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Rule 85 Discharge

Payment of a claim by the Association to a manager of the Ship or to any other agent of the Member shall fully discharge the Association’s liability to the Member.

 

Guidance

(A) Payment of a claim by the Association… (Rule 85)
Rule 85 does not apply to all payments that may be made by the Association, but only to payments of ’a claim‘, i.e. a claim that is covered under the Rules and terms of entry, as opposed to other forms of payment such as a return of premium when the Ship is laid up.1 

Rule 85 merely deals with the payment of claims to the Manager of the Ship or to any other agent of the Member. The Association may also be authorised to pay claims to other parties such as a mortgagee bank pursuant to an assignment to the bank of the Member’s right to receive such payments. Such issues are regulated by Rule 89 not Rule 85. 

(B) Payment of a claim…to a manager of the Ship…shall fully discharge the Association’s liability to the Member (Rule 85)
Rule 85 should be read in conjunction with Rule 79.2, which establishes that any payment that is made by the Association to one of the Joint Members, Co-assureds or Affiliates shall fully discharge the obligations of the Association in respect of such payment. Therefore, if the manager has the status of a Joint Member, Co-assured or Affiliate,2 the effect of such payment is governed by Rule 79.2. However, a manager does not always have such status under the contract of insurance and Rule 85 is intended to protect the Association in the event that a claim is paid to a manager that does not have such status. Therefore, Rule 85 is based on the premise that the Association can reasonably expect the manager of the Ship to have an involvement with the claim, and that, consequently, the Association is justified in making such payment to him. 

(C) Payment of a claim…to any other agent of the Member…shall fully discharge the Association’s liability to the Member (Rule 85)
The Association’s liability to the Member for the claim will also be discharged when the Association has paid the claim to ’any other agent’ of the Member. In practice, this will usually be the insurance broker that has been appointed by the Member, but, in principle, it may be any person that the Member has nominated as his agent for this purpose, such as a local representative in the country where the third party claim has arisen. In this context, the word ’Member’ is construed in its widest sense pursuant to the definition in Rule 1.1 and will include a Co-assured and an Affiliate.

However, the Association is discharged only if it is established that the relevant agent is authorised to accept payment. Therefore, the Association’s liability to the Member is discharged fully only if it is proved that the broker has been authorised by the Member to receive such payment, or, if his authority in this regard has been withdrawn, that it was, nonetheless, reasonable for the Association to assume that he had such authority when the payment was made. In practice, the Association will not pay claims to a broker in the absence of an express notice from the Member that payment can be made in this manner. Such notice may be in the form of a general notice that confirms that the broker has authority to receive payment in respect of all claims, or in the form of a special notice that is restricted to a particular claim. In the absence of such a notice, the Association will pay a claim directly to the Member, and send notice to the broker that such payment has been made. 

Should the Member revoke the authority of a manager of the Ship or any other agent to receive such payments, the Member must give notice of that event to the Association in order to ensure that the Member’s position is not prejudiced should the Association make a payment to such a party after his authority has been revoked. In the absence of such a notice, the Association is entitled to assume that payment can still legitimately be made to such a manager or agent, and any such payment will fully discharge the liability of the Association to the Member.


 

1 See Rule 22.
2 See the Guidance to Rule 78.1.b and 78.3 for further details concerning the status of a Co-assured that has an interest in the management of the Ship.