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1 The Member shall not assign or otherwise transfer its rights under its contract of insurance with the Association or otherwise arising pursuant to these Rules, save as provided in Rule 89.2.
2 The Association may, in its absolute discretion, consent to an assignment or transfer by a Member of its rights as referred to in Rule 89.1, subject to such terms and conditions as the Association deems fit and subject to the Association’s right to deduct from any sum due or to become due from the Association to any assignee or transferee of the Member’s rights such amount as the Association may estimate to be sufficient to discharge any existing or anticipated liability of the Member to the Association.
The Association is more than just an insurer; it is a club of Members. The identity and standing of each Member is important to the other Members1 and the Association has gone to some lengths on behalf of its Members to vet each applicant, its management structure and its Ships before agreeing to accept it as a Member. Therefore, the premium rating that the Association has attributed to that Member reflects the risk that the Association has assessed the entry of that Member to be in the light of such vetting process. Consequently, it is vital that such important safeguards should not be undermined by the ability of a Member to assign or transfer its rights under the contract of insurance to another organisation that might constitute a bigger risk to the membership and thereby, to the funds of the membership. Rule 89 restricts the ability of a Member to make such transfers outside the control of the Association.
(A) The Member shall not assign…its rights… (Rule 89.1)
There are various reasons why a Member may wish to assign either in whole or in part the benefit of the cover that is made available to him by the Association, e.g. where the Member wishes to make the benefit of his P&I cover available to a charterer or the purchaser of the Ship. A Member may also wish to transfer the right to receive the proceeds of any claim that the Member may have against the Association, e.g. to his mortgagee. Such assignments or transfers are prohibited by Rule 89.1 unless they are done with the consent of the Association.
(B) The Association may in its absolute discretion consent to an assignment or transfer by a Member of its rights… (Rule 89.2)
Should the Member wish to assign or otherwise transfer his rights under the contract of insurance, the Member may ask the Association to consent to him doing so. It is not sufficient merely to give notice to the Association that an assignment or transfer has taken place; permission must be sought and obtained from the Association before this is done. Any purported assignment or transfer that is made without the consent of the Association is null and void and does not bind the Association. Consequently, if no such permission is given, the original contract remains binding as between the Member and the Association, which means that the Member retains all rights and obligations under it, including the obligation to pay premiums and other sums that are due to the Association.
Whilst the Association has an absolute discretion whether or not to consent to the assignment or transfer, or to impose conditions on the giving of consent, it will normally give its consent if the assignment is intended merely to give the third party a right to receive the proceeds of a Member’s claim. This is particularly relevant where a Member has assigned the benefit of insurances to a mortgagee bank. In such circumstances, the Association will normally agree to acknowledge receipt of a notice of assignment, and to endorse a ’loss payable‘ clause on the Certificate of Entry. Such a clause authorises the Association to pay the proceeds of claims that are made by the Member under the terms of his entry directly to the mortgagee in certain circumstances, and provides that such payment to the mortgagee will discharge the Association’s liability for the Member’s claim under the contract of insurance. However, the clause continues to entitle the Association to settle all third party claims in respect of which the Member has a right of recovery from the Association, and all third party claims in respect of which the Association has provided financial security.
The Association will also normally agree to confirm to the mortgagee in writing that the relevant Ship is entered with the Association and to notify the mortgagee if the Ship’s entry is terminated or ceases.
(C) …subject to the Association’s right to deduct from any sum due… (Rule 89.2)
The Association has the right under Rule 89.2 to deduct or retain from any sums that it may agree to pay to any assignee or transferee, such amount that the Association estimates to be sufficient to discharge any liabilities that the Member has to the Association, either at that time, such as unpaid Advance Calls, or that the Member may have in the future, such as any forecasted Deferred Call. The right to deduct is not limited to sums that are due from the Member for the Ship in respect of which the claim arises, but extends to any sums that are due, or estimated by the Association to become due, to it from the Member or his Co-assured2 in relation to any Ship that is entered under that certificate of entry. Consequently, the rights of set-off to which the Association is entitled under Rule 21 are fully preserved vis-a-vis an assignee.
1 For these reasons Rule 25.2 provides that membership ceases in the event of a sale of the Ship or the appointment of new managers or the entry into possession of the Ship by mortgagees.
2 In this context the definition of ’Member‘ in Rule 1 includes a Co-assured. See the Guidance to Rule 79.1.