Insurance

The International Oil Pollution Compensation Funds (IOPC) meetings last week 14-16 March in London included the 36^th session of the 1992 Fund Executive Committee and the second meeting of the 4^th Intersessional Working Group of the 1992 Fund. The Executive Committee discussed inter alia STOPIA and liability; the Working Group promoting quality shipping covered information exchange, incidence of spills, risk assessment and CLC certificates.

 

Executive Committee.

 

The Executive Committee compared reports on recent incidents with regard to liability. The Philippines registered tanker Solar 1 (998 gt) sank last summer in heavy weather in the Philippines’ Guimaras Straits. This is the first time that the Small Tanker Oil Pollution Indemnification Agreement 2006 (STOPIA) has been applied. STOPIA was introduced with effect from 20 February 2006. Under this agreement an owner’s limit of liability is increased to some 20 million Special Drawing Rights (approximately USD 30m) for vessels not more than 29,548 GT. The Secretariat reported that there had been good cooperation with the owner’s P&I club and that STOPIA have been invoked without any problem.

 

In contrast, another incident concerned the Japanese vessel Shosei Maru (153 GT) which collided with the Korean cargo vessel Trust Busan (4,690 GT) in the Seto Inland Sea in Japan. Some 60 tonnes of heavy fuel oil and bunker diesel oil escaped into the sea from the Shosei Maru which was insured with the Japan P&I Club. Since the vessel was only engaged in coastal trade it was not entered in the pooling arrangements of the International Group of P&I Clubs (IG); nor had the owner of the vessel consented to her being entered in STOPIA 2006. Consequently the limit of liability for the ship owner does not exceed the amount under the civil Liability Convention 1992 (CLC), roughly Special Drawing Rights 4.51m (USD 6.7m). Claims in excess of this figure would fall on the 1992 Fund Convention.

 

Member States expressed their concern that STOPIA was not applicable to the second incident. The IG advised that the agreement was not automatically applicable if the vessel was not entered in the IG’s pooling arrangement. Some 6,000 vessels are so entered and all participate in STOPIA. The IG was encouraging its members to enter into STOPIA vessels not entered in the IG pooling arrangement. It was understood that of Japan Club’s 327 coastal tankers over 100 GT, some 197 are entered in STOPIA.

 

Working Group to promote quality shipping.

 

Information exchange.

The 4^th Intersessional Working Group of the 1992 fund is charged with examining and developing proposals in respect of non-technical measures and guidelines for Contracting States and the industry to promote quality shipping (by ensuring that effective checks and procedures are in place to establish that ships insured and certified are suitable for the carriage of oil by sea as covered under the Civil Liability Convention/Fund regime).

 

Chaired by Mrs Birgit Olsen from the Danish Administration, the Working Group’s second meeting examined legal barriers to the exchange of information by insurers on ship standards. The Norwegian Parliament’s new statute, the Ship Safety Act 2007, removes the previous prohibition on the exchange of information on ship standards by marine insurers. This new law also provides that an assured has to be informed about what information has been sent to a new or proposed insurer. A number of delegations are examining their law in this area to see whether such a prohibition actually exists.

 

The IG advised that under English law there is no such general prohibition, however care has to be taken due to the potential commercial sensitivity of such information, and therefore it is prudent to seek the permission of the assured before passing on such information. Whilst the IG has considered a model rule for its members which covers the granting of such permission, it is not presently possible to make such a rule change as there are some issues of competition law with one of its members. The IG emphasised that its members have in recent years established a much more rigorous underwriting practice to evaluate more thoroughly a proposed entry into an IG club.

 

Incidence of spills.

The Working Group was presented with a report undertaken by the secretariat of the IOPC Funds concerning the incidence of spills from vessels entered with IG members and from vessels insured by other liability cover providers. The Funds have been involved in some 137 incidents over a 28 year period since 1978 of which 14 vessels, all under 2000 dwt, were not insured by a member of the IG. 8 of these vessels had no insurance and the remaining 6 were insured with fixed premium insurers. The International Tanker Owners Pollution Federation (ITOPF) has been involved with some 1,313 spills over a 35 year period of which only 15 spills involved vessels not insured through a member of the IG.

 

Risk assessment.

The Working Group’s attention then turned to the paper submitted by the IG advising Member States that their members should operate both a desk-based risk management system and also, for certain categories of vessels, a physical risk assessment. New entries over 12 years old are inspected, as are vessels over 10 years old if they have carried heavy fuel oil as a cargo. The IG now maintains a database of all inspections carried out by its members. If a vessel fails to meet acceptable quality standards a committee will then consider whether the vessel should become a “designated vessel”. If so, any IG club taking on that risk will be subject to a double retention of risk - USD 14m as opposed to USD 7m - and would not be able to participate in the IG’s re-insurance scheme. It is thought that no member of the IG would want to take on such a risk, as it would effectively be betting the club’s assets on the performance of the designated vessel.

 

CLC certificates.

The UK then introduced their paper which provided details of its procedure for issuing CLC certificates. For vessels insured by a member of the IG, certificates are automatically granted, whereas for vessels carrying other insurance the UK’s Financial Services Authority is asked to check the financial status of the insurer. Cyprus advised the Working Group that before it issued a CLC certificate a check was made concerning the vessel’s safety record. Canada advised it was operating on similar lines and was considering introducing a requirement that, before a certificate was issued, a vessel had to have been through a Port State Control inspection within the previous 3 months.

 

The Working Group’s Chairman called on Member States to consider whether there should be guidelines introduced for States issuing certificates to a vessel not insured by a member of the IG.

 

The Working Group was adjourned and will most probably meet again in June 2007 in Montreal when the IOPC Funds governing bodies will convene.

 

Contact:

INTERTANKO’s General Counsel Michele White