JANUARY 8, 1998

CIRCULAR NO. 1/98

TO MEMBERS OF THE ASSOCIATION

Dear Member:

CHANGES TO THE RULES OF THE ASSOCIATION FOR THE 1998 POLICY YEAR

As you will be aware, The American Club at the last renewal began once again to use a Rule Book format to evidence Members' terms of entry. This was part of the Club's strategy of continuing to conform its practice to that of the International Group of P&I Clubs at large.

Following the Club's recent success in becoming a party to the Pooling Agreement as from February 20, 1998 - and thereby gaining direct access to the Pool - a review of the Club's Rules has been undertaken with the intention of further conforming to Group norms including, of course, those contained in the Pooling Agreement itself. Additionally, changes have been made necessary through the amendment to the overspill calls limitation formula taking effect from the next renewal, and also in order to accommodate Group policy on the International Safety Management (ISM) Code.

Having reviewed the recommendations of the Managers, your Board of Directors at its meeting in New York on January 8, 1998, unanimously agreed that the following changes to the Club's Rules should be made with effect from February 20, 1998.

The International Safety Management (ISM) Code

It is the policy of the International Group of P&I Clubs that compliance with the ISM Code should be required of all shipowners and operators to whom it will apply. Accordingly, Rule 1, Section 9, is to be amended by the addition of a new Subsection 5 (below in italics) so as to provide as follows:

Section 9 Unless otherwise agreed in writing between the Member and the Association, the following conditions are terms of the insurance of every insured vessel:

5 The Member must comply with all statutory requirements of the State of the insured vessel's flag relating to the construction, adaptation, condition, fitment, equipment, manning and safety management of such vessel and must maintain at all times the validity of such statutory certificates as are issued by or on behalf of the State of the insured vessel's flag in relation to such requirements.

Unless and to the extent that the Board of Directors otherwise decides, the Member shall not be entitled to any recovery from the Association in respect of any claim arising during a period in which the Member is not fulfilling or has not fulfilled any condition referred to in this Section 9.

Other Insurance

An endorsement to Certificates of Entry frequently used as an adjunct to the "other insurance" Rule will be formally incorporated into the text of that Rule. Accordingly, Rule 1, Section 11, will be expanded to read as follows, the additional wording as set out in italics below:

Section 11 In respect of the risks insured hereunder, to the extent the Member is insured for pollution risks under any other insurance, cover hereunder shall be null, void and of no effect, up to the limits of said other insurance. Above the limits of said other insurance, cover under this insurance shall remain in effect, subject always to the limits herein which are applicable to such risks, to any deductibles(s), and to the Rules of the Association. In the event the limits available under such other insurance are the same as or greater than the limits available for pollution losses under this insurance, then this insurance shall be null, void and of no effect with regard to such claims. In the event the limits of said other insurance are less than the limits available hereunder, this insurance shall respond up to the limits set forth herein for pollution losses, but only for the amount by which any such losses exceed the stated limits of such other insurance, and then only up to the limits set forth herein for pollution losses. This insurance shall respond only in excess of the stated limits of the other insurance, whether or not the full amount of such other policy limits, or any amount at all, is recoverable thereunder.

The Association shall not liable for any loss, damage or expense against which, but for the insurance herein provided, the Member is insured under existing insurance, except as set forth above; nor shall the Association provide prorated or allocated cover on the basis of double insurance or otherwise, except as set forth above; nor will this insurance replace any other insurance where (for whatever reason) that other insurance does not or is not able to respond to a claim thereunder.

Multiple Claims Arising From One Event

Club practice with respect to the application of deductibles where multiple claims arise out of one incident will be made clear in the Rules. Accordingly, the following language will be added to form a new Rule 1, Section 20:

Section 20 In the event that more than one class of claims enumerated in these Rules shall arise as the result of any one accident or occurrence, only one deductible shall be made, which deductible shall be the highest deductible of those applying to the classes of claims involved.

Claims Excluded from the Pooling Agreement

Certain types of claims which are excluded from the scope of the International Group's Pooling Agreement will be expressly excluded from Club cover.

Accordingly, Rule 2, Section 1 will be amended as follows by the addition of the following new Subsections 7 and 8 as set out in italics below.

Section 1 Loss of Life, Injury and Illness

Liability for life salvage, loss of life of, or personal injury to, or illness of any person, not including, however, unless otherwise agreed between the Member and the Association, liability to an employee (other than hereinafter excepted) of the Member, or in case of his death to his beneficiaries, under any Compensation Act. Liability hereunder with respect to a Member of the crew shall include liability arising ashore or afloat. Liability hereunder shall also include burial expenses, where reasonably incurred by the Member for the burial of any seaman.

7 There shall be no recovery from the Association in respect of the contractual liability of a Member to a passenger while on an excursion from the insured vessel in circumstances where either a separate contract has been entered into by the passenger for the excursion whether or not with the Member, or the Member has waived any or all of the Member's rights of recourse against any subcontractor or other third party in respect of the excursion.

8 There shall be no recovery in respect of liabilities, costs and expenses incurred by a Member in respect of the personal injury of a seaman under or pursuant to the terms of a contract of employment between the Member and that seaman, where that seaman has suffered injury while on leave, except where the claim on the Association is made under the entry of the last vessel on which the seaman served prior to suffering the injury.

In addition, Rule 3, Section 1 will be amended by adding new Subsections 8 through 14 as set out in italics below.

Section 1 Notwithstanding anything to the contrary contained in these Rules, the Association shall not be liable for any loss, damage or expense sustained, directly or indirectly, by reason of:

8 Liabilities, costs or expenses arising out of or consequent upon an insured vessel blockade running or being employed in an unlawful trade.

9 Claims arising in circumstances where there has been willful misconduct on the part of the Member, defined as an act intentionally done, or a deliberate omission, by the Member with knowledge that the performance or omission will probably result in injury, or an act done or omitted in such a way as to allow an inference of a reckless disregard of the probable consequences.

10 Liabilities, costs and expenses incurred in respect of a drilling vessel or barge or any other vessel or barge employed to carry out drilling or production operations in connection with oil or gas exploration or production, including any accommodation unit moored or positioned on site as an integral part of any such operations, to the extent that such liabilities, costs or expenses arise out of or during drilling or production operations.

11 Liabilities, costs and expenses incurred by a Member in connection with any claim brought against such Member arising out of waste incineration or disposal operations carried out by the insured vessel (other than any such operations carried out as an incidental part of other commercial activities) or the operation by the Member of submarines, mini-submarines or diving bells or the activities of professional or commercial divers where the Member is responsible for such activities.

12 Consequential loss of profit or depreciation arising from the rescue of refugees.

13 Salvage of an insured vessel or services in the nature of salvage provided to an insured vessel and any costs and expenses in connection therewith other than such liabilities, costs or expenses as may arise by reason of life salvage, or costs and expenses under any of the following:

Article 14 of the International Convention on Salvage 1989; or Article 14 of the International Convention on Salvage 1989 as incorporated into Lloyd's Open Form of Salvage Agreement (1980, 1990 or 1995) or into any other salvage contract approved by the Association; or cargo's contribution to general average payable by the Member solely by reason of a breach of the contract of carriage.

14 Liabilities, costs and expenses arising out of salvage operations conducted by an insured vessel or provided by the Member, other than

a liabilities, costs and expenses arising out of salvage operations conducted by an insured vessel for the purpose of saving or attempting to save life at sea; and. b liabilities, costs and expenses incurred by the Member (being a professional salvor) which are covered by a special agreement between the Member and the Association.

Release Calls

The Club's current release call provision will be more closely conformed to practice elsewhere in the International Group, with specific reference to overspill calls and the option available to a Member to post security for assessments as and when due as an alternative to paying release calls. Accordingly, the first sentence of Rule 4, Section 5 will be deleted and replaced with the following new wording.

Section 5 Upon or at any time after the termination of entry of an insured vessel for any reason, the Association may charge release calls in lieu of assessments for open policy years during which such vessel shall have been entered. A Member's liability for overspill calls shall not be affected by the charging or the payment of a release call. The Association may accept in lieu of a release call a guarantee given or confirmed by a bank acceptable to the Association for the Member's liability to pay future assessments and overspill calls.

The amount of any release call which shall be so charged for any open policy year shall be such percentage of the advance call as the Directors in their sole discretion shall from time to time determine.

Once paid, release calls shall not in any circumstances be returnable, notwithstanding any subsequent reduction in the amounts chargeable for the policy years concerned; nor shall the Member have any right to share in any refunds of assessments for any such policy year in respect of a vessel for which a release call has been paid or is payable, but payment of release calls shall discharge a Member from any future liability for those assessments in lieu of which such release calls have been charged.

The Club's New Pooling Status

In view of the Club's direct involvement in the International Group Pool with effect from February 20, 1998, references to the previous reinsurance arrangements with the London Club will be deleted from the Rules for next year. Accordingly, Rule 4, Section 10, Subsection 3.2 will be amended to read as follows.

3.2. The funds required to pay such proportion of any overspill claim incurred by any other party to the Pooling Agreement which the Association is liable to contribute under the terms of the Pooling Agreement shall be provided in the manner specified in 3.1 sections (b)-(e).

The New Limitation Formula for Overspill Calls

With effect from February 20, 1998 the overall limit of contribution to overspill claims will reduce from 20 percent of a Member's London Convention fleet limitation fund value to 2.5 percent thereof. Accordingly, Rule 4, Section 10, Subsection 5.4, will be amended to read as follows.

5.4 The Association shall not levy on any Member in respect of the entry of any one vessel an Overspill Call or Calls in respect of any one Overspill Claim exceeding in the aggregate two and one-half percent of the Convention Limit of that vessel.

Notice of Termination Provisions

It is the general practice of International Group Clubs that cover does not automatically expire at February 20 each year, but continues from year to year in the absence of notice of termination. In order to conform the American Club's procedure with that of the market as a whole, a new Subsection 4 will be added to Rule 5, Section 1 as follows.

. 4 The Member shall have the option to cancel insurance hereunder only at Noon GMT as of February 20th of any year with not less than 30 days written notice to the Association.

The additions and amendments described above will be incorporated in the Club's new By-Laws and Rules for 1998 and made available to Members as soon as possible.

If, in the meantime, any Member has any questions on 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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