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Section 5-7: Owner’s liability, etc. (P&I)

  • Clause 18-78. Scope of cover

    The Clause was new in 2016 and corresponds to Cl. 15-20 although somewhat simplified as P&I insurance for MOUs is not poolable within the International Group (IG) of P&I Clubs’ Pooling Agreement and thus not reinsured through the IG’s reinsurance arrangements. 

    Sub-clause 1 establishes that the scope of the war risks insurer’s P&I cover corresponds to the P&I cover of the MOU in the sense that the insurance covers the same liability and expenses, i.e. the same range of losses. 

    Sub-clause 1 entails that the war risks insurer also assumes the war peril as defined in the Pooling Agreement of the International Group of P&I Clubs. The rationale for this provision is that the P&I clubs do not define a war peril in the same way as Cl. 2-9 of the Plan. This difference could result in the assured being without P&I insurance if the scope of the war peril exclusion in the P&I insurance was wider than the range of war perils defined in Cl. 2-9.

    An example:
    Under the rules of the P&I clubs, use of weapons of war is a war peril regardless of motive, while under Cl. 2-9 civilian use of weapons of war will only be a war peril if there is a political, social or religious motive for the use of such weapons. This distinction is illustrated by the case of Peter Wessel (ND 1990.140). An anonymous bomb threat (which proved to be false) was considered to be a marine peril because there was no reason to assume that there was any political, social or religious motive behind the threat. Under the P&I insurance, a threat of use or use of a weapon of war, including a bomb, is regarded as a war peril. 

    If the wording of the definition of the war peril applied by the P&I club in question is not identical to that of the Pooling Agreement of the IG (the Pooling Agreement), the definition of a war peril in the Pooling Agreement will be decisive. The Pooling Agreement provides that all use of “mines, torpedoes, bombs, rockets, shells, explosives or other similar weapons of war” constitutes a war peril. There has been discussion within the International Group as to whether pirates’ use of automatic weapons entails that the attack is no longer a marine peril, but a war peril. In relation to Cl. 18-78, this issue is of no consequence because the war risks insurer assumes all war risks as defined in Cl. 2-9. Use of weapons of war by other criminals will not be covered by Cl. 2-9, but is covered by Cl. 18-78 provided such use of weapons is excluded in the Pooling Agreement. When applying Cl. 18-78, the P&I clubs’ own definition of weapons of war shall be decisive. This is currently commented on as follows on the International Group’s web site:

    “What does ‘similar weapons of war’ mean? There is no definition in the Pooling Agreement or in club rules but the wording used ‘or other similar weapons of war’ indicates that such other weapons should be of a similar nature to those previously identified. The specifically identified weapons of war are mines, torpedoes, bombs, rockets, shells and explosives and show an intention that something more than guns/rifles/conventional ammunition would be needed to trigger the operation of the exclusion.”

    Generally speaking, it takes a great deal for a shipowner to be held liable for damage and losses that are a result of war perils. Even the strict oil spill liability under the CLC Convention does not apply if the oil spill is attributable to acts of war or damage caused by a third party with the intent to cause damage.

    For the war risks insurer, assuming the range of war perils defined in the P&I conditions entails an increased risk because he is leaving it up to another insurer to define this range of perils. This is quite different from applying the range of losses covered by the P&I insurance because, by expanding the range of losses the P&I clubs will also be exposing themselves in their day-to-day activities as a marine peril P&I insurer. It will be simpler for a P&I club to reduce its range of perils by expanding the war peril exclusion when it knows that the entire risk is transferred to the war risks insurer. Instead of leaving it up to the individual P&I club to define a war peril, reference has therefore been made to the definition in the Pooling Agreement. The war risks insurer is thus protected against whatever an individual club might decide. A 3/4 majority is required to change the Pooling Agreement, and there will normally be some forewarning of what is to come.

    Under the last part of sub-clause 1, reference is made to the Pooling Agreement as it read at the time the agreement was entered into as decisive for the P&I liability of the war risks insurer. This means that any changes in the Pooling Agreement during the insurance period will not have any consequence for the war risks insurer. Under this approach, the war risks insurer will have time to change his conditions the next time they are renewed if he sees that the P&I system excludes from its range of marine perils any perils that the war risks insurer does not wish to cover.

    In sub-clause 2, it is presumed that the MOU had effected its ordinary P&I insurance with Gard if such insurance is lacking. 

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    Clause 18-78. Scope of cover

    The insurer covers liability and expenses which are covered by the MOU’s P&I insurance if the liability/expenses have been caused by a war peril as defined in Cl. 2-9 and/or as defined under the Pooling Agreement of the International Group of P&I Clubs as it read at the time this insurance contra...

  • Clause 18-79. Limitations to the cover

    Sub-clause 1 establishes that as a basic rule the war risks insurer's cover under the war risks section is subsidiary in relation to any other insurance the assured may have effected. The effects for the assured and the insurer of the insurance being made subsidiary are set out in Cl. 2-6 and Cl. 2-7, and may vary depending on whether or not the other insurance has also been made subsidiary. The provision has been included to ensure that, in the event of double insurance, the war risks insurer will not be left with full liability in respect of other insurers who often use clauses that make the insurance subsidiary to all other insurances. 

    The provision does not apply in relation to excess covers. Such excess insurance cover will be a genuine supplement to any cover the assured might otherwise have under his insurances.

    Furthermore, the war risks insurance is not subsidiary in relation to the piracy risk. It is appropriate that the war risks insurance is the main insurance in this context. This is in line with practice in piracy cases, where the war risks insurer has normally acted as the main insurer.

    Some P&I clubs offer excess war risks cover. Insofar as this is activated, the provision will not apply as the insurance cover will come in addition to the cover the assured otherwise might have under its insurances. However, for clauses relating to the ordinary P&I clubs' usual cover that make the insurance subsidiary to all other insurances, the provision has full force and effect. 

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    Clause 18-79. Limitations to the cover

    If liability and expenses as mentioned in Cl. 18-78 are covered by another insurance, which the assured has effected, the cover under this Section is subsidiary in relation to that insurance, except for piracy risks.