The Covid-19 pandemic continues to dominate the headlines around the world. Its financial impact on the shipping industry and on P&I has been significant. In 2021, the UK Club’s daily incurred amount for Covid-19 related claims was $36,900, which is approximately $1.1m per month. This represents about 6% of the Club’s annual premium.
This article discusses the financial impact of Covid-19 from the UK Club’s perspective and reconfirms what is covered under the illness, quarantine and diversion rules following an outbreak of Covid-19 on board an entered ship. We also discuss some of the challenges Members and the Club have faced as a result of Covid-19 during the past two years and try to predict developments over the coming months as countries learn to live with Covid-19.
The UK Club’s Covid-19 claims experience
In both the 2020 and 2021 policy years, the Club has incurred nearly $15 million in claims arising from outbreaks of Covid-19 on cargo ships. The average cost of these claims is approximately $70,000. If there are no complications, the costs of each case can be relatively contained, and as experience of the pandemic grows, many ports will allow infected crew members to be disembarked and ultimately repatriated. However, exceptions can occur, and in several cases the costs have exceeded $250,000. Although there are some promising developments with vaccines, there is no immediate end to these claims in sight.
Covid-19 related crew illness and quarantine claims
Crew illness and quarantine claims account for a significant proportion of the claims that make up the Club’s Covid-19 record, both in terms of number and quantum.
Liabilities in respect of crew illness are covered under Rule 2 Section 3. Cover is available for cases requiring medical disembarkation, hospitalisation, medical care, maintenance ashore and repatriation and substitute expenses for crewmembers infected with Covid-19 as with any other illness, subject to the terms of the crewmember’s contract of employment. This includes liabilities to crew who are infected ashore while in the service of the ship, while on their way to join the ship, or while on their way home following completion of their contract.
If a crewmember on board an entered ship tests positive for Covid-19 following a PCR swab test, then the Club considers that to have triggered cover under the Club’s illness and quarantine rules, even if the crewmember concerned is asymptomatic. In such circumstances, the reasonable costs of testing for Covid-19 are covered. However, it may be the case that the crewmember does not need to be repatriated but can self-isolate on the ship, provided of course that safe manning levels are maintained.
Cover under the Club’s quarantine rule - Rule 2 Section 16
Since the start of the pandemic, it is perhaps not surprising that the Club has seen a significant increase in claims under the quarantine rule.
Rule 2 Section 16 provides cover for:
“Additional expenses necessarily and solely incurred by the Owner of an entered ship as a direct consequence of an outbreak of infectious disease on that ship, including quarantine and disinfection expenses and the net loss to the Owner (over and above such expenses as would have been incurred but for the outbreak) in respect of the cost of fuel, insurance, wages, stores, provisions, and port charges and cargo handling/loading/discharging.”
It is important to note that in order for cover to be triggered under the Club’s quarantine rule, there must be an actual outbreak of an infectious disease on board the entered ship.
There are essentially two heads of cover provided by the rule. The first is those additional expenses directly resulting from the outbreak of the disease. These will usually be quarantine and disinfection costs. Those costs are not necessarily limited to the ship, and the Club has been involved in cases where members have incurred liabilities for quarantine costs relating to stevedores and pilots who have been exposed to the Covid virus on a ship.
The second is the net loss to the Owner in respect of the cost of fuel, insurance, wages, stores, provisions and port charges as a result of the outbreak, over and above expenses that would have been incurred but for the outbreak. It is important to note that only additional operational costs which have been incurred solely because of the outbreak are recoverable, and not costs or expenses which would have been incurred in any event. This follows logically from the words "over and above such expenses as would have been incurred but for the outbreak" in the second part of the rule.
What costs can an Owner expect to recover under the quarantine rule?
The following is a list of the expenses an Owner can typically expect to recover under the quarantine rule as a direct consequence of an outbreak of an infectious disease on board the entered ship:
- any reasonable disinfection expenses
- the costs of additional fuel which the ship has consumed during the quarantine period
- any additional port costs incurred for the ship being placed under quarantine
- any mandatory quarantine costs incurred at the port where the outbreak has occurred
- any additional wages (e.g., overtime) or provisions (e.g., extra supplies for the sick crew) which have been incurred as a direct consequence of the outbreak
Expenses incurred during a quarantine period which typically fall outside the scope of P&I cover are:
- any losses arising from the ship being placed off-hire
- wages paid to the current crew, as they are paid irrespective of the ship’s movements and therefore do not amount to an additional expense
- the routine daily running costs of the ship
Cover under the Club’s diversion rule - Rule 2 Section 7
Depending on the nature of the illness, it may be necessary for a ship to deviate from its intended voyage to obtain appropriate medical care for a sick crewmember on board. The net costs of the diversion in respect of fuel, insurance, wages, stores, provisions, and port charges are covered under the diversion rule to the extent that such costs exceed what would have been incurred regardless of the diversion.
As to the costs which are recoverable, a similar approach is taken to that under the quarantine rule, in that the costs that are recoverable are the additional expenses over and above those that would have been incurred but for the diversion. Cover is not available for extra costs incurred because of the diversion in respect of items other than those listed in the rule, e.g., extra hire or freight, or for other loss arising as a result of delay caused by the diversion, such as the loss of a subsequent fixture.
Additional insurance costs may be incurred if the diversion requires the ship to move into areas which require the payment of additional premium, such as that required by war risk underwriters when the ship sails in certain war risk areas. The cost of arranging any necessary additional insurance will be covered. Cover is not available, however, for a claim for a proportionate return of premium paid during the time of diversion.
The extra cost of wages does not include wages which are paid to crew for the extra time taken by the ship to complete its original voyage as a result of the diversion, but would include the payment of overtime to crew who take part in searches for missing persons at sea, as well as additional wages that are payable to the crew if the ship enters a war risk zone during the course of the diversion.
Diversions to arrange a crew change
When there has been an outbreak of Covid-19 on board a ship and a percentage of the crew are infected, it has become increasingly common for Owners to deviate to arrange a full crew change, replacing all non-sick crew as well as those who are sick. If this situation arises, the Managers should be advised prior to the deviation.
The costs arising from such a deviation, such as additional fuel or port charges, do not fall within the scope of Club cover. Diversion expenses under Rule 2 Section 7 (as discussed above) are only recoverable from the Club where the expenses are incurred solely for the purpose of securing medical treatment for a sick or injured crewmember.
Where a ship deviates to another port to arrange a crew change, only the costs of those who have tested positive for Covid-19, and their direct replacements, will be covered by the Club under Rule 2 Section 3 – illness of seamen. Any expenses incurred in connection with non-sick seafarers who are replaced, whether as a result of an outbreak on board or not, do not fall within P&I cover.
In a Covid-19 outbreak situation, it is not uncommon for disinfection and quarantine costs to be incurred in addition to costs relating to the seafarers who have contracted the virus. As these two types of expense are dealt with under different sections of the Club’s rules, it is important to consider and review the ship’s terms of entry. It is possible that a separate deductible will apply to each head of claim.
The pandemic has presented many difficult challenges for Members and P&I in terms of claims handling and costs. The UK Club has handled many cases where ports have refused or placed significant barriers in the way of routine crew changes, and in arranging medical disembarkation of seafarers who require urgent medical treatment ashore. Inevitably, this has resulted in increased costs but, more importantly, has potentially posed a serious risk to the health and well-being of crew.
The International Group of P&I Clubs has coordinated efforts with several other industry organisations to try to find a solution, with the International Chamber of Shipping leading on the issue from the ship Owners’ side. The industry has sought to provide workable solutions to local governments to help effect crew changes safely and efficiently. The UK Club is a signatory to the Neptune Declaration on Seafarer Wellbeing and Crew Change that defines four main actions to facilitate crew changes and keep global supply chains functioning:
- recognize seafarers as key workers and give them priority access to Covid-19 vaccines
- establish and implement gold standard health protocols based on existing best practice
- increase collaboration between ship operators and charterers to facilitate crew changes
- ensure air connectivity between key maritime hubs for seafarers
The past 24 months have challenged Owners and Clubs as they dealt with an unprecedented global pandemic and responded to unusual situations and claims. Different countries have applied very differing approaches, and this trend is only likely to continue, particularly as vaccine rates vary significantly across the world.
Vaccination, and the willingness of countries to accept a level of Covid-19 infection, will in turn require the Club to adapt their approach to Covid-19 claims, and there will be circumstances where repatriation of, or diversions to land infected crew members may no longer be necessary. This should, accordingly, result in a reduction of these relatively low cost but high-volume claims.
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