Section 2 General exclusions

11.2.1 General

This provision contains a list of exclusions. Each item on the list represents a type of situation for which it is agreed that no cover is available. The exclusions should be given a reasonably wide interpretation and embrace risks which are broadly of the same category as those listed.

11.2.2 Listed exclusions

11.2.2.1 Fulfilment of transport obligations

The purpose of insurance is to discount future unforeseeable extraordinary costs into a premium which can be included in the pre-transport cost estimation on which the freight is calculated. Foreseeable costs do not require insurance. Costs of this nature are those which a carrier of cargo is obliged to undertake by law to fulfil his transport obligations according to the freight contract. The basic obligation is to bring the goods or passengers to the agreed destination.

The word “normal” does not imply that there is a cover for all costs which are not normal. When something goes wrong, the carrier has an obligation to take action to avoid or limit loss, damage or costs without necessarily being compensated by insurance. In other words, the Member always has a duty to act as a “prudent uninsured”: see the comments under 2.3 and 10.4.1.1. Insurance cover should be restricted to those “abnormal” situations described in 4.1.6.6. and 8.2.2.1.

11.2.2.2 Seaworthiness and cargo worthiness

One of the carrier’s prime obligations is to make the ship seaworthy before and at the beginning of each voyage. See the comments under 4.1.5. Costs to meet that obligation can be considerable, for instance when it is necessary to overhaul hatches to make them tight or to clean tanks before the next voyage. Still, such costs are of an operational nature and are not subject to insurance cover. As mentioned in the comments under 4.6.2.1, extraordinary discharging costs may at some point turn into costs to clean the holds in preparation for the next voyage. That point is the watershed for cover.

As appears from the comments under 7.7.5 there is no cover for fumigation of cargoes or holds. The exclusion also applies to costs for surveys to establish the suitability of the holds or to obtain certificates to that effect.

11.2.2.3 Overloading, bad trim and incorrect stowage

Overloading of a ship is a serious breach of safety regulations imposed by class or by other competent authorities. According to Rule 10 Section 1 the Club may reject any claim or reduce any sum payable under these Rules if a Member is in breach of such a regulation. Cover for fines imposed upon a Member for overloading is excluded under Rule 7 Section 6.

Finally, the basic exclusion under Rule 11 Section 1 may apply. Costs or expenses to discharge and tranship cargo where a ship has been overloaded, are excluded under this item. It does not matter whether the intake of cargo, ballast water, bunkers or fresh water brought the ship below her marks.

Rule 4 Section 6 provides cover for extraordinary costs to discharge or dispose of damaged cargo and to discharge, handle, store and reload cargo when the ship has sustained damage recoverable under the Hull insurance. This item excludes compensation of such costs when caused by overloading, bad trim or incorrect stowage. See comments under 4.6.2.

11.2.2.4 Valuables

This item applies not only to liabilities in respect of cargo under Rule 4 Section 1 but also to any valuables of the crew under Rule 3 Section 3 and passenger luggage under Rule 3 Section 5. See the comments under these Rules.

Cover for valuables of such a nature as listed under this item is provided only when the carriage has been approved by the Club.

11.2.2.5 Salvage and wreck removal

This exclusion means that liabilities incurred during specialist operations such as salvage and wreck removal are excluded from cover unless for the purpose of saving or attempting to save life at sea.

11.2.2.6 Containers

This exclusion flows from the principle that P&I Insurance provides cover against third party liability risks and that it does not cover the Member’s own belongings. Therefore, it states that the loss of or damage to containers owned by the Member is not covered.

It is also a confirmation in respect of containers and similar articles of transportation of the exclusion under Rule 7 Section 1 for objects which a Member has borrowed, leased or bought under reservation of title. A Member can protect himself by taking out property insurance for such articles or by ensuring such insurance is provided by its actual owner and ensuring the costs are included in the lease.

Where a container belonging to a third party is lost or damaged (which is not borrowed, leased or bought under reservation of title by the Member), his liability is covered under Rule 4 Section 1 if the container is carried as cargo and, otherwise, under Rule 7 Section 1.

11.2.2.7 Failure to arrive, late arrival and failure to load

As described in the comments under 5.1., the carrier is not liable for delay under the Hague-Visby Rules but he may be liable under local law. Liability pursuant to mandatory local law will be covered under Rule 5. As mentioned in Rule 11 Section 2 (h), there is, however, no cover in respect of delay of the goods, or damage to the same, if this is caused by the carrier’s failure to arrive, late arrival of the entered ship at the port or place of loading or failure to load any particular cargo in the entered ship, even if such liability is mandatory pursuant to local regulations.

The exclusion of cover under item (h) of this provision refers to delay in those instances where the goods are not yet in the carrier’s charge. At that stage no bill of lading has been issued either “on board” or “for shipment”. Still, there may be a charterparty or a booking note which obliges the vessel to arrive and be ready to load the cargo at or within a certain time. It is best to try to contract on terms which exempt the carrier from liability for late arrival to pick up a cargo (as such liability is not usually mandatory). If, however, the carrier has fixed his vessel to ship cargo by a specified date and fails to arrive at the port of loading in time, that failure constitutes a breach of contract and may result in the carrier being held liable for damages in respect of losses suffered by the shippers or Charterers due to the late arrival (or non-arrival) of the vessel (for example, additional warehousing costs or market losses). Such breach of contract risks are, however, not covered under these Rules unless otherwise stated or agreed.

Item (h) of this provision also excludes cover for the failure to load any particular cargo. The exclusion does not apply to those situations where cargo is left behind at the port of loading by negligence, for instance by stevedore companies, terminal operators or other servants of the carrier.

11.2.2.8 Discharge outside destination

The issuance of a contract of carriage obliges the carrier to discharge the cargo in the stipulated port(s) or place(s) of discharge. Intentionally discharging the cargo elsewhere is a breach of contract, the consequences of which are excluded from cover under item (i) of this provision.

Still, it happens that the carrier may be requested by the cargo owner to discharge his cargo outside its contractual destination. Any ensuing liability risks are uninsured. A Member, who intends to comply with such a request, should take adequate precautions. The Member should insist on the presentation of a full set of all original bills of lading before releasing the cargo. If the ship is on charter, an Owner Member should request a letter of indemnity to be issued by the Charterer and, preferably, although unlikely, reinforced by the countersignature of a bank. Upon request, the Club can provide forms of indemnity suitable for that purpose. See the comments under 4.4.2.5.

Discharge outside the contractual destination may amount to an unjustified deviation with serious, uninsured liability consequences for the carrier. See the comments under 4.8.3.

11.2.2.9 Loss of time and freight

As P&I Insurance provides cover against third party liability risks, there is no cover for the Member’s own loss of time, freight or other revenue. This principle applies to all kinds of risks insured. “Other revenue” includes, for instance, passenger fares.

Cover is also excluded under this item if an Owner Member has to compensate the Charterer under the charterparty conditions for time, freight or other revenue, extra fuel consumption, port charges or other similar expenses which would have been his own operational costs if the vessel had not been trading on charter.

There may be situations where losses described under this item might qualify for compensation under Rule 8 Section 2, for instance when a Member has intentionally sacrificed time or hire in order to prevent or limit liabilities covered under these Rules.

Claims are sometimes withheld from freight or hire due to a Member. Although this may be regarded as a loss of freight, it is just another way for a claimant to get satisfaction for his claim and to put pressure on the Member. If the claim qualifies for compensation under these Rules, all other aspects considered, the Member will be compensated for the freight lost.

The Club can assist Members, if so requested, to cover loss of charter hire, freight and other earnings, by way of additional insurances.

The cover under a Loss of Hire Insurance is for loss due to the entered ship being wholly or partly deprived of her earning capacity as a consequence of damage sustained.

The cover is for an agreed daily amount for an agreed period of time. It is subject to an agreed deductible expressed in days. As the underwriter’s exposure is affected by the time it takes to repair the damages, he may require tenders to be obtained and decide which yard is to be used. Compensation may be reduced if other repairs are effected simultaneously which are unrelated to the damage for the consequences of which loss of charter hire is insured.

11.2.2.10 Contraband, blockade, unlawful trading and sanctions

If the entered ship carries contraband, is employed in blockade running, unlawful trade, breaches sanctions or prohibitions by any state or organisation or employed in trade which under the circumstances is imprudent, unsafe, unduly hazardous or improper, there is no cover for liabilities, costs or expenses arising out of such operations.

Contraband means cargo or supply to one country which runs the risk of being intercepted and seized by another country.

Blockade running means attempts, whether successful or not, to call at ports or places which are blockaded by military or naval forces or which have been declared as blockaded by states or supranational organisations such as the United Nations.

For the purpose of these Rules, an unlawful trade is a trade which is unlawful to operate by law. Breach of applicable sanctions or prohibitions by any state or organisation is most likely to be regarded as an unlawful trade. It is the Member’s obligation to ensure that its trade is lawful. The word “applicable” should be interpreted widely. For instance, according to certain legislation of the European Union certain extra-territorial sanctions (so-called secondary sanctions) imposed by the U.S. are not applicable within European Union. However, breach of these secondary sanctions will nevertheless have very severe consequences. Apart from fines and other penalties a breach may result in the company being shut out from the U.S.A.’s financial system, which, in practice, means the world’s global financial system. This means that even if (according one legal system) in theory a secondary sanction imposed by the U.S.A. is not applicable, the sanction may well be applicable in practice. Hence, these secondary sanctions imposed by the U.S.A. have world-wide application for the purpose of the P&I Rules. The Club keeps updated information about relevant sanction legislation on its website but it should be reiterated that the Member has a non-delegable duty to ensure that his trade is lawful. If in doubt, external legal advice should always be obtained. The Club can recommend suitable lawyers to this end.

An example of imprudent, unsafe, unduly hazardous or improper trade might be the loading of cargo without following guidelines issued by IMO or any other relevant authority or industry group.

The exclusion applies whether the Member knew of the operation or not. The Member himself, in communication with his employees both on board and ashore, is expected to be sufficiently well informed of the ship’s trading.

Not only are the liability consequences of the Member’s deliberate unlawful operations excluded from cover under this provision, a further and even more serious effect is that the period of insurance will cease automatically and with no prior notice through the application of Rule 27 (e).

11.2.2.11 Loss of or damage to the entered ship

Even if it is sufficiently clear that P&I Insurance provides cover for the Member against third party liability risks and not for the loss of his own property, this basic fact is underlined by the exclusion under this item. Neither loss of nor damage to the entered ship nor to any part thereof is covered. Such risks should be insured under the Hull insurance.

Furthermore, there is no cover for loss of or damage to equipment, accessories, spare parts, stores or supplies, whether owned by the Member or not. Examples of such items are trucks stationed on board the ship (see the comments under 7.1.14), food, beverages and souvenirs on passenger ships and the ship’s radio receiver and transmitter if leased.

This item contains an exception from the exclusions. Liabilities for damage to or loss of bunkers belonging to a Charterer are covered under Rule 7 Section 1. See the comments under 7.1.13.1.

11.2.2.12 Loss due to insolvency

P&I Insurance does not provide cover against insolvency risks, hence the exclusion under this item. To be excluded, the loss should have been caused by irrecoverable debts or the insolvency of any individual or corporation. This is not the case where, for instance, the Member has had to settle a claim and the recovery action against the Charterers fails because they are insolvent. The Member will then be compensated for his final loss in the usual way. If the recovery against the Charterer is successful but the money is lost because the ship agent went bankrupt before he was able to transfer the amount recovered to the Member, then this exclusion applies. In the same way, there is no cover for cargo’s contribution in general average once paid but lost because of the local ship agent’s bankruptcy. See the comments under 4.7.2.7.3.