Conditions of cover - Rule 9: Survey
The Association may at any time during the period of entry appoint a surveyor to inspect the Ship on behalf of the Association.
Where the Ship has been laid-up for a period exceeding six months, the Member shall give the Association not less than seven days notice prior to the Ship leaving the place of lay-up for recommissioning, to afford the Association an opportunity to inspect the Ship pursuant to Rule 9.1.
Should the Member refuse to co-operate in an inspection under Rule 9.1, or fail to give notice in accordance with Rule 9.2, the Association will thereafter be liable only to the extent that the Member can prove that any liability, cost or expense is not attributable to defects in the Ship that would have been detected in the course of an inspection under Rule 9.1.
Where an inspection reveals matters which, in the sole determination of the Association, represent a deficiency in the Ship, the Association may exclude specified liabilities, losses, costs and expenses from the cover until the deficiency has been repaired or otherwise remedied.
By applying for an entry of a ship or upon the continuation of the entry of the Ship in the Association, the Member;
consents to and authorizes the disclosure by the Association to any association which is a party to the Pooling Agreement the findings of any survey or inspection of such ship undertaken on behalf of the Association either pursuant to an application for, or after entry in, the Association.
waives any rights or claims against the Association of whatsoever nature arising in respect of or relating to the contents of or opinions expressed in any survey or inspection report so disclosed, provided that:
such survey or inspection reports may only be disclosed to another association when an application for entry of such ship is made thereto; and
the disclosure of the survey or inspection shall be for the limited purpose only of that association considering an application to enter such ship for insurance
Guidance
In some instances, the claims which are made on the Association can be attributed to defects or deficiencies in the Ship, her machinery or equipment or to deficiencies in respect of the Crew. Whilst inspections by classification societies, flag states and port states are crucial in identifying these problems, the Association also plays an active role in supervising its own entered tonnage by carrying out ship inspections. Such inspections can be required before the entry of a Ship is accepted and, also, thereafter during the period of entry.
All non-tanker Ships which are larger than 1,000 gross tonnes, and all tankers irrespective of size, that are 12 years of age or older, are subject to survey prior to or shortly after entry. However, special rules apply to tankers which have carried heavy fuel oil as cargo in the previous year; all such tankers that are 10 years of age or older are subject to an entry survey. It is a condition of entry of such Ships that the deficiencies identified, and recommendations made, by the surveyor have been rectified or complied with either prior to entry or within a specified time thereafter and the Association will monitor compliance by the Member in this regard. Practical problems can arise where a bank demands confirmation of P&I cover prior to advancing a loan for the purchase of a ship, but the seller refuses to allow the P&I surveyor to board the ship. In such cases the Association may forego an entry survey, but may instead make the entry conditional on a survey being conducted at the earliest possible opportunity after the new Member has taken delivery of the Ship, and on such survey not revealing any serious condition that would lead to refusal of the entry.
(A) The Association may at any time during the period of entry appoint a surveyor to inspect the Ship… (Rule 9.1) The Association has a discretionary right under Rule 9.1 to inspect any entered Ship during the period of entry.
Ships may be selected for survey during the period of entry for a range of reasons, e.g. a consistently poor loss record, a sudden increase in the frequency of claims or as a result of information received from surveyors in connection with a casualty or event. Alternatively, a certain category of Ship or Ships which are engaged in a particular trade will be inspected, on the basis of statistical information derived from the Association’s claims database.1
The words ‘at any time’ give the Association complete discretion as to the timing of an inspection. The Association may exercise its right immediately following a casualty, other event or period of lay-up or during the Ship’s routine trading. However, the Association will, insofar as possible, co-operate with the Member to ensure minimum disruption to the Ship’s trading pattern.
The Member normally pays the cost of any entry survey whereas the Association normally pays the cost of condition surveys for Ships that are already entered. However, in the latter event, all costs and expenses incurred will be charged to the Member’s loss record.2
To enable it to carry out such surveys the Association has the right of access to inspect all parts of the Ship’s hull, machinery, equipment, fittings, certificates, records, logbooks and documents and also to examine the certification, qualifications and general competence of officers and Crew. The inspector may require the owner, operator or manager to provide access for inspection of all relevant areas of the Ship, or for carrying out trials under his supervision and to require the Member to bear the cost of providing such access.
Since the surveys and inspections that are subject to Rule 9 are carried out ‘on behalf of the Association’, the surveyor’s report and other written information pertaining to the survey or inspection is the property of the Association. However, a copy of the report will normally be sent to the Member or to such other party that he has designated, e.g. the technical manager of the Ship.
(B) Where the Ship has been laid up for a period exceeding six months… (Rule 9.2) A Ship is considered to be laid up when it is anchored or moored in a safe and sheltered place without cargo on board. Most ships are laid up because it is uneconomical for the owner or operator to keep trading the Ship under the prevailing market conditions. When the Ship has been laid up, it will usually only have maintenance Crew and/or watchmen on board.
The laying-up of an entered Ship is a relevant circumstance for the purposes of Rule 6 (Member’s duty of disclosure) and represents an alteration of risk as defined in Rule 7. Accordingly, in order to comply with the obligations imposed by those Rules, a Member should immediately advise the Association of any lay-up of the entered Ship with details of the intended lay-up location and period.
Rule 9.2 applies when the Ship is laid up for a continuous period exceeding six months. Therefore, periodical lay-ups for shorter periods will not bring the Rule into operation. However, a Member may be entitled to a return of premium if his Ship is laid up for a period of at least 30 consecutive days.3>/sup>
(C) …the Member shall give the Association not less than seven days’ notice prior to the Ship leaving the place of lay-up… (Rule 9.2) A Member who wishes to ‘recommission’, i.e. bring back into service, a Ship which has been laid up for more than six months, must give the Association at least seven days’ notice of his intention to do so, in order to give the Association the opportunity to inspect the Ship before she is recommissioned. Seven days is considered a reasonable period of time for the Association to arrange for an inspection should it wish to do so. Cover may be forfeited in whole or in part4 if the Member fails to give the requisite seven days’ notice.
The Association will decide on a case-by-case basis whether or not to inspect the Ship, but usually it will decide to inspect, because a prolonged lay-up period may have caused the condition of the Ship to deteriorate.
(D) Should the Member refuse to co-operate in an inspection under Rule 9.1… (Rule 9.3) The issue of co-operation must be seen in conjunction with the purpose of the survey, which is to obtain as accurate and comprehensive an assessment as possible of the P&I risk represented by the Ship and Crew. Therefore, the phrase “refuse to co-operate” is given a broad interpretation and includes not only a refusal to allow the Association’s inspector on board the Ship, but also any failure to allow the inspector to gain proper access to any part of the Ship’s hull, machinery, equipment, fittings or any documentation that the inspector might wish to examine.
(E) …the Association will thereafter be liable only to the extent that… (Rule 9.3) Any refusal on the part of the Member to co-operate with a survey or inspection, or to give proper notice under Rule 9.2 is likely to prejudice the Member’s cover. In such circumstances, cover is available only for those liabilities, losses, costs and expenses which the Member can prove were not caused by defects in the Ship which would have been detected during an inspection by the Association’s surveyor.
(F) Where an inspection reveals matters which, in the sole determination of the Association represent a deficiency in the Ship… (Rule 9.4) A ‘deficiency’ in the Ship includes anything which renders the Ship’s hull, machinery, equipment, fittings, design, documents or personnel unfit or unsuitable for the Ship’s intended trading and the safe carriage of passengers or cargo.
The Association has the sole and unfettered right to decide whether or not a particular deficiency constitutes a ‘deficiency in the Ship’ for the purposes of the Rule and the Member is bound by the decision of the Association in this respect.
(G) …the Association may exclude specified liabilities, losses, costs and expenses from the cover until the deficiency has been repaired or otherwise remedied. (Rule 9.4)
If a deficiency is found following a survey or inspection conducted on behalf of the Association, the Association may notify the Member that cover is not available for certain risks until the deficiency is remedied. For example, if a survey revealed that the Ship’s hatches were not water-tight, the Association might impose an exclusion of cover for cargo liability resulting from water ingress through the hatches.
Alternatively, the Association may decide not to exclude the risk completely, but to impose a higher deductible with the result that the Member must bear a higher financial risk if further cargo loss or damage occurs as a result of that deficiency. This may be considered a more appropriate measure where the Member and the Association have different views as to the importance of the deficiency or condition.
(H) By applying for an entry of a ship or upon the continuation of the entry of the Ship in the Association, the Member; a consents to and authorizes the disclosure by the Association to any association which is a party to the Pooling Agreement… (Rule 9.5.a) As a result of cases resulting in the foundering of, and the consequent pollution from, ships such as the ERIKA off the coast of Brittany, France in 1999 and the PRESTIGE off the coast of Galicia, Spain in 2002, the European Union called for a review of various safety aspects relating to shipping in general and tankers in particular. As a response to public expectations5 that the international marine insurance industry should do more to combat ’substandard shipping‘, i.e. to make it more difficult for ships of an unacceptable technical standard to obtain the insurance cover necessary to enable them to continue trading, the members of the International Group of P&I Clubs agreed various rules relating to the exchange of information relating to the ships that are entered with them.
Rule 9.5 makes it clear that upon application for entry of a ship in the Association, the Member will be deemed to have consented to, and authorised the Association, to disclose to the other associations that are parties to the Pooling Agreement, information pertaining to the condition of the Ship which is in the possession or control of the Association.6 Therefore, the Association need not obtain the express approval of the Member in order to disclose such information.
(I) …the findings of any survey or inspection of such ship… (Rule 9.5.a) The information that can be disclosed pursuant to Rule 9.5.a is the findings of any survey or inspection relating to an entered Ship or a ship that has previously been entered in the Association, and which is being considered for entry by another association which is a party to the Pooling Agreement. The Association will itself have similar rights to request such information from those associations in similar circumstances, pursuant to the Rules of the other associations which are parties to the Pooling Agreement. However, the Association is not authorised under Rule 9.5.a to provide any other information relating to the Member or prospective member, e.g. credit balance data or management audit reports.
(J) …undertaken on behalf of the Association either pursuant to an application for, or after entry in, the Association. (Rule 9.5.a) The Member’s deemed consent and authorisation is limited to the findings of any survey or inspection that has been undertaken on behalf of the Association and does not extend to information concerning the condition of the ship that the Association has received from the Member, or from a third party such as a classification society pursuant to Rule 8.1.d, nor to the findings of any survey or inspection of the ship that has been obtained from another P&I club, which a third P&I club that is party to the Pooling Agreement may wish to obtain at a later time. Such information can be provided to any other P&I club who is a party to the Pooling Agreement, only with the express consent of the Member.
(K) …waives any rights or claims… (Rule 9.5.b) Surveys and inspections of ships that are conducted on behalf of the Association can be critical of the technical, crewing and other conditions found on board. The Member may not agree with the contents of a survey report or with the opinion expressed by the surveyor in attendance, and may consider that the reports and other written material produced have caused or may cause material prejudice, commercial disadvantage and/or financial loss to him.
Similarly, the sharing of information between the associations who are parties to the Pooling Agreement may lead to a refusal of entry by all, as a result of which the owner may be forced to seek insurance cover outside the International Group of P&I Clubs, and possibly to pay a higher premium as a result.
Nevertheless, Rule 9.5.b makes it clear that the Association will be free from any and all liability to the Member or prospective Member in relation to information procured or provided in accordance with Rule 9.5.a. The purpose of Rule 9.5.b is to avoid the possibility of the Association being embroiled in a subsequent legal dispute with the Member or prospective Member in relation to the content of any findings and/or disclosure made pursuant to Rule 9.5.a. The words ‘of whatsoever nature’ refer to the words ‘rights or claims’ and are deliberately strongly worded in order to discourage any Member from taking legal action in this regard.
(L) …provided that: i such survey or inspection reports may only be disclosed to another association when an application for entry of such ship is made thereto; and ii the disclosure of the survey or inspection shall be for the limited purpose only of that association considering an application to enter such ship for insurance. (Rule 9.5.b.i and ii) These two provisos refer to both Rule 9.5.a and Rule 9.5.b, and make it clear that disclosure is only permitted in the limited circumstances, and for the limited purpose, described therein.
Firstly, the Association is not authorised under Rule 9.5.a to disclose the relevant survey or inspection report to another association unless an application for the entry of the subject ship has been made to that other association. However, it is not a requirement that such application for entry has been made by the same owner as that which had entry of the Ship in the Association. For example, the ship may have been sold to another party in the meantime.
The second proviso makes it clear that the disclosure is to be made only in order to assist the other association in its consideration of the application of entry and for no other purpose. This means that the Association is bound to exercise caution if the other association indicates that it may need the information for any other purpose. The Association is then under an obligation not to disclose the information until it has been clarified that it will be used for the sole purpose of considering an application for entry of the Ship in the other association.
1 In addition, any Ship that is denoted as ‘black-listed’ or ‘banned’ by any port state control co-operation regime, such as the Paris Memorandum of Understanding, shall be surveyed immediately. 2 See (C) of the Guidance to Rule 10 for a discussion of loss records. 3 See the Guidance to Rule 22. 4 See (E) below. Rule 9 Survey. 5 See report issued in June 2004 by the OECD on www.oecd.org. 6 Rule 9.5 accords with the relevant provisions of the Norwegian Ship Safety Act of 2007 (Skipssikkerhetsloven 2007). Prior to its enactment, the Norwegian P&I clubs (Gard and Skuld) were not legally entitled to comply with the provisions of the Pooling Agreement in this regard.
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