears loss or damage to its own property and injury to its own personnel, regardless of who caused it, and lays that risk off through insurance.

The tug owner carries the tug and the tug’s crew. The hirer carries the tow and the tow’s crew. Neither claims against the other for its own losses, and each indemnifies the other against claims from its own side.

The commercial logic is sound. Towage operations put two sets of valuable property in close proximity under conditions where fault is frequently difficult to establish and almost always expensive to litigate. A regime in which each party insures its own interest produces predictable premiums, fast claims handling, and very little litigation. It is the same reasoning that underpins the offshore industry’s contracting practice.

What it is not is a regime in which the negligent party pays. That is the point of departure.

The International Position

Two families of form dominate outside the United States.

The UK Standard Conditions for Towage and Other Services 1986, usually called UKSTC, are a tugowner’s form and they are heavily weighted toward the tug. They go considerably further than knock-for-knock, carrying exculpatory language stronger than the clause the U.S. Supreme Court struck down in Bisso. They can be incorporated expressly, through a course of past dealing between the parties, or because they habitually apply to such contracts and that fact is known and expected.

The BIMCO forms take the mutual approach. TOWCON is the ocean towage agreement on a lump sum basis and TOWHIRE is its twin on daily hire. Both were revised in 2021, adopted by BIMCO’s Documentary Committee on 25 January of that year, and their full names are now the Ocean Towage Agreement (Lump Sum) and the Ocean Towage Agreement (Daily Hire). BARGEHIRE 2021 is the companion bareboat form for unmanned, non-self-propelled seagoing barges.

The 2021 revisions changed several things that matter:

The groups were broadened. Clause 22 now operates by reference to a Hirer’s Group and a Tugowner’s Group, defined in the SUPPLYTIME 2017 style to include each party’s contractors and subcontractors. The intent is that every party involved in the towage who might suffer loss is inside the knock-for-knock regime rather than outside it claiming in tort. That matters in offshore work, where an oil company frequently contracts as hirer to tow a third party’s rig.

The groups were also limited. The definitions carry the words “but always related to the towage or other services under this Agreement,” which prevents the regime from sweeping in entities with no connection to the operation.

Salvage was brought inside. The tugowner is responsible for salvage services to the tug and the hirer for salvage services to the tow, which removes a previous uncertainty and keeps salvage consistent with the rest of the allocation.

Standard clauses were added covering infectious diseases, piracy, anti-corruption, and sanctions, along with a modern bunker quality clause modeled on SUPPLYTIME and an estimated towing speed provision useful for calculating extra time under TOWCON.

Adoption has been slow, which is normal for BIMCO revisions. Reporting from late in the first year after publication indicated TOWCON had been used 1,040 times with almost 90 percent still on the 2008 form, and TOWHIRE 335 times with 60 on the new form. If you are fixing towage, check which edition the recap actually incorporates.

The Limit on Knock-for-Knock Under English Law

English courts enforce these provisions robustly, and the leading authority on how far they reach came out of an Admiralty Court decision concerning TOWCON’s clause 18, arising from a tow performed by the tug Mighty Deliverer.

The tug owners relied on the knock-for-knock provisions to defeat substantial claims by the rig owners. The court examined the purpose of the clause closely and upheld it, but accepted that a limit exists. The protection falls away where the party relying on it has completely abandoned its obligations under the contract and the loss flows from that abandonment.

That is a narrow exception and it should be read as such. Negligence, even serious negligence, remains inside the regime. Walking away from the contract altogether does not.

Why the United States Is Different

In Bisso v Inland Waterways Corp, 349 U.S. 85 (1955), a tug towing an unmanned barge caused the barge to collide with a bridge pier. The towage contract contained a clause exculpating the tug owner from liability for its own negligence.

The Supreme Court held that clause void as against the public policy of the United States. Two rationales supported it. Discouraging negligence by requiring wrongdoers to pay damages, and protecting parties in need of a service from being overreached by those with power to drive hard bargains.

Bisso has been predicted to fall for seventy years and has not. Knock-for-knock is in common use across the offshore industry and is frequently upheld in U.S. courts in other contexts, but in towage confined to U.S. waters the exculpatory clauses in general international use remain invalid before U.S. courts.

The Supreme Court has distinguished it in one notable instance. In Southwestern Sugar & Molasses Co v River Terminals Corp, 360 U.S. 411 (1959), the Court declined to strike down an exculpatory clause as a matter of law where the towage was performed under a duly filed tariff subject to Interstate Commerce Commission regulation. The distinction turned on the fact that in Bisso no regulator had any control over the terms, and the Court suggested the doctrine might not be appropriate where particular hazards are involved in the towage.

The practical scope is also worth noting. The knock-for-knock provisions in TOWCON and TOWHIRE have been upheld where the tow has an international origin or destination. And where a tug and barge carry cargo for a third party under contract, the arrangement remains a contract of affreightment, with limitation and exclusion provisions including those incorporating U.S. COGSA enforceable in the ordinary way.

So, Bisso bites on domestic towage. It does not govern everything a tug operator does.

What Survives Bisso

This is the part that matters most for a U.S. operator, because the answer is not that all risk allocation is unavailable.

Genuine mutuality is different from exculpation. A federal court considering section 23 of a BIMCO TOWHIRE contract held that the clause differed from the provision invalidated in Bisso, because the tugowner did not contract out of all liability. It retained responsibility for damage to its own tug, for damage caused by the tug to third parties, and for injury to its own crew. Bisso prohibits a tug from contracting against all liability for its own negligent towage. A reciprocal allocation where each side keeps its own risks is not that.

Limitation may survive where exculpation does not. A district court in the Ninth Circuit upheld a clause limiting a tug owner’s liability to $250,000 in 2002. Capping exposure is a different act from eliminating it, and courts have treated it differently.

Insurance provisions are contested ground. Some courts have declined to treat mutual benefit of insurance provisions as exculpatory clauses of the kind invalidated in Bisso. Others have gone the other way. A Florida district court examining a clause requiring the hirer to maintain hull and P&I cover naming the tug as additional insured with a waiver of subrogation held it to be a guise for an invalid exculpatory clause, and a contract of adhesion given the unequal bargaining power in towage agreements.

The distinction the cases seem to turn on is whether the arrangement is genuinely reciprocal or whether it operates in one direction. An insurance structure where both parties insure their own interests and waive subrogation against each other looks like allocation. One where only the hirer insures and only the tug benefits looks like exculpation wearing a different coat.

Gross negligence is outside the regime entirely. Parties cannot contract out of it, under U.S. law or English law. No form reaches it and none should be drafted as though it does.

The Insurance Consequence Nobody Checks

Here is the point that converts a contract question into a coverage question, and it is specific to towage.

P&I cover for towage liabilities is conditional on the contract terms. Club rules commonly provide that customary contracts such as the UK Standard Towage Conditions 1986, the Dutch and Scandinavian Towage Conditions, and the BIMCO TOWCON and TOWHIRE forms are approved, provided no significant amendments have been made that affect the traditional liability system under those contracts.

Where an entered ship is being towed under ocean towage, cover may exist only if the towage is performed under a contract whose terms the club has approved. The terms must protect the towing ship at least to the extent recognized in traditional towage contracts, and a reasonable towage contract based on the knock-for-knock principle will generally qualify.

Two consequences follow:

Amending the liability clauses can cost you cover. A negotiated deviation from the standard knock-for-knock, agreed to win the work or to accommodate a counterparty, may take the contract outside what the club approved. The commercial concession and the insurance consequence are not visible in the same conversation.

Bespoke U.S. towage agreements need checking. If you are a U.S. operator using a company form rather than a BIMCO or UK standard, that form is not on anyone’s approved list. Whether your club accepts it is a question to ask before the season rather than after a casualty.

Clubs also flag a practical point for ships towing other ships or objects. A merchant vessel performing a tow is not a tug, probably lacks suitable equipment, and carries a crew without towage experience. That belongs in the risk assessment as much as in the contract.

What to Check Before You Sign

Identify the governing law and the form. TOWCON and TOWHIRE are English law forms built for ocean towage. UKSTC is a tugowner’s form. A U.S. domestic harbor assist under a company tariff is a different animal from all of them. Know which you are in.

Check the edition. The 2021 TOWCON and TOWHIRE differ meaningfully from the 2008 versions on group definitions, salvage, and bunker quality, and the older forms remain in heavy circulation.

Look at who is inside the groups. Under the 2021 forms the definitions reach contractors and subcontractors. If you are a subcontractor on an operation, you may be inside somebody’s knock-for-knock without having read the contract that put you there.

For U.S. domestic work, assume the exculpation will not hold. Structure the allocation as genuine mutuality, as limitation, or as a reciprocal insurance arrangement with waivers running both ways. A one-way provision drafted on an international form is the one Bisso was written about.

Get your P&I club to approve any non-standard form. In writing, before the work.

Confirm the additional assured and waiver of subrogation positions actually match. If one party is naming the other and not the reverse, you have a one-way arrangement whatever the clause is called.

Do not draft toward gross negligence. It is not available and attempting it invites a court to look harder at everything else in the clause.

The Bottom Line

Knock-for-knock is a sensible commercial answer to a genuine problem, and most of the world’s towage runs on it.

In the United States it runs into a 1955 Supreme Court decision that has outlasted every prediction of its demise, and that decision still governs domestic towage. What survives is reciprocity rather than exculpation. An allocation where both parties keep their own risks and insure them has a real prospect of holding. A clause that frees the tug from the consequences of its own negligence does not.

The part most operators miss is that the contract and the insurance are the same question. Your P&I cover for towage liabilities depends on the terms you agreed, and the moment you negotiate away from an approved form you may have negotiated away the cover as well.

That conversation belongs with your broker and your club before the contract is signed, which is a short discussion, rather than after the barge has hit the dock.