Section 2 Preventative costs and amounts saved
The Rules describe a great number of liability risks covered under the policy. The key to reduced insurance costs is to prevent such situations from ever arising or, where they still do, to take adequate action to avoid or reduce their liability potential.
8.2.2 Preventive costs
126.96.36.199 Cover for preventive costs under this clause
One way to reduce costs is for the Member to take proper action in each case to avoid or reduce covered liability. Under this section, the Club may compensate a Member for costs incurred to that effect. However, the same criteria as in 8.1.1 also apply to preventive costs.
The costs must be of an extraordinary nature, above and beyond the Member’s general obligations – for instance, to care for the cargo or the Member’s obligations with regard to casualties and claims (see the comments under 10.4). Costs to mend broken cartons or bags are not subject to compensation. Nor does the clause cover costs like brushing contaminated bales of wood pulp or transferring reefer cargo to a new container when the reefer plant of the original one has broken down.
Hold and tank cleaning costs are not subject to compensation even if incurred to avoid damage to subsequent cargo. Such cleaning constitutes compliance with the carrier’s obligation to provide a cargoworthy ship (see the comments under 4.6.2).
No compensation is given for action taken by the ship’s crew or the Member’s own staff to avoid or limit damage or liability even if overtime is involved. The Member is expected to have his organisation available to reduce his insurance costs.
Operational costs and expenses during detention or during negotiations to settle a dispute or free the vessel are not covered. These costs and expenses are not intentionally or voluntarily incurred in order prevent, avoid or minimize any liability covered under the Rules. Instead they arise in connection with the detention which is the result of an already existing claim.
Situations where compensation under this section has been allowed are, for instance, where a Member has taken extraordinary action to limit the consequences of water leakage in a hold. Damaged cargo may have been replaced with undamaged cargo at the Member’s expense to avoid cargo claims or claims for fines at the port of destination.
It is not necessary that the extraordinary action taken by the Member has the favourable result intended. It is in the Club’s interest to encourage initiative and attempts to avoid or reduce loss. It is a prerequisite for compensation, however, that the action is in respect of an insured risk, and that the cost must be incurred with the intention of avoiding or minimising liability to the Club.
If the costs have been incurred jointly with another interest not insured under these Rules, compensation will be reduced accordingly. An example of this principle is the following: a salvage tug has been ordered to attend a passenger ship after an engine room fire at sea; once the fire had been extinguished, the attendance of the tug was not necessary from a Hull insurance point of view; however, a number of passengers requested that the Owners have the tug follow the ship to port; it was obvious that a refusal would have caused some passengers to file claims in U.S. courts on emotional grounds; after consultation with the Member, it was agreed that the request should be met. The cost of the tug’s assistance was shared between the Hull and the P&I Insurance.
Compensation under this clause is for costs which would substitute a liability risk covered under the Rules. The substitute costs incurred are subject to the same deductible, limitations and exclusions of cover as the substituted risk.
188.8.131.52 Cover for preventive costs under other Rules
The general principle expressed in this provision can also be found in other Rules applied to specific situations, for example: Rule 3 Sections 9 and 11, Rule 4 Section 6 (a) and Rule 11 Section 2 (c).
8.2.3 Amounts saved
According to the second part of this clause, a Member should not make a profit on a case under these Rules. If a Member has earned extra revenue, or avoided expenses or liability, the Club may reduce the compensation due under the applicable Rule accordingly. If the entire cargo for a certain port has to be discharged in a previous port after a reefer breakdown, compensation to the Member might be reduced by the savings made by the ship not having to proceed to, enter and perform discharging operations at the contractual port of destination.
The clause states the principle that only the extra and increased costs to the Member and caused by a covered event are to be compensated. For an example, see the comments under 3.2.3.
Net proceeds from the sale of residues, or overlanded, recovered or unidentified cargo should be used to reduce any compensation made by the Club.