09/2009: Amendments to the Rules for 2010 - Member Circulars

Dear Sirs,

Re: Amendments to the Rules for 2010

This circular outlines amendments to the Rules for Ships and the Rules for mobile offshore units (MOUs), which will enter into force at noon GMT on 20 February 2010. It is addressed to the Members of both Assuranceforeningen Gard – gjensidig and Gard P. & I. (Bermuda) Ltd., as the majority of all direct P&I entries with Gard will be transferred to Gard P. & I. (Bermuda) Ltd. with effect from the commencement of the 2010 policy year.¹ Gard AS is acting as agent for both associations.

Section 1 below sets out the amendments resulting from Gard P. & I. (Bermuda) Ltd and Assuranceforeningen Gard – gjensidig publishing a joint set of Rules. Sections 2 and 3 summarize the amendments to the Rules governing P&I and Defence risks, respectively. Finally, section 4 sets out the amendments to the Rules for MOUs.

1. Rules for 2010 – standard terms of cover for Assuranceforeningen Gard - gjensidig and Gard P. & I. (Bermuda) Ltd

At the meetings held in Athens on 24 and 26 October 2009 respectively, the Boards of Directors of Assuranceforeningen Gard – gjensidig and Gard P. & I. (Bermuda) Ltd agreed to transfer a major part of the direct P&I business from the former to the latter with effect from the commencement of the 2010 policy year. In order to ensure that the Rules of the two associations are identical, it has been decided to publish a joint set of Rules. Thus, the 2010 Gard Rules for Ships and MOUs will constitute the standard terms of cover for all direct entries in both Gard P. & I. (Bermuda) Ltd and Assuranceforeningen Gard.

The Rule book will no longer contain the Statutes or Bye-Laws of the two associations. The Statutes of Assuranceforeningen Gard – gjensidig (in Norwegian and English) and the Bye-Laws of Gard P. & I. (Bermuda) Ltd, as the case may be, will be published on the Gard website and will also be available on request.

2. Rules for Ships – P&I

Rule 1 Interpretation

The following definitions are added to Rule 1 for the purpose of establishing joint Rules for the two associations (amendment underlined):

“Articles of Association - for entries with Assuranceforeningen Gard – gjensidig, the ‘Articles of Association’ means the Statutes of Assuranceforeningen Gard – gjensidig and for entries with Gard P. & I. (Bermuda) Ltd, the ‘Articles of Association’ means the Bye-Laws of Gard P. & I. (Bermuda) Ltd”.

“Association - for entries with Assuranceforeningen Gard – gjensidig the ‘Association’ means Assuranceforeningen Gard – gjensidig and for entries with Gard P. & I. (Bermuda) Ltd the ‘Association’ means Gard P. & I. (Bermuda) Ltd.“

In Rules 2, 19 and 21 the reference to the “Statutes” shall be replaced with “Articles of Association”.

Rule 22 Laid-up returns

Following the turmoil of the financial markets over the recent year, and consequent adverse impact on many shipping markets, an increased number of ships are being laid up. When a ship has been laid up the Member may claim laid-up returns of premium in accordance with the provisions of Rule 22. As the number of lay-ups has increased it has become more important to have an overview of the lay-ups with respect to the financial planning process. Thus, notification requirement is introduced in Rule 22 to ensure that the relevant association has information of the lay-up enabling it to make provisions for the return premiums.

The following amendments are made to Rule 22 (amendment underlined):

Rule 22 Laid - up returns

Subject to any special terms which may have been agreed, if the Ship has been laid up with no cargo on board at a safe lay-up location for a period of at least 30 consecutive days, excluding the day of arrival at and the day of departure from the lay-up location, such proportion as the Association may decide of the Advance Call or of the fixed premium payable, pro rata for the period of the lay-up, shall be returned to the Member.

No claim for laid-up returns shall be recoverable from the Association unless the Member has informed the Association of the lay-up of the Ship within 30 days after the commencement of the lay-up and the claim for laid-up returns is made within 30 days of the end of the lay-up period.”

3. Rules for Ships - Defence

Rule 66 Cases pertaining to acquisition or disposal of the Ship

Pursuant to Rule 66, the Defence cover comprises legal and other costs incurred in respect of disputes regarding, inter alia, building and purchase of the ship. Following the turmoil in the financial markets, and consequent adverse impact on many shipping markets, there has been an increased demand for cover for disputes arising out of e.g. defaulting charterers for ships that have not yet been delivered. Under the current structure of the Defence cover, such risks are not covered. The scope of the Defence cover has now been changed also to comprise disputes relating to the future employment of ships being built or purchased, but which are not yet delivered.

Based on the above, the following amendments are made to Rule 66 (amendments underlined):

“Rule 66 Cases pertaining to acquisition or disposal of the Ship

The Association shall cover legal and other costs necessarily incurred in establishing or resisting claims in connection with:

a building, purchase or mortgaging of the Ship, including claims in connection with the future employment of the Ship being built or purchased, provided always that the Ship has been entered in the Association for Defence cover at the latest on signing the relevant contract governing the building or purchase;

b sale of the entered Ship;

c conversion of or alterations to the Ship, including claims in connection with the future employment of the Ship being subject to conversion or alteration, provided always that a separate agreement, pursuant to which the Association agrees to provide Defence cover for such legal and other costs has been entered into with the Association at the latest on the signing of the relevant contract for the conversion of or the alterations to the Ship.”

Rule 70 Limitation – Defence entries

In accordance with Rule 70 the standard limitation for Defence claims is USD 10 million. The category of claims as described in Clause 66 (disputes relating to building, purchase, mortgaging, conversion and alteration of the ship) is considered to represent a significant exposure for the Club. Thus, it has for several years been the associations’ underwriting practice to insert a special limitation of USD 1 million in the certificates of entry for this category of claims. This practice has now been codified in the Rules through the introduction of a special limitation in Rule 70 of USD 1 million for claims falling within the scope of Rule 66.

The following amendments are made to Rule 70 (amendment underlined):

“Rule 70 Limitation

1 The Association shall not be obliged to compensate under a Defence entry legal and other costs falling within the scope of Rule 65 in excess of USD 10 million per event.

2 The Association shall not be obliged to compensate under a Defence entry legal and other costs falling within the scope of Rule 66 in excess of USD 1 million per event.

3 The Association shall determine in its absolute discretion whether legal and other costs for the purpose of this Rule 70 shall be deemed to fall within the scope of Rule 65 or Rule 66 and whether the legal and other costs have arisen out of one or several events, irrespective of whether one or several Ships were involved.

4 The Association shall be under no obligation to give reasons for any of its decision under this Rule.”

Appendix V, paragraph 3, Deductibles, Defence entries

At the Board of Directors meetings held on 24 and 26 October 2009 it was resolved to increase the minimum deductible for Defence entries to USD 5,000.

Appendix V, paragraph 3.a, shall read as follows (proposed amendment underlined):

“3.a The standard deductible for all legal an other costs covered under Rules 65 and 66 and incurred………. subject to a minimum deductible of USD 5,000.”

4. Rules for MOUs

Rule 1 Interpretation

As described in section 2 above, certain definitions are added for the purpose of establishing joint Rules for the two associations (amendment underlined):

In Rule 12 the reference to the “Statutes” shall be replaced with “Articles of Association”

Rule 13 Laid-up returns

We refer to the explanatory notes to the amendment to Rule 22 in the Rules for Ships above.

The following amendments are made to Rule 13 (amendment underlined):

“Rule 13 Laid-up returns

1. …

…

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If you have any questions or comments, please contact Senior Vice President Kjetil Eivindstad.

Yours faithfully, GARD AS

Claes Isacson Chief Executive Officer

¹ Reference is made to circular 6/2009 sent to the Members in October 2009.