Circular No. 14/99 - Changes to the Rules of the Association for the 2000 Policy Year
NOVEMBER 1, 1999
CIRCULAR NO. 14/99
TO MEMBERS OF THE ASSOCIATION
CHANGES TO THE RULES OF THE ASSOCIATION FOR THE 2000 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, 2000.
They derive for the most part from your Board's continuing review of the language of the existing Rules, practice elsewhere in the market and a desire to maintain "good housekeeping" aimed at extending the clarity and efficacy of the terms under which Members are insured by the Club.
The "prudent" uninsured rule
It is general market practice explicitly to require Members to act prudently, i.e., as if they were uninsured, to minimize loss in the event of a casualty. The American Club has a Rule which makes specific reference to this obligation in respect of the Y2K compliance, but this obligation applies to all incidents and should be expressed more generally in the Rules.
Accordingly, the following sentence will be added to the first paragraph of Rule 1, Section 13:
The Member shall take and continue to take all such steps as may be reasonable for the purpose of averting or minimizing any expense or liability in respect whereof it may be insured by the Association.
Previous course of dealing
Most Clubs have a Rule which reserves the Club's position even though it has not dealt strictly with a Member in the past. Such a Rule is important in those jurisdictions where extrinsic evidence of the parties' course of dealing can be introduced to contradict the express wording of an insurance contract.
Accordingly, the following wording will be incorporated as a new Rule 1, Section 22;
No act, omission, course of dealing, forbearance, delay or indulgence by the Association in enforcing any of these Rules or any contractual terms and conditions shall prejudice or affect the rights and remedies of the Association under these Rules or under such contracts, and no such matter shall be treated as any evidence of waiver of the Association's rights thereunder, nor shall any waiver of a breach by a Member of such Rules or contracts operate as a waiver of any subsequent breach thereof. The Association shall at all times and without notice be entitled to insist on the strict application of these Rules and on the strict enforcement of its contracts.
Loss of Life, Injury and Illness
The current Rule dealing with loss of life, injury and illness does not deal as clearly as it might with Members' differing obligations to crew, longshoremen, passengers, stowaways and refugees.
Accordingly, the current wording will be removed and replaced by a new Rule 2, Section 1, as follows:
LOSS OF LIFE, INJURY AND ILLNESS
A. Liability for life salvage, loss of life of, or personal injury to, or illness of any person, (other than the persons specified in paragraphs (B), (C) and (D) of this Section) and hospital, medical or funeral expenses incurred in relation to such injury, illness or death.
B. Liability for life salvage, loss of life of, or personal injury to, or illness of any seaman and hospital, medical or funeral expenses incurred in relation to such injury, illness or death.
1. Liability hereunder shall include liability arising ashore or afloat.
2. Liability hereunder shall not include, unless otherwise agreed between the Member and the Association, liability to an employee of the Member, or in the case of his death to his beneficiaries, under any Compensation Act, except in respect of an employee:
a. who is the master or a member of the crew of the insured vessel; or
This insurance, however, shall not be considered as a qualification under any Compensation Act, but, without diminishing in any way the liability of the Association, the Member may have in effect policies covering such liabilities. All claims under such Compensation Acts for which the Association is liable are to be paid without regard to such policies.
a. Where the liability arises or the costs or expenses are incurred under the terms of a crew agreement or other contract of service or employment and would not have arisen but for those terms, that liability is not covered by the Association unless and to the extent that those terms shall have been previously approved by the Association in writing.
b. 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.
C. Liability for life salvage, loss of life of, or personal injury to, or illness of any person engaged to handle the cargo of an entered ship.
1. Liability hereunder in connection with the handling of cargo for the insured vessel shall commence from the time of receipt by the Member of the cargo on dock or wharf, or on craft alongside, for loading, and shall continue until due delivery thereof to dock or wharf of discharge or until discharge from the insured vessel on to craft alongside.
2. The Association shall not be liable for any loss, damage or expense sustained, directly or indirectly, by reason of any claim for loss of life, personal injury or illness in relation to the handling of cargo where such claim arises under a contract of indemnity between the Member and his subcontractor.
D. Liability to pay damages or compensation
1. for life salvage, loss of life of, or personal injury to, or illness of any passenger and hospital, medical or funeral expenses incurred in relation to such injury, illness or death;
2. to passengers on board an entered ship arising as a consequence of a casualty to that ship, including the cost of forwarding passengers to destination or return to port of embarkation and of maintenance of passengers ashore;
3. for loss of or damage to the effects of any passenger.
a. There shall be no recovery in respect of liabilities for personal injury or death, delay or any other consequential loss sustained by any passenger by reason of carriage by air, except where such liability occurs during repatriation by air of injured or sick passengers, or following a casualty to the insured vessel.
b. 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.
c. Unless and to the extent that special cover has been agreed in writing by the Association, there shall be no recovery from the Association in respect of claims relating to cash, negotiable instruments, precious or rare metals or stones, valuables or objects of a rare or precious nature.
Loss of crew effects
In the past, the Club has never expressly provided cover for loss of crew effects, essentially because American owners historically insured this risk elsewhere.
Since most Clubs provide this cover in terms, the following wording will be added as a new paragraph at the end of Rule 2, Section 2:
Coverage under Section 2 shall include liability for loss of or damage to the effects of any seaman or any other person (other than passengers) provided that:
a. Unless and to the extent that special cover has been agreed in writing by the Association, there shall be no recovery from the Association in respect of claims relating to cash, negotiable instruments, precious or rare metals or stones, valuables or objects of a rare or precious nature.
b. Where the liability arises or the costs or expenses are incurred under the terms of a contract and would not have arisen but for those terms, that liability is not covered by the Association unless and to the extent that those terms shall have been previously approved by the Association in writing.
Damage to docks, buoys, etc.
The current wording of Rule 2, Section 5 does not expressly include coverage for liabilities other than those arising from "damage." There are, of course, other theories of liability and causes of action by reference to which a Member may suffer loss - e.g. by reason of an infringement of property owners' rights.
Accordingly, the first paragraph of Rule 2, Section 5, will be amended to read as follows (amendments underlined):
Liability for loss of or damage to any dock, pier, jetty, bridge, harbor, breakwater, structure, beacon, buoy, lighthouse, cable, or to any fixed or movable object or property whatsoever,including infringement of rights, except another vessel or craft or property on another vessel or craft, or to property on the insured vessel unless property on the insured vessel is elsewhere covered herein.
Wreck removal, etc.
The current wording does not expressly embrace certain additional liabilities faced by Members in the event of wreck, for example the removal of containers and other cargo.
In addition, the current wording would benefit from some refinement in the interests of greater precision.
Accordingly, the current wording of Rule 2, Section 6 will be replaced by the following:
LIABILITY IN RESPECT OF WRECKS
Liability for costs or expenses relating to
A. the raising, removal, destruction, lighting or marking of the wreck of an insured vessel, when such raising, removal, destruction, lighting or marking is compulsory by law or the costs thereof are legally recoverable from the Member.
B. the raising, removal, destruction or any property (other than oil or other substance within the scope of Rule 2, Section 13) being carried or having been carried on an insured vessel, when such raising, removal or destruction is compulsory by law or the costs thereof are legally recoverable from the Member but only if and to the extent that such property does not form part of the insured vessel and is not owned or leased by the Member or by any company affiliated with the Member, and the Member is unable to recover such costs and expenses from the owner or insurer of such property, or from any other party.
C. any such raising, removal or destruction of the wreck of an insured vessel or any property as is referred to in paragraphs A and B of this section, or any attempt thereat.
D. the presence or involuntary shifting of the wreck of an insured vessel or as a result of the Member's failure to remove, destroy, light or mark such wreck, including liability arising from the discharge or escape from such wreck of oil or any such substance.
1. The insured vessel became a wreck as the result of a casualty or event occurring during the period of that vessel's entry in the Association, in which case the Association shall continue to be liable for the claim notwithstanding that in other respects the liability of the Association shall have terminated pursuant to Rule 5, Section 1(1)(b).
2. In respect of a claim under paragraph A of this Section, the value of all stores and materials saved, as well as the wreck itself, shall first be deducted from such costs or expenses and only the balance thereof, if any, shall be recoverable from the Association.
3. Nothing shall be recoverable from the association under this Section if the Member shall, without the consent of the Association in writing, have transferred his interest in the wreck otherwise than by abandonment, prior to the raising, removal, destruction, lighting or marking of the wreck or prior to the incident giving rise to the liabilities, costs and expenses referred to in this Section.
4. Where the liability arises or the costs or expenses are incurred under the terms of a contract and would not have arisen but for those terms, that liability is not covered by the Association unless and to the extent that those terms shall have been previously approved by the Association in writing.
5. The Association shall not be liable for any costs or expenses of a type, character or kind which would be covered by the hull insurance of the insured vessel.
6. In the event that the wreck of the insured vessel is upon property owned, leased, rented or otherwise occupied by the Member, the Association shall be liable for any liability for removal of the wreck which would be imposed upon the Member by law in the absence of contract if the wreck had been upon property belonging to another, but only for the excess over any amount recoverable under any other insurance applicable thereto.
Ship's proportion of general average
At present, the Rules do not explicitly encompass cover for unexpected contributions in salvage or general average arising from an excessive valuation of the vessel. Most other Clubs specifically provide cover for this (admittedly esoteric) risk and the American Club should do likewise.
Accordingly, a new Rule 2, Section 14 will be added, as follows (the existing Section 14 to be renumbered, see below):
SHIP'S PROPORTION OF GENERAL AVERAGE
The insured vessel's proportion of general average, special charges or salvage not recoverable under the hull policies by reason of the value of the ship being assessed for contribution to general average or salvage at a sound value in excess of the insured value under the hull policies.
Provided always that for the purpose of determining any sum recoverable under this Section 14, the Association shall be entitled to determine the proper value at which the insured vessel should have been insured under the hull policies and the Association shall only be liable for the excess (if any) above the amount which would have been recoverable under the hull policies had the insured vessel been insured thereunder at such value. For the purpose of this Section 14, "proper value" is defined as an amount equal to the free, uncommitted market value of the insured vessel at the time of the incident giving rise to the general average, special charges or salvage.
Most Clubs provide cover for the legal costs of appearing at official inquiries. Although the American Club has as a matter of practice covered such costs in the past, there is merit in making the cover an explicit part of the Rules, in conformity with the standard market practice.
Accordingly, a new Rule 2, Section 15 will be added, as follows (the existing Section 15 to be renumbered, see below):
Costs and expenses incurred by a Member in defending itself or in protecting its interests before an official inquiry into the loss of an insured vessel or into a casualty involving an insured vessel but only to the extent and on such conditions as the Directors in their sole discretion may determine.
Sue and labor and legal costs
Much the same comments as those made in regard to the previous section apply.
Accordingly, a new Rule 2, Section 16 will be added, as follows (the existing Section 16 to be renumbered, see below):
SUE AND LABOR AND LEGAL COSTS
Extraordinary costs and expenses reasonably incurred after any casualty for the purpose of avoiding or minimizing any liabilities, costs or expenses against which the Member is insured by the Association.
Legal costs and expenses relating to any liabilities, costs or expenses against which the Member is insured by the Association, but only to the extent that such legal costs and expenses have been incurred with the prior approval of the Association in writing or to the extent and on such conditions as the Directors in their sole discretion may determine.
In light of the addition of the foregoing new Sections, the current Rule 2, Sections 14, 15 and 16 (dealing respectively with expenses of investigation and defense, expenses incurred under authorization and the "omnibus" clause) will be renumbered Sections 17, 18 and 19 respectively.
Termination of liability
The above title to Rule 5 will be changed to Cesser and Termination of Cover, more properly to reflect the actual content of the Rule.
The sixty day "period of grace" for the fulfillment of a Member's premium obligations to the Club will be reduced to twenty days, the reason being that the current period affords a recalcitrant Member in premium delinquency an unconscionably long period of time to cure the delinquency - and potentially increase the exposure of the Club to any claims as may have arisen during the period when payment remained outstanding.
Accordingly, the current Rule 5, Section 1, 2a will be amended to read as follows (amendment underlined):
In the event of nonpayment of the full premium within sixty days after attachment or, if installment payment of the premium has been arranged, in the event of nonpayment of any installment thereof within twenty days after it is due, this insurance may be canceled by the Association upon five days' written notice being given the Member. Should this insurance be canceled under the provisions of this Rule the Association shall not be liable for any claims whatsoever unless within twenty days from the date/time of such cancellation, there are paid to the Association by or on behalf of the Member all premiums due for the period from commencement until cancellation of the insurance, and the payment of all possible assessments for such period is unconditionally guaranteed by a responsible surety, in which case the Association shall be liable only for claims arising during such period.
Reordering of certain sections
In view of the new wording contained in the revised Rule 2, Section 1 and in view of the fact that, as a matter of logic, the sections involved really belong to Rule 3 (Risks Excluded) it is proposed that the current wording of Rule 2, Sections 1, 5 and 6 be redrafted as follows to form new sub-sections 15 and 16 to Rule 3, Section 1:
15. Liabilities, costs and expenses in respect of any person (other than those employed as marine crew) on board the insured vessel (being an accommodation ship) employed by someone rather than the Member unless there has been a contractual allocation of risks as between the Member and the employer of any such person which has been previously approved by the Association in writing.
16. Liabilities, costs and expenses in respect of hotel, restaurant, bar or other guests or visitors on board the insured vessel when moored and open to the public as a hotel, restaurant, bar or other place of entertainment.
The amendments and additions described above will be incorporated in the Club's new By-Laws and Rules for 2000 and 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.
Joseph E.M. Hughes, Chairman & CEO