No. 7/2004 - Amendments to Assuranceforeningen Gard's Rules - Member Circulars

Circular No. 7/2004 January 2005

TO THE MEMBERS OF ASSURANCEFORENINGEN GARD - gjensidig -

Dear Sirs,

Amendments to Assuranceforeningen Gard’s Rules

Assuranceforeningen Gard’s (the “Association”) Rules for the 2005 policy year, which commences at noon GMT on 20 February 2005, contain some alterations to those applying for the 2004 policy year.

The remainder of this Circular discusses these changes in more detail.

Rules for Ships

The changes determined by the Committee in the Rules for Ships for the 2005 policy year reflect recent amendments in the Pooling Agreement being the legal framework for the International Group of P&I Clubs’ claims sharing and collective purchase of market reinsurance.

Rule 38 – Pollution

Based on the number of States that have ratified the Supplementary Fund Protocol (the “Protocol”) providing for compensation in excess of the 1992 Fund Convention limit, it is anticipated that the Protocol will enter into force during 2005. The Protocol establishes a third tier of compensation financed by cargo receivers in States having ratified the Protocol. In order to maintain an equitable balance between contributions of shipowners and oil companies, it has been agreed to raise voluntarily the minimum limit for small tankers under the 1992 Civil Liability Convention (the “1992 CLC”) from SDR 4.5 million to SDR 20 million. The terms of the agreement are laid down in the Small Tanker Oil Pollution Indemnification Agreement (the “STOPIA”).

The STOPIA will be implemented at the same time as the Protocol comes into force and will apply to dirty oil tankers of less than approximately 30,000 GT trading in countries having adopted the Protocol to supplement the compensation available under the 1992 CLC and and 1992 Fund Convention. Thus, all tankers of less than this tonnage will have a potentially increased exposure under STOPIA which is a contractual arrangement similar to the old TOVALOP scheme. In order to reduce the administration and ensure that all relevant tankers entered in the Association participate in STOPIA the amended Rule 38 appoints the Association as the agent of the Member.

Rule 38 shall read (amendment underlined):

The Association shall cover:
1. 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;
2. 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 land based dump, storage or disposal facility.
A Member insured in respect of a Ship which is a "relevant ship" as defined in the Small Tanker Oil Pollution Indemnification Agreement (“STOPIA”) shall, unless the Association otherwise agree in writing, be a party to STOPIA for the period of entry of the Ship in the Association. Unless the Association has agreed in writing or unless the Association in its discretion otherwise determines, there shall be no cover under this Rule 38 in respect of such a Ship so long as the Member is not a party to STOPIA.

Rule 58 – War risks

In order to harmonize the scope of the war risk exclusion in Rule 58 with the terms of the STOPIA, the wording of Rule 58 has been amended.

Rule 58 shall read (amendment underlined):

The Association shall not cover under a P&I entry liabilities, losses, costs or expenses (irrespective of whether a contributory cause of the same being incurred was any neglect on the part of the Member or his servants or agents) when the loss, damage injury, illness or death or other accident in respect of which such liabilities arise or such losses, costs or expenses are incurred was caused by;
1. war, civil war, revolution, rebellion, insurrection or civil strife arising therefrom, or any hostile act by or against a belligerent power, or any act of terrorism (provided that, in the event of any dispute as to whether or not, for the purpose of this paragraph (a), and act constitutes an act of terrorism, the Association shall in its absolute discretion determine that dispute and the Association’s decision shall be final);
2. capture, seizure, arrest, restraint or detainment, (barratry and piracy excepted), and the consequences thereof or any attempt thereat;
3. mines, torpedoes, bombs, rockets, shells, explosives, or other similar weapons of war (save for liabilities, costs or expenses which arise solely by reason of the transport of any such weapons, whether on board the entered Ship or not), provided always that this exclusion shall not apply to the use of such weapons, whether as a result of government order or with the agreement of the Association, where the reason for such use is the mitigation of liability, cost or expenses which would otherwise fall within the cover given by the Association.
The exclusion in Rule 58.1 above shall not apply to liabilities, costs and expenses of a Member insofar only as they are discharged by the Association on behalf of the Member pursuant to a demand made under
1. a guarantee or other undertaking given by the Association to the Federal Maritime Commission under Section 2 of US Public Law 89-777, or
2. a certificate issued by the Association in compliance with Article VII of the International Conventions on Civil Liability for Oil Pollution Damage 1992 or any amendments thereof, or
3. an undertaking given by the Association to the International Oil Pollution Compensation Fund 1992 in connection with the Small Tanker Oil Pollution Indemnification Agreement (STOPIA),

to the extent such liabilities, costs and expenses are not recovered by the Member under any other policy of insurance or any extension to the cover provided by the Association.

Where any such guarantee, undertaking or certificate is provided by the Association on behalf of the Member as guarantor or otherwise, the Member agrees that any payment by the Association thereunder in discharge of the said liabilities, costs and expenses shall, to the extent of any amount recovered under any other policy of insurance or extension to the cover provided by the Association, be by way of loan and that there shall be assigned to the Association all the rights of the Member under any other insurance and against any third party.

Rule 73 – Nuclear perils

There has been a minor amendment to the Association’s reinsurances with regard to nuclear perils. The words “weapons of war” have been substituted with “weapons or device”. The intention is to care for more than weapons of war, as devices may not technically be weapons.

Rule 73 shall read (amendment underlined):

The Association shall not cover any liabilities, losses, costs or expenses directly or indirectly caused by or contributed to by or arising from:

Ionising radiations from, or the radioactive, toxic, explosive or other hazardous or contaminating properties of:
1. any nuclear fuel or any nuclear waste or the combustion of nuclear fuel, or
2. any nuclear installation, reactor or other nuclear assembly or nuclear component thereof; or
any weapon or device employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter,

other than liabilities, costs and expenses arising out of carriage of “excepted matter” (as defined in the Nuclear Installations Act 1965 of the United Kingdom or any regulations made thereunder) as cargo on the Ship.

Rule 91 – Arbitration

For the purpose of protecting the Association against proceedings being commenced against it in foreign jurisdictions with regard to claims and disputes arising out of or related to the contract of insurance, a slight amendment is made to the provision in the Rules dealing with arbitration.

Rule 91.1, the first sentence, shall read (amendment underlined):

Unless otherwise agreed, disputes between the Association and a Member or a former Member or any other person arising out of the contract of insurance or these Rules shall be resolved by arbitration.........

Appendix V, section 2 – P&I deductibles

Section 2 of Appendix V to the Rules for Ships setting out the Association’s standard deductibles, is amended. The changes involve the introduction of separate deductibles for pollution, fines and collision/FFO claims. Furthermore the deductible for crew claims will hereafter be calculated on a “per event” basis as opposed to the “per port of call” basis which has been the practice in the past.

Appendix V, section 2 shall read as follows:

The standard deductibles for liabilities, losses, costs and expenses incurred by all the assured under any one P&I entry are as follows (subject to paragraphs 2(b) and (c) below):
1. Crew***All liabilities, costs and expenses covered under Rule 27 and arising out of any one event: USD 3,000.
2. Passengers and others carried on board*** All liabilities, costs and expenses covered under Rules 28 or 29 and arising out of any one event: USD 3,000.
3. Cargo**All liabilities, costs and expenses covered under Rule 34 and arising out of any one cargo carrying voyage: USD 15,000.
4. Pollution** All liabilities, costs and expenses covered under Rule 38 and arising out of any one event: USD 15,000
5. Fines** All liabilities, costs and expenses covered under Rule 47 and arising out of any one event: USD 15,000.
6. Collision with other ships and damage to fixed or floating objects** All liabilities, costs and expenses covered under Rule 36,1, a) and Rule 37 a) and arising out of any one event: USD 20,000.
7. Other P&I liabilities etc.** **All liabilities, losses, costs and expenses covered under any Rule, other than Rules 27, 28, 29, 34, 36,1, a), 37 a), 38 and 47 and arising out of any one event: USD 3,000.*
For the purpose of applying a deductible under this paragraph 2 there shall be added to the relevant liabilities, losses, costs and expenses ("the relevant liabilities") as described in sub-paragraph (a) above the amount of any losses, costs and expenses which are covered under any of Rules 44, 45 and 46 and which are incurred in relation to the relevant liabilities
Where it is agreed in the terms of P&I entry that a separate deductible shall apply in respect of a particular category (but not all) of the liabilities, losses, costs or expenses referred to in any of paragraphs 2 (a) (i) to2 (a) (vi) above, that separate deductible shall apply to all liabilities, losses, costs or expenses within that category and the standard deductible shall apply to all other liabilities, losses, costs or expenses covered under the same Rule or Rules and arising out of the same event or cargo carrying voyage.

Rules for Offshore Units

Rule 1.1 - Interpretation

Gard’s Rules for Mobile Offshore Units have been less offshore specific than the conditions of competing schemes. This relates in particular to the definition of “Vessel” or “Ship”, as the case may be. In order to adapt to market practice, Rule 1.1 has been amended accordingly.

Rule 1.1 shall read (amendment underlined)

Vessel

any offshore unit, any other ship or vessel or mobile or temporarily fixed craft, including the risers, flowlines, umbilicals, floating hoses, buoyancy floats or tanks and mooring systems, or any other item or equipment used as an integral part of the unit's production operations, or any part thereof as accepted by and entered in the Association under these Rules or any other description of unit noted in the Certificate of Entry.

Rule 24 – Liability for obstruction and wreck removal

In light of market practice, Rule 24 needs to be clarified, and the following amendment has been made.

Rule 24 shall read (amendment underlined):

The Association shall cover:

cost sand expenses relating to the raising, removal, destruction, lighting and marking of the Vessel or of the wreck of the Vessel or parts thereof or of its equipment lost as a result of a casualty, when such raising, removal, destruction, lighting and marking is compulsory by law or the costs or expenses thereof are legally recoverable from the Member under contract or otherwise**b)liability incurred by reason of the Vessel or the wreck of the Vessel or parts thereof, as a result of a casualty, causing an obstruction, provided that
1. recovery from the Association under this Rule shall be conditional upon the Member not having transferred his interest in the wreck otherwise than by abandonment; andii) the realised value of the wreck and other property saved shall be credited to the Association.

Rule 32 – Production operations

In the light of market practice, Rule 32 needs to be clarified, and the following amendment has been made.

Rule 32 shall read (amendment underlined):

The Association shall not cover liabilities, losses, costs or expenses arising from a Vessel engaged in production operations out of seepage or an uncontrolled flow from any flow line, riser or umbilical connected to the producing well prior to the product entering the Vessel*,** save insofar such flow line, riser or umbilical would be included in the description of the Vesselbut always subject to Rule 31.a,**and out of measures taken to avert or minimise such liabilities, losses, costs or expenses.*

Rule 59 – Arbitration

Reference is made to the explanatory notes to the proposed amendment to Rule 91.1 in the Rules for Ships.

Rule 59, the first sentence, shall read (amendment underlined):

The changes will enter into force at noon GMT on 20 February 2005. If you have any questions, please contact Senior Vice President Kjetil Eivindstad.

Yours faithfully, GARD AS as agent only for Assuranceforeningen Gard - gjensidig-

Claes Isacson Chief Executive Officer