Circular 4/04: War Risks P&I Cover and US Terrorism Risk Insurance Act 2002

Outline

February, 2004

TO THE MEMBERS

Ref: 4/04

Dear Sirs

WAR RISKS P&I COVER AND US TERRORISM RISK INSURANCE ACT 2002

At their meeting on 26th January 2004, the Directors reviewed the basis on which special war risks P&I cover could be made available to Members in accordance with the proviso to Rule 5E and determined that this cover should be made available to Members for the 2004 policy year in accordance with the terms of the attached Directors’ Resolution. This cover includes cover arising from acts of terrorism as defined in the US Terrorism Risk Insurance Act 2002 (the Act) as set out in the Resolution. A premium of US cents 0.25 per entered ton is deemed to be attributable to the US risk in accordance with the terms of the Act.

As for the 2003 policy year, the limit of the cover provided is US$400 million (unless a lower limit applies in accordance with clause 3 of the Resolution), and the cover will only respond to claims in excess of the proper value of the entered ship as defined in Rule 5D or whatever sum is recoverable from war risk underwriters, whichever is the greater.

The attention of Members is drawn to the note to Rule 5D in relation to the proper value for which an entered ship should be insured or deemed to be insured for this purpose. This provides that the relevant policies of the Member concerned should have been the subject of periodic review as market conditions may require so that the total amount of liability coverage contained in these policies is maintained at levels approximating to the market value of the ship without commitment. Members are recommended to consult their brokers and/or ship valuers to assess periodically in the light of the above the proper amount for which insurance should be affected to cover P&I liabilities under their war risks policies. At a time of rapidly changing market values, the relevant values should be reviewed more frequently and the proper value assessed in the light of more frequent consultation with the Member’s brokers and/or ship valuers.

As for the 2003 policy year, the terms of the special war risks P&I cover contain an exclusion in respect of chemical, biochemical and electromagnetic weapons. This is in identical wording to that contained in the 2003 policy year resolution and the terms of the brokers’ clarification of the application of this clause as set out in Circular No. 6/03 of April 2003, will continue to apply.

However, the Directors also decided that, if possible, the Association should provide supplementary cover to Members in respect of P&I liabilities excluded from Members’ war risks P&I cover by virtue of this exclusion or an equivalent exclusion in the Member’s primary war risks P&I policy. The terms and conditions on which this supplementary cover can be made available will depend on the extent to which the other clubs in the International Group are willing to pool these liabilities, since commercial reinsurance is not readily available for this risk which is the subject of a general exclusion in the market. It is therefore anticipated that only limited cover, not exceeding US$20 million each ship, each accident or occurrence, will be made available for this risk. A supplementary resolution of the Directors detailing the terms and conditions on which this supplementary cover will be provided by the Association will be circulated to the Members as soon as the scope of the cover has been determined.

Yours faithfully

THOMAS MILLER (BERMUDA) LTD