Commentary: Rule 27 Cesser
27.1 General
27.1.1 General comments on cesser
There are situations which effect the basis for the insurance to such an extent that the cover should cease automatically and with no prior notice. Considering the importance of continuous insurance cover to the Member, the situations in which that cover ceases should be limited and clearly defined. This Rule contains the provisions.
27.1.2 Difference between cesser and termination
The difference between cesser and termination appears from the comments under 26.1.2.
27.1.3 Effect of cesser
The effect of cesser is described in Rule 27.
27.2 Entered ship is missing
As described in the comments under 2.5, P&I Insurance is strictly vessel related. For the cover to exist, there must be a vessel to insure. If the entered ship becomes a total loss, the insurance ceases by application of item (b) of this Rule (commented on below). The mere fact that the entered ship is out of operational control and in all probability is lost is reason enough for the insurance cover to cease. According to item (a) of this Rule, the insurance ceases when the entered ship is posted at Lloyd’s as missing or is missing for thirty days since last heard of – whichever is the earlier.
To establish the date of cesser, it is important to know the date when the entered ship was last heard of. This could be in the form of visual observations or contacts by radio with the Owner or other ships. The cover ceases thirty days after the last confirmed contact, if that date is earlier than the date when the ship was posted at Lloyd’s as missing.
“Posted at Lloyd’s as missing” entails the following: a certain time after a ship has been reported to Lloyd’s as missing, the name of the ship is inserted in the Posted Missing Book by the Loss Book Clerk. The date of that entry is the crucial date under this Rule.
27.3 Entered ship is a total loss
For obvious reasons, the insurance ceases when the entered ship is a total loss and by definition is no longer a ship. When a ship becomes a total loss is decided by application of the conditions for the Hull insurance.
A constructive total loss (“CTL”) has the same effect as a total loss and causes the P&I Insurance under these Rules to cease.
If the entered ship becomes a total loss or a CTL, the P&I Insurance ceases according to item (b) of this Rule when the Member is entitled to total loss compensation. That moment is established as follows. At a total loss, the Hull underwriter must submit his calculation of compensation to the Member within 14 days upon receipt of documents required to calculate the compensation. If the Hull underwriter and the Member agree on the calculation presented, the compensation is payable within one month following the agreement. The Member is entitled to the total loss compensation once the Member and the Hull underwriter reach a binding agreement. The fact that the amount is payable within one month does not affect the agreement reached; the date of the agreement is therefore the date when the P&I Insurance ceases under this Rule. Ongoing liabilities, for example, for wreck removal and pollution, remain covered since the event giving rise to them occurred before the insurance ceased. (See the comments under 7.5.3.2.3.)
Should the parties not agree, the total loss compensation will be determined by a Swedish Average Adjuster. In such a situation, the Member is entitled to the total loss compensation when the average statement has acquired legal force or when, if an appealed is submitted, the final court judgment has acquired legal force. Cesser of the P&I cover follows suit.
27.4 Transfer of ownership
The policy of insurance reflects a contract between the Member and the Club, either of which cannot be substituted without the approval of the other. If the Member is substituted by any other party as a result of a change of ownership or otherwise without the Club’s approval, the insurance ceases by application of item (c).
The Club should be informed in good time of any change contemplated of the ownership of the entered ship. A transfer of ownership between two companies owned or controlled by the Member would only cause minor paperwork so as to allow the insurance documents to reflect the true position.
If the entered ship is sold to a completely new Owner, the Club will decide whether he can be accepted as a Member of the Club. The new ownership and any amended terms agreed upon will be reflected in the issuance of a new policy of insurance and for such a period that the cover for the ship will continue uninterrupted.
The change of manager is a material fact which is relevant to the risk and which must be disclosed to the Club. This is as important to the Club as a change in Owner since the manager is responsible usually for the technical management and crewing of the ship.
27.5 Requisition
A requisition by authorities of the entered ship will bring about the same substitution of parties to the insurance contract as described in the comments to item (d) above. Accordingly, the insurance ceases at the time of requisition.
27.6 Contraband, blockade running and unlawful trades
According to item (k) of Rule 11 Section 2, there is no cover for liabilities, costs or expenses incurred if the ship is carrying contraband or is employed in blockade running or in unlawful trade. See the comments under 11.2.2.10.
Such a deliberate disregard of the Member’s obligations under these Rules and in relation to fellow Club Members justifies cessation of insurance in accordance with item (e) of this Rule. Notably, a breach of sanction legislation may qualify as unlawful trade and, as a result, trigger immediate cessation of the P&I Insurance. For information about sanctions, see the comments under 11.2.2.10.
27.7 Failure to be classed
To be entered with a classification society approved by the Club according to Rule 10 Section 1 is the hallmark of a ship for which Members of a mutual Club are prepared to share the liability risks.
According to item (f) of this Rule, the insurance ceases if and when the entered ship fails to be classed. It follows from Rule 10 Section 1 that “classed” with respect to these Rules entails that the ship shall be entered with a classification society approved by the Club. The cesser comes into effect automatically at the moment when the entry of the ship in the classification society comes to an end in accordance with the statutes or regulations of the society.
The ship’s class is also regarded as lost if the Member or anybody acting on his behalf requests that class be cancelled or if class is suspended, cancelled, interrupted or withdrawn.
If class that once has been lost is reinstated or if the ship is entered in a new classification society approved by the Club, a new period of insurance starts on conditions to be agreed upon. A new policy of insurance must then be issued accordingly.