Risks covered - Rule 50: Damage to Member’s own property

1. Notwithstanding the terms of Rule 2.4 b:

   1. if the Ship causes damage to property, other than cargo, belonging wholly or in part to the Member, the Member shall be entitled to recover from the Association under Rules 36 (collision with other ships), 37 (damage to fixed or floating object), 39 (loss of or damage to property) or 40 b (liabilities for obstruction) the same amount as if the property had belonged to a third party; and

   2. if cargo, belonging wholly or in part to the Member, is lost or damaged on board the Ship, the Member shall be entitled to recover from the Association under Rule 34 (cargo liability) the same amount as if the cargo had belonged to a third party.

(A) Introduction

The P&I cover is principally an insurance against third party liabilities, that arise in direct connection with the operation of the Ship and in respect of the Member’s interest in the Ship. It does not, and is not intended to, operate as a property insurance, and the Member is expected to arrange other suitable insurances for the protection of his own property. Notwithstanding this, Rule 50 provides cover in respect of certain damage to the Member’s own property. It is important to note, however, that the cover for damage to the Member’s own property in Rule 50 is limited both by the conditions in Rule 50 itself and by general limitations on the Associations liability, including in particular Rule 63 (Excluded losses) and Rule 71 (Other insurance).

Importantly, the Member is expected to arrange adequate hull and machinery insurance for his Ship and the Association is neither liable for the loss of, or for damage to the Ship (Rule 63.1.a), nor does it cover liabilities, losses, costs or expenses, that are, or would have been, covered by such Hull Policies had the Ship been fully insured on standard terms without deductible. Similarly, if the Member is the owner of other property, the Member need to take out other insurances to be protected against any damage, liability, business interruption etc., that may occur in relation to such property. Consequently, the Member will need to closely consider the terms of Hull Policies and/or any other insurances that may have been taken out to protect the Member’s interests in relation to any other property before submitting a claim against the Association under Rule 50.

The background for the cover available under Rule 50, is the recognition that the Member may not only be the owner, operator or charterer of the Ship, but may also be the owner of cargo carried on board the Ship and/or of other property that is affected by the operation of the Ship. Rule 50 distinguishes between situations in which the property that has suffered the loss or damage is property other than cargo (Rule 50.a) and those in which the relevant property is cargo that is carried by the Ship (Rule 50.b).

It should be clearly understood that this form of cover is not intended to be, and should be distinguished from, property insurance. In the case of property insurance, the assured as owner of the property insures its interest in the property, and is entitled to recover from its insurers pursuant to the terms and conditions of that property insurance once the assured proves that its property has been damaged. However, the form of insurance that is provided by the Association is liability insurance pursuant to which the assured (the Member) is entitled to compensation from the Association as insurer only if the Member proves that it, in its capacity as owner, operator etc., of the Ship, is legally liable to the owner of the property for the loss or for the damage that has been caused to that property by the Ship. However, in circumstances where the Member is also the owner of the property to which the Ship has caused loss or damage, the owner of that property is treated for the purposes of Rule 50 as though it were someone other than the Member, and cover is made available to the Member subject to the restrictions that are imposed by Rule 50 for any liability that it has for the damage or loss that is caused to such property to the same extent as if the property had been owned by a third party.

(B) Cover for Member’s own property other than cargo (Rule 50.a)

General

The purpose of Rule 50.a is to put the Member in the same position that it would have been in had the damaged property been owned by a third party. For cover to be available under Rule 50.a, four cumulative conditions must be met:

1. The damage must have been caused by the Ship;

2. The damage must be to property which is not cargo;

3. The property must belong wholly or in part to the Member;

4. Had the property belonged to a third party, the liability would have been covered under either Rule 36 (collision with other ships), Rule 37 (damage to fixed or floating object), Rule 39 (loss of or damage to property) or Rule 40 b (liabilities for obstruction).

Where all these conditions are fulfilled, cover will be prima facie available to the same extent as it would have been for a third party liability, had the property belonged to a third party.

The damage must have been caused by the Ship

For cover to be available under Rule 50.a the Ship must have “caused” the damage to the property. Therefore, if the damage has not been caused by the Ship, but by a third party or by some other occurrence, cover is not available under Rule 50.a.

The damage must be to property which is not cargo

The second condition is that the property is not cargo. As a starting point, all other property owned by the Member fall within the provision. Such property could be inter alia land, buildings, docks, piers, wharves, berths, cranes, port equipment, dolphins, buoys, pipelines, cables or another ship or barge. However, as already mentioned, important limitations follows from Rule 63. In particular, loss or damage to the Ship or any part of the Ship (except to the extent it forms part of a claim under Rule 49) is excluded in accordance with Rule 63.1.a. Furthermore, pursuant to Rule Rule 63.1.b cover is not available for the “loss of or damage to any equipment on board the Ship or to any containers, lashings, stores or fuel thereon, to the extent that that the same are owned or leased by the Member.” Consequently, the ”property” to which Rule 50.a refers is essentially property that is not carried on the Ship.

The property must belong wholly or in part by the Member

Property will be deemed to “belong” to the Member when, at the time of the relevant event, the Member has either the legal title to it, i.e. the ownership of it, or another sufficiently ascertainable legal interest in the property that entitles it to pursue a claim under the appropriate law for damage to it. Accordingly, a Member may be entitled in certain circumstances to recover under this Rule for damage to property that is leased to or hired by the Member, e.g. containers carried on another ship that have been leased to the Member (containers on the Ship itself would be excluded according to Rule 63.1.b). Cover may also be available when the Member is a partner in a joint venture that is, collectively, the owner of the property, but not if that joint venture has a distinct legal identity that is separate from its owners. If the Member has only a part interest in the damaged property, the Member is only entitled to recover an amount that corresponds to his part interest.

Had the property belonged to a third party, the liability would have been covered under either Rule 36 (collision with other ships), Rule 37 (damage to fixed or floating object), Rule 39 (loss of or damage to property) or Rule 40 b (liabilities for obstruction)

Whilst the Ship may cause damage to different types of property and in different ways, cover is available under Rule 50.a only to the extent that cover would have been available pursuant to either Rule 36, 37, 39 or 40.b if the property had belonged to a third party. Consequently, if the damage to the Member’s own property relate to any other risk, there is no cover under Rule 50.a. In particular, it should be noted that no reference is made in Rule 50.a to Rule 38, and consequently cover is not available for damage that is caused to the Member’s own property by the discharge or escape of oil or any other substance from the Ship (for example, if the Ship is a tanker which causes pollution damage at the Member’s own loading or discharge terminal, damage to the loading or discharge terminal will not be covered).

(C) Cover for loss or damage to Member’s own cargo (Rule 50.b)

Rule 50.b has the effect of putting the Member, whose own cargo is lost or damaged on board the Ship, in the same position as if the Member had incurred liability to a third party owner of the cargo as a carrier.

For cover to be available under Rule 50.b, four cumulative conditions must be met:

1. The loss or damage must be to cargo;

2. The cargo must belong wholly or in part to the Member;

3. The loss or damage must have occurred to the cargo whilst on board the Ship;

4. Had the cargo belonged to a third party, the liability would have been covered under Rule 34 (cargo liability).

There must be loss or damage to cargo

First, cover under Rule 50.b is only available for loss or damage to “cargo”. Conversely, property on board the Ship which is not cargo, e.g. stores, spares, bunkers, equipment or empty containers, are not covered by Rule 50.b.

The cargo must belong wholly or in part by the Member

For the meaning of the phrase “belonging wholly or in part to the Member”, see the Guidance in (A) above.

The loss or damage must have occurred to the cargo whilst on board the Ship

Cover is available under Rule 50.b only in the event that the Member’s cargo is lost or damaged whilst “on board the Ship”. Firstly, cargo will be considered to be “on board the Ship” when it has been loaded into the Ship’s holds or tanks, or onto the deck of the Ship. However, the cargo will also be considered “on board the Ship” the moment it is attached to the Ship’s equipment (or tackle) during the course of loading or discharge, even though it is not yet physically placed on or in the Ship. On the other hand, cargo which is still on the quay awaiting loading or in a lighter owned by a third party that is alongside the Ship is not considered to be “on board” the Ship for the purpose of this Rule.

If cargo that is owned by the Member is lost or damaged at a time when the cargo is not on board the Ship, cover is not available under Rule 50.b. For example, if a Ship calls at a port to load a bulk cargo that is owned by the Member from a barge that is also owned by the Member and the cargo is damaged alongside the Ship as a result of the unseaworthiness of the Ship, cover will not be available under Rule 50.b as the damage to the cargo did not occur on board the Ship. On the other hand, in this example cover would likely be available under Rule 50.a for the damage to the barge, because the Member would have been liable to a third party for such loss had the barge been owned by a third party, and such liability would have been covered under Rule 36.

Had the property belonged to a third party, the liability would have been covered under Rule 34 (cargo liability)

As under Rule 50.a, Rule 50.b does not extend cover for loss or damage to Member’s own cargo for all risks but only for such loss or damage that would have been covered as a liability under Rule 34, had the cargo belonged to a third party. Consequently, any restrictions in Rule 34 will apply similarly to cover under Rule 50.b.

This means, amongst others, that cover will only be available to the extent it would also have arisen as a third-party cargo liability under a contract of carriage on terms no less favourable to the Member than those laid down in the Hague or Hague-Visby Rules, except when the less favourable terms would have been mandatorily applicable (e.g., if the Hamburg Rules would have applied mandatorily to such contract of carriage), see Rule 34.1.iii.

The effect of Rule 50.b in conjunction with Rule 34.1.iii, may be illustrated by the example of a Member that regularly carries its own cargoes on board its own ships, e.g. a major oil company, that is the owner, operator or charterer of ships. These Ships are in turn used to carry its own oil cargoes between its own loading terminals, which are fed by pipelines leading from its own crude oil production fields to its own discharge terminals, which then feed the oil through pipelines to its own refineries. The oil company may have no intention to sell or trade its own crude oil in these circumstances, and simply uses its ships to transport raw material from the production plant to the refinery plant. Therefore, the oil company may not see that there is any need for the shipper and/or receiver, both of whom are companies that are wholly owned by the oil company, to enter into a contract of carriage with the oil company, as carrier, on the terms of the Hague-Visby Rules, but finds it more natural that the cargo should be carried on terms that compensate the shipper and/or receiver in full for any cargo loss or damage that may occur during such transportation. Consequently, should the oil company’s cargo be damaged whilst on board its ship, the oil company would be fully liable to the shipper or receiver under the contract of carriage without having the benefit of any defences. However, it would be contrary to the interests of the membership as a whole to compensate the oil company (the Member) for any loss that it has incurred for the loss of, or damage to, its own cargo that exceeds the liability that would have been incurred had the cargo been carried subject to the Hague-Visby Rules. To do so would have the effect of converting P&I insurance into cargo insurance. Therefore, Rule 50.b is designed to maintain the nature and purpose of the cover that is provided by the Association to the membership including the individual Member that chooses to carry his own cargo on his own Ships.

(D) Relevance of Rule 71 (Other insurance)

Where the Member has taken out other insurance, or the losses would have been covered under a Hull policy had the Ship been fully insured on standard terms, cover will be excluded in accordance with Rule 71. Accordingly, whilst cover both under Rule 50.a and b. is available “as if the property belonged to a third party”, the Member is still required to make use of all other available insurances taken out by the Member for the property or people which is affected, before Rule 50 becomes relevant. This applies even if such other insurance would not have been relevant to the claim against the Association if the property belonged to a third party. The existence of other insurances will therefore in many cases constitute an important limitation on the cover available to Members under Rule 50.