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Rule 18 Overspill Calls

If the Association shall at any time determine that funds are or may in the future be required to pay part of an Overspill Claim (whether incurred by the Association or by any other party to the Pooling Agreement), the Association may levy one or more Overspill Calls to meet the Association’s liability for its proportion of such Overspill Claim, pursuant to the terms and conditions as set out in Appendix VI to these Rules.  

Guidance

Overspill Calls can be levied only on Members who are entered on a mutual basis for P&I cover. Members entered on a fixed premium basis are not liable for such Calls.1 

(A) …funds…required to pay part of an Overspill Claim (whether incurred by the Association or by any other party to the Pooling Agreement)… (Rule 18)
An Overspill Claim is a claim on either the Association or any one of the other P&I clubs which are parties to the Pooling Agreement that exceeds or may exceed the Group Reinsurance Limit.2 The Group Reinsurance Limit may vary from Policy Year to Policy Year. For owners’ mutual entries it is currently USD 2 billion in excess of USD 80 million save for claims concerning oil pollution where a special limit of USD 1 billion applies.3 

The Pooling Agreement provides that parties to it will share between themselves in agreed proportions the amount by which any claim which may be made against any one or more of them exceeds the sum recoverable under the Group Excess Loss Policies. The proportion payable by the Members of any such P&I Club (including the Association) is calculated by reference to the tonnage that is entered in that club on the Overspill Claim Date.4 

Due to the potentially severe financial consequences of an Overspill Claim the level of reserves already held by the Association may not be sufficient to meet the Association’s liability for its proportion of such a claim, or there may be a need to avoid significant depletion of those reserves. Therefore, an Overspill Claim may require special funding which is achieved by the levying of additional calls on the membership. In order to reduce the need to levy Overspill Calls the Association has, in conjunction with the other P&I clubs which are parties to the Pooling Agreement, arranged overspill reinsurance which protects the Association and the other clubs against loss up to a fixed amount.5 

(B) …shall at any time… (Rule 18)
Rule 18 emphasises that the Association may ‘at any time’ determine that funds are either immediately required or ‘may in the future be required’ to pay its proportion of an Overspill Claim. Therefore, the Association may levy an Overspill Call even after the Policy Year in which the Overspill Claim has been made has been closed pursuant to Rule 16 for claims other than Overspill Claims. This provision gives the Association the flexibility subject to the provisions of Appendix VI (see below) to levy Overspill Calls at whatever time it considers it to be necessary and to thereby enable the Association to be ready to pay its part of the Overspill Claim as and when required. It is not a pre-requisite for the levying of Overspill Calls that the Association has first been requested to pay its part of the Overspill Claim. However, Overspill Calls cannot be levied unless and until an Overspill Claim has actually occurred.  

(C) …may levy one or more Overspill Calls… (Rule 18)
If the Association concludes that funds are or may be required to pay its proportion of an Overspill Claim it is not obliged to use any of the reserves in order to avoid levying an Overspill Call. Rule 18 gives the Association the right to levy Overspill Calls should it deem this to be in the better interests of the membership as a whole. Should the Association decide that an Overspill Call should be levied, the Association’s liability to pay its proportion of the Overspill Claim falls due as and when such funds are received from the membership.6 

The power to levy Overspill Calls is vested in the Board of Directors,7 which may levy such Calls more than once in respect of any given Overspill Claim should this be deemed necessary. However, neither the Association nor any other member club of the International Group of P&I Clubs has ever levied an Overspill Call to date. 

Historically, the Member’s liability to pay Overspill Calls was unlimited, but is now limited for any entered Ship8 to 2.5 per cent of the limit of liability in respect of property claims for that Ship pursuant to the provisions of the International Convention on Limitation of Liability for Maritime Claims 1976.9 The Association’s limit of liability under the Pooling Agreement in respect of any Overspill Claim is the aggregate of the individual limits set out for all Ships entered as Owner’s Entries in the Association on the Overspill Claim Date. 

(D) …pursuant to the terms and conditions as set out in Appendix VI… (Rule 18)
Because of the potentially profound financial consequences of any Overspill Claim for the parties to the Pooling Agreement, there is a need to have clear and detailed provisions regulating the inter-related rights and obligations of those parties, as well as rights and obligations between each club and its members. 

These provisions are set out in Appendix VI to the Rules which mirror similar provisions in the Pooling Agreement. They deal with the interpretation, recoverability, payment and expert determinations of Overspill Claims, the levying of Overspill Calls, the closing of Policy Years for Overspill Calls, and with security for Overspill Calls on termination or cessation of entries. 

The provisions are very comprehensive and have yet to be invoked in any given case. This Guidance, therefore, offers no further detailed review of them. However, a few observations are made for ease of reference:

i Where a club becomes aware that an incident has occurred that may give rise to an Overspill Claim in a given Policy Year that is not yet closed, it is obliged to give notice of this fact to the other parties to the Pooling Agreement and to declare that the Policy Year shall remain open for the purpose of levying an Overspill Call or Calls until the club is satisfied that their obligations in respect of the Overspill Claim have been discharged. If the subject Policy Year has been closed at the time such notice is given, the club concerned must declare that the earliest subsequent Policy Year which is still open shall remain open for this purpose;

ii A Policy Year will be closed for the purpose of levying Overspill Calls if no club has submitted any notice concerning a possible Overspill Claim within of 36 months of the commencement of the Policy Year in question;

iii Overspill Calls are, in the first instance, levied only in respect of Ships entered in the Policy Year during which the event that gave rise to the Overspill Claim occurred;

iv Ships entered for less than a full Policy Year are liable to pay Overspill Calls on a pro rata basis, e.g. one-third of the full Call if entered for four months, and this principle applies irrespective of whether the Ship was entered on the actual date on which the event that gave rise to the Overspill Claim occurred;

v If an entry of a Ship terminates or ceases after it has been declared that a Policy Year should remain open for Overspill Calls,10 the Association has the right to demand that the Member provides security to pay any future Overspill Calls in respect of that Ship. The Association also has the right to withhold payment of claim compensation to the Member until such security has been provided. The purpose of this Rule is to assist the Association to collect Overspill Calls in the interests of the membership as a whole.


 

1 See Rule 10.2.
2 See Appendix III, Paragraph 1 as well as the Guidance to Rule 1.1.
3 See Rule 53.1 and Appendix III, Paragraph 2. Since claims in respect of oil pollution are subject to a special limit of cover of USD 1 billion, which is fully reinsured, no Overspill Claim can arise solely in respect of oil pollution.
4 The Overspill Claim Date is defined in paragraph 1.1 of Appendix VI of the Rules as “the time and date on which there occurred the incident or occurrence giving rise to the Overspill Claim in respect of which the Overspill Call is made, or if the Policy Year in which such incident or occurrence has been closed in accordance with the provisions of paragraphs 6.1 and 6.2, noon GMT on 20 August of the Policy Year in respect of which the Association makes a declaration under paragraph 6.3.”
5 The Overspill reinsurance for the 2013 Policy Year has a limit of USD 1 billion per Overspill Claim.
6 See Paragraph 3.4 to Appendix VI.
7 See Article 6.2.e of the Bye-Laws of Gard P&I (Bermuda) Ltd and Article 9.2.d of the Statutes of Assuranceforeningen Gard -gjensidig-.
8 If a Ship is entered for a proportion of its tonnage pursuant to Rule 3.2, then the limit will be that proportion of the full limit.
9 See Appendix VI Paragraph 5.4. Despite the fact that higher limits have been introduced by the 1996 Protocol to the 1976 Convention, the applicable limit for the purposes of Rule 18 remains at the limit set by the 1976 Convention.
10 See also the Guidance to Rule 26.1.