Commentary: Rule 30 Joint members, co-assureds, affiliated charterers and contractors

30.1 General

As described in the comments to Rule 2, the cover under this Rule is in respect of liabilities, costs or expenses incurred by the Member as defined in Rule 1. The application of the pay-to-be-paid principle under Rule 2 (see the comments under 2.9.1 and 2.10) also ensures that no party, other than the Member, can claim compensation under these Rules.

Claims in respect of the entered ship and of a nature to be covered under these Rules may, however, be filed and enforced against parties other than the Member. Such parties may constitute more attractive targets for a claim because they have better solvency than the Member, are domiciled in a more suitable jurisdiction or exposed to unlimited liability whereas the Member might be entitled to apply global limitation.

It is important for the shipowner that certain parties have reasonable insurance protection against such claims, which could otherwise backfire on him by way of recovery under contracts or otherwise.

Under this Rule, the Club may allow certain individuals or corporations closely related to the Member to be covered jointly by the same insurance, as either Joint Members, co-assureds, affiliated Charterers or contractors

30.2 Joint members

30.2.1 What constitutes a Joint Member?

For a party to be accepted as a Joint Member the Member needs to apply to the Club to enter the candidate as a Joint Member on the Member’s policy of insurance. It is in the Club’s discretion to decide whether the application should be accepted. The Club does not need to give a reason for its decision. The party becomes a Joint Member when the Club has issued a policy of insurance or an addendum to an existing policy in which the party is named as a Joint Member.

30.2.2.1 A Joint Member is a Member

As appears from the definition in Rule 1, a Joint Member is a Member. What is said in these Rules regarding a Member’s rights and obligations also applies to a Joint Member.

This Rule contains certain regulations required to co-ordinate the rights and obligations of a Joint Member under these Rules with those of the Member whose cover he shares.

30.2.2.2 Who can be a Joint Member?

As the rights and obligations of a Joint Member mirror those of the Member, a Joint Member should be closely related financially or organisationally to the Member.

To be a Joint Member the entity in question must have been named as such in the policy. It is further a requirement that the Joint Member is jointly and severally liable with the Member for all sums due to the Association.

Those in control of the operation, management or manning of the entered ship, as customarily exercised by an Owner, may be accepted as a Joint Member. A manager can be a Joint Member provided the manager is acting as agent on behalf of the Member and is exercising effective control over the vessel. If the manager ceases to exercise effective control, the manager will cease to be a Joint Member. It can be difficult to know where to draw this line; for example, where the vessel is in layup with the Member’s crew still on board, the layup manager should be encouraged to purchase his own insurance.

The holding company or the beneficial owner of the Assured Member insured under the same entry or the holding company or beneficial owner of a Joint Member, who is a person interested in the operation, management or manning of the entered ship, can be a Joint Member. By way of example, a Bareboat Charterer could be eligible for acceptance as a Joint Member.

In case a manager has dual functions under the management agreement, in other words, acts both as manager and as a Charterer of the entered vessel, then the company can be a Joint Member for the liabilities incurred as a manager only. For liabilities incurred in his capacity as a Charterer, the company needs its own additional Charterers’ insurance.

A bank controlled Special Purpose Vehicle (“SPV”) demise chartering a vessel under a tax lease structure to the Member, and the Member being the Owner, can be a Joint Member.

30.2.2.3 General comments on relations between the Club and Joint Members

The extension of cover to a Joint Member gives considerable advantages to the Member and his organisation as a whole. To the extent that cover is provided under these Rules, the Joint Member does not need to take out separate liability insurance. Premiums are saved. Money does not need to be spent on a subsequent crosswise recourse between the parties and their respective underwriters, as it would if they had had to buy separate insurance.

In return for the extended cover, a Joint Member has obligations in relation to the Club as described below.

30.2.2.4 Liability for sums due to the Club

A Joint Member is jointly and severally liable for all sums due under these Rules to the Club. This means that a Joint Member is liable collectively and individually for due payment of any such sums. The liability is in respect of advance calls under Rule 22, additional calls and release calls under Rule 22 and overspill calls under Rule 24. A Joint Member is also jointly and severally liable for deductibles or the Club’s outlays for lawyers and experts on the Member’s behalf.

30.2.2.5 Payments from the Club

The Club may discharge its obligations under these Rules by payment to the Member or any Joint Member. Payment to one Joint Member is equal to a payment to the Member and to all Joint Members.

30.2.2.6 Communications from the Club

Any communications from the Club to a Joint Member are considered to have been communicated to all parties insured under the same policy.

Examples of such communications are regulations under Rule 10 Section 3, requests to submit disputes to arbitration under Rule 18 and the Club’s approval or disapproval of contracts submitted under Rule 10 Section 2.

30.2.2.7 Failure to disclose material information

If a Joint Member fails to disclose material information, it is deemed a failure of all insured parties under the same policy. Such disclosure could, by way of example, be the reporting of cargoes, trades or contracts which require the Club’s prior approval to be covered.

30.2.2.8 Conduct of a Joint Member

The same standard of conduct is required of a Joint Member as stated in these Rules of a Member. The Club may reduce or refuse compensation as the Rules permit. It may file notice of termination under Rule 26 and the cover may cease under Rule 27 as a consequence of the conduct of any of the parties insured under the same policy.

Should this occur, the rights of all the parties insured under the same policy under these Rules are affected accordingly.

30.2.2.9 Limitation of liability

As appears from the comments under 2.11.6, the cover afforded by the Club shall not exceed the sum to which the Member would be entitled to limit his liability under applicable law. According to the last part of this Rule, the same principle applies also to Joint Members, however, with an important exception.

There are jurisdictions where the right of limitation is more or less exclusively reserved to shipowners and where parties who may qualify as Joint Members under these Rules are not entitled to limitation at all. In such jurisdictions the Joint Member is a likely target for a legal action to provide the claimant access to unlimited recovery. For the Joint Member and also for the shipowner against whom the action may be channelled back by recovery under contract or otherwise, it is important to have reasonable insurance cover.

That cover is provided in the last part of this Rule. It states the conditions required to set aside the basic principle in Rule 2.

The Joint Member must be a party interested in the operation, management or manning of the entered ship. The Joint Member could also be the holding company or the beneficial owner of the Member or of any Joint Member operation or function as described above.

Furthermore, the liability must arise out of operations or activities that are customarily carried out by or at the risk of the insured shipowner. Finally, the liability must be within the scope of cover afforded by these Rules and any special terms agreed upon.

If these requirements are met, the Joint Member enjoys a separate cover beyond the sum to which the shipowner would be entitled to limit his liability.

30.3 Co-assureds

30.3.1 What constitutes a co-assured?

To become a co-assured requires an application from the Member to the Club, in whose discretion it is to allow the candidate to become a co-assured. The co-assured will be named as a co-assured in the policy of insurance under the below special conditions. See also the comments under 20.3.

30.3.2 Who can be a co-assured?

To be a co-assured the entity in question must have been named as such in the policy. Upon application from a Member, the Club may allow any person who acts as the Member’s servants and performs duties in relation to the operation and employment of the entered ship, to become co-assured under the Member’s policy.

Parties who qualify as Joint Members may instead be entered as co-assureds if that form of association with the Member’s cover is considered more suitable. See the comments under 30.2.2.9.

A reason for acceptance as a co-assured may be that the candidate may otherwise have to buy liability cover of his own, the costs of which would be charged to the Member and which would cover liabilities which the candidate may be able to pass on to the Member anyway by contract.

Needless to say, cargo interests or other parties to whom the Member has contractual obligations should not be included as co-assureds under the Member’s policy.

30.3.3 Relations between the Club and co-assureds

As co-assureds are not mentioned in the definition of a Member in Rule 1, a co-assured is not a Member. The rights and obligations of a co-assured are restricted accordingly.

The main principle contained in the Rule is that a co-assured has so-called “misdirected arrow” cover only. This follows from the basic principle in Rule 2 of these Rules. It means that the Club’s liability under the Rules in relation to a co-assured is limited to liabilities, costs or expenses that properly are the responsibility of the Member but for some reason the claim is directed against the co-assured. For instance, if a co-assured manager incurs a liability for a cargo claim which, under the management agreement (and legal principles) is the responsibility of the Member, the co-assured is covered for the liability, but not otherwise. As a result, cover for a co-assured is quite limited. The cover afforded to a co-assured is under no circumstances greater than that of the Member.

By way of example, in jurisdictions where the right of limitation is more or less exclusively reserved to shipowners and where a party who may qualify as a co-assured under these Rules is not entitled to the same limitation as the Member, then the cover is still restricted to the amount to which the Member can limit his liability. This is an important distinction between a co-assured and a Joint Member. A gap in the insurance cover may thus be the effect of entering an entity that ought to be a Joint Member, as a co-assured.
Another difference between a Joint Member and a co-assured is that a co-assured is not jointly and severally liable for sums due to the Club under these Rules.

Not being a Member, a co-assured has no right to a laid-up return under Rule 29 or to any refund of a surplus under Rule 36.

30.3.3.1 Payments from the Club

The Club may discharge its obligations under these Rules by payment to the co-assured or to any other of the parties insured on the same policy in respect of that loss or damage.

30.3.3.2 Communications from the Club

Any communications from the Club to a co-assured are considered to have been communicated to all other parties insured under the same policy.

30.3.3.3 Failure to disclose material information

If a co-assured fails to disclose material information, it is deemed a failure of the co-assured and of all other parties insured under the same policy. Such disclosure could, by way of example, be the reporting of cargoes, trades or contracts which require the Club’s prior approval to be covered.

30.3.3.4 Conduct of a co-assured

The same standard of conduct is required of a co-assured as stated in these Rules of a Member. The Club may reduce or refuse compensation as the Rules permit. It may file notice of termination under Rule 26 and the cover may cease under Rule 27 as a consequence of the conduct of any of the insured parties.

Should this occur, the rights of the co-assured and of all other insured parties on the same policy under these Rules are affected accordingly.

30.4 Affiliated charterers

30.4.1 What constitutes an affiliated Charterer?

To be entered as an affiliated Charterer on a Member’s policy the Member must apply to the Association, in whose discretion it is to name the entity as an affiliated Charterer. The affiliated Charterer will, if accepted by the Association, be named as such in the policy of insurance under the below special conditions. See also the comments under 20.3.

30.4.2 Who can be an affiliated Charterer?

It is an absolute requirement that the affiliated Charterer is affiliated to or associated with the Member. Affiliated to or associated with requires that one of the following scenarios applies:

(i) both the Member and the affiliated Charterer have the same parent; or

(ii) either the Member or the affiliated Charterer is the parent of the other.

A parent is a company which owns at least 50 % of the shares in and voting rights of the other entity or owns a minority of the shares in the other entity but has the ability to procure that the other entity is managed and operated in accordance with its wishes (i.e. has a controlling interest).

Other Charterers are not accepted as co-assureds and should cover their liabilities under the charterparty by separate Charterers’ P&I Insurance, but for the following exceptions: the association may agree to enter participants in a joint venture or a consortium under a space charter or a slot charter as co-assureds.

30.4.3 Relations between the Club and an affiliated Charterer

As affiliated Charterers are not mentioned in the definition of a Member in Rule 1, an affiliated Charterer is not a Member. The rights and obligations of an affiliated Charterer are restricted accordingly. With that said, by being entered as an affiliated Charterer, cover will be available to that charterer for the risks, liabilities, costs and expenses in respect of which the Member has cover. The cover afforded to the affiliated Charterer is, however, limited to the aggregate of USD 350 million per any one event.

Not being a Member, an affiliated Charterer has no right to a laid-up return under Rule 29 or to any refund of a surplus under Rule 36.

30.4.3.1 Payments from the Club

The Club may discharge its obligations under these Rules by payment to the affiliated Charterer or to any other insured party in respect of that loss or damage.

30.4.3.2 Communications from the Club

Any communications from the Club to an affiliated Charterer are considered to have been communicated to all other insured parties under the same policy.

30.4.3.3 Failure to disclose material information

If an affiliated Charterer fails to disclose material information, it is deemed a failure of the affiliated Charterer and of any other insured party. Such disclosure could, by way of example, be the reporting of cargoes, trades or contracts which require the Club’s prior approval, to be covered.

30.4.3.4 Conduct of an affiliated Charterer

The same standard of conduct is required of an affiliated Charterer as stated in these Rules of a Member. The Club may reduce or refuse compensation as the Rules permit. It may file notice of termination under Rule 26 and the cover may cease under Rule 27 as a consequence of the conduct of any of the insured parties.

Should this occur, the rights of the affiliated Charterer and of any other insured party on the same entry under these Rules are affected accordingly.

30.5 Contractors

30.5.1 What constitutes a contractor?

To be entered as a contractor on a Member’s policy the Member must apply to the Club, in whose discretion it is to name the entity as a contractor in the policy. The contractor will be named as such in the policy of insurance under the below special conditions. See also the comments under 20.3.

30.5.2 Who can be a contractor?

Any person who has entered into a contract with the Member for the provision of services to or by the entered ship, and any subcontractor of the contractor, provided that:

(i) the contractor is named in the policy;

(ii) the contract has been approved by the Association; and

(iii) the contract includes a knock-for-knock agreement;

can be accepted by the Association to be named as a contractor on the Member’s policy.

It is important to note that the knock-for-knock agreement entered into between the Member and the contractor must in all material ways be unamended in order for the contractor to be eligible to be named as a contractor on the Member’s policy. Likewise, the Member’s own cover may also be affected if he has entered into a knock-for-knock Agreement that has been materially amended. This follows from the requirement for Members to contract on standard terms of contract as per Rule 10 section 2.

It is an express requirement for cover that the contract not only contains a materially unamended knock-for-knock agreement but also that the contract has been approved by the Association in which the ship is entered.

30.5.3 Relations between the Club and a contractor

As contractors are not mentioned in the definition of a Member in Rule 1, a contractor is not a Member. The rights and obligations of a contractor are restricted accordingly.

Not being a Member, a contractor has no right to a laid-up return under Rule 29 or to any refund of a surplus under Rule 36.

The contractor shall only be covered for liabilities, costs and expenses which are to be borne by the Member under the terms of the contract and would, if borne by the Member, be recoverable by the Member from the Association.

30.5.3.1 Payments from the Club

The Club may discharge its obligations under these Rules by payment to the contractor or to any other party insured on the same policy in respect of that loss or damage.

30.5.3.2 Communications from the Club

Any communications from the Club to a contractor are considered to have been communicated to all other insured parties under the same policy.

30.5.3.3 Failure to disclose material information

If a contractor fails to disclose material information, it is deemed a failure of the contractor of all other parties insured on the same policy. Such disclosure could, by way of example, be the reporting of cargoes, trades or contracts which require the Club’s prior approval to be covered.

30.5.3.4 Conduct of a contractor

The same standard of conduct is required of a contractor as stated in these Rules as of a Member. The Club may reduce or refuse compensation as the Rules permit. It may file notice of termination under Rule 26 and the cover may cease under Rule 27 as a consequence of the conduct of any of the insured parties.

Should this occur, the rights of the contractor and of any other party insured on the same policy under these Rules are affected accordingly.

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