DECEMBER 1, 2000

CIRCULAR NO. 13/00

TO MEMBERS OF THE ASSOCIATION

Dear Member:

CHANGES TO THE RULES OF THE ASSOCIATION FOR THE 2001 POLICY YEAR

Please note that your Board of Directors recently approved the following changes to the Club’s Rules to take effect from February 20, 2001.

They derive from a continuing review of the language of the existing Rules, amendments to the cover wordings of all clubs proposed atInternational Group level and a desire to maintain good housekeeping in the interests of clarity and the efficacy of the terms under which Members are insured by the Club.

Assignment of insurances

Rule 1, Section 7 will henceforward include the following new language as a second paragraph to the Section making it clear (particularly so far as providing letters of undertaking to mortgagees is concerned) that any accommodation granted under the terms of the first paragraph of that Section will not detract from the Club’s right of set-off etc. as against the assignor of the insurances.

“Notwithstanding any such written consent or specific agreement by endorsement to the Certificate of Entry, the Association shall be entitled in settling any claim presented by the assignee to deduct or retain such amount as then estimated to be sufficient to discharge any liabilities of the assignor to the Association, whether existing at the time of the assignment or having accrued or being likely to accrue thereafter.”

The purpose of this change is to bring Club practice more in line with usage elsewhere, subsequent also to a recent review of its procedures in regard to the provision of undertakings to mortgagees and the endorsement of their interests as loss payees (see Circular No. 12/00 of November 27, 2000).

Extent and scope of cover

In order to make completely clear the extent and scope of cover which, to use insurance industry jargon, is intended to be available on an “occurrence” rather than “claims made” basis (in common with all other clubs), the following words will be added at the end of the preamble to Rule 2.

“…provided that such liabilities, risks, events, occurrences and expenditures arise in respect of the Member’s interest in such ship; and in connection with the operation of such ship by or on behalf of the Member; and out of events occurring during the period of entry of such ship.”

Expenses incurred under authorization of the Directors

It is intended to clarify the circumstances in which such expenses may be recovered from the Club by the amendment of Rule 2, Section 18, to read as below. Specifically, the recoverability of such expenses will in all cases be a matter of Directors’ discretion.

EXPENSES INCURRED UNDER AUTHORIZATION OF THE DIRECTORS

Expenses which the Member may incur under special written authorization of the Directors of the Association in cases in which the Directors decide that it is in the interests of the Association that the direction be given.

CERCLA-type liabilities

The International Group of P&I Clubs has recently resolved that a unified approach be adopted in relation to liabilities arising under the U.S. Comprehensive Environmental Response, Compensation, and Liability Act, 1980 (CERCLA), as well as similar legislation elsewhere, in respect of claims for contamination from landfill sites in which waste originating from ships has been dumped. The approach entails that there should be no cover as of right for this risk and that cover should be afforded only at the discretion of individual club boards and/or committees.

In pursuance of this policy, a new Sub-section 17 to Rule 3, Section 1 will be incorporated, as follows:

Unless the Directors shall otherwise determine, there is no cover in respect of any liability for loss, damage, costs and expenses arising as a consequence of the discharge or escape, or the threat of discharge or escape, of any hazardous waste (previously carried on the vessel) from any land-based dump, storage or disposal facility.

Laid-up returns

In order to bring the Club’s practice more in line with conditions prevailing elsewhere in the market, Rule 4, Section 6 will be amended to read as follows:

If an insured vessel shall be and remain in any safe port without cargo on board for a period of thirty or more consecutive days after finally mooring there (such period being computed from the day of arrival to the day of departure, one only being included), and provided the Member gives written notice to the Association as soon as practicable after the commencement and termination of such lay-up period, the Member is to be allowed a return of premium calculated at the rate of 90% of the total premium payable in respect of such vessel for the period of lay-up after deduction of such allowances for reinsurance, administrative expenses and other outgoings as the Association may from time to time determine, save that there shall be no laid-up returns in respect of Overspill Calls. A vessel shall not be treated as laid-up if it has either crew (other than for purposes of maintenance or security) or cargo on board. The Association shall have absolute discretion to determine whether a port is safe and how many crew members may be required for such maintenance or security within the meaning of this Section 6. In any event, no claim for laid-up returns relating to any policy year shall be recoverable from the Association unless written notice thereof has been given to the Association within six months of the end of the policy year concerned.

Returns of premium in the event of cesser of cover

At present, the Club retains 17.5% of premium as an allowance for “non-refundable fixed expenses” in the event of the cesser of insurance where a Member parts with or assigns its interest in a vessel within the terms of Rule 5,Section 1, 1.

Since many other clubs do not make such a retention, the words

“.....after deduction of 17.5% as an allowance for non-refundable fixed expenses;”

will be deleted from the wording of Rule 5, Section 1, 1.

The amendments and additions described above will be incorporated in the Club’s new By-Laws and Rules for 2001 which will be made available to Members as soon as possible.

If, in the meantime, any Member has questions in regard to the foregoing, the Managers will be pleased to respond.

Yours faithfully,

Joseph E.M. Hughes, Chairman & CEO
Shipowners Claims Bureau, Inc., Managers for
THE AMERICAN CLUB

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