Circular 9/04: War Risks P&I Bio-Chem Cover and US Terrorism Risk Insurance Act 2002

Action:

March, 2004

TO THE MEMBERS

Ref: 9/04

Dear Sirs

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

At their meeting on 26th January 2004, the Directors decided that, if possible, the Association should provide supplementary cover to Members for P&I liabilities excluded from Members’ War Risks P&I cover by virtue of Bio-Chem exclusions (see Circular Ref 4/04).

Most War Risk Hull and P&I policies issued since February 2003 include a Bio-Chem exclusion and will continue to do so for the foreseeable future. The 2004 War Risks P&I cover provided to Members pursuant to the Directors’ Resolution of 26th January 2004 for US$400 million in excess of an entered vessel's proper hull value also contains a Bio-Chem exclusion with the result that most, if not all, Members have no cover for War P&I risks which are caused either directly or indirectly by a chemical, biological, bio-chemical, or electro-magnetic weapon, or by the use of any computer or computer system as a means for inflicting harm.

The International Group Clubs have agreed to pool “Bio-Chem claims” but only in respect of crew risks and of legal costs relating to all P&I liabilities that are otherwise excluded. The Association will retain the first US$5 million, with the US$15 million excess over US$5 million being pooled amongst the participants in the usual way.

The detailed terms and conditions of the cover are set out in the attached Directors’ Supplementary Resolution of 15th March 2004. The principal provisions are that:

(1) Cover will be from the ground-up (in excess of a Member's usual deductible), but limited to US$20 million any one event or occurrence (or series of occurrences arising from the same event) each vessel.

(2) The limit of cover (US$20 million) will apply to all interests for each vessel in aggregate regardless of the number of interests and regardless of whether or not they are entered in different P&I Clubs (e.g. Owners, charterers and sub-charterers).

(3) To avoid excessive aggregation of risk, cover will have a cancellation provision (24 hours notice) and areas of particular sensitivity may also be the subject of geographical exclusions (e.g. the area around Athens at the time of the Olympics).

(4) No additional premium will be charged for the cover.

TRIA Notices of Coverage

A portion of this cover and a portion of the War Risks P&I cover afforded to Members pursuant to the Directors’ Resolution of 26th January 2004 are provided in accordance with the requirements of the U.S. Terrorism Risk Insurance Act of 2002 (“the Act”) and give coverage for losses arising out of “acts of terrorism,” as defined in Section 102(1) of the Act. Cover for losses caused by certified “acts of terrorism” is partially reimbursed by the United States under a formula established by Federal Law. Under the formula, the United States pays 90% of covered terrorism losses exceeding the statutory established deductible paid by the insurance company providing the cover. Although no additional premium is charged for coverage for "acts of terrorism", 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.

Yours faithfully

THOMAS MILLER (BERMUDA) LTD