Published 10 January 2001
Circular No. 9/2000 January 2001
TO THE MEMBERS OF ASSURANCEFORENINGEN GARD -gjensidig-
Dear Sirs,
AMENDMENTS TO ASSURANCEFORENINGEN GARD?S STATUTES AND RULES AND OTHER STANDARD TERMS OF ENTRY
Assuranceforeningen Gard?s (the "Club") Statutes and Rules for the 2001 policy year, which commences at noon GMT on 20 February 2001, contain some alterations to those applying for the 2000 policy year.
The remainder of this Circular discusses these changes in more detail.
The Statutes
The Extraordinary General Meeting held on 31 March 2000 (see Circular 1/2000) endorsed the Committee?s recommendation to amend Article 2.2 of the Statutes to read as follows in Norwegian and English (amendments underlined)
Foreningens formål er forsikring på gjensidig basis av ansvar, tap, omkostninger og utgifter som Medlemmene pådrar seg i direkte forbindelse med driften av skip inntegnet i Foreningen samt å delta i annen virksomhet i tilknytning til dette.
The purpose of the Association is to insure on a mutual basis liabilities, losses, costs and expenses incurred by the Members in direct connection with the operation of Ships entered in the Association and to be engaged in other business related thereto.
The amendment was deemed necessary in order to allow the Club to own a controlling stake in the newly established management company, Gard Services AS.
Rules for Ships - P&I
Rule 38 - Pollution - CERCLA claims
The Comprehensive Environmental Response Compensation and Liability Act ("CERCLA") of the United States covers liabilities arising from pollution caused by slops discharged from a ship to an official waste dump and can give rise to pollution liabilities on the shipowner many years after the waste was discharged. If the dump begins to leak several years later, the shipowner whose waste was dumped at a site can be held liable for the costs of clean up. The shipowner may be deemed to be a so-called "generator" under CERCLA.
The Member will not have a legal right under Club Rules to be indemnified for such liabilities because the general criteria as to direct connection with the operation of the entered ship is not met. However, Rule 38 has been amended in order to allow cover to be afforded a Member at the sole discretion of the Club?s Executive Committee.
The existing Rule 38 will become the new Rule 38.1. A new Rule 38.2 has been introduced.
Rule 38 shall read (amendments underlined): Rule 38 Pollution
The Association shall cover:
liabilities, costs and expenses (excluding fines) arising in consequence of the discharge or escape from the Ship of oil or any other substance or the threat of such discharge or escape;
liabilities, costs and expenses incurred by the Member pursuant to any agreement approved by the Association for the purpose of this Rule.
The Association may, in its sole discretion, authorise payment, in whole or in part, of any liability incurred by the Member for loss, damage, costs and expenses arising as a consequence of the discharge or escape, or the threat of discharge or escape of any hazardous waste (previously carried on the Ship) from any landbased dump, storage or disposal facilities.
Rule 47 - Fines
The current wording in Rule 47 was introduced with effect from 20 February 2000 and was based on a "model rule" which all International Group Clubs were invited to adopt. The wording of the Rule has now been re-edited and slightly amended in order to be harmonised with the final text of the Pooling Agreement. In practice, the amendments mean that cover for fines is extended to fines within the categories (a), (b), (c) and (d) as listed in Rule 47.1 below, where such fines are imposed upon a third party whom the Member is legally obliged to reimburse or whom the Member reimburses with the agreement of the Club.
Rule 47 shall read (amendments underlined): Rule 47 Fines
The Association shall cover fines or other penalties imposed upon a Member (or, imposed upon a third party whom the Member is legally obliged to reimburse or whom the Member reimburses with the Agreement of the Association) by any court, tribunal or other authority of competent jurisdiction for or in respect of any of the following:
short- or over-delivery of cargo, or failure to comply with regulations concerning the declaration of goods, or documentation of cargo, provided that the Member is insured by the Association for cargo liability under Rule 34;
breach of any immigration law or regulations;
the accidental escape or discharge of oil or any other substance or threat thereof, provided that the Member is insured for pollution liability by the Association under Rule 38, and subject to the applicable limit of liability under the P&I entry in respect of oil pollution risks;
smuggling or any infringement of any custom law or regulation other than in relation to cargo carried on the Ship.
The Association may, in its sole discretion, cover in whole or in part a fine or penalty other than those listed in Rule 47.1 above imposed upon the Member (or imposed upon a third party whom the Member is legally obliged to reimburse), provided the Member has satisfied the Association that he took such steps as appear to the Association to be reasonable to avoid the event giving rise to the fine or penalty.
The Association shall be under no obligation to give reasons for its decision pursuant to Rule 47.2 above.
Rule 61 - Divers
The wording has been changed to correspond to a similar change in the text of the Pooling Agreement. The amendment clarifies the fact that the exclusion in Rule 61 (b) does not apply to recreational diving activities and to incidental diving operations carried out in relation to inspections, repairs or maintenance of the Ship.
Rule 61 shall read (amendments underlined): Rule 61 Submarines, diving bells and divers
The Association shall not cover under a P&I entry liabilities, losses, costs or expenses arising out of
the operation by the Member of submarines, mini-submarines or diving bells; or
the activities of professional or commercial divers where the Member is responsible for such activities other than
activities arising out of salvage operations being conducted by the Ship where the divers form part of the crew of that Ship (or of diving bells or other similar equipment or craft operating from the Ship) and where the Member is responsible for the activities of such divers; and
incidental diving operations carried out in relation to the inspection, repair or maintenance of the Ship or in relation to damage caused by the Ship; and
recreational diving activities.
Rule 72 - Conduct of Member - Special Y2K clause
A special Y2K clause was introduced in Rule 72.2 with effect from 20 February 1999. As there is no longer a need for this special millennium clause, it has been deleted with effect from 20 February 2001. Thus the new clause 72 will only comprise what today is Rule 72.1 which is the original "Wilful Misconduct" clause in the Pooling Agreement and which has been in the Rules for many years.
Rules for Ships - Defence
Rule 68 - Disputes with the Association and other Members - unpaid sums
A minor editorial change has been made in Rule 68. The wording in the existing Rules 68 (1) and (2) remains unchanged, whilst the new Rule 68 (3) contains the wording in the existing Rule 69. There is no material amendment.
Rule 68 shall read: Rule 68 Disputes with the Association and other Members - unpaid sums
The Association will not cover under a Defence entry costs of cases against the Association itself, its subsidiaries, agents, representatives or servants.
No cover shall be available under Defence entries to either party where a dispute arises between Joint Members, Co-assureds, affiliates or associates of the Member or Co-assureds or any combination thereof.
No Member shall be entitled to cover under a Defence entry so long as Advance Premiums or Supplementary Calls or other sums of whatsoever nature owed to the Association, whether in respect of Defence or P&I cover or otherwise, remain unpaid.
Rule 69 The Association's right to control and direct the handling of a case - withdrawal of cover
In order to clarify the Club?s right to direct and control the handling of a Defence case, some changes have been made in the new Rule 69. Rule 69 (1) will now contain a provision giving the Club an express right to control and direct the handling of a case falling within the Defence cover. Rule 69.2 will correspond to the former Rule 70 (save that a new proviso (c) has been added in order to codify the existing practice) which gives the Club a legal right to discontinue its support if the Member proceeds with the case contrary to the Club?s advice. The Club?s right to direct the handling of a case and right to withdraw ought to be linked to each other and dealt with in the same rule.
Rule 69 shall read (amendments underlined): Rule 69 The Association?s right to control and direct the handling of a case - withdrawal of cover
The Association shall have the right, if it so decides, to control or direct the conduct or handling of any case or legal and other proceedings relating to any matter in respect whereof legal and other costs are covered under a Defence entry and to require the Member to settle, compromise or otherwise dispose of the case or legal and other proceedings in such manner and upon such terms as the Association sees fit.
The Association may, in its sole discretion, at any stage of the handling of the case, decline to cover under a Defence entry the legal and other costs involved where:
the Member, without the Association?s authority, or contrary to its advice, proceeds with the case in a manner which in the view of the Association is undesirable;
the Member refuses to settle the case on conditions which the Association recommends or which are recommended by lawyers acting on behalf of the Association or the Member;
any of the circumstances set out in Rule 67 subsequently materialise or are brought to the attention of the Association.
Rule 70 Limitation
With effect from the beginning of the 2001 policy year, an overall limit of USD 10 million per event has been introduced on the Defence cover. The limitation provision has been inserted in Rule 70. The wording allows the Club to extend the cover beyond the limit on a discretionary basis. The extension can extend to further legal and other costs in whole or in part, and can be made conditional upon certain special terms, as determined by the Club in its sole discretion, as to the handling and conduct of the case being met.
Rule 70 shall read (amendments underlined): Rule 70 Limitation
The Association shall not be obliged to compensate under a Defence entry legal and other costs in excess of USD 10 million per event (the "Limitation Amount") unless the Association in its sole discretion and in each particular case has decided that cover shall be granted in whole or in part for legal and other costs to be incurred in respect of the relevant case for an amount in excess of the Limitation Amount.
The Association shall determine in its absolute discretion whether legal and other costs for the purpose of this Rule 70 have arisen out of one or several events.
The Association shall be under no obligation to give reasons for any of its decision under this Rule.
Rule 84.2 Recoveries from third parties - Deductibles - Defence
The Member's retained share of costs, or the deductible, in a Defence case, is 25 per cent. Against this background it has been decided that the Member also should be entitled to retain a pro-rata share of a recovery of costs from a third party. The new practice has been codified by way of a new proviso (c) in Rule 84.2.
Rule 84.2 (c) shall read (amendments underlined): Rule 84 Recoveries from third parties
?..
Where the Association has made a payment in respect of any liability, loss, cost or expense to or on behalf of a Member, the whole of any recovery from a third party in respect of that liability, loss, cost or expense shall be credited and paid to the Association up to an amount corresponding to the sum paid by the Association together with any interest element on that sum comprised in the recovery, provided however, that
?.; and
?; and
in respect of a Defence entry the Member shall be credited 25 per cent of any recovery of legal and other costs from a third party.
Fixed Premium Covers
In order to restrict the Club?s exposure in the event of a shortfall in market reinsurance programmes outside the International Group?s Pooling arrangements, recovery in excess of USD 100 million from the Club under the standard terms of entry of non-poolable covers shall be conditional upon the Club?s recovery of such funds from the reinsurers. The amendment to Rule 30.2 in the Rules for MOUs is described below. A similar amendment will be made to all Cover Notes evidencing contracts of insurance on a fixed premium basis with limits exceeding USD 100 million, for example the Comprehensive Charterers? Cover.
However, we would like to stress that the risk of a major shortfall is fairly remote, given the terms of the reinsurance, whereby the reinsurers agree to fully follow the claims settlements made by the Club, as well as the Club?s practice of using brokers who place the business with reinsurance facilities who are of a financial standing and reputation sufficient to support the reinsurance being underwritten.
Rules for Mobile Offshore Units (MOUs)
Rule 30 Limitation of liability and other restrictions in the right of recovery
Pursuant to the existing Rule 30.1 in the Rules for MOUs, the cover is restricted to the amount to which the Member is entitled to limit his liability in the relevant case. However, in the offshore industry it is not uncommon to waive the right to limit liability vis-à-vis a contract partner. The terms of entry for the MOUs contains in any event a fixed limit. Assuming the relevant contract has been approved by the Club, the Member will be covered up to the agreed limit in the terms of entry regardless of the right to limit liability pursuant to relevant background law. This practice has now been codified in the amended Rule 30.1.
As described in some detail above under the heading "Fixed Premium Covers," in order to restrict the Club?s exposure in the event of a failure in its reinsurance, the Assured?s recovery in excess of USD 100 million has been made conditional upon the Association?s recovery of such funds from its reinsurers. This condition has been incorporated into Rule 30.2.
Rule 30 shall read (amendments underlined): Rule 30 Limitation of liability and other restrictions in the right of recovery
Where the Member or a Co-Assured is entitled to limit his liability pursuant to any rule of law, the maximum recovery is the amount to which the Member or the Co-assured may limit his liability save insofar as liabilities, losses, costs and expenses in excess of the amount to which the Member may limit his liability are incurred pursuant to a contract approved by the Association.
In any case, the liability of the Association for any and all liabilities, losses, costs and expenses incurred by all Members, Co-assureds and Affiliates insured under any one entry and which arise out of any one event shall be limited to the sum insured in the terms of entry, provided always that to the extent the Association has reinsured the risks insured under any one entry, the Association shall only be obliged to pay any amount in excess of USD 100 million per event as and when such funds are received by the Association from the reinsurer(s).
Rule 40 - Conduct of Member - Y2K
Rule 40 in the Rules for MOU mirrors the provision in Rule 72 in the Rules for Ships. For the same reason as set out in above, the special Y2K clause in Rule 40.2 has been removed.
Yours faithfully, GARD SERVICES AS As agent only for Assuranceforeningen Gard -gjensidig-
John G. Bernander Chief Executive Officer
Gard is a member of
