Limitations etc. on P&I cover - Rule 55: Terms of contract
The Association shall not cover under a P&I entry liabilities, losses, costs or expenses:
which would not have arisen but for the terms of a contract or indemnity entered into by the Member, or by some other person acting on its behalf, unless the terms have previously been approved by the Association, or cover for such liabilities, losses, costs or expenses has been agreed between the Member and the Association, or the Association decides, in its discretion, that the Member should be reimbursed;
which result from, or would not have arisen but for the Member, or some other person acting on its behalf having used terms of contract which the Association has prohibited, or omitted to use terms of contract which are specified in Appendix VII or which the Association has otherwise prescribed.
which arise out of or in connection with contracts for carriage wholly or partly by sea to the extent such liabilities, losses, costs and expenses would not have been incurred or borne by the Member but for its waiver or limitation of, or failure to incorporate, rights of recourse that would have been available under a bill of lading contract which incorporated
Article IV Rule 6 of the Hague or Hague Visby Rules, or
any equivalent provision under other applicable law,
provided that such liabilities, losses, costs and expenses shall not be excluded losses if such rights of recourse are not available by reason of mandatorily applicable law, or unless the Association in its discretion shall otherwise decide.
Guidance
Rule 55 is a reflection and a recognition of the principle of mutuality that is the foundation of P&I insurance. Cover is made available only for those risks that are regularly and routinely encountered by the majority of the membership. Consequently, the risks that are routinely encountered by the majority of the members by virtue of contractual terms that are commonly and regularly used in the industry should be, and are, shared between the membership as a whole. However, if a Member incurs a liability that arises solely as a result of contractual terms that are not regularly and routinely used by the majority of the membership, such risks should not be, and are not, shared by the membership as a whole.
(A) The Association shall not cover under a P&I entry… (Rule 55)
Rule 55 gives practical effect to this basic principle by providing that cover is not available for liabilities, losses, costs and expenses that arise, not as a result of the use of standardised contractual terms, i.e. terms that are broadly accepted in the industry as the norm, but as a result of terms that are more onerous for the Member. This could include, but are not limited to, situations where the Member under its contractual arrangements take upon themselves types of liabilities that are outside the industry norm, agree to waive rights of recourse, and/or waive rights to limit liability. The Rule emphasises that, whilst the Member has the right to agree to such terms should this be necessary and/or commercially advantageous, the Member should not expect the wider membership to use its funds to bear the cost of any liability etc., that would not have been incurred had such terms not been agreed.
(B) …liabilities…which would not have arisen but for the terms of a contract or indemnity… (Rule 55.a)
Rule 55 is designed to protect the membership against any onerous liability that is often imposed on a particular Member under, and as a result of, the terms of a ‘contract or indemnity.’ This phrase is construed widely and includes any form of agreement between the Member and a third party that imposes liability on the Member or constitutes a waiver of rights of recourse or a waiver of right to limit liability. It includes, inter alia, contracts of carriage, charterparties, letters of indemnity, towage contracts, salvage agreements and contracts with, and indemnities that are given to, port and harbour authorities, stevedores, crane operators, harbour pilots and Crew members.
Cover is restricted only for liabilities etc., that arise under contractual terms that are more onerous than the norm and which the Member could reasonably avoid. Therefore, Rule 55 does not exclude cover for liabilities that arise as a result of contractual terms that are unavoidable, or that arise as a result of the unavoidable provisions of law, e.g. liability in tort for negligence or under statute or any other non-contractual source.
(C) …entered into by the Member, or by some other person acting on his behalf… (Rule 55.a)
In many cases, the relevant ‘contract or indemnity’ will have been concluded by someone acting on behalf of the Member, i.e. as his agent. This could be the master or some other member of the Crew, or the Ship’s manager, crewing agent, broker, Ship’s agent or the Member’s superintendent. In some instances, such a person may be a Co-assured or Affiliate who is considered to be a Member for the purposes of the Rules, see the commentary on the meaning of ‘Member’ in the Guidance to Rule 1. However, this will not always be the case, and Rule 55 makes it clear that cover may be excluded whether the contract or indemnity is entered into personally by the Member, or by someone else on his behalf, no matter who that person may be.
(D) …unless the terms have previously been approved by the Association… (Rule 55.a)
If a Member looks to the Association for cover in respect of liability etc., that arises solely as a result of the terms of a contract or indemnity that has been entered into, or given by, the Member, the Association will normally need to consider and approve the terms of the relevant contract or indemnity before it can confirm that cover is available.
The Member has a duty both prior to, and after, the conclusion of the contract of insurance, to make full disclosure to the Association of all circumstances that the Association would consider to be relevant when deciding whether, and on what conditions, to accept the entry, see the Guidance to Rule 6. The Member also has a duty to disclose circumstances that arise after the conclusion of the contract of insurance that result in an alteration of risk, see the Guidance to Rule 7. Such duties include the duty to disclose the terms of any contract or indemnity that may expose the Member to additional liability etc. Therefore, a prudent Member should actively seek to disclose such contractual terms to the Association in order to enable the Association to take such terms into account when considering the overall risk. In case of doubt, the Member is strongly advised to consult the Association before agreeing the terms of any contract or indemnity.
The Association will not normally consider and approve the terms of known contracts or indemnities on standard terms that reflect a degree of liability that is generally accepted in the industry. For example, the Association and the other P&I clubs that are parties to the International Group have given their approval in advance to contracts on standard terms that are concluded for the purpose of entering or leaving port, or for manoeuvring within the port, certain towage contracts and to contracts of carriage that are subject to the Hague or the Hague-Visby Rules. See (K)-(O) of the Guidance to Rule 43 (Towage) and (L) of the Guidance to Rule 34 (Cargo Liability) respectively. However, cover is available for liabilities, losses, costs or expenses incurred by a Member under a contract of carriage that is subject to the Hamburg Rules (and, probably, the Rotterdam Rules if and when they enter into force), only when such Rules are compulsorily applicable by operation of law.
In the case of non-standard contracts and indemnities, cover will not be available unless they meet certain minimum requirements. For example, all contracts and indemnities are expected to include law and jurisdiction clauses that will enable the Member to defend his interests, and those of the Association when relevant, under systems of law, and before tribunals, that are recognised to be professional and experienced. Furthermore, such contracts and indemnities should not include provisions that waive the Member’s right of recourse, right to limit liability or that transfer to the Member liability for the negligence of another party.
(E) …or the Association decides, in its discretion, that the Member should be reimbursed. (Rule 55.a)
The Association has a wide discretion whether or not to reimburse Members for liabilities etc., that arise under the terms of contracts and indemnities. Such discretion is exercised in a manner that is intended to safeguard the principle of mutuality that is described above. The Association will also be guided in this regard by the guidelines and recommended practices that are agreed from time to time between the parties to the Pooling Agreement.
(F) …liabilities…which result from, or which would not have arisen but for…having used terms of contract which the Association has prohibited… (Rule 55.b)
The Association regularly issues Circulars that are designed to make Members aware of clauses in contracts and/or indemnities that are considered to be onerous for Members, together with comments that are intended to clarify the availability of cover. In some instances, the Association will make it clear that it does not approve certain onerous terms of contract and that cover will not, therefore, be available for liabilities etc. that arise as a result of the use of such terms. For example, cover is not available for liabilities that a Member incurs by virtue of having voluntarily agreed to adopt the Hamburg Rules or the Rotterdam Rules into his contract of carriage when such Rules do not apply compulsorily. However, cover is unavailable only to the extent that the Member’s liability has been increased by the use of terms or clauses that are not approved by the Association.
In circumstances where the Association has found it necessary to prohibit the use of certain contractual terms, and has communicated this decision to the membership, it is not entitled thereafter to exercise the discretion that it otherwise has under Rule 55 to reimburse a Member that has incurred liability as a result of having agreed to the use of such terms. Such discretion can only be exercised by the Association’s Board of Directors pursuant to the authority granted by virtue of Article 6.5.b of the Bye-Laws of Gard P. & I. (Bermuda) Ltd. and Article 9.3.b of the Statutes of Assuranceforeningen Gard -gjensidig-.
(G) …or omitted to use terms of contract which are specified in Appendix VII or which the Association has otherwise prescribed. (Rule 55.b)
Cover is not available for liabilities, losses, costs or expenses that would not have arisen but for the failure of the Member to include in his contracts the contractual terms that are specified in Appendix VII. The individual clauses that are specified in Appendix VII may change from time to time but the Association and all other P&I clubs that are parties to the International Group have recommended for many years that the ‘New Jason Clause’ and the ‘Both to Blame Collision Clause’ should be included in contracts of carriage of goods.
The ‘New Jason Clause’ is intended to protect the carrier in circumstances where, pursuant to US law, a carrier is not able to recover general average contributions from cargo when the incident that gave rise to the claim has been caused by the carrier’s negligence, notwithstanding the fact that the incident is one for which the carrier has a defence under the contract of carriage. The ‘New Jason Clause’ has the effect of reinstating the right to recover general average contribution from cargo in such circumstances.
The ‘Both to Blame Collision Clause’ is intended to protect the rights of a carrier following a collision between the Ship and another ship in circumstances where, pursuant to rights given under US law, the owners of the cargo that is carried on the Ship seek to claim the loss or damage that has been suffered by that cargo from the owners of the non-carrying ship in tort. Under the US ‘innocent cargo’ rule, those cargo interests are entitled to recover 100 per cent of their loss or damage from the non-carrying ship and not merely that proportion of the loss that can be attributed to the proportionate liability of the non-carrying ship for the collision. The non-carrying ship is then entitled to include in its claim against the carrying Ship the amount that it has paid to the cargo that was lost or damaged on the carrying Ship and to recover such proportion of that amount that the carrying Ship bears for the collision. In such circumstances, the ‘Both to Blame Collision Clause’ gives the carrying Ship the right to recover an indemnity from the owners of the cargo for the amount that has been paid by the carrier to the non-carrying ship.
(H) …arise out of or in connection with contracts for carriage… …to the extent such liabilities, losses, costs and expenses would not have been incurred or borne by the Member but for its waiver or limitation of, or failure to incorporate, rights of recourse… (Rule 55.c)
Rule 55.c sets out that cover is excluded where the Member has waived, limited, or failed to incorporate rights of recourse which would otherwise have been available under the contract of carriage pursuant to Article IV Rule 6 of the Hague or Hague-Visby Rules and/or any equivalent provision under other applicable law.
The provision applies to any limitation, waiver or failure to incorporate rights of recourse, whether they be against another party or third party to the contract of carriage. This could be those liabilities etc. resulting from damage caused by the cargo or all liabilities resulting from the shipment of dangerous goods such as pollution, wreck removal and personal injury. For example, such a right of recourse, could be the carrier’s right to hold the shipper liable for any damages and expenses arising from the shipment of goods of an inflammable, explosive or dangerous nature, where the carrier has not consented to the shipment with knowledge of the nature and character of the goods, cf. Hague-Visby Rules Art. IV (6). If a carrier waives this right of recourse against the shipper, or any other party, any loss incurred by the carrier for which that party would have been liable but for the waiver is excluded pursuant to Rule 55.c. This Rule should be read as a clarification of what already follows from Rule 34.1 iii, Rule 55.a and Rule 82.1 b:
A waiver of rights of recourse at the contractual stage which would limit or deprive the Member of rights of recourse which would otherwise follow from the Hague or Hague Visby Rules (save where such less favourable terms being of mandatory application) would already be excluded pursuant to Rule 34.1 proviso iii, however Rule 34 is limited to cargo liabilities. Furthermore, any liability, loss, cost or expense arising from such a waiver of rights of recourse at the contractual stage would also be excluded from cover pursuant to Rule 55.a
“unless the terms have previously been approved by the Association, or cover for such liabilities, losses, costs or expenses has been agreed between the Member and the Association, or the Association decides, in its discretion, that the Member should be reimbursed”
.
Any limitation or waiver of rights of recourse in the period between the original entering of the contract of carriage and a potential occurrence which may give rise to a claim, must be construed as a variation of the original terms of contract and would as a starting point fall within the ambit of Rule 34.1 iii (in respect of cargo liability) and Rule 55.a.
Moreover, unless it has been established that the Member had taken all such steps as may be reasonable, the starting position under Rule 82.1.b is that a limitation or waiver by the Member of a right of recourse
“upon the occurrence of any event which may give rise to a claim upon the Association”, gives the Association the right to “reject any claim, or reduce the sum payable, in relation to such event”, cf. Rule 82.2.a, cf. Rule 82.1.b. However, under Rule 55.c it is important to note that there is no reasonable qualifier or test as opposed to Rule 82.1.b.
Rule 55.c clarifies the position with respect to any limitation, waiver or failure to incorporate rights of recourse at any stage in relation to the contract of carriage. Rule 55.c also removes the reasonable qualifier that applies pursuant to Rule 82.1.b, where a right has been waived or limited after a claim has occurred. Pursuant to Rule 55.c cover shall be excluded in such circumstances unless the Association in its discretion decides otherwise. More specifically Rule 55.c clarifies that:
the relevant excluded losses will be those which arise by reason of a waiver or limitation of rights of recourse in any applicable contract for carriage, i.e. ;
the excluded losses are liabilities, costs and expenses to the extent they would not have arisen but for the waiver of rights of recourse available under Article IV Rule 6 of the Hague or Hague Visby Rules;
the right of recourse which should be preserved and not waived is in respect of all liabilities which fall within the scope of the indemnity and not simply liabilities arising in connection with damage to or by cargo as opposed to Rule 34.1 proviso iii. The requirement to uphold such rights of recourse is an expression of the well-established principle of P&I cover that Members should contract on terms that are no less favourable than the Hague or Hague Visby Rules, a principle based on the premise that sharing risks requires a level playing field. The concept of mutuality would be breached if greater liabilities were to be incurred because a Member agreed less advantageous terms for commercial benefit, see also (H) of the Guidance to Rule 34.
The Association seeks to promote safety in shipping including safety of seafarers, the environment and property, as well as sustainability in the value chain to which shipping belongs, all of which support the proposition that suitable safeguards ought to be in place regarding the shipment of dangerous goods, and accordingly that Members’ rights of recourse be preserved. For more information on this please see Gard Member Circular 12/2025, which also includes a FAQ.
The discretion under Rule 55.c on whether to reimburse a Member that has incurred liability is exercised by the Association’s Board of Directors pursuant to the authority granted by virtue of Article 6.5.b of the Bye-Laws of Gard P. & I. (Bermuda) Ltd. and Article 9.3.b of the Statutes of Assuranceforeningen Gard -gjensidig-.
Gard is a member of
