Circular 7/95: Limit Of Cover


Dear Sirs


At their meeting on 13 July 1995, the Board of Directors reviewed progress being made towards the Association's aim of limiting the exposure of Members to catastrophe calls. The Board noted developments in relation to the compromise proposed by the Group's Managers, a compromise which the Board had supported at its April meeting as previously reported to Members. The arrangements of the compromise were set out in the Chairman's letter to Members dated 19 June 1995; in essence, catastrophe calls on an owner would be limited to 20 per cent of that owner's Limitation Fund, while cover provided to each owner by the Association would be limited to such amount as can reasonably be collected by the Association taking into account the limit of each Member to contribute.

The Board took particular note of the objections of the London P&I Club, and also concerns about the proposed compromise expressed by the Greek and Swedish shipowners' associations, to the effect that the proposed limit was set at such a high level as to be unrealistic as an effective limit.

The Board shares these concerns, and remains committed to a more practical solution in the longer term. The Board also welcomed the growing recognition among shipowners and shipowner organisations that the exposure of Members to such high levels of potential liability is neither desirable nor sustainable. Such concerns were at the centre of the Board's decision in 1992 to seek to persuade all International Group Clubs that a limit on the cover was now an urgent priority.

The Board recognised, however, that there is a substantial number of Clubs strongly convinced of the importance of maintaining unlimited cover. The Board values the support the Association receives from a strong International Group. Not only do the pooling arrangements of the Group enable the Association to continue each year to buy reinsurance at substantially less cost than would otherwise be the case, but also the Group provides shipowners worldwide with a unique service based on the combined resources of its member clubs and their managers. Within this Group, and with such strongly held but opposing views held by the various Clubs, there can be no doubt that a compromise is necessary if the principle of a limit is to be accepted in the short term.

The Board remains of the view that the proposed compromise, reached with considerable difficulty after some two and a half years of work, represents the best possible opportunity to establish the principle of limit while maintaining a strong International Group. The alternative of rejecting the compromise would, in the view of the Board, cause the Group to split or otherwise require the Association to abandon its objective of limiting the exposure of Members by February 1996 contrary to the interests of the Members. The Board hopes that all Clubs and Members will be able to recognise the need to support the compromise in order to establish the principle of a limit without undermining the pooling operations of the Group to the detriment of all.

Thos R Miller & Son (Bermuda)

Staff Author