Section 3 Exclusions for certain operations

11.3.1 General

The concept of mutuality on which P&I Insurance is based, means the sharing of those risks that are characteristic of shipping and reasonably common to the community of Members. Even if the operation of a cruise ship and the liability risks generated therefrom differ from those of a gas tanker, there are still enough similarities to support mutuality and risk-sharing.

There are, however, marine undertakings of such a highly specialised nature that the concept of mutuality does not apply, at least not to the liability risks generated by the performance of those specialised operations. The cover is, accordingly, restricted to “normal” shipping risks not being of a specialist nature.

Even for those traditional risks, the Club may not always be able to offer full and unlimited cover (see the comments under 2.11.7) depending on the reinsurance facilities available. The terms of cover will need to be discussed and defined between the Club and the Member at the time of entry.

In principle, professional liability risks for special operations are excluded under this provision. This is the case where a Member contracts to perform such operations, and claims are brought by the parties to such a contract; there is no cover for liabilities arising out of the failure to properly perform or fulfil such a contract.

The wording of the clause also excludes liability to third parties for damage caused by specialised operations. If a dredger snaps an underwater cable with its buckets during dredging, the ensuing liability to third parties may not be covered even if there would be cover for identical damage or loss inflicted to the cable by the dredger’s anchor, in the process of normal mooring procedures. In that and similar situations, the circumstances of the case may justify the application of Rule 19, the Omnibus Rule.

The professional liability risks of specialised ships/operations in the sense of this clause should be insured separately. The Club will assist Members in taking adequate steps to reduce their exposure to liability risks uninsured under this clause.

11.3.2 Extent of cover

11.3.2.1 Salvage operations

Where the entered ship is a salvage ship or intended to be used for salvage operations, those liabilities are excluded under (a) which are incurred as a result of salvage services or attempted salvage services unless the purpose is to save life at sea, or unless the Member is a professional salvor and the Association has agreed to provide cover on specially agreed terms.

As regards cover where a salvage ship performs towage, see the comments under 7.8.4.2 and 11.3.2.9.

The Member’s liability to pay salvage awards or other compensation to a salvor of the entered ship is covered under Rule 7 Section 4.

11.3.2.2 Drilling or production operations

Ships involved in the offshore oil and gas drilling market are normally entered only if and to the extent that they have features similar to traditional ships such as supply ships. Liabilities, costs and expenses arising out of drilling or production operations in connection with oil or gas exploration or production are therefore excluded from cover. An entered vessel is deemed to be carrying out a production operation if it is a storage tanker or other vessel engaged in the storage of oil and either the oil is transferred directly from a production well to the storage vessel or the storage vessel has oil and gas separation equipment on board and gas is being separated from oil whilst on board the storage vessel (other than by natural venting). The exclusion applies furthermore from the time that a connection, whether directly or indirectly, has been established between the entered ship and the well, pursuant to a contract under which the entered ship is employed, until such time as the entered ship is finally disconnected from the well in accordance with that contract.

11.3.2.3 Specialist operations

This paragraph mirrors the exclusion for “specialist operations” as defined by Appendix V paragraph 18 of the International Group Pooling Agreement. The list of operations is not exhaustive although to the extent that another operation is added to the list of exclusions in the Pooling Agreement the exclusion will not apply to risks already accepted but only to new risks. Members are however expected to exercise caution and ought to contact the Association if in doubt as to whether an operation may fall into the category of excluded operations. It is of great importance that the Club is given full information as to the nature and intended operation of each new ship entered.

11.3.2.4 Disposal operations

Waste incineration or disposal operations are excluded unless part of other commercial activities not being an excluded specialist operation. This includes the burning of chemicals or other toxic products at sea, the dumping or disposal of waste, sewage or similar substances. Liability arising out of such burning or dumping, whether from the entered ship or from towed barges, or any similar activities are excluded from cover. Third party liability arising, for instance, from negligent operation of a waste incinerator ship would not even be recoverable under Rule 19, the Omnibus Rule. The exclusion includes liabilities arising out of disposal, dumping, and carriage of such substances.

11.3.2.5 Operation of submarines etc.

The operation of submarines, mini-submarines or diving bells is an excluded risk, in line with activities by professional and commercial divers, with the exception from the situations mentioned in the Rule. This exclusion may be relevant, inter alia, for cruise ships which may offer various subsea activities to its passengers.

11.3.2.6 Semi-submersible heavy lift ship

For semi-submersible heavy lift vessels or other vessels designed for carrying heavy lift cargo, liability due to loss, damage, wreck removal or destruction of cargo carried is excluded under the Rules unless the contract of carriage has been approved by the Club in advance. The use of an unamended BIMCO Heavycon Charterparty, which provides that Charterers are liable for cargo damage and wreck removal, together with a cargo receipt, is acceptable. Note, however, that the exclusion does not apply to entered ships being carried by/on heavy lift vessels.

11.3.2.7 Supply vessels

Cover for supply vessels is provided for statutory or Common Law liability (in tort). Contractual liability is covered provided the contract has been submitted to and approved by the Club. To be approved, the contract should be on knock-for-knock terms whereby the respective parties are responsible for loss of or damage to their own property or equipment and for death or injury to their own employees, irrespective of whether such loss, damage, death or injury has been caused by the negligence of the other party or his servants.

The BIMCO SUPPLYTIME charterparty is, likewise, approved provided there is no major amendment of the traditional apportionment of liability.

It follows from item (a) of Rule 10 Section 2 that liability in respect of cargo carried on a supply ship is covered only if the Hague or Hague-Visby Rules apply or would have applied.

As regards cover where a supply ship performs towage, see the comments under 7.8.4.2 and 11.3.2.8.

11.3.2.8 Tugs

Primarily, tugs are subject to the conditions described in the second part of Rule 7 Section 8. See the comments under 7.8.4.2.

Item (b) of that provision states that liability for towage other than for the purpose of saving life or property in distress, is covered only when the Club has agreed in advance to afford cover for such towage.

The Swedish Club Tug Clause defines the cover further and specifies certain situations to be considered as agreed in the sense of item (b) of the second part of Rule 7 Section 8.

According to the Tug Clause, liability is covered for towage performed under

1. Lloyd’s Standard Form of Salvage Agreement known as Lloyd’s Open Form (LOF). See the comments under 7.4.1.2.
   
2. A reasonable towage contract based on the knock-for-knock principle, such as BIMCO Towcon or Towhire. See comments under 7.8.3.2.
   
3. Any standard form of towage contract, such as The United Kingdom Standard Towage Conditions (1986), the Dutch or Scandinavian Towage Conditions.

It is a condition for cover under 1 and 3 above that no amendments have been made to the contractual terms to extend the liabilities of the entered tug.

The TOWCON and TOWHIRE contracts introduced by BIMCO are based on the knock–for-knock principle in such a way that they are considered agreed contracts under 2 above in the sense of item (b) of the second part of Rule 7 Section 8.

Where no towage contract has been signed or where the tug is liable under a towage contract for loss, damage or expense caused by negligence on the part of the tug or her owner, there is no cover for liabilities in relation to the tow or to cargo carried in or on the tow. Liability (in tort) against third parties is, however, covered.

11.3.2.9 Fishing vessels

The Club can provide cover on limited terms for fishing vessels. The terms are agreed at the time of entry. The cover is in respect of liability against third parties for personal injury or loss of life and for damage to property.

In respect of crew liability, cover is provided subject to applicable national legislation.

Liability for passengers is excluded. It can be covered at an additional premium for the number of passengers the ship is certified to carry.

Liability for cargo carried is not covered. Damage to or loss of catch is not subject to compensation.

Rule 7 Section 6, 3. (iii) excludes fines for illegal fishing. See the comments under 7.6.4.3. Legal obligations in respect of wreck removal are covered.

11.3.2.10 Accommodation unit

In this exclusion, a distinction is drawn between non-marine ‘personnel’ and ‘marine crew’. Marine crew is crew working in the engine room and on the deck in order to operate the ship. Marine crew remain covered in the ordinary way, as do other personnel employed by the Member. Cover for onboard personnel, other than marine crew, must be assessed based on whether they are employed for the operation of the ship because the ship is being used as an accommodation unit. For example, if a ship operates as a cruise ferry, there would be additional staff on board to cater for the needs of the passengers who would be personnel employed for the operation of the ship. The Member’s liability to that personnel employed by a third party would remain covered in the ordinary way. However, if that same ferry were instead to operate as an accommodation unit then the non-marine personnel onboard would be employed because the ship is being used as an accommodation unit. In the latter example, absent an approved allocation of risk, there would be no cover for the Member’s liabilities to the third party personnel onboard the accommodation unit.

Where the entered ship operates as an accommodation unit, liabilities for non-marine personnel not employed by the Member are excluded from cover unless the contract includes a knock for knock agreement. The exclusion is thus engaged in respect of personnel (other than marine crew) employed by a third party who are onboard the ship when it operates as an accommodation vessel, unless there is a contractual allocation of risk which has been approved by the Association. It is a requirement for cover that the contract, and the knock for knock agreement within it, have been approved by the Association.

The exclusion applies whether or not the ship is classed as an accommodation unit as it is the activity or service being performed that matters. An accommodation vessel under this rule is simply one which is performing that role. Further, in such circumstances, it is liabilities in respect of (non-marine) personnel on board, employed by a third party, which are excluded. It follows from the exclusion that liabilities other than in respect of that personnel, would not be excluded but insured in the ordinary way.

The exclusion is for instances where there has not been a contractual allocation of risk between the Member and the employer of the personnel, which has been approved by the Association. No allocation of risk is required for the non-marine personnel or crew employed by the Member. The expression “contractual allocation of risk” is understood to mean and the expectation would be that this would be an allocation of risk in the nature of a knock-for-knock agreement. Thus, what is required is an arrangement under which the third party employer of the non-marine personnel accepts the risk of all people claims for its personnel, irrespective of the fault of the Member.

11.3.2.11 Ship operating as a hotel, restaurant, bar and/or other place of entertainment

Where the ship is moored (otherwise than on a temporary basis) hotel and restaurant guests, other visitors and catering crew of the insured ship are excluded from cover. When the assessment is made it is important to look at what role the insured ship is actually performing and not look at whether she, for example, puts to sea once a year to maintain her functionality.

The exclusion applies regardless of whether there is a knock for knock agreement in place. This is because the risks involved with operating a hotel, restaurant, bar or other place of entertainment are not of a marine nature and should be insured elsewhere than under the ship’s P&I insurance.