Our Ref. 96/05
February 1997
To: Ship and crew management Members.
BIMCO Special Circular
New Insurance Clauses to be used with “Shipman” & “Crewman”
We attach a copy of the recent BIMCO Special Circular with the proposed changes to the insurance clauses in the “Shipman” and “Crewman” management contracts. ITIC endorses the changes and recommends not only that they be incorporated into future contracts, but also, where possible, inserted into existing ones.
For ITIM, Managers
International Transport Intermediaries Club Ltd.
This is the text of a “BIMCO Special Circular” –
The Baltic and International Maritime Council – Circular No. 1, 22nd January
New Insurance Clauses to be used with “Shipman” and “Crewman”
In recognition of a need to update the insurance provisions of the “Shipman” Standard Ship Management Agreement and the “Crewman” Standard Crew Management Agreement to reflect current practices as applied in the management industry, the Documentary Committee agreed at its recent meeting to adopt two new insurance clauses to replace Clause 13 of “Shipman” and Sub-clause 4.7 of “Crewman”.
Careful consideration has been given to the drafting of the relevant clauses which address amongst other things the important and complicated issue of the managers’ right to be co-assured on the shipowners’ insurance policies and the managers’ exposure to liability for P&I calls not paid by the owners.
The issue is complicated not only because different terminologies are used to describe the co-assured status of a ship manager, but also because no universal practice is applied by third party liability insurers as regards the managers’ responsibility for calls unpaid by the owners.
Therefore, in order to assist members, set out below are a few guiding notes on the rationale behind the key aspects of the two clauses printed overleaf. These are almost identical except that Sub-clause (a)(ii) of the Clause to be used with “Shipman” makes no reference to crew risks and diversion expenses.
The approach adopted by most P&I Clubs towards parties who want the benefit of co-assurance together with the shipowner differs fundamentally between:-
(a)those who are prepared to accept responsibility, together with the shipowner, for calls (premiums): and,
(b)those who are not prepared to accept any such responsibility.
Although as previously mentioned there is no universal practice regarding co-assurance, in most cases a co-assured within category (a) is given the benefit of a full P&I cover (as opposed to limited cover usually referred to as “mis-directed arrow” cover) in the same way as the shipowner, and this cover is similarly unlimited (except for any overall limit on the Club’s cover). Normally no premium will be charged for co-assured cover but the co-assured must be prepared to pay any outstanding calls that the shipowner fails to pay.
Those co-assured within category (b) will receive only limited cover which does not extend beyond whatever liability the shipowners might have had for the claim had it been made against them, and such cover will only respond once, whether to the owner or to the co-assured manager, rather than the manager having a full and separate cover of his own. Accordingly, the managers will only recover from the Club to the extent that the owners themselves would have been entitled to recover, and if the ship owners can limit their liability and the managers cannot, the managers may find themselves uninsured for the amount of the claim beyond the owners' limit. However, the managers will not be held liable for outstanding calls owed by the owners.
Sub-clause (c) (i) constitutes what seems to be the practice as applied by most P&I Clubs today i.e., that if the managers wish to benefit from having full cover as co-assured then they must also be prepared to accept liability for outstanding calls unpaid by the shipowners.
As will be seen, Sub-clause (c) (ii), however, provides for the owners' insurance to name the managers as joint-assured with full cover on terms that the managers shall be under no liability for premiums or calls arising in connection with the owners' insurances. As indicated above, this may not be possible to achieve, since P&I Clubs in the International Group will require that the managers assume responsibility for calls when fully covered. However, one cannot rule out the possibility that the insurance facilities outside the International Group may offer full P&I cover with no responsibility for calls, and it was for this reason that Sub-clause (c) (ii) was included.
Some managers provide only limited services such as crew management. The crew managers may provide crews acting not as agent to the shipowners but as principals, in which case they may place in their own name a separate crew risk insurance to that of the shipowners who will consequently exclude such risks from their own P&I cover. However, to safeguard themselves against the full range of P&I liabilities resulting from e.g., the negligence of crews supplied by them, crew managers may still want to be co-assured on the shipowners' insurance policies.
Managers who provide only limited services, such as a manager supplying crew or part of a crew, may nevertheless be inclined to seek co-assurance on limited terms without the responsibility to pay calls owed by the shipowners. In doing so they should realise that most managers, even when acting as a crew manager, would regard the risks associated with this limited cover as being far greater than the risk of being made liable for the owners' unpaid P&I calls.
Accordingly, BIMCO was not prepared to make a specific provision dealing with limited cover, but realising that it is a commercial option in the insurance market Sub-clause (c) (iii) has been introduced. The commercial parties should, however, make sure that any terms agreed under Sub-clause (c) (iii) are in accordance with their insurances.
As previously mentioned no reference has been made to "diversion expenses" in the Clause to be used with "Shipman". According to "Shipman", it will always be the shipowners' responsibility to take out the full P&I cover which will include "diversion expenses" whereas in the "Crewman" the parties may agree to split the insurances so that the crew managers themselves place the insurance for crew risks. In those cases where the crew managers may wish to place crew risks insurance themselves, there is a risk of "diversion expenses" getting lost and it has thus been made clear in the Clause to be used with "Crewman" that it is the owners' responsibility to take out the insurance for "diversion expenses".
Members are strongly recommended to make use of the revised insured clauses in all new contracts when using the "Shipman" and "Crewman" Agreements until a complete revision of these documents has been completed.
Insurance Clause to Replace "Shipman" Clause 13
The Owners shall procure that throughout the period of this agreement:-
(a)at the Owners' expense, the Vessel is insured for not less than her sound market value or entered for her full gross tonnage, as the case may be for:-
(i)usual hull and machinery marine risks (including crew negligence) and excess liabilities;
(ii)protection and indemnity risks (including pollution risks); and
(iii)war risks (including protection and indemnity and crew risks);
in accordance with the best practice of prudent owners of vessels of a similar type to the Vessel, with first class insurance companies, underwriters or associations ("the Owners' Insurances");
(b)all premiums and calls on the Owners' Insurances are paid promptly by their due date for payment;
(c)the Owners' Insurances name the Managers and any third party designated by the Managers as a joint assured, with full cover, with the Owners obtaining cover in respect of each of the insurances specified in (a) above:-
(i)on terms whereby the Managers and any such third party are liable in respect of premiums or calls arising in connection with the Owners' Insurances; or
(ii)if reasonably obtainable, on terms such that neither the Managers nor any such third party shall be under any liability in respect of premiums or calls arising in connection with the Owners' Insurances; or
(iii)on such other terms as may be agreed in writing.
(d)written evidence is provided, to the reasonable satisfaction of the Managers, of their compliance with their obligation under this clause within 30 days of the commencement of the Agreement, and of each renewal date and, if specifically requested, of each payment date of the Owners' Insurances.
Insurance Clause to Replace "Crewman" Sub-clause 4.7
The Owners shall procure that throughout the period of this agreement:-
(a)at the Owners' expense, the Vessel is insured for not less than her sound market value or entered for her full gross tonnage, as the case may be for:-
(i)usual hull and machinery marine risks (including crew negligence) and excess liabilities;
(ii)protection and indemnity risks (including pollution risks and diversion expenses but excluding crew risks if separately insured by the Crew Managers in accordance with sub-clause 3.8 (a)); and
(iii)war risks (including protection and indemnity and crew risks)
in accordance with the best practice of prudent owners of vessels of a similar type to the Vessel, with first class insurance companies, underwriters or associations ("the Owners' Insurances");
(b)all premiums and calls on the Owners' Insurances are paid promptly by their due date for payment;
(c)the Owners' Insurances name the Crew Managers and any third party designated by the Crew Managers as a joint assured, with full cover, with the Owners obtaining cover in respect of each of the insurances specified in (a) above:-
(i)on terms whereby the Crew Managers and any such third party are liable in respect of premiums or calls arising in connection with the Owners' Insurances; or
(ii)if reasonably obtainable, on terms such that neither the Crew Managers nor any such third party shall be under any liability in respect of premiums or calls arising in connection with the Owners' Insurances; or
(iii)on such other terms as may be agreed in writing.
(d)written evidence is provided, to the reasonable satisfaction of the Crew Managers, of their compliance with their obligations under this clause within 30 days of the commencement of the Agreement, and of each renewal date and, if specifically requested, of each payment date of the Owners' Insurances.