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

Clause 15-20. Scope of cover

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

In earlier versions, the war risk insurer’s liability was linked to liability and expenses “ which would have been recoverable under the vessel’s P&I insurance if the event in question had not been caused by a war peril, cf. Cl. 2-9”. It was not clear whether the reference to war perils was based on the assumption that the peril in question was excluded as a war peril in P&I conditions. However, the intention was that the war risk insurer was to assume all perils defined in Cl. 2-9 regardless of how the peril in question was regulated in the P&I insurance. This has now been established in sub-clause 1 (a). This means, e.g., that the war risk insurer assumes liability and expenses related to piracy even if piracy is covered under the P&I Clubs’ conditions as an ordinary marine peril.

Sub-clause 1 (b) entails that the war risk 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 P&I rules, 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 act. 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 contract, a threat of use or use of a weapon of war, including a bomb, is regarded as a war peril. This peril would therefore have been excluded from the P&I cover, and the assured would not have had P&I insurance.

This risk of lack of cover has now been eliminated. The war peril exclusion in P&I insurance has been defined in relation to the definition of a war peril laid down in the Pooling Agreement of the International Group of P&I Clubs. Under this agreement each P&I club has a discretionary power to decide with binding effect in relation to the Pooling Agreement whether an event is to be regarded as an act of terrorism. Such a discretionary power for the P&I club to decide whether an event is a terrorism peril may not be decisive with regard to the war risk insurer’s liability under Cl. 15-20 of the Plan. Whether a liability or an expense is due to an act of terrorism according to Cl. 15-20 must be decided pursuant to Cl. 2-9, sub-clause 1 (c) of the Plan. If the act falls outside the scope of the Plan’s concept of terrorism, the assured’s P&I cover will depend on the P&I clubs accepting that the act does not constitute an act of terrorism under the Pooling Agreement of the International Group of P&I Clubs (“the Pooling Agreement”).

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, 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. 15-20, this issue is of no consequence because the war risk 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. 15-20 provided such use of weapons is excluded in the Pooling Agreement. When applying Cl. 15-20, the P&I clubs’ own definition of weapons of war shall be decisive. This is currently commented on as follows on the website of the International Group:

“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 risk 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 risk 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 Interclub agreement. The war risk insurer is thus protected against whatever an individual club might decide. A 3/4 majority is required to change the Interclub agreement, and there will normally be some forewarning of what is to come.

It is the Pooling Agreement, as it read at the time the war risks insurance contract pursuant to Chapter 15 was entered into, which is decisive for the P&I liability of the war risk insurer. This means that the P&I system cannot make any changes in the course of the insurance period that would have consequences for the war risk insurer. Under this approach, the war risk 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 risk insurer does not wish to cover.

Sub-clause 2 presumes that the vessel has effected its ordinary P&I insurance with Gard, if such insurance is lacking.

Furthermorea requirement that the vessel’s P&I insurance must be effected with a club that is party to the Pooling Agreement of the International Group of P&I Clubs. This ensures that conditions are approximately homogeneous as regards the war risk insurer’s assumption of risk. If a vessel has P&I insurance or liability insurance outside the International Group, Gard’s conditions will determine the scope of cover (range of losses), cf. above.
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Clause 15-20. Scope of cover

The insurer covers liability and expenses which are covered by the the vessel's P&I insurance if the liability/expenses have been caused by a war peril as defined in: Cl. 2-9, or Appendix IV to the Pooling Agreement of the International Group of P&I Clubs, as it read at the time this insurance...
Clause 15-21. (deleted)

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Clause 15-21. (deleted)
Clause 15-22. Limitations to the cover

Sub-clause 1 establishes that as a basic rule the war risk insurer's cover under the P&I Section is subsidiary in relation to any other insurance which 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 risk insurer will not be left with full liability in respect of other insurers who often use clauses which make the insurance subsidiary to all other insurances. The provision does not apply in relation to excess covers. The insurance cover in question here will be a genuine supplement to any cover the assured might otherwise have under his insurances.

Sub-clause 2 establishes that the war risk insurance is not subsidiary in relation to liability and expenses that are recoverable under both the vessel’s P&I insurance and Cl. 15-20, provided the P&I club concerned is party to the Pooling Agreement of the International Group of P&I Clubs. However, it is appropriate that the war risk insurance is the main insurance in this context. The amendment is otherwise in line with practice in piracy cases, where the war risk insurer has normally acted as the main insurer.

Some P&I clubs have their own excess cover. Insofar as this is done, the provision will not apply, as the insurance cover will actually 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 which make the insurance subsidiary to all other insurances, the provision has full force and effect.
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Clause 15-22. Limitations to the cover

If liability and expenses as mentioned in Cl. 15-20 are covered by another insurance which the assured has effected, the cover under this Section is subsidiary in relation to that insurance. This shall not apply to liability and expenses that are recoverable under the vessel's P&I insurance and...

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Commentary

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

Clause 15-20. Scope of cover

Clause 15-20. Scope of cover

Clause 15-21. (deleted)

Clause 15-21. (deleted)

Clause 15-22. Limitations to the cover

Clause 15-22. Limitations to the cover