DECEMBER 14, 1998

CIRCULAR NO. 22/98

TO MEMBERS OF THE ASSOCIATION

Dear Member:

CHANGES TO THE RULES OF THE ASSOCIATION FOR THE 1999 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, 1999.

Automatic cesser of insurance by reason of a vessel becoming a Total Loss, Constructive Total Loss, etc.

In conformity with practice elsewhere in the International Group of P&I Clubs, and in order to ensure that the automatic cesser of cover takes place with immediate effect from the time and date of the occurrence of one of the above events, the first paragraph of Rule 5, Section 1(1) will be replaced with the following language:

Section 1 1 Unless otherwise agreed by the Association in writing, any insurance in respect of a Member's interest in an insured vessel shall cease upon the happening of any of the following events:

the Member parting with or assigning its interest in the vessel whether by bill of sale or other formal document or in any other way whatsoever, the Association to allow a prorata daily return of premium for the unexpired term of the insurance with respect to said vessel after deduction of 17.5% as an allowance for nonrefundable fixed expenses;

the vessel becoming an actual total loss, except with respect to the liabilities, costs and expenses resulting directly from the casualty which has given rise to such actual total loss;

in the case of an alleged constructive total loss of the vessel, the acceptance by hull underwriters of notice of abandonment, the tendering of which must be immediately notified to the Association in writing;

the vessel being missing for ten days from the date it was last heard from or from its being posted at Lloyd's as missing, whichever shall be the earlier.

 

Termination on notice at the Club's option

Most Group Clubs have a provision in their Rules allowing for termination of cover at the Club's option without giving a reason. This is a very general power, rarely exercised in practice, intended to protect the mutuality against circumstances where the nature of an individual risk may have changed, for whatever reason, in a way considered unconducive to the interests of the membership as a whole.

Accordingly, the current terms of Rule 5, Section 1(4) will be replaced with the following language:

4 Any contract of insurance in respect of a Member's interest in an insured vessel may be terminated:

by the Member only as of Noon GMT on February 20th of any year with not less than thirty days' prior written notice to the Association; and

by the Association at any time with not less than thirty days' prior written notice to the Member.

 

Cover for fines and penalties

The International Group's working party on fines and penalties made recommendations earlier in the year which incorporated model wordings for the standardization of cover in regard to such exposures. A number of Clubs have adopted these recommendations. Given this, and bearing in mind that the Club's existing Rule would benefit from greater clarity, the first paragraph of Rule 2, Section 8 will be replaced with the following language which reflects the model wordings mentioned above:

Section 8 Fines and penalties imposed by any court, tribunal or authority for:

short- or over-delivery of cargo, or failure to comply with regulations concerning the declaration of goods, or documentation of cargo, provided that the member is insured by the Association for liability in respect of cargo and subject always to the provisions of these Rules generally and/or the Member's terms of entry in respect of such cargo cover;

breach of any immigration law or regulation, provided that such breach is unknown to the Member;

the accidental escape or discharge of oil or any other substance, provided that the Member is insured for pollution liability by the Association, and subject to the applicable limit of liability under the Rules of the Association and/or the terms of entry;

smuggling by the master or members of the crew, provided that the Member upon becoming aware of such activity immediately notifies the Association.

All other fines will be recoverable only under Rule 2, Section 16, provided that:

(a) the Member has satisfied the Directors that it took such steps as appear to them to be reasonable to avoid the event giving rise to the fine or penalty; and

(b) any amount claimed in respect of such fines shall be recoverable to such extent as the Directors in their absolute discretion may determine without having to give any reason for their decision.

 

Pollution costs recoverable in General Average

As a result of extensive discussion within the Group over the last year, a common position has been taken for 1999 so as to exclude cover for any costs and expenses incurred by a Member which would have been allowed in General Average under the York-Antwerp Rules 1994. This position was taken in response to oil industry attempts to impose upon shipowners broader liabilities than they would normally face under the York-Antwerp Rules in cases of General Average as exemplified, in particular, by the Exxon General Average Clause.

Accordingly, a new proviso will be added as follows at the end of Rule 2, Section 13:

Provided that any recovery hereunder may be reduced if and to the extent that the Member shall not have taken steps to ensure that costs and expenses recoverable hereunder are included in general average to the extent permitted under the York-Antwerp Rules 1994.

 

The duty to act as a prudent uninsured in regard to millennium compliance

Reference is made to Club Circulars 8/98, 10/98 and 16/98.

Following extensive discussion within the Group over the last several months, as evidenced by the content of the Circulars mentioned above, a general consensus has arisen that some responsibility for ensuring that operating systems are millennium compliant should be devolved upon individual Club Members. Bearing in mind, however, the scale of the problem generally, there is no desire to import an absolute exclusion of claims arising from millennium non-compliance, but rather one based on principles of reasonableness.

To this extent, the "prudent uninsured" test has been adopted as a criterion. Accordingly, and as notified in Circular 16/98, a new Section 21 will be added to Rule 1, as follows:

Section 21 In relation to any claims arising directly or indirectly from millennium non-compliance, Members will be expected to demonstrate to the satisfaction of the Directors that they have taken such steps as an uninsured person acting reasonably in similar circumstances would have taken to avoid such a claim. The Directors shall have discretion to reject or reduce any claim when it appears that the Member has not so acted.

 

The amendments and additions described above will be incorporated in the Club's new By-Laws and Rules for 1999 and made available to Members as soon as possible.

If, in the meantime, any Member has any 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