Section 1 Member’s intent or gross negligence
This is a provision of critical importance. It reflects the general insurance principle that there is no cover for loss or damage inflicted by the insured himself. It has a special connotation in insurance, based on the concept of mutuality. For there to be mutual trust, which is the necessary basis for the sharing among the community of Members, of each other’s risks, there must be a common conviction that all Members are committed to exercising responsible behaviour in the operation of their entered ships.
11.1.2 Intentional acts
The clause excludes cover for liabilities, costs or expenses caused by intentional acts or omissions of the Member.
If an act or omission was made intentionally, it is not necessarily the case that the Member knew at that time, or had reasons to believe, that loss or damage would result. It is sufficient, for example, that the Member may have ordered the entered ship, for example, to carry out a certain transport even though he was aware of cracks having appeared in the hull.
11.1.3 Gross negligence
Cover is also excluded for liabilities, costs or expenses caused by grossly negligent acts or omissions of the Member.
The concept of gross negligence (grov vårdslöshet) under Swedish law generally requires a high degree of negligence. In practice it borders on intention. Gross negligence can be defined as “a conscious, voluntary act or omission in reckless disregard of a legal duty and of the consequences to another party, who may typically recover exemplary damages”. Hence, gross negligence seems to encompass an element of “recklessness”. It is probably parallel to the provisions of the 1976 Limitation Convention (see the comments under 2.11.3) which state that the right of liability limitation is lost if an action is undertaken “recklessly in the knowledge that a casualty would probably result”. It is reasonable to find a parallel between the 1976 Limitation Convention and the Rules, in such a way that there is no cover for behaviour which is bad enough to justify the loss of the right to limitation of liability.
The degree of negligence required to break limitation under the 1957 Limitation Convention (see the comments under 2.11.2) is lower than that under the 1976 Convention. Situations may occur where limitation is denied under the 1957 Convention and yet the negligence shown is still not serious enough for the liability to be excluded from cover under this provision. In such a case, the unlimited liability is still covered under these Rules.
The same situation may arise under domestic law, such as in the U.S. Regardless of the level of negligence the legislation applies to the loss of limitation, the loss of cover is measured and decided by the standards of behaviour laid down in this clause.
The fact that an act or omission by the Member has caused him to be convicted by a court judgment is one amongst several elements to be considered when deciding whether the act or omission was grossly negligent in the sense of this clause. A court conviction does not necessarily have that effect.
11.1.4 Acts or omissions
Action or inaction on the part of the Member may lead to exclusion of cover under this provision. It makes no difference if the Member either did the wrong thing or did nothing when he ought to have acted.
11.1.5 Member’s knowledge
Cover is excluded for acts or omissions which the Member knew, or ought to have known, would cause liabilities, costs or expenses.
This second part of the Rule requires knowledge on the part of the Member that the performance would probably have resulted in a loss, or that he acted in such a way that it is reasonable to conclude that the Member totally disregarded the consequences of his actions and omissions. This wording is similar to that contained in the 1976 Limitation Convention, as referred to under 11.1.3.
11.1.6 Who is the Member?
Rule 1 defines a Member as “an owner, operator or Bareboat Charterer, whether an individual or a corporation in favour of whom the Association has issued a policy of insurance under these Rules”. As a Member is usually a company, the question arises as to which acts or omissions of the Member’s employees would have the fatal consequences under this provision.
Acts of or omissions by top management, such as members of the Board, the managing director and the deputy managing director would implicate the Member. Although the lines have to be drawn on the blueprint of the organisation and the pattern of distribution of responsibilities in the individual case, it can be assumed that persons within the Member’s organisation to whom the power of authority has been delegated to make decisions regarding the ship’s construction, condition, maintenance and operation, are identified together with the Member for the purpose of this clause. Heads of technical and operational departments may, therefore, also be regarded as one and the same as the Member.
The Master does not belong to the category of people whose acts or omissions may cause the loss of cover. On the contrary, it is the function of the P&I Insurance to provide cover to the Member for the consequences of the Master’s negligence. If the Master is at the same time the owner or part-owner of the company that is defined as the Member, it is necessary to analyse whether the act or omission was undertaken in his capacity as Master or as Owner.