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Rule 27 Liabilities in respect of crew

1 The Association shall cover:

a liability to pay hospital, medical, maintenance, funeral and other costs and expenses incurred in relation to the injury to, or illness or death of, a member of the Crew, including costs and expenses of repatriating the member of the Crew and his personal effects, or sending home an urn of ashes or coffin and personal effects in the case of death, and costs and expenses necessarily incurred in sending a substitute to replace the repatriated or dead man;

b liability to repatriate and compensate a member of the Crew for the loss of his employment caused in consequence of the actual or constructive total loss of the Ship or of a major casualty rendering the Ship unseaworthy and necessitating the signing off of the Crew;

c liability to pay compensation or damages in relation to the injury to, or illness or death of, a member of the Crew;

d liability for costs and expenses of travelling incurred by a member of the Crew when the travelling is occasioned by a close relative having died or become seriously ill after the Crew member signed on, and costs and expenses necessarily incurred in sending a substitute to replace that Crew member;

e liability for wages payable to an injured or sick member of the Crew or on death to his estate;

f liability in respect of loss of or damage to the personal effects of a Crew member, 

provided that under this Rule 27.1:

i where the liability arises under the terms of a crew agreement or other contract of service or employment, and would not have arisen but for those terms, the liability is not covered by the Association unless those terms have been previously approved by the Association;

ii there shall be no recovery in relation to liability which arises under a contract of indemnity or guarantee between the Member and a third party;

iii the cover shall not include liabilities, costs or expenses arising out of the carriage of specie, bullion, precious or rare metals or stones, plate or other objects of a rare or precious nature, bank notes or other forms of currency, bonds or other negotiable instruments, whether the value is declared or not, unless the Association has been notified prior to any such carriage, and any directions made by the Association have been complied with.

iv references to personal effects shall exclude valuables and any other article which in the opinion of the Association is not an essential requirement of a Crew member.

2 The Association shall cover:

a costs and expenses which are not recoverable under Rule 27.1 and which are necessarily incurred in sending a substitute to replace a member of the Crew who has been left behind;

b costs and expenses which are not recoverable under Rule 27.1, which are necessarily incurred under a statutory obligation in repatriating a member of the Crew of the Ship and in sending a substitute to replace him and which would not have been incurred had there been no such statutory obligation; and

c costs and expenses incurred as a direct consequence of complying with an order for the deportation of a member of the Crew which would not have been incurred had no such order been made,

provided that such costs or expenses as are referred to in paragraphs a, b and c do not arise out of or in consequence of:

i the termination of any agreement; or

ii breach by the Member of any agreement or other contract of service or employment; or

iii sale of the Ship; or iv any other act of the Member in respect of the Ship.

3 The Association shall cover liability to repatriate a member of the Crew pursuant to any statutory enactment giving effect to the Maritime Labour Convention 2006 or any materially similar enactment, provided always that there shall be no recovery in respect of liabilities arising out of the termination of any agreement, or the sale of the Ship, or any other act of the Member in respect of the Ship, save and to the extent permitted by this Rule 27.3 in respect of the Member’s liability for such expense under the Maritime Labour Convention 2006. 

4 Where the Association has issued to a Member certificates of insurance or other financial security in respect of shipowners’ liability as required under Regulation 4.2, Standard A4.2.1 paragraph 1 (b) or Regulation 2.5 Standard A2.5.2 of the Maritime Labour Convention 2006 as amended (MLC Certificates), the Association shall discharge and pay on behalf of the Member the liabilities, losses, costs and expenses set out in and subject to the conditions in the Maritime Labour Convention Extension Clause 2016 included in Appendix IV, section 4, to these Rules. The terms and conditions of the Maritime Labour Convention Extension Clause 2016 shall be deemed to be part of the contract of insurance with a Member upon the approval by the Association of a Member’s application for MLC Certificates.”

Guidance

For more comprehensive commentary in relation to Crew claims see Chapters 11 and 22.5 of the Gard Guidance on Maritime Claims and Insurance. 

(A) Explanatory remarks (Rule 27)
Cover is available under Rule 27 for legal liabilities, costs and expenses in respect of Crew. Such liabilities etc., will arise in most instances under the terms of the contract of employment of the Crew, including any collective bargaining agreement (CBA) incorporated by reference into the contract of employment. However, cover is also available when the basis of liability is not the contract of employment, but the provisions of a statute or international convention such as the Maritime Labour Convention 2006 as amended by Maritime Labour Convention (MLC)(see (Q) below) or the provisions of national law, e.g. maintenance and cure obligations arising under the general maritime law of the United States.1 

In some instances, liabilities may arise both under contract and under the provisions of statute or international conventions such as the MLC, in which case, reference should be made to the commentary that is made in (F), (G) and (Q) below since additional factors may be relevant in relation to cover in such circumstances.

Where liability in respect of Crew arises under contract, and would not have arisen but for that contract, the Member must obtain the prior approval of the Association to such contractual provisions if cover is to be available.2 In order to consider whether to give such approval the Association may require a copy of the contract of employment and the terms of any incorporated CBA, as well as additional information relating to the nationality and the number of Crew members who serve on board and the trading pattern of the Ship.3 Depending on the circumstances, the Association may either decline to provide cover, or, more likely, to charge extra premium for the additional risks represented by the contractual terms and conditions. 

(B) Liabilities in respect of Crew (Rule 27)
Crew is a defined term for the purpose of Rule 27: It means ‘officers, including the master, and seamen contractually obliged to serve on board the Ship4 and their substitutes. It follows that all ranks, ranging from the master to ratings and cadets, are covered whether they perform duties in relation to navigation, engine, cargo or any other usual shipfaring functions. However, in the case of passenger ships, Crew also includes staff members who perform hotel and catering functions. Furthermore, various personnel5 may be employed by the Member on board a Ship prior to the delivery of the Ship from a building yard, e.g. in order to either supervise work which is required before delivery or to familiarise themselves with the Ship before it is put into service. Cover is available in respect of the Member’s liability to such personnel in such cases although the Ship has not yet been delivered and, therefore, has not yet been entered with the Association for P&I risks. However, cover is available only if the Member has made a commitment to the Association that the Ship will be entered with the Association for P&I risks after delivery of the Ship to the Member. Similar cover can be agreed in respect of personnel who perform services on board a second-hand vessel that has been purchased, but not yet delivered to the Member, or in respect of personnel who, for an agreed period of time, remain on board a Ship that has been sold,6 e.g. in order to help the buyer’s crew to familiarise themselves with the vessel. Cover is available in respect of any such personnel only to the extent that the Association has given its prior approval as it may be necessary to charge extra premium for the additional risk. 

Crew means Crew members who are employed to serve on board the Ship that is named as a P&I entry in the Association, and cover is available not simply in respect of the periods when they are actually working on board the Ship, but for the whole period that they are contractually obliged to serve on board the Ship. This means that cover is available for Crew members whilst they are travelling to and from the Ship, to and from the place where they were hired, and also whilst they are temporarily ashore at times when they remain under an obligation to return to the Ship to continue service.7 

Cover is also available for such Crew members while they are on earned leave, i.e. at home or on vacation between periods of service on the Ship or between the Ship and any other Ship that is in a fleet that has been entered by the Member in the Association. However, cover is available only to the extent that the Member is liable to the Crew members during such periods under the terms of a contract of employment which have been approved by the Association. If the Member has entered some Ships in the Association and some ships in another P&I club, cover is available only in respect of Crew members who were employed on board a Ship entered in the Association8 immediately before the commencement of the earned leave. 

(C) The Association shall cover… (Rules 27.1 and 27.2)
The cover which is available under Rule 27.1.a to f is subject to the provisos in 27.1.i to iv, which are considered in (K) below and the cover which is available under Rule 27.2.a to c is subject to the provisos in Rule 27.2.i to iv which are considered in (O) and (P) below. 

The cover that is available under Rule 27 can be categorised as follows:

i The liability of the Member to Crew members to pay expenses, costs, wages, compensation or damages in respect of illness, injury or death;

ii The liability of the Member for costs and expenses incurred in order to repatriate Crew members following illness, injury or death, or the loss of the Ship, or a major casualty rendering the Ship inoperable, or the granting of compassionate leave due to the serious illness or death of a close relative, or the service of a deportation order;

iii The liability of the Member for costs and expenses incurred in order to provide Crew members to serve as substitutes for those who are no longer able to serve as a result of illness, injury or death, or compassionate leave, or as a result of having been left behind or deported;

iv The liability of the Member to compensate Crew members upon the loss of the Ship, or after a major casualty which has rendered the Ship inoperable, for wages that would have been earned under their contract of employment but for that event;

v The liability of the Member to compensate Crew members for lost or damaged personal effects. 

(D) …liability to pay hospital, medical, maintenance, funeral and other costs and expenses…in relation to the injury to, or illness or death of a member of the Crew … (Rule 27.1.a)
The cover which is available for hospital and medical costs and expenses includes the cost of acute treatment, diagnostic measures, surgery, post-surgery treatment, nursing care and medicines. Such costs may vary to a large degree depending on the type and extent of the illness or injury, on whether the hospital or other medical facility is a private or state-owned facility, on the methods of treatment employed, and on the country where treatment and care is provided. However, cover is available for that level of medical treatment and maintenance9 which is necessary to ensure that the Crew member will receive proper treatment and care bearing in mind the type of illness and injury, the location of the Ship when the need for medical treatment arose, the urgency with which immediate treatment must be given, and the standard of treatment available in the country where the Crew member is domiciled. Proper treatment and care is a relative term, but the medical treatment facility where it is given should be certified and accredited for the type of treatment which is needed unless the urgency of treatment combined with the particular location makes it impossible to find such a facility. 

Cover is also available in respect of other costs and expenses which may be necessary and reasonable in particular circumstances, such as those incurred when evacuating a Crew member from Ship to shore by helicopter, or by other forms of air transportation from a small local hospital to a larger central hospital. However, cover may not be available for the full cost of treatment in private hospitals and rehabilitation centres which give the highest level of medical treatment, care and maintenance. In such circumstances, the Member has an obligation10 to advise and consult the Association before incurring substantial costs and expenses, since he is required to take active steps to ensure that treatment costs and expenses are kept at a reasonable level.11 In some cases this might necessitate the transfer of a Crew member from a foreign hospital to a facility in the Crew member’s country of domicile where the provision of adequate treatment and rehabilitation is less expensive; where the Crew member can communicate with medical and nursing staff in his native language; where the family of the Crew member may visit more regularly, and where surroundings are more familiar. In other instances, e.g. in the USA, it is frequently necessary to appoint a medical case manager to assist with the choice of hospital and the monitoring of treatment, as well as a medical auditor to review hospital and rehabilitation bills. 

Cover is also available for costs and expenses incurred in circumstances where it is considered medically necessary for one or more persons to escort a Crew member who is ill or injured to a medical treatment facility, or between such facilities, or when the Crew member is being repatriated. Such escorts can be doctors, nurses and/or others who have the skills considered necessary in the circumstances to ensure the well-being of the Crew member, e.g. an interpreter. Cover is also available for the cost of visits to the medical treatment facility by relatives of Crew members provided that the doctor responsible for the treatment has confirmed that such visits are likely to promote the medical recovery of the Crew member, or such relative may replace an escort that would otherwise have been necessary during repatriation However, it is recommended that Members should consult with, and seek the prior approval of the Association in such circumstances. 

Cover is also available for travel expenses incurred by a Crew member who has become ill shortly before he is due to go on earned leave in circumstances where a doctor has certified that the Crew member should travel either at an earlier date or to a different destination. However, if the Crew member’s medical condition does not necessitate the alteration of the original travel plan, cover is not available for such travel costs as it would have been incurred in any event, and is, therefore, considered to form part of the Member’s normal operating costs. 

In the case of the death of a Crew member, cover is available for the Member’s liability to pay basic funeral and burial expenses including the cost of returning the body or ashes, and the personal effects of the deceased, but not for the cost of wreaths.

Failure on the part of the Member to properly care for Crew members who are ill or injured may increase the Member’s liability. For example, the shipowner is strictly liable under the law of the United States to pay a daily subsistence allowance (maintenance) and reasonable medical expenses (cure) to a sick or injured Crew member and to take all reasonable steps to ensure that the sick or injured Crew member receives proper care and treatment. This obligation continues until the Crew member has reached maximum medical improvement, which is the point beyond which further medical treatment would probably not improve his condition. Unreasonable denial of maintenance and cure payments can give rise to a liability to pay compensatory damages, e.g. for aggravation of the Crew member’s condition and indifference in this regard can also give rise to a liability to pay the attorney fees incurred by the Crew member. Therefore, in order to enable the Association to assist and advise in relation to the provision of medical care, repatriation and other issues Members are urged to inform the Association promptly12 of any injury or illness that may give rise to a claim in respect of a Crew member since a failure to do so may prejudice cover.13 

Some countries have laws that oblige an employer to arrange and pay for insurance that gives protection to their employees with regard to work-related illness, injury or death regardless of liability on the part of the employer or fault on the part of the employee. Such insurance usually gives the insured employee (or, in the case of death, the next of kin) a right to seek recovery directly from the insurance company for treatment costs, disability compensation and other costs and expenses incurred in connection with the illness, injury or death. Furthermore, some countries have social security or national insurance systems which give any person who is a member of such a system a right to claim compensation for treatment costs, disability compensation and a number of other benefits.14 Cover is not available from the Association to the extent that the Member or the Crew member is entitled to receive compensation under any such social, public or private insurance.15 

Liability in respect of Crew illness, injury and death is an area of high exposure both for the Members and the Association. Therefore, in order to ensure that they are eligible for cover, Members are always required to take reasonable steps to minimise the exposure of the Association to such claims. The Member is also expected to ensure that all contracts of employment contain provisions which will disentitle Crew members from relying on contractual benefits in respect of any pre-existing illness or injury that has been wilfully concealed by the Crew member at the time of examination.

(E) …liability ...  for costs and expenses necessarily incurred in sending a substitute ... (Rule 27.1.a)
Cover is available in respect of costs and expenses that are reasonably incurred by the Member in order to send a substitute to replace a repatriated or deceased Crew member. However, the Member must satisfy the Association that the substitute was needed in order to ensure that the Ship was properly manned and seaworthy, and that the remaining Crew members could not manage to operate the Ship safely in the absence of the repatriated or deceased Crew member. Cover is not available for such costs if the repatriation of the injured or ill Crew member occurs at the time when he would have travelled home in any event since such costs are considered to be part of the Member’s normal operational costs. Similarly, cover is not available for the wages of substitute Crew members as such costs are also considered to be normal operational costs. 

Cover is available for the travel expenses and associated maintenance costs incurred in sending to the Ship one substitute for each replaced Crew member. Consequently, if a temporary substitute is subsequently replaced by a permanent substitute, cover is available only for costs incurred in relation to one of the two replacements. 

(F) …liability to repatriate and compensate a member of the Crew for the loss of his employment caused in consequence of loss of the Ship or of a major casualty rendering the Ship unseaworthy and necessitating the signing off of the Crew; (Rule 27.1.b)
Cover is available for the costs incurred in repatriating Crew members as a necessary consequence of an event which causes the actual or constructive total loss16 of the Ship, or which causes the Ship to become unseaworthy by reason of a casualty,17 except where the Crew member(s) would have been repatriated in any event regardless of the event or casualty, e.g. upon the planned expiry of their contract of employment. However, if Crew members are required to remain on board the Ship in order to carry out repairs or for some other reason, cover is not available for any additional costs thereby incurred, or for the ultimate repatriation of the Crew, to the extent that these costs may be recoverable under the Ship’s Hull Policies.18 

In the event of the loss of the Ship or of a casualty which has rendered the Ship unseaworthy it may be necessary to terminate the contracts of employment of Crew members for that reason. In such circumstances, the contracts of employment normally give Crew members a right to receive compensation for loss of employment which may, pursuant to the provisions of the MLC (See (Q) below) be limited to two months wages. Similar compensation rights may also arise under international convention19 or statute20 or the common law in order to compensate the Crew member for the loss of the wages that would have been earned under the contract but for the casualty, and also for lost earnings during the time that it takes the Crew member to find new employment. Cover is available for the Member’s liability to pay such compensation, but not for the proportion of wages already earned, but not yet paid, at the time of the incident, which is considered to be a part of the Member’s normal operational cost. 

(G) …liability to pay compensation or damages in relation to the injury to, or illness or death of a member of the Crew...(Rule 27.1.c)
Under most legal systems a person is entitled to receive full compensation from the party liable for the reasonably foreseeable financial loss sustained by the injured person as a result of the negligent act or omission of the party that caused the loss, damage or injury. 

The Member’s liability to pay compensation in relation to the injury, illness or death of Crew members can arise either under the contract of employment,21 which often incorporates the terms of a CBA, or under international or national statutory provisions such as the MLC (See (Q) below), or at common law.22 Cover is available under Rule 27 regardless of the basis of liability. 

In the majority of cases the basis and level of compensation payable to Crew members in respect of permanent disability caused by illness or injury (or to their legal beneficiaries in the case of death) will be set out in the contract of employment and/or CBA, and this helps in clarifying the rights and obligations of the parties. Cover is available for such contractual liability unless the basis and/or level of compensation is considered disproportionate to that which the Association has approved previously, whether for the particular Member or for other Members. Because of the diversity of the terms of Crew contracts of employment and CBAs, and the uncertainty that may, therefore, arise as to the extent to which compensation is payable by the Association pursuant to different contractual terms, it is recommended that Members should consult the Association if they are in any doubt as to the scope of cover. 

Some CBAs contain no fault liability terms, i.e. the employer (Member) is liable to pay compensation for illness, injury or death regardless of whether there is fault or negligence on the part of the employer, and no deduction is usually allowed in the event that there is contributory negligence on the part of the Crew member. However, some CBAs exempt the employer from liability to pay compensation in the event that death is proved to have occurred as a result of suicide,23 or that some other form of self-inflicted death/injury is attributable to a wilful act, or to an illness or injury that is not considered work-related.24 A CBA will also normally contain a compensation schedule setting out how much is to be paid in the event of permanent disability or death. The level of compensation will normally vary depending on rank and position and the degree of disability, and the quantum of the compensation is also frequently pre-determined in a schedule according to the severity of the deprivation of bodily functions. 

Disputes may arise as to whether any compensation is payable for illness or injury to Crew members, or if so, as to the amount of compensation, e.g. what is the degree of disability sustained? is the disability permanent?25 or is there some form of vocational training that may qualify the Crew member for other positions on board or ashore? Disputes may also arise as to the law and jurisdiction which is to apply to the contract of employment, as to whether claims in tort can be brought in addition to the claims arising under the contract of employment, and if so, whether any contractual compensation paid or payable can be deducted from any damages that may be payable in tort. Furthermore, in the event of the death of a Crew member, disputes may arise as to who is entitled to receive compensation particularly if there are competing heirs. 

Cover is available not only for the Member’s liability to pay compensation, i.e. pre-determined contractual payments, but also for any liability that he has at law, i.e. other than under contract, to pay damages for the injury, illness or death of a Crew member sustained as a result of a tortious act or omission on the part of the Member or his servants or agents. Under most contracts of employment damages are not payable in addition to the contractual compensation since the contractual compensation is payable regardless of fault, but, as noted above, this is sometimes challenged by claimants who rely on statutory provisions or common law principles that apply in the jurisdiction where the claim is brought. Consequently, cover is also available for the Member’s legal liability to pay damages, whether or not in addition to the contractual compensation. Such liability to pay damages may in certain circumstances exceed the financial loss which has been sustained or which was anticipated. For example, the Member may be held liable by a court or tribunal to pay damages for non-pecuniary losses such as pain and suffering (or conscious pre-death pain and suffering) and cover is available for such legal liability. Cover may also be available for exemplary or other forms of punitive damages unless such liability results from the wilful misconduct or reckless disregard of the Member.26 

(H) …liability for costs and expenses…occasioned by a close relative having died or become seriously ill... (Rule 27.1.d)
Should a Crew member, whilst serving on a Ship, learn of the serious illness or death of a close relative, e.g. a spouse, parent, child, adopted child or stepchild, the terms of the contract of employment or of any applicable statutory provisions may give him a right to take compassionate leave, and may oblige the employer (Member) to pay the costs of travel, either to the location of the funeral or, in the case of serious illness, to the residence of the close relative, whether or not this is the same residence as that of the Crew member. Cover is available for such travel costs and expenses, including any costs and expenses which are reasonably incurred for food and lodging whilst en route. 

Cover is also available for costs and expenses necessarily incurred in sending to the Ship a substitute for the Crew member who has been granted compassionate leave. However, the Member must satisfy the Association in such circumstances that the substitute was needed in order to ensure that the Ship remained properly manned and seaworthy and that the remaining Crew members could not manage to operate the Ship safely in the absence of the Crew member who has been granted compassionate leave. However, cover is not available for the liability of the Member to pay wages to the Crew member whilst on compassionate leave, or to pay the wages of any substitute Crew member as such wages are considered to be normal operational costs. 

(I) …liability for wages payable to an injured or sick Member of the Crew or on death to his estate... (Rule 27.1.e)
The provisions of most Crew contracts, CBAs and statutes and the provisions of the MLC 2006 and the common law oblige employers to pay sick wages to injured or ill Crew members. The quantum of the wages that are payable pursuant to the contract of employment may be less than the full wages, e.g. the monthly basic wage without provision for overtime, and such wages are usually payable until the Crew member has recovered and is again fit for duty, or until he has been declared permanently disabled, or until the maximum number of days for which sick wages are payable, as specified in the contract of employment, has been reached. 

Cover is available for the Member’s liability to pay such wages provided that the incapacity of the Crew member for work has been medically certified. However, cover is not available for any liability that the Member has to pay sick wages indefinitely pursuant to the terms of the contract of employment unless the Member has a mandatory statutory obligation to continue to pay sick wages beyond the maximum number of days stipulated in the contract of employment. 

Upon the death of a Crew member, the employer is usually obliged to pay the sick wages which he was entitled to receive during the period of illness or injury leading up to the death to the legal beneficiaries of the Crew member. Cover is available for such liability. However, the Member must ensure that such payment is made only to those beneficiaries who are entitled under the applicable law to receive such payment. 

(J) …liability in respect of loss of or damage to the personal effects of a Crew member; (Rule 27.1.f)
Since the Ship is the temporary home of Crew members during their periods of service it is important that they be allowed to take on board personal belongings that can support their welfare. However, such personal effects can be lost or damaged during the period of service and most contracts of employment oblige the employer to reimburse Crew members for such loss or damage regardless of whether it has been caused by the fault or negligence of the Member. Some employment contracts oblige the employer to reimburse the Crew member only if the effects are lost or damaged as a result of a total or constructive loss of the Ship, or as a result of a major casualty, whilst other contracts oblige the employer to reimburse the Crew member for all accidental loss or damage that may arise during the course of the Crew member’s service on board the Ship. 

However, most contracts also impose a limit on the employer’s liability for such loss or damage (commonly in the range of USD 2,000-4,000 per Crew member) and require the Crew member to submit written details of the items lost or damaged and of their value together with supporting documentation. 

Similar liability for loss of or damage to personal effects may also arise under international convention, statute or the common law. Cover is available for such liability whether it arises under contract, international convention, statute or the common law provided, in the case of liability that arises pursuant to the terms of a contract, and which would not have arisen but for such terms, that those terms have been previously approved by the Association.27

(K) The Association shall cover: …[liabilities pursuant to Rule 27.1.a-f] provided that under this Rule 27.1: (Rule 27.1 provisos i-iv)
Comment has already been made in relation to proviso i in (I) above. Crew contracts of employment that give rise to liability that would not have arisen but for those terms, must have been previously approved by the Association if cover is to be made available for such liability. Proviso ii makes it clear that cover is not available for liabilities that are incurred by the Member by virtue of indemnities or guarantees given by them to third parties. For example, if the Member has agreed to indemnify the manning agent for liability incurred by the manning agent in relation to the Crew, cover is not available under Rule 27 in respect of such liability.28 

Crew members sometimes bring cash, jewellery, collector’s items or other items of high value on board the Ship. Therefore, proviso iii makes it clear that cover is not available in the event of the loss of, or damage to, such items, even if the Member is liable to compensate the Crew member for such loss or damage, unless the Association has been informed in advance of the presence of such items and the Member has complied with any directions given by the Association in such circumstances. However, cover is normally available for liability that the Member has for loss of cash belonging to Crew members and which has been held in custody in the Ship’s safe. Such loss can occur, for example, when the Ship has sunk or has been attacked by pirates. Proviso iv makes it clear that, whilst cover is available for liability for loss of or damage to personal effects, this does not extend to valuables or to any other article which does not, in the opinion of the Association, constitute an essential requirement for the Crew. In a literal sense something is essential if it can be said that the Crew member would face difficulty living and working on board the Ship without it, e.g. spectacles and hearing aids. However, the Association takes a pragmatic view of what is essential for the purposes of the Rule and normally makes cover available in respect of the Member’s liability for loss of or damage to articles that are normally found in living quarters ashore and which have been taken on board to improve the welfare of the Crew, e.g. books, mobile phones and other electronic devices. 

(L) …costs and expenses which are not recoverable under Rule 27.1 and which are necessarily incurred in sending a substitute to replace a member of the Crew who has been left behind; (Rule 27.2.a)
A Crew member may be left behind if he fails to re-board the Ship prior to departure from the port of call. The risk of such occurrences has substantially decreased in recent years due to a number of factors: less time is spent in port, the rules relating to alcohol consumption while in port are more stringent, ports and terminals tend to be located further away from city centres and leisure amenities, and there are improved personal communication systems such as mobile phones. Therefore, a Crew member is now unlikely to miss the sailing of his Ship unintentionally.

The more likely modern scenario is that a Crew member decides to stay behind intentionally, i.e. he deserts the Ship. In such circumstances the Ship may become unseaworthy due to the fact that she is insufficiently manned and it may be necessary to send for a substitute or substitutes. Cover is available for expenses incurred in sending substitute Crew members to the Ship, in such circumstances, to the extent that they are necessarily incurred and to the extent that they are not recoverable under Rule 27.1. Cover is also available under Rule 31 for the costs itemised in that Rule, which are incurred whilst waiting for such substitute Crew members. 

(M) …costs and expenseswhich are not recoverable under Rule 27.1, which are necessarily incurred under a statutory obligation in repatriating a member of the Crew... (Rule 27.2.b)
Where a Member has a statutory obligation29 to repatriate Crew members who have been left behind, and the costs and expenses of doing so are not recoverable under Rule 27.1, cover is available for such repatriation costs and substitution expenses under Rule 27.2. 

(N) …costs and expenses incurred as a direct consequence of complying with an order for deportation of a member of the Crew (Rule 27.2.c)
The most common situation which gives rise to a claim under Rule 27.2.c is where Crew members who have deserted the Ship in a foreign port or place are apprehended by the authorities after having broken local immigration laws and have become subject to a deportation order. Most countries will charge the cost of deportation to the carrier of the persons who are in breach of the immigration laws, and in the case of Crew members, this will usually be the shipowner. Cover is available for the Member’s liability to pay or reimburse such deportation costs, but, in the event that the Member is able to deduct such costs from any wages which are due to the relevant Crew members, cover is limited to the unrecovered costs. 

(O) The Association shall cover: [costs and expenses pursuant to Rule 27.2.a-c] provided that such costs and expenses...do not arise out of or in consequence of termination or breach of any agreement... (Rule 27.2 provisos i and ii)
Rule 27.2 excludes cover for costs and expenses arising out of, or in consequence of, the termination of an agreement, or as a result of a breach by the Member of any agreement or any other contract of service or employment. For example, cover is not available where:

i a Crew member is left behind due to the fact that his contract of employment has terminated or due to the fact that the Member has abandoned him in breach of the contract of employment;30

ii the Member repatriates a Crew member pursuant to a statutory obligation to repatriate seafarers on termination of their contracts of employment;

iii a Crew member is deported after the Member has left him behind on termination of his contract of employment

(P) The Association shall cover: [costs and expenses pursuant to Rule 27.2.a-c] provided that such costs and expenses do not arise out of or in consequence of... the sale of the Ship; or any other act of the Member in respect of the Ship. (Rule 27.2 provisos iii and iv)
Proviso iii makes it clear that cover is not available for repatriation and deportation costs which become necessary as a result of the sale of the Ship since such costs are considered to be for the Member’s own account and not costs and expenses which should be shared between the membership as a whole. Furthermore, proviso iv makes it clear that cover is not available for costs and expenses incurred in the deportation or repatriation of Crew members who have been left behind as a result of the personal and intentional acts of the Member. For example, cover is not available where:

i the Member has laid up the Ship and discharged the Crew;

ii the Member has allowed Crew members ashore in circumstances where the likely consequence of such shore leave would be a statutory obligation to repatriate or deport the Crew members;

iii the Ship has sailed early, i.e. before the shore leave for the Crew members has ended;

iv the Member has discharged the Crew members before the Ship entered a war zone;

v a Crew member has been put ashore following a breach of the disciplinary code of the Ship. 

(Q) The Association shall cover liability to repatriate a member of the Crew pursuant to any statutory enactment giving effect to the Maritime Labour Convention 2006 or any materially similar enactment, provided always that there shall be no recovery in respect of liabilities arising out of termination of any agreement, or the sale of the Ship, or any other act of the Member in respect of the Ship, save and to the extent permitted by this Rule 27.3 in respect of the Member’s liability for such expenses under the Maritime Labour Convention 2006 (Rule 27.3)

Where the Association has issued to a Member certificates of insurance or other financial security in respect of shipowners’ liability as required under Regulation 4.2, Standard A4.2.1 paragraph 1 (b) or Regulation 2.5 Standard A2.5.2 of the Maritime Labour Convention 2006 as amended (MLC Certificates), the Association shall discharge and pay on behalf of the Member the liabilities, losses, costs and expenses set out in and subject to the conditions in the Maritime Labour Convention Extension Clause 2016 included in Appendix IV, section 4, to these Rules. The terms and conditions of the Maritime Labour Convention Extension Clause 2016 shall be deemed to be part of the contract of insurance with a Member upon the approval by the Association of a Member’s application for MLC Certificates. (Rule 27.4)

Background

The Maritime Labour Convention (MLC) has been described as the fourth fundamental pillar of shipping regulation (the other three being the SOLAS, MARPOL and STCW Conventions) and came into force on 20 August 2013. It has been ratified by more than 80 States. The convention establishes minimum standards for the working conditions of seafarers and requires the flag state to establish an inspection and certification system to ensure that such minimum standards are met. The ship must be issued with, and carry on board, a maritime labour certificate confirming that such minimum standards have been met, and compliance is to be regulated by Port State Control. In addition, the MLC provided that financial security should be in place for certain seafarer entitlements. However, it did not define “financial security” when coming into force and did not impose a right of direct action against the provider of financial security. In April 2014 the International Labour Organization (ILO) agreed several amendments to the MLC to implement other principles that had been agreed earlier in 2009 by the joint IMO/ILO financial security working group and these amendments entered into force on 18 January 2017. The amendments require owners to display certificates issued by an insurer or other financial security provider on board the ships confirming that insurance or other financial security is in place for liabilities in respect of:

  • outstanding wages (limited to 4 months) and repatriation of seafarers together with incidental costs and expenses in accordance with MLC Regulation 2.5.2, Standard A2.5.2 and Guideline B2.5, and
  • compensation for death or long-term disability in accordance with Regulation 4.2, Standard A4.2.1 paragraph 1b and Guideline B4.2.

Rules 27.3 and 27.4 describe the financial security that the Association provides in relation to liabilities that Members may incur pursuant to the provisions of the Maritime Labour Convention 2006 as amended (MLC). Some liabilities are covered by the Association pursuant to Rule 27.1 and 27.2 but the MLC imposes some additional liabilities on Members and Rules 27.3 and 27.4 are intended to extend protection to Members in such circumstances. Rule 27 (3) describes the cover that is available when the Association has not issued to the Member a certificate that is required by the MLC whereas Rule 27 (4) describes the cover that is available when the Association has issued such a certificate.

Rule 27 (3)

The shipowner may incur greater liability under the MLC than that for which cover is made available under Rules 27 (1) and (2). For example, whilst Rules 27 (1) and (2) provide cover for repatriation expenses and loss of earnings resulting from casualties, they do not provide such cover when the liability is incurred as a result of the Member’s insolvency. The MLC, on the other hand, imposes liability on the shipowner in such circumstances and Rule 27 (3) is intended, subject to the terms specified in the Rule, to extend cover for the Member’s liability in such circumstances. However, the cover that is available under Rules 27 (1) and (2) on the one hand, and Rule 27 (3) on the other hand, is not co-extensive. The cover that is provided under Rules 27 (1) and (2) forms part of standard club cover and, consequently, part of the collective pooling and reinsurance arrangements of the International Group. However, the cover that is available under Rule 27 (3) does not form part of the International Group collective pooling arrangements and the very high reinsurance cover that is available pursuant to such arrangements,31 but is subject to the special terms that are set out in the Rule and in Rule 87 (3) and the special limit per Ship per event that is specified in Appendix IV Rule 3.32

Furthermore, Rule 27 (3) provides expressly that cover is not available if the Member incurs liability “in respect of liabilities arising out of the termination of any agreement, or the sale of the Ship, or any other act of the Member in respect of the Ship” since such liabilities are considered to be part of the Member’s own normal operating costs and not liabilities to which the other Members of the Association should contribute in the context of mutuality. However, if liability is imposed on the Member in such circumstances by the MLC, but the Member nevertheless, fails to discharge his obligations in that regard, Rule 87 (3) provides that the Association shall do so on behalf of the Member but on terms that the Association does so as agent for the Member, and that the Member shall reimburse the Association for such payment.33 The P&I clubs (including the Association) that are members of the International Group have agreed that the relevant club should intervene in such circumstances to help promote the aim of the MLC and to safeguard the welfare of the relevant seafarers by ensuring that sufficient funds can be made available promptly notwithstanding the fact that the Member may not be covered under the Rules for such costs and expenses. Therefore, it is for this reason that Rule 87 (3) obliges the Member to reimburse the Association for any payments that have been made by the Association as agent for the Member in such circumstances.

However, in view of the Association’s agreement to provide the necessary certificates of financial security pursuant to Rule 27.4, the scope of Rule 27.3 is likely to be limited but it may still be relevant in those circumstances in which certificates are not required or the Association does not for some reason agree to provide the Member with such certificates.

Rule 27 (4)

The Boards of all the Clubs that are members of the International Group of P&I Clubs, including the Association, have decided that such Clubs should provide the certification required by the MLC on the terms set out in the MLC Extension Clause 2016 (the Extension), the terms of which are set out in section 4 to Appendix IV. Therefore, Rule 27.4 confirms the Association’s agreement to discharge and pay the specified liabilities on behalf of the Member once it has approved the Member’s application for such MLC Certificates and makes it clear that the terms of the Extension are deemed to form part of the Member’s contract of insurance with the Association once the Association has approved the Member’s application.34

Rule 27 (4) provides that if the Association has issued to the Member a certificate“in respect of shipowners’ liability as required under Regulation 4.2, Standard A4.2.1 paragraph 1 (b) or Regulation 2.5 Standard A2.5.2 of the Maritime Labour Convention 2006 as amended (MLC Certificates) the Association shall discharge and pay on behalf of the Member the liabilities, losses, costs and expenses set out in and subject to the conditions in the Maritime Labour Convention Extension Clause 2016 included in Appendix IV, section 4, to these Rules.” The liabilities that arise under Regulation 4.2 Standard A4.2.1 are more likely than not to be liabilities in respect of which the Member will have cover under Rules 27 (1) and (2). However, the liabilities that arise under Regulation 2.5 Standard A2.5.2 are not likely to be liabilities in respect of which the Member will have cover under Rules 27 (1) and (2), which is the reason why the Maritime Labour Convention Extension Clause 2016 is so named (i.e. “Extension”). Because the Maritime Labour Convention Extension Clause 2016 obliges the Association to discharge and pay on the Member’s behalf pursuant to the certificate some liabilities for which cover may not be made available under Rules 27 (1) and (2), paragraph 4.2 provides that the Member must reimburse the Association for any liabilities, costs or expenses that the Association has discharged and paid for other than those for which cover is made available under Rules 27 (1) and (2). The reasons for such right of reimbursement mirror those discussed above in relation to Rule 27 (3).

In order to obtain a MLC Certificate Members are required to sign a MLC Undertaking that explicitly binds all Co-Assureds, Members and Joint Members to the terms of the MLC Extension Clause 2016. Furthermore, the Undertaking includes a warranty that the party signing the MLC Undertaking has the authority of all those parties to so bind them. Therefore, since all Co-Assureds, Members and Joint Members are jointly and severally liable to reimburse the Association for any MLC liabilities that fall outside standard P&I cover, the Association is entitled to look to, and will look to, all Co-Assureds, Members and all other Joint Members on the policy to make good the debt if the Member fails to meet that obligation.35

Rule 58.2 provides that the war risks exclusion is not to apply to any liabilities, costs or expenses that are discharged and paid by the Association on behalf of the Member pursuant to the various guarantees, certificates and undertakings of financial security that are required under various international conventions and local laws. Consistent with the reasoning that underpins the need for such a waiver of the war risks exclusion in such circumstances36 Rule 58.2(vi) provides that the war risks exclusion is not to apply to liabilities, costs and expenses that are discharged and paid by the Association on behalf of the Member pursuant to “a certificate under Regulation 4.2, Standard A 4.2.1, paragraph 1 (b) of the Maritime Labour Convention as amended”. However, the waiver does not extend to payments that are made by the Association pursuant to certificates that relate to liabilities that arise under Regulation 2.5, Standard A2.5.2. The reason for the distinction is because, as stated above, the liabilities that arise under Regulation 4.2, Standard A 4.2.1, paragraph 1 (b) are likely to be liabilities for which cover is made available under Rules 27 (1) and (2) whereas cover is not likely to be available in respect of liabilities that arise under Regulation 2.5, Standard A2.5.2.37

 


 


 

1 For further information regarding the scope of Crew liability please refer to Chapter 11.2 of the Gard Guidance on Maritime Claims and Insurance and the Gard Handbook on P&I Insurance, 5th Edition, Arendal 2001.
2 Contractual terms are not usually approved if they commit the Member to a liability for medical care which is unlimited in time since the Member and the Association would be exposed in such circumstances to liability for an illness for which there is no medical cure and for which continued treatment is purely palliative, e.g. AIDS. See also the Guidance to Rule 27.i below as well as Rule 55.
3 Prior to the conclusion of the contract of insurance, the Member has the duty to disclose all circumstances which would be of relevance to the Association in deciding whether to accept the entry of the Ship and, if so, on what conditions. See the Guidance to Rule 6.
4 There may be persons carried on board who are not Crew within the meaning of the Rules, e.g. spouses and children of Crew members. Cover is available in respect of such persons under Rule 29 unless they are certain types of non-maritime personnel for whom cover is excluded by virtue of Rule 56.
5 Strictly speaking, such personnel are not Crew as defined in Rule 1.1 because they do not serve on board an entered Ship.
6 The P&I cover ceases automatically when the Ship is transferred to a new owner by sale or otherwise. See the Guidance to Rule 25.2.e.
7 See Rule 1.1.
8 If the Crew member’s next employment is on a ship which is not entered in the Association and the Crew member falls ill or is injured during the course of travel to join that ship, the Member would have to seek recovery from the club with which that ship was entered.
9 In this context, the term ’maintenance‘ includes all care, accommodation, food, transportation etc., that is provided in connection with the medical treatment of the Crew member. See also footnote 1 above.
10 See Rule 82 concerning obligations with regard to claims.
11 See the Guidance to Rule 82 concerning the Member’s obligations with respect to claims.
12 See the Guidance to Rule 82.
13 See the Guidance to Rule 72 (Conduct of Member).
14 In such circumstances, the Member will usually seek to agree special terms of entry for the Ship that exclude cover in respect of liabilities, costs and expenses for which cover would normally be available pursuant to Rule 27.
15 See the Guidance to Rule 71.1.c.
16 See the Guidance to Rule 25.2 for further comments concerning the actual or constructive total loss of a Ship.
17 A casualty is an event caused or occasioned by a maritime peril, that is, an event which is likely to give rise to a claim under a marine insurance policy, such as a grounding, collision, sinking or fire.
18 See the Guidance to Rule 71.
19 See (Q) below.
20 For example, section 21 in the Norwegian Seafarer’s Act provides, inter alia, that the seaman is entitled to all contractual wages if the duration of the voyage turns out to be shorter than contemplated in the contract of employment.
21 However, in the case of liability which arises under contract, and which would not have arisen but for that contract, the Member must either obtain the prior approval of the Association to such contractual provisions or obtain confirmation that the Association has approved other similar provisions, if cover is to be available.
22 For more detailed commentary see Chapters 11.2 and 22.5 of the Gard Guidance on Maritime Claims and Insurance.
23 However, a high threshold is usually applied to prove that suicide has been committed. The fact that a Crew member has gone missing at sea during a voyage would probably not be sufficient.
24 See for example Section 21 of the standard (and minimum) contract terms provided by the Philippine Overseas Employment Administration (POEA).
25 The Supreme Court of the Philippines has on several occasions ruled that, as a matter of Philippine law, a seafarer is entitled to permanent disability compensation if he has not recovered sufficiently to be considered fit for sea duty when 120 days have lapsed since the time of injury or illness. 120 days is the maximum number of days for which a Filipino seafarer is entitled to receive sick wages under the Philippine Overseas Employment Agreement (POEA) and most CBAs. The permanent disability compensation payable will be determined by the rank of the seafarer and his degree of disability ascertained by a physician designated by the employer as and when the 120 days have passed. Whilst shipowners and manning agents alike have protested against these judgments, they stand at the time of writing, and there is no doubt that P&I cover is afforded for the liability incurred by shipowners in
this regard.
26 See the Guidance to Rule 72 (Conduct of Member).
27 See Rule 27.1.i and (K) below.
28 Liability arising solely by virtue of such indemnity will be covered if the Association approves the terms of the indemnity. See also the Guidance to Rule 55.a.
29 For example, the employer of a seaman serving on board a UK-registered ship which has been shipwrecked has a legal obligation to repatriate the seaman (and maintain him until his return) when he is left behind in or taken to any country outside the UK.
30 Ibid.

31 USD 2,000 million.

32 See Rule 53 (2) and Appendix IV Rule 3. The relevant limit is the Association’s retention under the Pooling Agreement which is currently (for 2018) USD 10 million per Ship per event.

33 See the Guidance to Rule 87.

34 Further guidance on the MLC can be found on our website.

36 See the Guidance to Rule 58.2

37 Since the liabilities that can arise under MLC Regulation 2.5 are not likely to be within the cover that is provided by the Pool, the Clubs that are parties to the International Group have arranged a joint reinsurance policy for this special risk with a limit as from 20 February 2018 of USD 200 million in excess of USD 10 million per fleet. This special reinsurance is intended to protect the Association if the Member is insolvent and is unable to reimburse the Association under the MLC Extension Clause 2016.