Table of contents
1 Application for an entry of a ship may be made by any owner, operator, charterer (including a bareboat or demise charterer) or other insurer of that ship, and the entry shall be on the basis of either an Owner’s Entry or a Charterer’s Entry.
2 A ship may be entered with the Association for less than its full tonnage.
3 Application for an entry of a ship shall be made in such form as may from time to time be required by the Association. The particulars given in any application form, together with any other particulars or information given in writing in the course of applying for insurance or negotiating changes in the terms of insurance, shall form the basis of the contract of insurance between the Member and the Association.
4 The Association may refuse to accept an application for the entry of a ship, or may accept an application for P&I cover but not for Defence cover, without stating grounds therefore, and whether or not the applicant is already a Member of the Association.
(A) Application…may be made by any owner, operator, charterer...or other insurer of that ship… (Rule 3.1)The application for the entry of a ship may be made only by a person who is eligible to be a Member of the association, i.e. by an owner, operator, charterer, or, where the entry is by way of reinsurance, by another insurer of the ship since an application for the entry of a ship also constitutes an application for membership of the Association, if the applicant is not already a Member.
Others who have an interest in the Ship can also be insured; but must do so in the capacity of a Co-assured.1
(B) …entry of a…charterer… (Rule 3.1)
The Association, like most other P&I clubs, was originally established to insure risks incurred by shipowners and operators. Cover has since been made available to charterers, but there is a limit to the extent to which the Association is willing to insure risks which are not traditional shipowners’ risks, bearing in mind the mutual nature of the Association and the interests of the predominantly shipowning membership.
Charterers can be categorised as falling into three main groups, according to the nature of the charterparty: time, voyage and bareboat (sometimes called demise) charterers.2 Vis-à-vis third parties, a bareboat or demise charterer is usually deemed by law to have rights and responsibilities which are effectively commensurate with those of a shipowner and for this reason a bareboat (or demise) charterer of a Ship will normally be covered under an Owner’s Entry. The following discussion of cover for charterers will therefore consider the position of, principally, time and voyage charterers, i.e. charterers that are not bareboat (or demise) charterers.
It is important that charterers obtain P&I insurance because of the third party liabilities that they may incur in their capacity as charterers, for example:
a The charterers may have nominated a port or berth which is found to be unsafe, and as a result they may be in breach of their obligation under the charterparty to nominate safe ports or berths. The breach may be the cause of the grounding of the ship, which has caused damage to the ship, cargo and the environment. Consequently, the charterers may be found liable to compensate the shipowner for damage to the ship, and to indemnify the shipowner in respect of liabilities, losses, costs and expenses incurred by him vis-à-vis third parties – such as pollution liabilities and salvage costs.
b The charterers may be liable to cargo interests as ‘carrier’ under a contract of carriage evidenced by bills of lading issued in their own trading name. Alternatively, bills of lading may have been issued by the charterers – not in their trading name – but as agent of the shipowner. However, even if the bills of lading contain a ‘demise’ or ‘identity of carrier’ clause, the purpose of which is to identify the owner or bareboat (or demise) charterer as the carrier, such a clause is not recognised as valid in all jurisdictions. In such circumstances, the charterers may be exposed to cargo liability as ‘carrier’. Finally, charterers may be liable to indemnify the owners in respect of cargo claims pursuant to the terms of the charterparty.3
c The charterers may also be exposed to liability for personal injury to personnel considered to be the servants or agents of the charterers4 rather than the shipowner, or as a result of injury inflicted by such personnel for which the charterers may incur vicarious liability.
Most P&I clubs, including the Association, accept charterers’ entries, but charterers can also obtain insurance protection against third-party liabilities from charterers’ mutual associations and market insurers generally. Some charterers look for protection in more indirect ways, e.g. by a ‘benefit’ clause in the charterparty which purports to give the charterers the benefit of the owner’s P&I insurance. However, P&I Rules including those of the Association invariably disallow such transfer of benefits.5
The Rules provide cover for charterers in three ways.
i Bareboat (or demise charterers) may effect their own Owner’s Entry, thereby obtaining P&I cover in the same way as a shipowner, or they may be insured as a Joint Member.
ii Charterers who are affiliated to or associated with a Member who has an Owner’s Entry, may be Co-assured under that entry.6 In this case, the charterers do not receive the full benefits of membership and may obtain more limited cover.
iii Charterers may obtain a separate and independent Charterer’s Entry.7 Such form of entry has been available to time and voyage charterers for many years and in view of the development of the liner container trade, it has become available also to for space or slot charterers.
Cover under a Charterer’s Entry, as in the case of an Owner’s Entry, is restricted by the general requirement that the liabilities, losses, costs and expenses must arise in direct connection with the operation of, and in respect of the charterers’ interest, in the Ship.8
Charterers may, however, be exposed to liabilities for which cover is not available under the Rules, e.g. where the charterers cause damage to the Ship. Damage to the entered Ship is an excluded risk.9 However, additional cover is available from the Association for such liabilities.10
Whilst shipowners and charterers are both given the right to limit their liability in accordance with international limitation conventions or under the applicable local law, the ability of charterers to do so is often more restricted.11 Consequently, the Rules impose express limitations on the Association’s liability for claims from charterers.12 Since charterers’ cover is limited to specific sums, the Association is able to assess more accurately the risks represented by the Charterer’s Entry. Therefore, the premium payable by charterers can therefore be fixed13 and charterers are normally covered on a fixed premium basis.
(C) …an Owner’s Entry or a Charterer’s Entry. (Rule 3.1)
In essence, Owner’s Entries are entries effected by shipowners, bareboat or demise charterers or operators, whereas Charterer’s Entries are effected by other types of charterer, e.g. time, voyage, space or slot charterers. The nature of the entry dictates the level of cover available and the eligibility for co-assurance.14
Unlike an Owner’s Entry, which can be in the names of more than one person, each of whom is entitled to the full benefits of membership, a Charterer’s Entry can only name the charterer as Member. Such form of entry can include Co-assureds or Affiliates, but these parties are not entitled to membership and enjoy only a limited cover.
(D) A ship may be entered for less than its full tonnage… (Rule 3.2)
The Rules of the Association permit the entry of a Ship for part of its tonnage. For example, an owner may enter a Ship for 75 per cent of its tonnage with the Association and for 25 per cent of its tonnage with another P&I club. This is similar to the situation where a percentage of a ship’s hull and machinery risk is placed with one insurer, with the balance of the risk being placed elsewhere, or retained by the owner. However, practice between the two markets may differ. In the case of hull and machinery insurance, the so-called ‘following underwriters’ will normally be bound by the claims handling decisions made by the ‘lead underwriter’, whereas, in the case of P&I insurance there is no automatic obligation for one club to follow the lead of another club. However, it is common for the clubs to enter into an agreement to such effect. Nevertheless, insofar as premium rating is concerned, one club will not normally be bound by the risk evaluation made by another club.
The entry of a Ship for part of its tonnage should be distinguished from the entry by the owner of a fleet of ships some of which are insured (for their full tonnage) with one club and others with another (or other) club(s). This is currently a much more common practice than entering ships for part of their tonnage in the manner described above.
Where a Ship is entered for part tonnage only, the Member is entitled to recover from the Association only such proportion of any liability, loss, cost or expense as the entered tonnage bears to the full tonnage.15 Moreover, the Advance Call, Deferred Calls and Supplementary Calls will be calculated in accordance with the entered (i.e. part) tonnage.16 Similarly, the Member’s voting rights will be determined by the entered tonnage.
(E) Application…shall be made in such form as may…be required by the Association… (Rule 3.3)The Association has standard application forms for the entry of ships, known as ‘entry forms’. Currently, there are separate forms for passenger ships, dry cargo ships, tankers and small craft. The forms prescribe, and the Association will expect to receive, the following information, together with such additional information that the applicant/Member has a duty to disclose in the circumstances:17
The application must be submitted to the Association’s underwriting department, who may request further information including information relating to the vessel’s condition. Pursuant to Rule 9.5 the Association may require the vessel to be surveyed and/or may require details from other P&I clubs that are members of the International Group of P&I Clubs of any earlier surveys have been conducted for them. At the conclusion of any such discussions, and subject to any amendment made to the original application, the Association will then either reject the application, or decide the terms on which an offer of insurance should be made to the applicant. When making its decision, the Association will have regard to the terms and conditions of the International Group Agreement18 in the case of a ship which was previously or is currently entered with another member of the International Group of P&I Clubs.19
The following commentary assumes that Norwegian law will apply to the making of the contract.
Any offer made by the Association will contain details of the proposed Premium Rating and of other proposed terms of insurance for the ship. If the applicant decides to accept the offer, he should send a written notice to the Association to such effect. In certain cases the Association may impose a time limit for acceptance. In other cases, the Association will be bound by the acceptance only if it is received within a reasonable time after the making of the offer.
A contract of insurance will be concluded when the offer is accepted by the applicant, or by a broker or other agent acting on behalf of the applicant.20 There may be a binding contract even though the Association and the applicant have not agreed all minor items, provided that all of the essential items of the contract have been agreed.
Although the contract of insurance is concluded at a certain point in time, the actual entry of the Ship and the commencement of insurance cover may occur at a later date.21 For example, a contract may be concluded on 1 February committing the Association to enter the Ship and to make cover available, and committing the Member to pay premium, with effect from 20 February.22
Membership of the Association will commence on the date that the insurance cover commences, although the contract of insurance may have been concluded at an earlier date.
Brokers are frequently used as intermediaries for the purpose of placing P&I insurance. Under both Norwegian and English law, a P&I broker is regarded as an agent of the applicant, i.e. the Member, unless the Member and the Association otherwise expressly agree. However, brokers must be distinguished from agents appointed by the Association to offer insurance on its behalf. For example, Gard AS in Norway and Gard (UK) Limited in London act as the Association’s agents in this regard.
The broker normally receives remuneration for his services by the payment of commission (or brokerage),23 which is usually a percentage of the premium. Liability for payment of a broker’s commission varies from market to market. Traditionally, the premium was paid directly to the Association by the Member, upon receipt of which the broker commission was paid by the Association. This practice has largely been changed in most markets to one where the broker deducts the commission from the gross premium payment received from the Member, and pays the premium net of commission to the Association. In some markets, e.g. the United States, it is more common for the Member to pay remuneration for broker services on a fee basis. Whichever method of remuneration payment is applicable, Norwegian law requires there to be full transparency and this requirement is mirrored in the guidelines that have been promulgated by the International Group of P&I Clubs. Furthermore, the Association, like all other members of the International Group, are not permitted to pay commission to a broker without first having obtained the consent of the Member.
The extent to which payment of premium by the Member to a broker will discharge the Member’s liability to the Association, and the extent to which payment of claims by the Association to a broker will discharge the Association’s liability to the Member, varies from jurisdiction to jurisdiction, and will depend on the circumstances of each case. This issue will be particularly relevant where the broker becomes insolvent before passing on the premium to the Association, or the claim compensation to the Member. Under Norwegian law, payment of premium by the Member to the broker will not normally discharge the Member’s liability to pay premium to the Association. Therefore, if the broker fails to forward to the Association the premium received from the Member, the Member remains liable to pay it.
(F) The particulars…shall form the basis of the contract of insurance… (Rule 3.3)
The contract of insurance is entered into by the Association in reliance on the particulars and information which are given in writing by the applicant for membership. The applicant has a general duty under Norwegian law to disclose to the Association all information that the applicant considers, or reasonably should consider, relevant to the Association’s evaluation of his application.24 Similar duties apply under most other systems of law which may be relevant to the placement of the insurance.
(G) The Association may refuse to accept an application… (Rule 3.4)
Rule 3.4 reinforces the Association’s rights under Norwegian law. There is no obligation on the Association to accept an application.25 Furthermore, the Association may accept an entry for P&I cover, but not for Defence cover. In neither case is the Association obliged to give reasons for its refusal.
Rule 3.4 states expressly that the fact that an applicant is already a Member of the Association will not prejudice the Association’s right to refuse an application. The Member, therefore, cannot oblige the Association to accept an application on the basis that there has been a course of dealing between himself and the Association which entitles him to enter an additional ship.
The Association will not normally26 accept an entry only for Defence cover27 except in the case of building and purchase contracts where ‘pre-delivery’ Defence cover28 may be offered on the condition that the Member undertakes to enter the ship for P&I risks at the latest on taking delivery of the ship.29
The power to accept or reject an application and the power to agree special terms and conditions for the entry of a ship is vested in the Board of Directors of the Association30 but exercised by the managers of the Association pursuant to the delegated authority to do so that has been granted by the Board.
1 See the Guidance to Rules 78 and 79.
2 See also the Guidance to Rule 1 in relation to the applicability of the Rules to charterers other than demise and bareboat charterers.
3 For example, such liability may arise under the New York Produce Exchange form of time charterparty in respect of which the clubs who are parties to the International Group of P&I Clubs have agreed to allocate responsibility for claims between owners and charterers inter se according to the provisions of the Inter-Club Agreement.
4 Examples can be ’supercargoes’ employed by the charterer to supervise the proper stowage and securing of cargo for which the charterer is the ‘carrier’, or stevedores contracted by the charterer to load and/or discharge cargo carried by him.
5 See Rule 89 and the disclaimer incorporated into the Certificate of Entry by Rule 5.2. In Canadian Transport Co. Ltd. v Court Line Ltd.  A.C. 934, the House of Lords held that such a benefit clause was of no avail to the charterer where the club rules provided that no assignment or subrogation by the Member would bind the club.
6 See the Guidance to Rule 78.4.
7 For the difference between Owner’s Entries and Charterer’s Entries – see (C) below.
8 See Rule 2.4. Although ‘interest’ is generally associated with an ownership or possessory interest under English law, it should not be read so narrowly in Rule 2.4, as the charterer does not normally have any proprietary interest in the Ship – see (H) of the Guidance to Rule 2.
9 See Rule 63.1.a.
10 Gard has for many years offered the Comprehensive Charterers’ Liability Cover, which includes cover in respect of the charterers’ liability for damage to the Ship. See further details on www.gard.no.
11 Under English law, charterers are given the right to limit their liability under the 1976 International Convention on Limitation of Liability for Maritime Claims, and the 1996 Protocol thereto, to the same extent as an owner. It follows that the charterer cannot limit liability in respect of claims for which the owner could not have relied on the right to limit, such as claims concerning damage to the ship. See AEGEAN SEA (1998) 2 LL. Rep 39 and CMA DJAKARTA (2004) 1 LL. Rep 460.
12 See the Guidance to Rules 52 and 78.4 as well as Appendix II, Paragraphs 2 and 3 in this regard.
13 See the Guidance to Rules 10 and 11 on setting and variation of Premium Ratings.
14 See the definition of ’Owner’s Entry’ and ’Charterer’s Entry’ in Rule 1, as well as the scope of cover for Co-assureds in Rule 78.
15 See the Guidance to Rule 75.
16 See the Guidance to Rules 12 and 13.
17 See the Guidance to Rule 6.
18 For example, the International Group Agreement contains provisions concerning the acceptance of
entry of a ship in one International Group P&I club that has been held to be ‘substandard’ by another
International Group P&I club. This provision is designed to combat substandard shipping.
19 For further details concerning the International Group Agreement, see www.igpandi.org.
20 In limited and exceptional circumstances a contract may be deemed to be concluded prior to formal
offer and acceptance, where section 3-1 of the Norwegian Insurance Contract Act of 1989 applies.
This section is, however, only applicable to standard consumer contracts and is unlikely to apply to P&I
insurance save possibly in the case of certain types of small craft.
21 See the Guidance to Rule 4.
22 The procedures followed by the Association after the conclusion of the contract of insurance are
discussed in (A) of the Guidance to Rule 5.1 below.
23 The Association is not authorised to pay commission or brokerage to a broker unless this has been
approved by the Member.
24 See the Guidance to Rule 6.
25 See, however, the provisions of the Norwegian Insurance Contract Act of 1989, section 3-1 and footnote 22 above.
26 However, the Association is licensed to insure Defence risks as a ‘stand-alone’ insurance even if the Member is not also entered for P&I risks.
27 See Rule 2.6.
28 Pre-delivery defence cover is available to Members contracting to buy a newbuilding, or Members buying an existing Ship. As the term ‘pre-delivery’ implies, the cover starts when the Member enters into a contract to build or buy the Ship and applies to the period before the member takes delivery of the Ship, whether from the shipyard at which it is being built, or from the sellers. Cover is available for the disputes listed in Rules 65 and 66, provided that cover for claims related to the building, purchase or mortgaging of the ship is subject to the Ship being entered in the Association for Defence cover at the latest on signing the relevant contract governing the building or purchase, as required by Rule 66 a.
29 See paragraph (c) to the Guidance to Rule 66.
30 See Article 9.3.a of the Statutes.