Table of contents
1 Joint Members and Co-assureds insured on any one entry shall be jointly and severally liable for all sums due to the Association in respect of such entry. Members, Joint Members and Co-assureds insured on any entry in respect of one or more Ship(s) forming part of a Fleet Entry shall be jointly and severally liable in respect of all sums due to the Association in respect of any or all Ships forming part of the Fleet Entry. For the purpose of this section a Fleet Entry shall mean the entry of more than one Ship by one or more Members on the basis that those Ships shall be treated together as a fleet.
2 Any payment 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.
3 Any communication by the Association to one Joint Member or Co-assured shall be deemed to be communication to all.
4 The conduct or omission of one Joint Member or Co-assured which under these Rules would constitute a breach of the contract of insurance, shall be deemed as the conduct or omission of all the Joint Members and Co-assureds.
5 The liability of Joint Members, Co-assureds, Affiliates and the Member to each other shall not be excluded nor discharged by reason of co-assurance. Any payment to the Member in respect of any liabilities, losses, costs and expenses shall operate only as satisfaction but not exclusion or discharge of the liability of such person to the Member.
(A) …jointly and severally liable… (Rule 79.1)
The legal effect of these words is that all parties that have been named as Joint Members and Co-assured on any one Certificate of Entry are both individually and collectively liable for all sums that are due to the Association in relation to that entry. The Association has the right, in its discretion, to seek to recover any such sums from any one or more Joint Members and/or Co-assureds.
For example, the technical and commercial managers of the Ship may be included on an Owner’s Certificate of Entry as two separate and distinct Co-assureds for whom cover is available pursuant to Rule 78.3. Should the owner of the Ship subsequently incur financial difficulties and fail to pay premium to the Association, the Association has the right to recover the sums due from either or both of the Co-assured managers. Similarly, if the Association is obliged to pay a third party claim pursuant to the terms of a guarantee that has been issued by the Association at the request of the Member, and it subsequently transpires that cover is not available for such a claim, the Member is obliged to indemnify the Association for such payment.1 If he is unable to do so, the Association is entitled to seek recovery from the Co-assured managers.
Whilst each Ship is entered in the Association pursuant to a separate contract of insurance between the Member and the Association, it is considered to be in the interests of the mutual membership as a whole that the Association should be able to enforce a claim for outstanding premium and calls that relate to one Ship against any other Ship that is part of the same fleet of entered Ships. Therefore, Rule 79.i includes a ’Fleet Entry’ category. If it has been agreed between the relevant Member(s) and the Association that the Ships are to form part of such a Fleet Entry, premiums and calls that are payable in relation to one Ship that forms part of the Fleet Entry are also recoverable from all other Ships that form part of the same fleet of entered Ships.
Rule 79.1 regulates the relationship between the Association and the various parties that are insured by it but not the relationship between the parties that are insured by it. Therefore, whilst a Joint Member or Co-assured that has paid monies to the Association in relation to the insurance cover that is provided to another Joint Member or Co-assured is normally entitled under most systems of law to recover those sums from the other Joint Member or Co-assured, this does not concern or involve the Association as this is a private matter between that Joint Member and Co-assured.
An Affiliate is not a party to the contract of insurance and has no liability to pay any sums that are due to the Association under the contract of insurance. Therefore, the Association cannot seek recovery from any Affiliate of sums that have not been paid by the Member and which cannot be recovered from the Member or any Joint Member or Co-assured. However, the Association has the right pursuant to Rule 21.1 to set off any amount that is due to the Association against any amount that it agrees to pay to an Affiliate pursuant to the exercise of the discretion that is given to the Association by Rules 78.1 and 78.7.
(B) Any payment by the Association… (Rule 79.2)
If payment is made by the Association to any one Joint Member, Co-assured or Affiliate under the terms of entry, this will fully discharge the obligations of the Association to all such persons in relation to such payment. Since the Association has no detailed knowledge of the relationship that exists between Joint Members, Co-assureds and Affiliates, the Association is not obliged to ensure that the recipient has accounted properly to these other parties for any payments that are received from the Association which should be transferred to, or shared with, other parties that are entitled to the whole or part of such payments.
Rule 79.2 applies to ‘any payment’. In the majority of cases, this would be a payment that is made by the Association by way of compensation for claims, but it could also include other payments such as the return of premium pursuant to Rule 22 as a result of the laying up of the Ship, or the partial return of deposit premium that has been paid by the Member in advance in relation to a Charterer’s Entry.
(C) Any communication by the Association… (Rule 79.3)
The Association will often communicate directly with the Member in relation to certain matters, e.g. in relation to debit notes for payment of premium, but may communicate with a Co-assured in relation to other matters, e.g. communications with the technical manager for the Ship in relation to any surveys and inspections that may be required by the Association. It is important both for the Association and the wider membership that the Association is able in either case to act on the premise that the communication has been brought to the attention of the relevant personnel or organisation. Consequently, in cases where material prejudice or inconvenience may be caused to one or more Members, Joint Members or Co-assureds that are insured under the same entry as a result of the fact that they have not been informed of any particular fact or notice, Rule 79.3 is intended to protect the Association against allegations that the Association has failed to communicate such matters to all the parties that are insured under the same entry.
It is the responsibility of all Members, Joint Members and Co-assureds that are named in the Certificate of Entry – and not the responsibility of the Association – to ensure that there is effective communication between such parties in relation to all issues that are relevant to the contract of insurance. Consequently, Rule 79.3 emphasises that the Association is entitled to rely on the fact that any communication that may be sent by the Association to the Member, or to any Joint Member or Co-assured, will be forwarded promptly and properly to any other relevant party. In practice, the Association will normally correspond in relation to claims with one company that has been nominated under the terms of entry. This is usually the Member or one of the Joint Members, but in some cases, it is the manager of the Ship, or the insurance broker that is appointed by the Member. For example, if the Member has confirmed that communications from the Association are to be sent to him via his insurance broker, all communications that have been sent by the Association to the broker for onward transmission to the Member are deemed to have the same legal effect as communications that have been sent directly to the Member. Therefore, written notices that have been sent by the Association to the broker for the attention of the Member are treated as having been received by the Member when they are received by the broker.
(D) The conduct or omission of one Joint Member or Co-assured… (Rule 79.4)
When considering whether there has been a breach of the contract of insurance, Rule 79.4 makes it clear that the acts or omissions of one Joint Member or Co-assured are deemed to be the acts or omissions of all Joint Members and Co-assureds. The rationale for this Rule is that, since the Association has no knowledge of the manner in which the Member organises his affairs, it is the responsibility of the Member to ensure that he appoints trustworthy and competent parties to conduct those affairs. It is in the interests of the membership as a whole that a Member should not, and cannot, by outsourcing or delegating responsibilities, activities or functions that relate to the operation of the Ship to third parties, have better rights vis-à-vis the Association than the rights that he would have had, had he not done so.
Therefore, the Association has the right to terminate the Member’s cover,2 or to refuse to indemnify the Member,3 if the conduct that would have justified such action, if committed by the Member, has in fact been committed by a Joint Member or Co-assured. It follows that, if the Member or one Co-assured under that entry incurs a liability, but another Co-assured under that same entry is guilty of conduct that would have given the Association the right to refuse compensation had the liability been incurred by that other Co-assured, the Association has the right to refuse to compensate the Member or Co-assured that has in fact incurred the liability.
Whilst Rule 79.4 does not refer to Affiliates, they are, in any event, not entitled to cover if the Member would not have been entitled to cover had the relevant claim been made against him.4
(E) The liability of Joint Members, Co-assureds, … to each other shall not be excluded nor discharged …(Rule 79.5)
The decision of the Supreme Court of the United Kingdom in The Ocean Victory case5 creates a small risk that, where a bareboat charter does not provide expressly that an owner is entitled to claim an indemnity from the bareboat charterer for a liability incurred by the owner in respect of, for example, pollution under CLC, the owner cannot bring a recourse claim against the bareboat charterer where there is a provision in the charter that obliges the owner to insure against such a risk for the joint protection of the owners and charterers. Such an arrangement constitutes what has been described as an “insurance solution” to any potential recourse dispute between the owners and the bareboat charterers as to which of them inter se is to be responsible for the liability.
As a protection against this legal risk, Rule 79.5 clarifies that co-assurance does not exclude any liability that a co-assured or Joint Member may have to the owner as Member or assured under the same entry, or vice versa. In other words, the Association’s payment of compensation to the Member will operate only as satisfaction of the claim against the Association but not as an exclusion or discharge of the underlying liability of the co-assured or Joint Member to the Member.
1 See the Guidance to Rule 88.3.
2 See the Guidance to Rule 24.
3 For example of such situations see the Guidance to Rules 8.3 and 72.
4 See the Guidance to Rule 78.7.
5 See 2017 1 Lloyd’s Rep 521.