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1 Subject to any special terms which may have been agreed, if the Ship has been laid up with no cargo on board at a safe lay-up location for a period of at least 30 consecutive days, excluding the day of arrival at and the day of departure from the lay-up location, such proportion as the Association may decide of the Estimated Total Call or of the fixed premium payable, pro rata for the period of the lay-up, shall be returned to the Member.
2 No claim for laid-up returns shall be recoverable from the Association unless the Member has informed the Association of the lay-up of the Ship within 30 days after the commencement of the lay-up and the claim for laid-up returns is made within 30 days of the end of the lay-up period.
(A) Laid-up returns... (Rule 22)
A Ship is considered to be laid up when the owner or operator has taken a clear-cut and unfettered decision to have her anchored or moored in a safe and sheltered place without cargo on board. Therefore, a Ship is not considered to be laid up for the purposes of this Rule when it is, for example, arrested, detained or otherwise physically or legally prevented from trading. Most ships are laid up because it is uneconomical for the owner or operator to keep trading the Ship under the prevailing market conditions. When the Ship has been laid up, it will usually only have maintenance Crew and/or watchmen on board.
The fact that a Ship is laid up does not affect the Member’s obligation under the Rules to keep the Ship in class1 or to comply, or to procure compliance, with all statutory requirements of the flag state.2 Furthermore, if the Member does not keep the Ship fully insured on standard terms for hull and machinery risks during the period of lay-up, cover is not available from the Association in respect of liabilities, losses, costs and expenses that would otherwise have been covered by the Hull Policies had the Ship been so insured.3 For example, if the laid-up Ship should drag her anchor in a storm and make contact with a port installation causing the Member to be liable for repair and loss of use claims, cover will not be available under Rule 37 if the Member has allowed the Hull Policies to expire and, but for such expiry, the relevant liability etc., would have been covered under those Policies.
If the Ship is laid up for a period which exceeds six months, the Member is obliged, pursuant to Rule 9.2, to give the Association the opportunity to carry out an inspection before it leaves the place of lay-up for recommissioning, and the failure to do so may prejudice the Member’s rights to cover.4
(B) ...laid up with no cargo on board... (Rule 22.1)
The Estimated Total Call that is set by the Association pursuant to Rule 10 takes into account all matters affecting the risk that is presented by the particular entry, including the risk presented by the intended trade of the Ship. A Ship which is laid-up without cargo on board is not trading and therefore represents a lower P&I risk. Consequently, Rule 22 enables the Association to permit a proportion of premium, including fixed premium, to be returned to the Member in appropriate circumstances to reflect the lower risk. However, a Ship that is not trading, but still has cargo on board, does not normally qualify for a return of premium as the reduction of risk is not considered sufficient to allow such return.5
(C) ...at a safe lay-up location... (Rule 22.1)
The Association will be able to consider a return of a proportion of premium under Rule 22 only if the Ship is laid up ’at a safe lay-up location’. However, that which constitutes a ‘safe lay-up location’ for the purposes of Rule 22 is not necessarily construed so restrictively as that which is considered to be a ‘safe port’ for trading purposes. Generally, the Association will regard the location as safe if it has been approved as such by the Ship’s hull insurers.
(D) ...at least 30 consecutive days... (Rule 22.1)
The Ship must be laid up for 30 consecutive days in order to qualify for a laid-up return. However, the day of the Ship’s arrival at, and the day of the Ship’s departure from, the lay-up location do not count in the calculation of that period. The 30 days will be treated as continuing to run consecutively if the Ship remains in a laid-up condition and simply shifts her lay-up location within the same port or within the same lay-up area. However, if the Ship moves from one port or lay-up location to another, and ceases to remain in a laid-up condition during such transit, time is interrupted. Consequently, if the Member wishes to claim a laid-up return of premium in such circumstances, a fresh period of 30 consecutive days will commence to run from the day after the Ship’s arrival in the new safe port or lay-up location. Members are encouraged to inform the Association about the change of lay-up location for any Ship that has been laid up, in order to clarify whether the change may cause the lay-up period to be interrupted for the purpose of this Rule
(E) ...Estimated Total Calls or...fixed premium...shall be returned in such proportion as the Association may decide... (Rule 22.1)
The fact that a Ship has been laid up does not eliminate the risk that a claim may be made by the Member against the Association during such period of lay-up. The degree of residual risk will depend upon various matters and the Member may still wish to bring claims, for e.g. illness or injury to, or for the death of, Crew members who remain on board during the lay-up. Similarly, lay-up will not reduce the risk of Defence claims and the Association will also continue to incur some costs regardless of the fact that the Ship is laid up, e.g. administration costs.
Consequently, the Association needs to retain a sufficient proportion of the premium to cover such costs and to cover both the residual risk retained by the Association and that which is passed on to market reinsurers. For such reasons Rule 22.1 gives the Association the right when considering a return of a proportion of premium pro rata to the period of lay-up to retain that proportion of Estimated Total Calls which it considers necessary in order to cover such contingencies. However, for the reason explained above, a laid-up return of premium is not usually made in respect of Defence cover premiums.
Fixed premium Members may also be entitled to a laid-up return of a proportion of their fixed premium. The relevant proportion will be decided by the Association based on the factors described above.
(F) ...unless the Member has informed the Association of the lay-up of the Ship within 30 days after the commencement of the lay-up... (Rule 22.2)
The Association has the right to reject a claim for laid-up return of premium unless the Member has informed the Association of the lay-up of the Ship within 30 days after the commencement of the lay-up. The purpose of this notification requirement is to ensure that the Association has proper and timely notice of lay-ups to enable it to estimate its overall insurance risk exposure and premium income at any given time and to make adequate and timely provision for laid-up returns.
(G) ...unless...the claim for laid-up returns is made within 30 days of the end of the lay-up period (Rule 22.2)
A claim for laid-up returns must be made in writing within 30 days of the end of the lay-up period. If this is not done, the Association has the right to reject the claim. It is important both for accounting and evidentiary reasons that a claim is made promptly and the period of 30 days is considered to be a reasonable period for the submission of a claim for laid-up returns.
1 See Rule 8.1.a.
2 See Rule 8.1.f.
3 See Rule 71.1.a.
4 See Rule 9.3.
5 A Ship which is idle with cargo on board may represent a higher risk, e.g. in respect of liability caused by delay in delivery of cargo.