Commentary: Rule 26 Termination

26.1 General

26.1.1 General comments on termination

As appears from Rule 20, the period of insurance shall continue from policy year to policy year unless it has terminated or ceased in accordance with these Rules. This means that the cover continues automatically as long as the Member and the Club agree on the premiums and the terms of insurance. To bring the period of insurance to an end requires either that one of the parties notifies his intent to terminate the period of insurance under this Rule or that one of the situations applies which causes the insurance to cease under Rule 27.

The termination of the period of insurance can be initiated by the Member or the Club under the first part of the Rule and by the Club as a consequence of certain situations listed in the remaining part of the Rule.

26.1.2 Difference between termination and cesser

Termination of the period of insurance is a right. It is an option open to the parties under the conditions specified in this Rule. When those conditions apply, the party concerned may file a written notice of termination but is free to allow the period of insurance to continue, if he so wishes.

As stated in Rule 27, the insurance ceases automatically and with no prior notice if any of the listed situations arise. Cover can only be reinstated if the parties agree on a new period of insurance and a new policy of insurance is issued accordingly.

26.1.3 Effect of termination

The effect of termination is described in Rule 28.

26.1.4 To whom should written notice of termination be made?

Notice of termination should be given to the Member and or the broker as identified in the policy of insurance.

Notice given to any Joint Member or co-assured will, in accordance with Rule 30, be considered to have been communicated to all those concerned.

26.2 Termination by notice before 20 January

If the Member or the Club wishes to terminate the period of insurance, written notice should be given to the other party accordingly. The notice of termination should be received by the other party not later than 1200 hours UTC on 20 January. The period of insurance will then terminate at noon UTC on 20 February, which is the end of previous policy year and the start of the new as stated in Rule 20.

26.3 Termination due to unpaid premiums

26.3.1 Initial period

The second part of this Rule deals with the consequences where the premiums are not paid promptly.

The meaning of “the premiums” in this part of the Rule is decided by the words “the premiums for an ensuing period” in the third part of the Rule. An ensuing period is any period which follows after the initial period.

The second part of the Rule is, consequently, applicable where the payment of premiums for the initial period is delayed. For any subsequent period, the third part of the Rule applies.

The consequence, where payment of the premiums for an initial period is delayed, is that the Club “shall not be liable”. This means that there is no cover under these Rules from the inception of the initial period until the premiums are duly received by the Club.

The Club may also terminate the period of insurance on three days’ written notice. If a notice of termination is filed, the Member may pay the premiums before the termination becomes effective. In such a case, the cover starts from the date of payment, which is the day when the delayed premiums became available to the Club in accordance with the payment instructions.

26.3.2 “Premiums for an ensuing period”

The third part of the Rule deals with the late payment of premiums for “an ensuing period”. An ensuing period is any period which follows after the initial period.

Where the payment of premiums for such a period is delayed, the Club has two options.

The Club may serve a written reminder to the Member regarding the unpaid premiums. The Club will then be relieved of its obligations under these Rules after seven days, while the period of insurance remains in force and cover can be reinstated by payment of the premiums.

The Club also has the option of terminating the period of insurance on three days’ written notice.

26.3.3 “Lien”

It follows from the fourth part of this Rule that if the Club makes use of its right to terminate the insurance due to non-payment of premium, the Club is entitled to a lien over the ship for which the outstanding premium is referred.

26.3.4 “Delay”

What constitutes a delay in payment of premiums should be judged with regard to the circumstances prevailing.

The payment dates for premiums are well known to Members and specified in Rule 22. Remittances should be effected in such a time and way that the money is available on the Club’s account on the dates specified, by ordinary banking practice in the countries concerned by the transaction.

It follows that a delay should be minor and have an acceptable cause in order not to justify the options open to the Club under this Rule.

The concept of mutuality requires Members to fulfil their obligations to pay premiums on time. Investment income on premiums paid is an important tool to keep the premiums low and stable. By ensuring that payment is made on time, all Members contribute equally to this common goal.

26.3.5 Set-off

As stated in Rule 13, Members are not allowed to offset premiums against what they consider to be justified compensation. Offsetting of premiums without the Club’s prior approval is equal to non-payment and may cause the Club to file a notice of termination under this Rule. For further comments see under 13.2.

26.4 Immediate termination

According to item (a) of the fourth part of this Rule, the Club may terminate the period of insurance with immediate effect once it has been notified of an event which has been caused by such an intentional or grossly negligent act or omission by the Member to which Rule 11 Section 1 applies. See the comments under 11.1.1-5.

Such behaviour is so completely alien to the concept of mutuality, on which the P&I Insurance is based, that it is in the best interest of the Club and its Members to terminate the period of insurance for that particular Member. The termination may then be for all ships entered under the same or associated ownership.

According to Rule 30, an act or omission by a Joint Member or a co-assured which entitles the Club to terminate the insurance will be considered an act or omission of all those concerned.

26.5 Termination on three days’ notice

Under the second and third parts of this Rule, the Club has the right to terminate the period of insurance on three days’ written notice where the premium for an ensuing period (see the comments under 26.3.1-2), an additional premium (see the comments under 23.7) or an overspill call (see the comments under Rule 24) is not paid promptly.

Item (b) of the fourth part of the Rule provides the Club with the same right when the Member has failed to pay sums other than premiums when due and demanded. Such sums might be premiums for accessory types of insurance, deductibles or the Club’s outlays incurred on the Member’s behalf for costs or expenses. As stated in the comments under, such sums are payable on demand.

26.6 Termination on seven days’ notice

The Club’s power to issue regulations and the consequences of failure by the Member to comply with such regulations are commented upon under Rule 10 Section 3.

If a Member fails to comply with such regulations, the Club may reject a claim for compensation or reduce any amount payable under these Rules.

The ultimate remedy against a Member who fails to comply with regulations is for the Club to terminate the period of insurance on seven days’ written notice.

26.7 Termination on fourteen days’ notice

In the event that a Member becomes bankrupt or otherwise insolvent, the Club may terminate the period of insurance on fourteen days’ written notice. The wording of the Rule confirms that no formal decision or declaration of bankruptcy has to be awaited. Notice of termination may be given when the Member has reached such a degree of insolvency that he is not expected to adequately fulfil his obligations under these Rules. The financial fulfilment of such obligations can be the timely payment of premiums, the ability to pay claims under the pay-to-be-paid principle (see the comments under 2.9.1 and 2.10) or to finance the proper maintenance of the entered ship.

The notice of termination can be for all ships entered under the same or associated ownership.

The Club may delay or refrain from filing a notice of termination if security acceptable to the Club is posted by or on behalf of the Member for present and future sums due to the Club.

26.8 Termination on thirty days’ notice

Item (e) of the fourth part of this Rule gives the Club the right to terminate the period of insurance on thirty days’ written notice without having the obligation to disclose the reason for the termination.

One situation in which this part of the Rule may be applied is at the outbreak of a major war which affects the parties to the insurance contract or when such an outbreak seems likely or imminent. The reason is that those situations are not specifically listed in the other parts of this Rule or in Rule 27 on cesser. There is consequently no automatic termination or cesser in such a situation. This gives the Member a respite of thirty days to rearrange the insurance to suit the prevailing situation. See the comments under 11.5.8.

26.9 Termination in respect of sanctions

Item (f) of the fourth part of this Rule gives the Club the right to terminate the period of insurance on such notice as the Club may decide, where the Club considers a breach of sanctions has or may take place. In order to protect the Club, it is likely that the notice will be of the shortest possible period if not of immediate effect.