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Rule 53 Limitations – oil pollution, passengers and seamen

1 The Association’s liability under an Owner’s Entry for any and all claims in respect of oil pollution (including claims resulting from attempts to reduce or prevent oil pollution) shall be limited to such sum or sums and be subject to such terms and conditions as are set out in Appendix III.

2 The Association’s liability under an Owner’s Entry for any and all claims which arise in respect of passengers and seamen shall be limited to such sum or sums as are set out in Appendix IV.

 

Guidance

For further commentary in relation to oil pollution claims see Chapter 12 of the Gard Guidance on Maritime Claims and Insurance and the Gard Handbook on Protection of the Marine Environment, and for further commentary on liabilities relating to passengers and seamen see Chapter 11 of the Gard Guidance on Maritime Claims and Insurance. 

(A) Explanatory remarks
A unique feature of P&I insurance is that it has traditionally provided Members with unlimited cover for liabilities, losses, costs and expenses that are recoverable under the Rules. It was possible for the Association and the other associations that are parties to the Pooling Agreement to provide such unlimited cover in times when it was unlikely that any association could incur liability that was in excess of the limit of the Group Reinsurance Limit. However, if such a situation had, nevertheless, arisen, the members of those associations would have had unlimited liability to pay additional contributions to cover such a claim. 

However, there has for some decades been an exception to unlimited cover in the case of oil pollution liability. The Association and the other clubs that are parties to the International Group of P&I Clubs have provided limited cover for such liability for decades as a result, inter alia, of the potentially huge liability exposure under US pollution legislation1 and the unavailability of viable reinsurance for catastrophic loss. The limit of cover for oil pollution liability has increased over the years, but it is still capped substantially below the Group Reinsurance Limit that applies to other liability.2 

Furthermore, changes in shipping practices and legislative developments have resulted in substantially increased liability exposure which has forced the clubs to reconsider the viability of providing unlimited cover for all claims. Therefore, the clubs that are members of the International Group have agreed that they can no longer do so in certain situations, e.g. in the case of extraordinary large pollution or personal injury claims. Consequently, Rule 53 and the provisions of Appendices III and IV stipulate that special limits and/or exclusions of cover apply in the case of an Owner’s Entry in relation to some types of claim.3 

Rule 53.1 and Appendix III outline the limit of cover that applies generally to oil pollution liability and Rule 53.3 and Appendix IV outline the special limits that apply to liabilities relating to passengers4 and seamen.5 All these provisions reflect restrictions and limitations that are contained in the Pooling Agreement. 

Prior to 20 February 2015, the Association and all other clubs that are members of the International Group of P&I Clubs were able to provide cover for tankers that traded to the USA only if additional special conditions were satisfied. However, these requirements are no longer necessary or imposed after 20 February 2015. 

(B) The Association’s liability…under an Owner’s Entry…for any and all claims in respect of oil pollution… (Rule 53.1)
Rule 53.1 stipulates that the Association’s liability for claims that are made under an Owner’s Entry6 for oil pollution is limited to the sum or sums set out in Appendix III and is not restricted to oil pollution from tankers but is applicable regardless of the type of ship. In this context, the phrase ‘claims in respect of oil pollution’ also includes claims that arise as a result of attempts that are made to reduce or prevent oil pollution. 

Appendix III, section 2.c establishes that the limit of the Association’s liability for any and all claims for oil pollution is USD 1 billion for each incident or occurrence that arises under each Owner’s Entry. Therefore, if a similar incident or occurrence involves two Ships,7 the limit of insurance will apply to each of those Owner’s Entries, with the result that the Association’s total liability for claims that result from that incident or occurrence may exceed USD 1 billion. 

However, Appendix III, section 2c emphasises an important feature of the cover that is provided by all the Clubs (including the Association) that are members of the International Group of P&I Clubs. Such Clubs provide so-called "Blue Cards" to shipowners, which are documents attesting that the Club concerned provides insurance cover for oil pollution liabilities arising under the relevant international conventions, such as the CLC or Bunkers Convention, and that the Club is therefore a guarantor for payment of compensation to claimants in respect of proven liabilities, losses, costs or expenses pursuant to these conventions. The "Blue Cards" obtained from the Clubs are submitted by the shipowners to their flag states as a basis for obtaining CLC and Bunker Certificates to be kept on board and presented for compliance purposes to port state authorities upon calls to ports and terminals in other convention states. This enables ships to trade without hindrance. However, the cover that is provided by such certificates is subject to a limit of USD 1 billion per incident for claims that are made against a ship. Therefore, the cover that is provided by the Association under rule 53 and Appendix III is intended to reflect such cover.  The Association does not provide ‘top-up’ cover of USD 1 billion per incident and cover is not available for any liability that the Member may have for claims that exceed USD 1 billion per incident.

The following underlined words in Appendix III.c, -  “provided that if the total amount of claims against a Member in respect of oil pollution following any one incident or occurrence exceeds USD 1 billion the Association will not be liable to make any payment in respect of the amount by which any such claims exceed USD 1 billion.” - make it clear that regardless of any other pollution insurances that the Member may have taken out, the liability of the Association reaches its limit when the claims that are made against the Member reach a ceiling of USD 1 billion per incident or occurrence.  Therefore, if the Member were to acquire cover on the open market up to a limit of USD 500 million and was to incur a liability of USD 1.5 billion, cover is not available from the Association for USD 1 billion in excess of the USD 500 million that has been provided by the market insurers. Furthermore, the Member might run the risk of “double insurance” in such circumstances in relation to the cover of USD 500 million that has been obtained on the market 8  However, there is nothing to prevent a Member from acquiring additional pollution insurance on the market to provide cover for any liability that exceeds the cover that is provided by the Association i.e. for claims that exceed the limit of USD1 billion per claim that applies pursuant to Rule 53 and Appendix III.

Appendix III section 2.e goes on to provide that where the Member and any other party that has an interest in the Ship have effected separate Owner’s Entries for that Ship either with the Association, or with the Association and any other association that is a party to the Pooling Agreement, the limit of USD 1 billion is to apply to the aggregate of all claims for oil pollution that are brought against the Association and any other association that has an Owner’s Entry for that Ship. Separate Owner’s Entries for one Ship may arise when a Ship is entered under each Entry for less than its full tonnage.9 The liability of the Association for such claims is that proportion of USD 1 billion which the claims recoverable from the Association10 bears to the aggregate of the claims that are recoverable from all the relevant associations.

However, the limit of insurance of USD 1 billion for oil pollution claims does not apply to a charterer that is a Co-assured under an Owner’s Entry. The limit of insurance that is applicable to such a charterer is the ‘limitation amount’ or USD 350 million11 whichever is the lesser.12 

(C) ...(including claims resulting from attempts to reduce or prevent oil pollution)... (Rule 53.1)
The cover that is available from the Association is also limited in the case of claims for oil pollution that are brought against Ships that provide salvage or other assistance to another ship after a casualty. Such services are sometimes provided by more than one ship and Appendix III, section 2.d, establishes a limit for the cover that is available from the Association in such circumstances. All such claims that may be brought against the Association in relation to a Ship that is entered under an Owner’s Entry, and also against any other Ship that is entered with the Association under a separate Owner’s Entry, or against a ship that is entered under an Owner’s Entry with any other association that is a party to the Pooling Agreement, are to be aggregated, and the Association’s liability for the oil pollution claims that are incurred by the Member as a result of any one incident or occurrence is that proportion of USD 1 billion that corresponds to the proportion that the claim against the Member bears to the aggregate of all such claims. 

For example, if claims totalling USD 2 billion are brought against five ships, two of which have separate Owner’s entries with the Association, and the claim against each of the two Ships is for USD 500 million, the limit of the Association’s liability to each Member is 25 per cent, (i.e. the proportion that USD 500 million bears to USD 2 billion) of the limit of cover of USD 1 billion, which means that the Association’s maximum exposure to each Ship is USD 250 million and its total exposure for the two entered Ships is USD 500 million. 

(D) The Association’s liability under an Owner’s Entry for any and all claims which arise in respect of passengers and seamen shall be limited to such sum or sums as are set out in Appendix IV… (Rule 53.3)
Rule 53.3 reflects a provision of the Pooling Agreement that is intended to limit the potential exposure of the Association and the other associations that are parties to the Pooling Agreement for claims that relate to passengers and seamen.13 The imposition of a special limit of cover was considered necessary, inter alia, in view of the provisions of the 2002 Protocol to the Athens Convention14 that govern passenger liability and which require the owners and operators of certain ships that are certified to carry passengers to obtain evidence of financial security for certain passenger liabilities up to special limits. Therefore, as a provider of such evidence of financial security, the Association would be directly liable to passengers for such claims up to the special limits of liability that are specified in the Protocol. 

Because of the significant increase of the ‘per passenger’ limit of liability under the 2002 Protocol and the abolition of an overall express limit of liability determined by the maximum number of passengers that the vessel is certified to carry, there is a risk that the aggregate of all claims that could arise as a result of a catastrophic loss of a large passenger ship could potentially exceed the Group Reinsurance Limit, and thereby lead to an Overspill Claim. Consequently, it was decided to impose a limit of cover for passenger liabilities of USD 2 billion per event, which is within the current Group Reinsurance Limit. Furthermore, recognising that any such catastrophic loss would also result in all likelihood in claims being made for loss of life and injury to seamen on board the Ship, it was decided to impose a limit of cover for the total liability that the Association might have for liability to passengers and seamen of USD 3 billion per event.15 

Appendix IV explains how these limits affect the cover that is made available by the Association to a Member that has effected an Owner’s Entry. 

(E) …in respect of passengers and seamen… (Rule 53.3)
Appendix IV, section 1 defines the terms ‘passenger’ and ‘seaman’ for the purposes of Appendix IV. 

A ‘passenger’ means a person that is carried on board a cruise, ferry or other passenger ship pursuant to a contract of carriage (a ticket), and any person who, with the consent of the carrier, accompanies a vehicle or live animals that is/are covered by a contract of carriage of goods. 

A ‘seaman’ means any other person who is on board a ship other than a ‘passenger’ as defined above. A seaman need not only be a member of the Crew,16 but could also be another person that is on board such as a pilot, ship superintendent or repair worker17 who is being carried with the ship. 

(F) …liability for any and all claims which arise in respect of passengers and seamen… (Rule 53.3)
Whilst the rationale for the initial implementation of the limit was the unacceptably high levels of direct exposure that the clubs feared they were likely to face for personal injury and death claims brought by passengers under the 2002 Protocol to the Athens Convention, the limit of liability that is applicable under Rule 53.3 and Appendix IV applies to all claims of all types for which cover is available under the Rules. Therefore, the limit can apply to the risks itemised in Rules 28 (Liabilities in respect of passengers), Rule 27 (Liability in respect of Crew), Rule 29 (Liability for other persons carried on board), Rule 31 (Diversion Expenses), Rule 32 (Stowaways, refugees or persons saved at sea) and Rule 33 (Life Salvage) insofar as they are ‘claims which arise in respect of passengers and seamen.’ 

(G) …shall be limited to such sum or sums and be subject to such terms and conditions as are set out in Appendix IV. (Rule 53.3)
Appendix IV, sections 2.i and ii, outline the limits of the Association’s liability for claims for liability to passengers and seamen arising under any one Owner’s Entry. Provisos a and b to section 2 go on to outline the limit of liability that the Association and any other association that is a party to the Pooling Agreement have collectively for such claims when they arise in respect of a Ship that is entered under more than one Owner’s Entry, either in the Association or in the Association and another association that is a party to the Pooling Agreement. Separate Owner’s Entries for the same Ship can arise when a Ship is entered by different interests in one or more P&I clubs for less than its full tonnage.18 

(H) …the Association’s aggregate liability arising under any one Owner’s Entry… (Appendix IV, Paragraph 2)
The cover that is available from the Association is limited for claims that are made under any one Owner’s Entry to USD 2 billion per event for passenger claims and USD 3 billion per event for claims that involve both passengers and seamen. Consequently, if claims are made solely in respect of seamen, the limits that are provided in Rule 53.2 and Appendix IV do not apply. Furthermore, these limits do not apply if the Member is entitled to limit his liability to any lesser sum, in which case the Association’s liability shall be limited to that lesser sum.19 

For example, if claims for passenger liabilities are made against a Member’s Ship for a sum that exceeds USD 2 billion, the Association is not obliged to pay more than USD 2 billion in respect of such liability under the Owner’s Entry20 for that Ship. Similarly, if the total of the claims for passenger and seamen liabilities that are made under that Owner’s Entry exceeds USD 3 billion, the maximum liability of the Association in respect of those liabilities is USD 3 billion.21 However, if the same event involves more than one Owner’s Entry, e.g. a collision between two large passenger Ships that are separately entered in the Association, i.e. one Owner’s Entry for each Ship, the limit of the Association’s liability is the combined total of the limits that apply to each Owner’s Entry. 

Moreover, should two or more separate events occur in any one Policy Year and should each event result in liabilities that are in excess of the Association’s limits of liability for passenger claims and/or the combination of passenger and seamen claims, the limits of liability described above will apply to each such event. 

(I) Provided always that: Where there is more than one Owner’s Entry… (Appendix IV, Paragraph 2)
Provisos a and b to section 2 establish the limit of liability that the Association and any other association that is a party to the Pooling Agreement are to bear collectively for such claims when they arise in relation to a Ship that is entered under more than one Owner’s Entry either in the Association or in the Association and any other association that is a party to the Pooling Agreement. The collective liability of the Association and those other associations is limited, in the case of liability to passengers, to USD 2 billion per event and, in the case of liability to passengers and seamen, to USD 3 billion per event. 

(J) …the liability of the Association shall be limited to such proportion… (Appendix IV, provisos a and b)
Appendix 4, section 2 establishes the extent to which the Association is to bear its share of the collective limit. A distinction is made between, on the one hand, claims that are made simply in respect of passengers and, on the other hand, claims that are made in respect of passengers and seamen. 

In the case of claims that are made simply in respect of liability to passengers, the Association’s share of the collective limit of USD 2 billion is that proportion of such limit that the sum recoverable from the Association bears to the aggregate of all claims that are recoverable from the Association and the other associations collectively in respect of such liability. For the purposes of this calculation, the sum that is recoverable from the Association is that proportion of the full tonnage of the Ship that is entered in the Association.22 

However, in the case of claims that are made in respect of passengers and seamen then:

i when the liability of the Association and the other associations has been limited to the sum of USD 2 billion, and the Association’s share of such limit has been determined in the manner described in the previous paragraph, the liability of the Association for the additional limit of USD 1 billion that is available for claims for liability to seamen is that proportion of the limit of USD 1 billion that the sum recoverable from the Association in respect of the liability to seamen bears to the aggregate of all claims that are recoverable from the Association and the other associations collectively in respect of such liability. This situation will arise when the total recoverable passenger liabilities exceeds USD 2 billion and the combined sum of passenger and seamen liabilities exceeds USD 3 billion;

ii in all other cases, the Association’s share of the collective limit of USD 3 billion is that proportion of the limit that the sum recoverable from the Association for claims for liability to passengers and seamen bears to the aggregate of all claims that are recoverable from the Association and the other associations collectively for such liability. This situation will arise when the total of the recoverable passenger liabilities does not exceed USD 2 billion, but the combined total of passenger and seamen liabilities exceeds USD 3 billion.


 

1 Examples include claims arsing as a result of the EXXON VALDEZ oil spill in Alaska in 1989 and of the DEEPWATER HORIZON spill in the Gulf of Mexico in April 2010.
2 The limit of cover for oil pollution liability in March 2008 is USD 1 billion following an increase from USD 500 million in the late 1990s and the Group Reinsurance Limit is USD 2.08 billion.
3 See the definition of ‘Owner’s Entry’ in Rule 1.
4 See the Guidance to Rule 28.
5 See the Guidance to Rule 27. However, please note that ‘Seamen’ as defined in Appendix IV includes persons who are on board other than Crew.
6 See the Guidance to Rule 52.
7 For example, a collision between two very large crude carriers.
8 See the Guidance to Rules 71.
9 See the commentary in (D) of the Guidance to Rule 3.2.

10 For the purposes of this calculation the amount of the claims recoverable from the Association is that proportion of the full tonnage of the Ship that is entered in the Association. See the Guidance to Rule 75.
11 See Appendix III paragraph 2.b.
12 See the Guidance to Rule 52.
13 See (I) below.
14 The full name of the Convention is the Athens Convention relating to the Carriage of Passengers and their Luggage by Sea 1974.
15 The International Group clubs have collectively purchased market reinsurance cover in respect of their exposure to Overspill Claims for the first USD 1 billion in excess of the Group Reinsurance Limit of USD 2 billion.
16 See the Guidance to Rules 1.1 and Rule 27.
17 See the Guidance to Rule 29.
18 See (D) of the Guidance to Rule 3.2.
19 See the Guidance to Rule 51 in this regard.
20 The Association’s maximum liability under a Charterer’s mutual Entry is USD 350 million each entry, as explained in the Guidance to Rule 52.
21 Ibid.
22 See the Guidance to Rule 75