Risks covered - Rule 48: Disinfection and quarantine expenses

1. The Association shall cover extraordinary costs and expenses (in respect of quarantine, disinfection, fuel insurance, stores, provisions and port charges), necessarily incurred by the Member as a direct consequence of a quarantine order regarding the Ship or Crew or disinfection of the Ship or Crew, on account of an infectious disease on board, provided always that there shall be no recovery

   1. where the Ship has been ordered to a port where the Member knew or ought to have known that it would be quarantined and/or would require disinfection (unless and to the extent that the Association shall in its absolute discretion determine otherwise), and

   2. in respect of expenses for loss of time, loss of market, delay or similar.

Ships have always been subject to delays and extra expenditures caused by quarantine of the ship and/or crew due to infectious disease¹ on board. In most instances, the owner is not able to avoid such difficulties, but in other instances, they can be attributed to a lack of care on the part of the owner or operator in allowing the vessel to call ports or areas where the vessel is likely to be quarantined. The COVID-19 pandemic made it more difficult for shipowners to avoid quarantines as the risk of quarantine existed in practically every port around the world; and generally, quarantines were imposed without lack of care on the part of the shipowner or operator.

The cover under Rule 48 is limited to those extraordinary costs and expenses which are difficult to avoid and therefore considered to be a natural risk to be shared by the membership of a mutual club. Cover is not available for costs which a prudent Member could, and should, have avoided. 

(A) The Association shall cover… (Rule 48)

The cover which is available under Rule 48 is subject to there being an infectious disease on board the Ship and a quarantine order relating to the Ship and or its crew; and the provisos in Rule 48. a and b, which are considered in F and G below.

(B) …extraordinary costs and expenses (in respect of quarantine, disinfection, fuel, insurance, stores, provisions and port charges) necessarily incurred by the Member as a direct consequence of a quarantine order... (Rule 48)

Cover is available for extraordinary costs and expenses that are necessarily incurred by the Member ‘as a direct consequence of’ a quarantine order. It is a general principle of insurance that cover is available only for liabilities, losses, costs and expenses that have been incurred as a result of an insured peril or fortuitous event. The running costs and expenses of operating a Ship are incurred regardless of any quarantine order or infectious disease onboard. Consequently, usual operational costs and expenses relating to stores, bunkers, provisions, wages, port charges and the handling/loading/discharging of cargo during the period of detention while in quarantine are not covered under Rule 48. However, where such costs are incurred as a result of the issuance of quarantine orders or the disinfection of the vessel, but such costs are higher than those that would normally have been incurred but for the presence of the disease, cover is available for any additional costs and expenses that have been so incurred.

Further, indirect costs, such as loss of income due to the ship and crew being quarantined, are not covered by the insurance.

The type of extraordinary costs and expenses for which cover is available would be the reasonable costs which have been necessarily incurred by the Member as a direct result of compliance with the quarantine order. These could include costs incurred for measures taken to investigate, eliminate or minimise the spread ashore of an infectious disease which is present on board the ship. The cost of quarantine-related tests, inspections or expert analysis relating to the infectious disease on board as well as expenses incurred to unload and reload cargo if required can be covered. Overtime for additional work relating to the quarantine, such as overtime or additional wages for the Crew to carry out a deep clean of the Ship can be covered. Additional bunkers to bring the Ship to anchor in the quarantine area or to steam offshore if required by the quarantine order are covered, however bunkers consumed during the idle waiting time of the quarantine period are not covered. There can be cover for additional insurance premiums which may have to be paid as a result of the Ship having to remain in a particular place or area in compliance with the quarantine order, for example if the Ship was in a war risk area. The cost can be covered of additional stores and provisions, not required for the ordinary operation of the Ship and which would not have been required but for the quarantine order, such as extra personal protection equipment; and additional port charges incurred as a direct result of the quarantine order can be covered.

Where following a quarantine order results in any saved costs and expenses for the Member, these must be taken into account and deducted from any compensation payable or reimbursed by the Association.² 

There is an important distinction between costs and expenses necessarily incurred as a direct result of quarantine orders and those to ensure that the Ship can continue to operate. For example, a Ship has on board a few crew members testing positive for COVID-19, the Member decides to make a complete crew change to forgo the waiting time in quarantine and get the Ship trading as soon as possible. The costs of changing the entire crew are not considered to be extraordinary costs incurred by the Member as a direct consequence of a quarantine order, they are rather operational costs incurred to avoid delay. Similarly, where there are pests or insects in the Ship’s holds, the costs of cleaning and treating the holds are considered to be ordinary operational costs of the Ship, for which cover is not available from the Association.³ The Member has a duty to ensure that the Ship is seaworthy before and at the commencement of each voyage and this includes the provision of sufficient competent crew and making the holds fit to receive the cargo that is to be carried by the Ship under the next contract of carriage.

(C)… extraordinary costs and expenses…necessarily incurred by the Member as a direct consequence of…disinfection of the Ship or Crew… (Rule 48)

Cover is also available under Rule 48 for extraordinary costs and expenses that are necessarily incurred by the Member as a direct consequence of the disinfection of the Ship or Crew (or passengers) because of the presence on board of infectious diseases. 

Depending on the type and nature of the disease it may be necessary to disinfect the Crew members, the whole Ship, the cargo and/or any food or other provisions that are on board. The costs and expenses which can be incurred and which would be covered under Rule 48 include the disinfection process itself, which may need to be carried out by specialised companies; as well as tests, inspections and investigations to trace and analyse the disease and its source. If it is necessary to put the Crew ashore during the disinfection process, costs relating to this can be covered. Costs and expenses can be substantial depending on the nature of the disease and the type, size and design of the Ship. For example, the disinfection of all parts of a modern, large cruise ship is likely to be a difficult and time-consuming exercise that could lead to the curtailment of the current cruise and the cancellation of scheduled future voyages. However, it should be noted that cover is not available for loss of time, loss of market or similar losses that result from delay.⁴ 

(D) …as a direct consequence of a quarantine order regarding the Ship or Crew… (Rule 48)

Cover is available for extraordinary costs and expenses that are necessarily incurred by the Member as a direct consequence of a ‘quarantine order’. A ‘quarantine order’ is an order that is given by local or national authorities in the country where the Ship finds itself at the time, which imposes restrictions on either the movement of the Ship and/or the Crew, passengers or other persons that are carried on board the Ship, or on the handling or discharging of cargo or other property that is on board the Ship. 

The purpose and aim of a quarantine order is to ensure that proper measures are taken to investigate, eliminate or minimise the spread ashore of an infectious disease that is present on board the Ship. The infectious disease may either affect humans and be carried by the Crew, passengers or other persons that are on board the Ship; it may be present within the Ship itself; or it may affect flora or other natural resources and be present within the cargo or within foodstuffs or other provisions that are on board.

In the case of a pandemic, both humans and the ship itself can be affected by an infectious disease, resulting in quarantine orders directed to contain the infectious disease on board. A quarantine order will be specific to the Ship and include directions to the Member on how to proceed in relation to the Ship and Crew (and passengers), for example a requirement that the Crew/passengers be disembarked and quarantined ashore in a designated facility for a given period of time. A national or regional rule or regulation imposing obligations on owners or operators of ships in general, for example to implement special measures to combat the outbreak of a disease, such as COVID-19, is not a quarantine order for the purpose of Rule 48. Any extra costs or expenses incurred as a result of complying with such general rules or regulations are rather operational costs for the Member’s own account.

Since the discovery of the fungal disease Karnal Bunt⁵ in the United States in the mid-1990s, agricultural authorities in several countries have been vigilant in taking measures to ensure that such diseases do not spread to crops in those countries. Therefore, ships carrying fertiliser cargoes to such countries may be subject to thorough sampling and inspection and will be quarantined if such a disease is found on board. Furthermore, the discovery that such a disease is present on board is likely to cause the import permit to be revoked with the result that the Ship will not be allowed to discharge the cargo in that country and must dispose of it elsewhere. 

(E) …on account of an infectious disease on board… (Rule 48)

An ‘infectious disease’ is a disease that will spread and cause infection to other human beings and/or animals⁶ and/or flora and/or other natural resources unless disinfection or other similar preventative measures are taken. Typical examples include cholera, smallpox, typhus, ebola, plague and more recent pandemic diseases such as COVID-19. The infectious disease must be on board the ship in order for there to be cover under Rule 48. However, a quarantine order may be issued not only when the presence on board of an infectious disease has been established before the Ship calls at the port, but also when the authorities have a suspicion that an infectious disease is present on board. In exceptional circumstances, national health authorities may issue quarantine orders that prevent all vessels berthing at their ports before they are properly inspected in order to ensure that they do not carry a disease, e.g. in the event of a pandemic disease. Depending on the facts of each case, cover may be available in these circumstances.     

(F) … provided always that there shall be no recovery

a)     where the Ship has been ordered to a port where the Member knew or ought to have known that she would be quarantined and/or would require disinfection (unless and to the extent that the Association shall in its absolute discretion determine otherwise)… (Rule 48)

The Member is expected to know the conditions and regulations that will affect the Ship in the ports and other locations to which the Ship will be trading. For example, the Member is expected to be familiar with the food and health regulations of the country(ies) to which the cargo is to be carried. If the Member knows in advance that the condition of the Ship, or of the Crew, is such that the relevant authorities at a port of call are likely to order the Ship to be quarantined, cover is not available under Rule 48 since the Member would not be acting prudently if there was a failure to take reasonable steps in such circumstances to avoid the risk. In this regard, it does not matter that the Ship is on charter and that the Member is acting in compliance with employment orders that are given by the charterer to proceed to such port. 

Similarly, cover is not available even if the Member does not know for certain that the Ship will be quarantined, but should have anticipated that a quarantine order could be imposed. A Member cannot turn a ‘blind eye’ to the risk. A Member must act prudently and ascertain in advance whether a quarantine order is likely to be issued. The test that is normally applied by the Association in such cases is: what would a reasonable and prudent operator be expected to do in similar circumstances? 

This proviso also applies when there is a risk that the vessel and/or crew may need to be disinfected.

In the case of a global pandemic, affecting ports worldwide, it can be impossible for a Member to avoid the risk of quarantine despite having acted prudently and taken reasonable steps. This would be an example of when it would be appropriate for the Association to exercise its discretion to allow recovery under Rule 48.

The Association may nevertheless  have a right to refuse cover in such circumstances under Rule 74, since cover is not available under Rule 74 for liabilities, losses, costs and expenses arising out of, or consequent upon, the Ship being employed in or on an unduly hazardous trade or voyage.⁷

(G) … provided always that there shall be no recovery…

b)     in respect of expenses for loss of time, loss of market, delay or similar.

… (Rule 48)

Cover is not available for expenses incurred in relation to loss of time, loss of market or similar losses resulting from delay.⁸ Pure monetary losses, which arise because of the way the Member chooses to operate the ship, for example under the terms of a charterparty, are not considered to be a natural risk to be shared by the membership of a mutual club, but rather losses the Member should bear itself. P&I cover is intended to protect or indemnify the Member against the liabilities that are generally incurred by shipowners to third parties in direct connection with the operation of the ship.