Rules and Exceptions 2012 Third edition

Transcription

1 P&I Rules and Exceptions 2012 Third edition

2 P&I Rules and Exceptions 2012 Guidelines to the understanding and practical application of Rules for P&I Insurance THE SWEDISH CLUB is proud to present the third and revised edition of our P&I Rules & Exceptions - a book containing supportive comments on our P&I Rules. The previous editions have enjoyed a high status and provided its readers with a better understanding of the Rules. It is our ambition that this book will be even more valued as a tool and source of information among people who work with P&I related matters worldwide. We hope to accomplish this by making the book easily accessible, from the point of view of contents as well as layout and searchability. In addition, a digital version of the book can be found on the Swedish Club Online (SCOL) website - accessible for members and business associates. The first edition of the book was published in 1992 by Lennart Delfs, former Director of the P&I Claims Department. The second and most recent version was published in 2000 by Fredrik Kruse, former head of the P&I Claims Department and Senior Claims Manager and he has also revised this edition. At the time of printing, this book reflects the latest changes of our P&I Rules (as per 20 February 2012) as well as the most recent developments in the relevant legislation. Nevertheless, it is important to be aware that since the P&I insurance is part of the dynamic shipping industry, things change continuously. If you need updated information about a specified topic, please do not hesitate to contact directly or search for the latest information on We hope that you will find this revised version of our P&I Rules & Exceptions to be both interesting and useful and that it will help you in your daily work, whether you are a member, broker, correspondent, lawyer, student or involved in any other area of the shipping industry. Gothenburg, February 2012 Lars Rhodin Managing Director 1

3 Published by Sveriges Ångfartygs Assurans Förening Visiting address: Gullbergs Strandgata 6, Gothenburg, Sweden Postal address: P.O. Box 171, Gullbergs Strandgata 6, SE Gothenburg, Sweden Tel , Fax Copyright All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior permission of the copyright owner. FIRST EDITION 1992 by Lennart Delfs, LL.M Director of the P&I Claims Dept SECOND EDITION 2000 revised by Fredrik Kruse, LL.M Former head of the P&I Claims Department and Senior Claims Manager THIRD EDITION 2012 revised by Fredrik Kruse, LL.M Retired Printed by PR-Offset, Gothenburg, Sweden Published February PR2500B ISBN

4 Contents Useful links Part One: An introduction to and the background of Protection & Indemnity...15 A A.1 Background...16 A.2 How it started...16 A.3 Operation of...16 A.4 Some ominous names...17 A.5 Expansion of liabilities...17 B. Protection & Indemnity Insurance B.1 The birth of P&I...19 B.2 The concept of mutuality...19 B.3 The International Group...20 B.4 Reinsurance...21 B.5 Club Rules and the Pooling Agreement...21 Part Two: Comments to the P&I Rules...23 Chapter I Introductory Rule 1 Definition of rules and language Swedish wording prevails Headings and list of contents Nature of comments Definitions...26 Rule 2 Nature of cover General Rule wording constitutes framework of cover Cover is for liabilities Cover is for Member Cover is restricted to owner, operator and charterer risks Cover is restricted to operational risks Cover is restricted to direct consequences Cover is restricted to events which occur during the period of insurance Direct action Pay-to-be-paid Limitation of liability Cover does not include the deductible Subsidiary sources of insurance information Amendment of Club Rules during the policy year...38 Chapter II Risks covered Rule 3 Liabilities in respect of persons Section 1 Injury, illness, repatriation and death - crew Liabilities against crew for injury, illness, repatriation and death Liability to pay compensation in connection with injury, illness or death Liability to pay costs in connection with injury, illness or death Asbestosis, industrial deafness and other vessel-related longterm illnesses

5 Contents Repatriation Funeral costs Travelling expenses for substitutes Relatives of crewmembers Repatriation of crew after total loss, CTL or major casualties Common law liabilities The U.S. Jones Act Class actions...54 Section 2 Wages - crew General views on wages Crew contract must be approved Extent of cover To whom should compensation for wages be paid? Payment of wages at total loss and CTL Common law liability to pay wages U.S. penalty wage claims...56 Section 3 Loss of or damage to effects crew General views on cover for crew effects The extent of cover Cover under this and other Rules for various kinds of persons Other insurance should be used first...57 Section 4 Payment of crew claims General Policy defenses Conditions of payment...58 Section 5 Passenger liabilities General Passenger Contracts in passenger service Passenger injury, illness or death Time bar Personal care and attendance Medical malpractice Nature of claims Class actions Settlements The geographical extent of cover Liability to forward passengers Passage performance guarantees Luggage Delay of passengers and their luggage and cars Limitation of liability - the Athens Convention General advice on passenger liabilities and how they should be avoided...71 Section 6 Limitation of cover for passengers and seamen General Mutuality in relation to ship types Cover afforded by Appendix II, Rule

6 Contents Section 7 Injury, illness and death - others General Longshoremen Visitors Travelling repair teams Pilots Stowaways and refugees Crew relatives Collision liability for death or personal injury Other death or injury claims in respect of persons...84 Section 8 Stowaways and refugees General Stowaways Persons saved at sea Refugees...90 Section 9 Life salvage General views on salvage Life salvage Charges by other ships for stand by, search or rescue Charges by other parties for search and rescue Convention to promote search and rescue...92 Section 10 Deportation General Detainees Deserters...93 Section 11 Diversion expenses General Persons for whom diversion expenses are covered Diversion must be justified Duration of a diversion The extent of cover Precautions to be taken during diversion Cover for diversion expenses under other rules...95 Rule 4 Liabilities in respect of cargo Section 1 Cargo liabilities General Cargo liability Cover for cargo liabilities The burden of proof The carrier s obligation to provide a seaworthy ship The carrier s obligation to carry, keep and care for the cargo The carrier s liability for servants Cargo losses for which the carrier is not liable Limitation of liability Time bar on cargo claims P&I viewpoints on certain types of cargo

7 Contents Section 2 Cargo liabilities during through transports and lighterage General Through transports Transhipment under direct B/L Lighterage Section 3 Liabilities for bill of lading particulars General Antedated or postdated Bs/L Incorrect B/L particulars Section 4 Liabilities for delivery of cargo General Delivery against original B/L Blank Bs/L False Bs/L Delivery of cargo without production of B/L Misdelivery under non-negotiable freight documents Production of non-negotiable document Section 5 Paperless trading General Cover of electronic trading system Section 6 Extraordinary handling costs General Discharging or disposing of damaged, rejected or worthless cargo Extraordinary handling related to Hull damage Cover is subject to Rule exclusions Member s knowledge Extraordinary costs of a preventive nature Section 7 General Average General Unrecoverable general average contributions Ship s proportion in general average Loss covered under other insurance Section 8 Deviation General What is a deviation? Geographical deviations Deviations other than geographical Effect of an unjustified deviation Extent of insurance cover How to avoid deviation liability Rule 5 Liabilities in respect of delay General What constitutes a delay? For what delays is the carrier liable? For what consequences of delay is the carrier liable? Measures to prevent delay Recourse against those who caused the delay

8 Contents Rule 6 Liabilities in respect of pollution Section 1 Pollution liabilities General Pollution liability history International conventions Domestic legislation Contingency plans C/P clauses Oil pollution and 1994 York Antwerp Rules MARPOL ANNEX VI Prevention of Air Pollution from Ships Some practical observations Section 2 Oil pollution limitation of cover General Monetary limitation of cover U.S. Oil Pollution Surcharge for tankers Limitation per event Limitation of cover in connection with salvage Rule 7 Other liabilities Section 1 Liabilities for other property General Hull liability exclusions Noncontact damage by manoeuvring Interaction or wash damage Propeller water Use of anchor Use of lines and ropes Use of loading/discharging devices Use of gangway Discharge of water, smoke etc General unspecified third party liability Damage caused by cargo Loss of or damage to bunkers Damage caused by ship s vehicles Borrowed property Section 2 Collision with other ships Adaption of P&I to Hull cover for liability risks /4 RDC (Running Down Clause) Collision liability apportionment - single or cross? Excess collision liability Collision liabilities for wreck removal of another ship Liability for collision compensation under U.S. law in respect of cargo carried on the entered ship Section 3 Damage to fixed and floating objects General Cover for FFO when excluded under Hull policy Fixed and floating objects Excess FFO collision liability

9 Contents Section 4 Special compensation to salvors General Salvage awards to avoid environmental damage Section 5 Obstruction to navigation and wreck liabilities General Obstruction Wreck Wreck removal Obligation to mark the wreck Section 6 Liabilities in respect of fines General Fines covered Fines not covered Punitive damages Section 7 Quarantine expenses Costs covered Costs excluded Call at infected port Hague Rule exception for quarantine No cover for treatment of holds Section 8 Towage liabilities General What is towage? Where the entered ship is towed Where the entered ship is towing Section 9 Confiscation of ship General Club s decision is discretionary Confiscation Infringement of customs law Duration of confiscation Security Member s burden of proof Market value Recourse against authorities Rule 8 Liabilities for costs Section 1 Sue and labour and legal costs General Club staff Club correspondent costs Legal fees Survey and expert fees Operating expenses Costs incurred on instructions from Club Section 2 Preventive costs and amounts saved General Preventive costs

10 Contents Amounts saved Rule 9 Charterer s liability General views on charterer s liability Different types of C/P s Extent of cover Effect of C/P conditions Does a charterer require a P&I cover? Limited cover for fixed premium Same or different Clubs Exclusions and limitations of liability Laid up returns Surplus Chapter III Conditions for cover Rule 10 Conditions Section 1 Member s obligations with regard to classification and requirements by Classification Society, flag State or otherwise General Class to be approved by Club Change of class to be approved by Club Class to be maintained Member s obligation to call in class Member s obligation to follow class recommendations Member s obligation to release class records Effect of Member s breach of obligations under this clause Statutory requirements Section 2 Standard terms of contracts General Contracts for carriage of goods Contracts for through transport of goods Crew agreements and contracts of service and employment Contracts for carriage of passengers Other contracts Contracts on unusually burdensome terms Separate cover of contractual risks Section 3 Regulations General views on regulations Circulars Other regulations in writing General regulations Particular regulations Effects of failure to comply with regulations Section 4 Obligations with regard to casualties and claims Member s obligations at a casualty Member s obligation to notify promptly Formal enquiries and legal proceedings Handling of claims Effect of Member s breach of his obligations

11 Contents Chapter IV Exclusions from cover Rule 11 Exclusions Section 1 Member s intent or gross negligence General Intentional acts Gross negligence Acts or omissions Member s knowledge Who is the Member? Section 2 General exclusions General Listed exclusions Section 3 Special exclusions for certain ships General Extent of cover for certain ships Section 4 Sanctions General Payments of claims Recoveries from reinsurers Section 5 War risks General Exclusion concerns all risks covered War and war-like situations Capture or seizure Weapons of war Effect of Member s negligence P&I war risk insurance Outbreak of a major war Section 6 Other insurance General Hull insurance Insurance other than Hull insurance Deductibles Section 7 Nuclear risks General Exclusion of paramount importance Nuclear powered ships Collision Nuclear weapons Nuclear cargo Chapter V Other provisions Rule 12 Security for claims and certificates General Nature of claim must be investigated before security is given Types of security Property arrested Security and counter security in charter situations

12 Contents 12.6 Other situations of counter security Arrests to change contractual terms Repeated arrests Member s obligations Member s reimbursement Rule 13 Set-off General Only Club has right to set-off Amounts due from the Member Amounts due to the Member Rule 14 Right of recourse General Right of recourse against third parties Right of recourse against Member Rule 15 Time bar General Six months time limit Three years time limit Ten years time limit Time limit to submit a dispute to decision under Rule Effect of time bar under this Rule Rule 16 Payment by the Association Member s claim for compensation Club s processing of Member s claim for compensation Effect of payment of compensation Rule 17 Forbearance No prejudice on present case No prejudice on other cases Rule 18 Disputes General Disputes solved by average adjuster Disputes solved by arbitration Member s legal representation Rule 19 Omnibus clause General Discretion is exercised by the Board Nature of liabilities to be considered under the Omnibus Rule Board s decision is absolutely discretionary Board s discretion is limited to Club Pool retention Board s decision does not constitute precedent Rule 20 Period of insurance General Entry Survey and Ship Manager Evaluation (SME) Policy of insurance Period of insurance Policy year

13 Contents 20.6 Effect of policy year terms and limitations of cover on Member s long-term charter commitments Confirmation of entry, payments of call and ship s age Rule 21 Insurance premium tax General Rule 22 Premiums and deductibles General Advance calls and additional calls Premiums Records Deductibles Rule 23 Additional premiums General Closing of policy years Calculation of additional calls Payment of additional calls Transfer of premiums to reserves Unpaid additional calls Set-off Effect of unpaid additional calls Estimated additional calls can be levied at termination or cesser of insurance Rule 24 Overspill calls General Rule 25 Right of lien for amounts due to the Association General The Club s right to exercise a lien Rule 26 Termination General Termination by notice before 20 January Termination due to unpaid premiums Immediate termination Termination on three days notice Termination on seven days notice Termination on fourteen days notice Termination on thirty days notice Rule 27 Cesser General Entered ship is missing Entered ship is a total loss Transfer of ownership Requisition Contraband, blockade running and unlawful trades Failure to be classed Rule 28 Effect of termination and cesser General Effect for Member Effect for Club

14 Contents Rule 29 Laid-up returns General Duration of laid-up period Safe port Compliance with regulations Manning Cargo Application for laid-up returns Extent of laid-up returns Rule 30 Joint members and co-assureds General Joint Members Co-assureds Rule 31 Fleet entry General Fleet Members Fleet Members are jointly and severally liable for payments Failure to pay premium Mortgaged ships Rule 32 Affiliated companies General Affiliated companies Extent of cover Rule 33 Membership of ITOPF General Tankers and non-tankers Rule 34 Small Tanker Oil Pollution Indemnification Agreement (STOPIA) General Extent of cover Rule 35 Mortgaged ships General Cover of mortgagee s interests Effect of pay-to-be-paid principle Club protection of the mortgagee s position Rule 36 Surplus General Refund of surplus Set-off Who is entitled to a surplus refund? Part Three: Appendices Index

15 Useful links There are a number of other sources from which the reader of this book can obtain relevant information on specific topics. Below list of links to international maritime organisations contain a selection of organisations that can be useful. BIMCO CMI (Comité Maritime International) Finansinspektionen (FI) - Swedish Financial Supervisory Authority ICC/IMB (ICC Commercial Crime Services/International Maritime Bureau) ICS (International Chamber of Shipping/International Shipping Federation IMO (International Maritime Organization InforMare International Group of P&I Clubs (IG)

16 Part One: An introduction to and the background of Protection & Indemnity 15

17 An introduction to and the background of P&I A. A.1 Background Improvements of ships and navigation have at best reduced some of the risks inherent in shipping but never eliminated them and sometimes created new ones. It is no wonder that the spreading of those risks occupied the minds of those who invested money in ships and cargoes in seafaring civilisations and communities. The risk-sharing systems included elements of a truly mutual nature. The administration of those systems contained some incompatible elements. They were big and located at shipping centres. Whereas London became such a centre, minor and industrious shipping communities found the dependence on the London market expensive and time-consuming. Shipowners in provincial areas in the north of England associated together to insure their Hull risks among themselves on a mutual basis. There were many advantages in this arrangement. Such an association could operate with a small staff. It had good knowledge of its members, their solvency and ships. Premiums could be held low, as profit was not part of the premium calculations. The formation of the local Hull clubs coincided in time with the change from sail to steam. Many of the established and traditional insurance associations hesitated to provide cover at reasonable costs for such a potentially dangerous invention. This was the scenario when the decision was taken to found. A.2 How it started A combination of good times for shipping and technical improvements of steam propulsion machinery caused a rapid expansion of Swedish shipowning in the beginning of the 1870 s. Previous attempts to provide Hull insurance in Sweden had either failed or been restricted to sailing ships. On 7 December 1872 the first general meeting was held of Sveriges Ångfartygs Assurans Förening, which would later be known internationally as. Application for entry had been received for 26 steamers. The cover was confined to Hull & Machinery and War risks. When the Club celebrated its 25th anniversary in 1898, it had become well established and insured 275 ships. About the same time discussions started within the Board as to whether the services afforded should include P&I insurance. The Board remained split on the issue as to whether the cover should be provided direct by the Club or through a separate company. Finally, the latter alternative won. On 8 December 1910 a new company with the handysized name Sveriges Ångfartygs Assurans Förenings Delägares Ömsesidiga Försäkringsbolag Protection & Indemnity held its first annual meeting. It was a company consisting of shares owned by. The company was amalgamated with in 1950 and became its P&I department. A.3 Operation of The British Clubs are generally operated by separate professional management companies. Some Clubs are equally well known under the name of the managers than under their own names. does not have that dual system. The management is employed by 16

18 An introduction to and the background of P&I the Club which is a mutual insurance company formed under Swedish law. It has a Board of Directors elected by and among its members. Under the control of the management, there are several teams for specialised functions such as P&I, Marine, Underwriting and Technical expertise. Handling of claims and other related matters are the responsibility of the claims handlers forming part of the teams. The Board consists exclusively of members holding executive positions within the field of shipowning and of the managing director of the Club and two representatives of the employees. It ensures that the Club is controlled for the benefit of the members. The Board is elected at the Annual General Meeting (AGM) held in Gothenburg at the end of May or the beginning of June. At the AGM, each member is entitled to one vote for each commenced SEK 100,000 of the sum total of his estimated premiums for the current fiscal year. Each member s right to vote is restricted to 1/10 of the sum total of the votes of members represented at the AGM. That ensures a reasonable and democratic influence to all members present at the AGM and prevents one large member from taking control of the Club. Introduction All members are invited to attend the AGM, which provides a good opportunity to meet other members as well as the staff of the Club. In addition to social events, the Club arranges lectures or other information on issues of current interest for shipping and underwriting in connection with the AGM. A.4 Some ominous names The Club s P&I records reflect some big and well-known disasters at sea. In January 1950 the Swedish tanker Divina collided with the British submarine Truculent which sank with a loss of 64 lives. An almost identical accident occurred only three years later when the Turkish submarine Dumlupinar sank with a heavy death toll after a collision with the Swedish general cargo ship Naboland. The most well-known case in the Club s history is the collision between the Stockholm and the Andrea Doria on 25 July In more recent years we have seen the two most expensive cases in the Club s history. In 2004 the Selendang Ayu drifted after an engine breakdown off the Aleutian Islands, belonging to the United States and grounded causing a massive pollution in very sensible waters to the tune of USD 200 million. The New Flame sank in 2007 off Gibraltar after a collision and the authorities ordered the wreck to be removed at a cost of more than USD 150 million. A.5 Expansion of liabilities During the first decades of as a P&I underwriter, the legal pattern of the shipowner s liabilities was simple. People were not claims-minded. The legal system for enforcing liabilities was unsophisticated. The most effective remedy against cargo liability was a rubber stamp on the B/L saying Ship not responsible for anything. This may seem to have been a lucky time for shipowners and their liability underwriters. The absence of cargo liability was, however, the cause of its own undoing. An industry with no responsibility simply becomes irresponsible. Bad ships, stowage and handling caused severe cargo losses to merchants and their banks. 17

19 An introduction to and the background of P&I As early as 1893 the U.S. adopted the Harter Act, which imposed certain mandatory liabilities for cargo upon shipowners. The expected increase in trade and shipping in the wake of the 1918 peace felt the need for an internationally accepted mandatory cargo liability. At a meeting of CMI (International Maritime Committee) in the Hague in 1922, a set of rules was agreed upon and was adopted as a convention at a diplomatic conference in Brussels in The historical situation at that time, when a few countries accounted for the greater part of the world, at least had the advantage of making the Hague Rules almost globally accepted. Today, when universal unification of law ought to be preserved and supported, we see the breaking up of the system and a fragmentation of the liability pattern. The introduction of the Hague Rule mandatory liability increased the importance of the cover provided by the P&I clubs. Other increased liabilities were to follow. Although the concern for the safety at sea of emigrants from Europe to the U.S. and Australia was one of the reasons for the formation of the P&I clubs, the liability for personal injury and loss of life was not too burdensome to insure which appears from this entry in the minutes of a meeting in 1876 of the U.K. Association: Talisman - sank French lugger with potatoes and drowned the captain s wife. Claim for potatoes 71 and claim for wife 5 passed for payment. International conventions and landmark cases in the U.S. have dramatically increased the carrier s liability for crew, passengers, longshoremen and others who board the ships. Liability for oil pollution has escalated over the years from almost zero to an extent where it is more or less impossible to insure. As a result the International Group of P&I Clubs have agreed to limit liability for oil pollution to USD 1 billion (see comments under 6.2.2). 18

20 Protection & Indemnity insurance B. Protection & Indemnity Insurance B.1 The birth of P&I P&I insurance has no glorious historical background to match that of Hull insurance other than the fact that the P&I Clubs developed as an offspring from the mutual Hull Clubs. Liability does not exist free floating. It requires a man-made law saying who is liable and for what. Liabilities in respect of cargo already existed in maritime codes in the Middle Ages. Still, they did not require insurance. Society at that time was not equipped with the means to enforce the liabilities locally and even less so internationally. They could easily be avoided by the terms of the freight contract. In the first half of the 19th century, society was able to put power behind its words. The concept of mandatory liability was introduced and there were ways of enforcing it. A new risk had been created for which shipowners required insurance protection. Introduction One important factor was the flow of emigrants from Europe to the U.S. and Australia. The trade attracted ships which left much to be desired with respect to maintenance and manning. In the U.K., the Fatal Accident Act or Lord Campbell s Act of 1846 enabled dependants to sue for damages for the death of relatives caused by the negligence of shipowners. Other liabilities were added. Existing types of Hull cover left the shipowner exposed for 1/4th collision liability and for liabilities in excess of the sum insured for collision damage. The Westernhope case held the owner liable for the cargo when the ship was lost during a deviation. To provide cover for these and other liability risks, owners used existing Hull Clubs or formed new Clubs based on the concept of mutuality with which they were familiar. Thus were the P&I Clubs born. B.2 The concept of mutuality Insurance based on mutuality means that a member is simultaneously both the insurer and the insured. In a P&I Club, members get together to share each others risks. This requires a true feeling of mutual trust which can only be nourished by a common conviction that all members are committed to exercise qualified responsible behaviour in the operation of their ships. Several Rules prescribe or presuppose action which a member should either take or refrain from to be considered as having exercised such responsible behaviour. In that respect the Rule defines the ultimate tolerance which, if exceeded, expels the member from the cover mutually provided. The ingenuity of the system is that any improved standard applied by a member has a direct influence not only upon his own insurance costs but on those to be paid by the entire community of members in the Club. That is why the Club strongly promotes loss prevention. The concept of mutuality should be applied with diligence. It does not require a complete sharing of risk. Liability risks which are strictly confined to certain jurisdictions or certain types of ships or cargo may be shared among those in that trade and not by the whole community of members. That is still mutuality. 19

21 Protection & Indemnity insurance The purpose of the exclusions of cover contained in a number of rules is not to punish the member against which they are applied, but to protect the other members who abide by the rules. The close reliance among members on each others performance makes it an obligation for the Club to be selective in admitting new members into the community. The Club therefore tries to form a firm opinion as to the standard of ships and management before accepting new members. Members can also require the Club as administrator of their rights and obligations under these rules to apply the rules in consistent fashion. These guidelines serve the purpose of providing members with equal treatment and compensation. Being mutual means that the clubs are non-profit making. Their income and assets are designed to cover no more than their liabilities and expenditure, their reinsurance costs and any necessary improvement of the general reserves. It is also part of the mutual concept that premiums should be fair in total amount and paid according to the rules. Fair premiums are achieved by the system of insurance records which are directly linked to and therefore possible to influence by the members claims performance. The Rules contain sanctions against late premium payers. The purpose of those sanctions is not to punish the member who is in delay, but to protect the other members who fulfil their obligations in timely fashion. The Club regards it as part of the mutual concept to use experience and information gained in the best interest of the members. This can be channelled back to the members at seminars, or used to protect the members interests vis-à-vis governments and organisations. B.3 The International Group The International Group of P&I Clubs, in these comments referred to as the Group, has been formed by 13 P&I Clubs, of which 2 are operated from Norway, one from Japan, the U.S. and Sweden respectively, and the remaining 8 from the U.K. The Group exists to arrange collective insurance and reinsurance for the participating clubs, to represent the views of shipowners and charterers who belong to those clubs on matters of concern to the shipping industry and to provide a forum for the exchange of information. The Group appoints a number of subcommittees to deal with issues of major and common interest. Information and recommendations are shared between the clubs and used in the best interest of their members. Together, the Group Clubs insure over 90% of the world fleet. Therefore, the Group speaks with great authority and provides an effective voice for their members, particularly on new conventions and legislation affecting the liabilities of shipowners and charterers and the insurance thereof. It carries out this function in relation to inter-governmental bodies such as IMO and UNCTAD, as well as in relation to national governments. The Group has a secretariat in London. 20

22 Protection & Indemnity insurance B.4 Reinsurance An important function of the Group is to provide reinsurance to the clubs. This is done by way of pooling and market reinsurance. The market reinsurance is renegotiated each year and the upper limit of the market reinsurance and the pool, as well as each club s retention, can vary from year to year. For the policy year 2011/2012 the reinsurance is arranged as follows: Introduction Each club retains the first USD 8 million per claim. This means that pays out of its own funds any claim for one of its members up to that amount. Part of the Club s retention is reinsured to mitigate the risk exposure. Where the payment in respect of a claim exceeds USD 8 million, the payment is pooled between the Group Clubs up to an amount of USD 60 million. Pooling means that the Group Clubs share the excess amount among themselves according to an agreed formula. For payments between USD 60 million (Club retention of USD 8 million plus the pool of USD 52 million) and USD 3 billion, the Group has a collective reinsurance on the market. This is the largest single contract in the world s marine insurance market. For oil pollution, charterer s risks and P&I war risks the cover is limited as described under , 9.6 and respectively. For many years the P&I cover was unlimited, but in 1996 the International Group of P&I Clubs decided to apply a limit to the cover. The limit was further reduced in The overall cover afforded by the Association is, unless otherwise stated in the policy or in the P&I rules, limited to a maximum collection of 2.5% contribution of each entered vessel based on the International Convention on Limitation of Liability for Maritime Claims 1976 and its protocols, in excess of market reinsurance placed by the International Group. Should payment of a claim exceed USD 3 billion, the overspill is again referred back to the Clubs for pooling up to an amount of 5.45 billion. In the event of such an overspill claim, the Club may have to levy an overspill call. Rule 23 then applies. B.5 Club Rules and the Pooling Agreement No club can reasonably ask the other clubs to share a payment to one of its members in respect of a risk for which the other clubs deny their own members compensation under their rules. The valuable system of reinsurance by way of pooling can only be maintained if the same concept of mutuality is applied between the Group Clubs as among the members of the individual clubs. A uniformity of the Group Club Rules is, therefore, necessary. That does not mean that the rules are identical. The layout and wording may vary. rules must be adapted to mandatory regulations of the Swedish Insurance Contracts Act of 2005 (see comments under 2.13). To achieve the uniformity required for the pooling to operate, the Group Clubs have drafted and adopted the Pooling Agreement. It sets the standard for Group Club Rules which must be met for a claim to be poolable. The Pooling Agreement is continuously updated. The Club s cover through reinsurance has its limits and exclusions in 21

23 Protection & Indemnity insurance the same way as the cover for the member. Adherence to the Pooling Agreement is important to the Club and its members. 22

24 Part Two: Comments to the P&I Rules The comments are based on the Rules amended as from 20 February If you read the comments to get general information of cover, please make sure that the latest edition of the Rules is on your table. If you seek information on the cover for a certain case, you should use the Rules applicable to the relevant policy year. Should there be a difference between the Comments and the Rules, check with the Club for any Rule amendment. In case of such a difference the Rules apply. 23

25 Chapter I Rule 1 Rule 2 Introductory Definitions of rules and language Nature of cover 24

26 Rule 1 Definitions of rules and language Rules for P&I Insurance 2012/13 Rule 1 Definitions of rules and language The Swedish wording of these Rules, of which this is an English translation, shall prevail in case of a dispute. Headings and List of Contents form part of these Rules whereas Index to the Rules and Explanatory Notes are for guidance only. In these Rules the following words or expressions shall mean Crew Any person, including the Master, contractually obliged to serve on board the entered ship. Ship A ship or other floating structure used or intended to be used in navigation on water or any part thereof or share therein in respect of which the Association has issued a policy of insurance under these Rules. Association Sveriges Ångfartygs Assurans Förening (). Member An owner, operator or charterer, whether an individual or a corporation, in favour of whom the Association has issued a policy of insurance under these Rules and any Joint Member mentioned therein. Approval "Approval in writing"/"written approval". Hull Insurance The insurance effected on the hull and machinery of the entered ship, including hull excess liability insurance, hull interest insurance, freight interest insurance and other total loss insurances. Consent "Consent in writing"/"written consent". Agree/Agreement "Agree in writing"/"written agreement". Pooling Agreement The agreement to which the Association is a party between certain protection and indemnity associations dated 20 February 1998 and any addendum to or variation or replacement of such agreement. Group Excess Loss Policies The excess of loss reinsurance policy or policies effected by parties to the Pooling Agreement. Comments to the P&I Rules 25

27 Rule 1 Definitions of rules and language Comments on Rule 1 Definitions of rules and language 1.1 Swedish wording prevails is a mutual insurance association formed under Swedish law. It operates under the concession of and is subject to supervision by the Swedish Financial Supervisory Authority (Finansinspektionen). Rule 2 states that Swedish law applies in matters not provided for in these Rules. According to Rule 18, disputes arising out of the contract of insurance shall be decided in accordance with Swedish law. Therefore, as stated in the opening part of this Rule, the Swedish wording of these Rules shall prevail in case of a dispute. The English wording is a translation from Swedish. The translation may not always be the same word for word. In those cases where the English wording has been chosen, it is because it is considered to reflect the meaning of the basic Swedish text more accurately. 1.2 Headings and list of contents The headings and the list of contents form part of the Rules. Headings mark the framework within which the clause in question should be understood and applied. 1.3 Nature of comments The reference in the second part of the clause to explanatory notes means the comments to the Rules contained in this book titled Rules and Exceptions. These comments do not form part of the Rules. They are for guidance only. Even if the comments are supposed to reflect the Club s understanding of the Rules, they can neither extend nor reduce the cover as defined in the Rules. Nor can they affect the absolute discretion to be exercised by the Club through its Board under Rule 19, the Omnibus Rule, or elsewhere. The comments should be seen in the light of Rule 17. If they contain a direct or implied deviation from the effect of the Rules, it shall not constitute a waiver of the Club s rights under these Rules. The comments form part of the Club s loss prevention program. They have been drafted for the convenience of members to enhance the understanding and purpose of the Rules and the cover they provide. They should constitute a tool for members to avoid liabilities from arising and to reduce the consequences where liabilities still arise. The main target for the comments are those within the member s administration who are directly concerned with underwriting and claims and those who plan or execute the operation of the entered ship. The comments are provided with an index for the convenience of the user. The index is for guidance only. 1.4 Definitions The clause contains definitions of certain words and expressions which appear in various clauses. The definitions are not ranked in any particular order. They follow the alphabetical order of the basic Swedish wording. 26

28 Rule 1 Definitions of rules and language Crew Crew means any person, including the master, with whom the member has a contract which obliges the person to serve on board the entered ship. The obligation to serve makes him the member s servant. Contracts for independent contractors do not have that effect. Such persons, therefore, are not regarded as crew. The service should be on board the entered ship. This condition excludes categories of persons employed by the member who occasionally perform work on board the entered ship but who are in principle landbased, such as superintendents and repair teams Ship According to the official concession and the aims of the Club adopted by the Board, the purpose of the Club is to provide insurance to ships. What may constitute a ship in a nautical or legal sense may vary. For the purpose of these Rules, ship means any object for which the Club has issued a policy of insurance unless it clearly appears that something other than the entered ship is concerned (see for instance Rule 7 Section 2). The words ship and vessel are used as synonyms in the comments The Association In these Rules, the Association (Föreningen) means Sveriges Ångfartygs Assurans Förening, internationally known as. It is the party which has issued the insurance policy and which carries the responsibilities under that policy in accordance with these Rules. The Association is generally referred to as the Club in the comments Member Member is the party, whether an individual or a corporation, in favour of whom the Club has issued a policy of insurance under these Rules. As appears from the second part of Rule 2, the cover for a member is in respect of liabilities, costs or expenses incurred by him in his capacity as owner, operator or charterer of the entered ship. A member should, by definition, have one of these roles. The member is the only party who has a valid claim for compensation from the Club under these Rules. See comments on direct action under 2.9. Comments to the P&I Rules Upon the request of the member, the Club may allow one or more individuals or corporations to be mentioned in the policy of insurance as Joint Members. According to the definition in this Rule, a Joint Member is a member with the ensuing rights and obligations under these Rules. For further comments on Joint Members see Rule 30. Other parties may be allowed the benefit of a member s cover without acquiring the status of a member, such as co-assureds, as described in Rule 30 and affiliated companies in Rule 32. A member s cover is also extended to a mortgagee under Rule 35. The same restrictions of cover apply as for co-assureds and affiliated companies Agreement, approval, consent Where these expressions appear in the Rules, they mean that the agreement, approval or consent should be in writing. The expressions are used in contexts where the Club agrees to extend the cover. As the basic commitment is in the form of a written policy of insurance, any extension of cover should also be evidenced in writing. 27

29 Rule 1 Definitions of rules and language As appears from Rule 18, the insurance contract is subject to Swedish law. Swedish courts and arbitrators apply the principle of free evaluation of proof. They would likely accept any customary and accepted electronic transfer of written communications such as a telefax or as being in writing in the sense of this Rule, provided that the communication is received by the intended recipient in a complete and legible form at the same time as the transmission Hull insurance Hull insurance means the insurance effected on the hull and machinery of the entered ship. It includes Hull excess liability insurance, Hull interest insurance, freight interest insurance and other total loss insurances. The general requirements as to the extent of cover under the Hull insurance appear from Rule 11, Section 6. 28

30 Rule 2 Nature of cover Rules for P&I Insurance 2012/13 Rule 2 Nature of cover The cover afforded by the Association is set out in these Rules subject to any special terms which may be agreed. The Member is covered in respect of liabilities, costs or expenses incurred by him in his capacity as owner, operator or charterer of the entered ship and arising out of an event during the period of insurance as a direct consequence of the operation of that ship. Unless the Association otherwise decides the Member is only covered in respect of such sums as he has paid to discharge liabilities, costs or expenses referred to in Chapter II. The cover afforded by the Association shall not include the deductible fixed by the Association or otherwise agreed with the Member. The cover afforded by the Association shall not exceed the sum to which the Member would be entitled to limit his liability under applicable law on limitation of liability. These Rules are subject to the Articles of the Association. Furthermore, the General Swedish Marine Insurance Plan of 2006 (SPL 2006) and Swedish Law in relevant parts to apply in matters not provided for in these Rules. The Association may amend these Rules at any time during the period of insurance in order to avoid the Association becoming subject to any sanction, prohibition or adverse action by any State or International organisation. Comments on Rule 2 Nature of cover Comments to the P&I Rules 2.1 General The prominent position of this Rule indicates that it contains general important information for the understanding and interpretation of these Rules and the nature and extent of the cover they provide. 2.2 Rule wording constitutes framework of cover The first part of the Rule states that the cover provided by the Club is set out in these Rules. It means that the cover is no more and no less than expressed by the wording of the Rules. Extension of cover may be agreed on special terms. According to the definition in Rule 1, agreed means agreed in writing. It follows that any extension of cover must be agreed in writing by the Club to the member concerned. When such an extension has been agreed and the special terms and conditions decided, the cover is still subject to all applicable general terms and conditions contained in these Rules. Another way of adjusting the extent of cover under these Rules is the Club s right to issue general or particular regulations according to Rule 10 Section 3. Such regulations must also be in writing. 29