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Where the Member, as a result of an event for which he is covered by the Association, has obtained extra revenue, saved costs or expenses or avoided liability or loss which would otherwise have been incurred and which would not have been covered by the Association, the Association may deduct from the compensation payable under a P&I entry an amount corresponding to the benefit obtained.
The purpose and aim of the Association is to indemnify Members against that which they have suffered or lost as a result of the risks that are specified in the Rules.1 This reflects the fundamental principle that is the foundation of marine insurance generally. Consequently, if the Member has benefited in some way as a result of an event that is insured under the P&I cover, credit should be given for such benefit against any sums that the Member is entitled to receive from membership funds as a result of that insured event. This is particularly important in the context of mutual insurance since the individual Member should not profit at the expense of the other Members. This would be contrary to the principle of mutuality.
(A) Where the Member…has obtained extra revenue, saved costs or expenses or avoided liability… (Rule 54)
The aim of Rule 54 is to place the Member in the same financial position as that in which he would have been if the event that gave rise to the P&I claim had not arisen, save for any deductible that the Member has agreed to bear. Therefore, if the Member earns extra revenue, or saves costs or expenses, or avoids uninsured liability or loss, as a result of the event that gives rise to a claim on the Association, such amounts must be taken into account before determining the amount of compensation that is payable by the Association to the Member in respect of that event.
For example, if a cruise Ship were to suffer a two day disruption to her schedule as a result of a grounding incident, and the Member, consequently, decided not to call at two out of the planned seven ports of call and to pay the compensation that he is legally obliged to pay to the passengers under the applicable law in such circumstances, cover would be available from the Association for such liability pursuant to Rule 28.b, but the Association would be entitled under Rule 54 to deduct from the compensation that is payable to the Member the costs that have been saved by the Member as a result of not calling at the two ports, e.g. the saved bunker fuel, port charges, stores and the expense of ferrying passengers to and from the Ship at the cancelled ports of call.
(B) …saved…or avoided…which would not have been covered by the Association… (Rule 54)
The Member must give credit for expenditure which he would have incurred but for the event and which would not have been recoverable from the Association. It is only in these circumstances that it can be said that the Member has benefited from the insured event.
For example, if a Ship breaks down during the course of a voyage as a result of a breach by the carrier (the Member) of the contract of carriage, and the cargo is discharged from the Ship at a port of refuge and subsequently on-carried in another ship at the expense of the cargo owners, cover is likely to be available under Rules 34 and/or 35 for claims that are likely to be made against the Member for loss of, and/or damage to, the cargo, and/or for the costs of the on-carriage with the other ship. However, the Member is obliged pursuant to Rule 54 to give credit to the Association for the costs and expenses that the Member would otherwise have had to incur in carrying the cargo to the contemplated discharge port and in discharging the cargo there. Those costs and expenses would not have been recoverable from the Association and have, therefore, been saved by the Member as a result of the insured event.
(C) …the Association may deduct from the compensation payable under a P&I entry an amount corresponding to the benefit obtained. (Rule 54)
Rule 54 gives the Association the right to deduct the financial value of any benefit that has been obtained by the Member as a result of the insured event from the compensation that is payable under a P&I entry. Such deduction is likely to be made if the Association has not yet compensated the Member in full. However, if compensation has already been paid in full or if the Association has already satisfied the third party claimant’s claim directly, but it subsequently transpires that the Member has either gained revenue or saved expenses as a result of the event, the logical corollary is that the Member is obliged to reimburse the Association with the amount by which he has so benefited since otherwise, the Association would not be able or reluctant to assist Members by providing speedy compensation or agreeing where appropriate to pay third party claimants directly on behalf of the Member.
Whilst Rule 54 applies solely to P&I cover, the Association has the overriding discretion when considering Defence cover to grant or withhold cover in full or in part in whatever manner it considers appropriate in the circumstances of the particular case.2
1 See Article 3 of the Statutes and Rule 2.
2 See the Guidance to the Defence Cover in Part IV.