Circular 2/03: War Risks P&I Cover and US Terrorism Risk Insurance Act 2002
TO ALL MEMBERS
WAR RISKS P&I COVER AND US TERRORISM RISK INSURANCE ACT 2002
As indicated in our earlier circular ([<A HREF="ClubCircular0103">ref. 1/03</A>]), the Directors considered at their meeting on 27th January 2003, 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 the extent to which this can include cover arising from acts of terrorism, as defined in the Terrorism Risk Insurance Act 2002 (the Act).
Following the receipt of US legal advice and reinsurance quotations, the Directors have resolved that cover can be provided to Members under the proviso to Rule 5E for the policy year commencing on 20th February 2003, and that this will include cover arising from acts of terrorism as defined in the Act.
The cover will be provided in accordance with the terms of the resolution of the Directors of 27th January 2003 which is attached. Members will note that the limit has increased to US$400 million but, as before 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 Directors have retained a discretion to pay claims which would fall within the excess. The limit applies on an each ship any one event basis. 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.
Thomas Miller (Bermuda) Ltd.
WAR RISKS P&I COVER
SPECIAL COVER UNDER PROVISO TO RULE 5E
TERMS OF DIRECTORS' RESOLUTION of 27th JANUARY, 2003
WHEREAS, in accordance with Rule 5E of the Association's Rules coverage for certain war and similar risks, including acts of terrorism, is excluded under the general mutual indemnity undertaking. Special cover is nevertheless provided for these same certain risks under the proviso to Rule 5E and in accordance with each individual Owner's terms of entry;
WHEREAS, on 26th November 2002 the Terrorism Risk Insurance Act of 2002 (Public Law 107-267) ("the Act" or "TRIA") was signed into law by U.S. President George W. Bush; and
WHEREAS, the Act provides for a three-year program of Federal quota share indemnification to participating insurers for insured losses resulting from certain acts of terrorism occurring through year-end 2005; and
WHEREAS, entities meeting the definition of "insurer" in the Act are required to participate in the program; and
WHEREAS, this Association comes within the definition of "insurer" because of its approval by the U.S. Maritime Administration ("MARAD") to write P&I coverage on MARAD program vessels and meeting other relevant criteria; and
WHEREAS, the Act requires this Association to make available in all of its "commercial property and casualty policies" coverage for "acts of terrorism" as defined; and
WHEREAS, the term "act of terrorism" is defined as an act certified by the US Treasury Secretary after a finding that the act: (1) was committed on behalf of any foreign (i.e., non-US) person or interest; (2) was a violent act dangerous to human life, property, or infrastructure that resulted in damage within the United States or to a US air carrier or US-flag vessel wherever located; (3) is part of an effort to coerce the civilian population of the US or to influence the policy or affect the conduct of the US Government by coercion; and (4) resulted in damages exceeding US $5 million; and
WHEREAS, under the TRIA program the US Government will indemnify insurers for 90% of losses resulting from certified acts of terrorism in excess of an insurer deductible; and
WHEREAS, insurers are required to notify policyholders of the existence of the TRIA program and the premium to be charged for coverage for such acts of terrorism; and
WHEREAS, the Directors on behalf of the Association's membership have considered whether coverage of TRIA-defined acts of terrorism could be removed from the special cover and made subject to the general mutual indemnity undertaking; and
WHEREAS, the Directors have concluded that acts of terrorism, as the other perils subject to the special cover, remain unsuitable for a general mutual indemnity undertaking; and
WHEREAS, no Owner responded affirmatively to the initial offer made by this Association to provide cover of TRIA-defined acts of terrorism on the basis of additional premium rates designed to fund the TRIA deductible and retention without mutual indemnity or the reinsurance available to the special cover; and
WHEREAS, the Directors have determined, based on new reinsurance arrangements, that the Special War Risks P&I cover including cover for terrorism risks can be provided at twice the limit provided in the current Policy Year and that the estimated cost for TRIA-defined coverage is US cents 0.25 per entered ton.
IT IS NOW THEREFORE RESOLVED, that in accordance with the proviso to Rule 5E of the Association's Rules, special cover be provided to the Members of the Association for the year commencing at 12 noon GMT on 20th February, 2003 against risks, including TRIA-defined acts of terrorism, which are excluded from cover solely by virtue of the provisions of Rule 5E. Unless otherwise agreed in writing, such cover shall be subject to all other terms and conditions of an Owner's entry in the Association and shall be provided upon and subject to the following terms and conditions.
1. The risks covered shall be those set out in Rule 2 of the Association's Rules in accordance with each individual Owner's terms of entry as set out in the relevant Certificate of Entry and any Endorsement thereto.
2. This special cover shall be subject to an excess of either:
a. the "proper value" of the entered ship as defined in Rule 5D (which, for the purpose of this resolution only, shall be deemed not to exceed US $100 million), or
b. the amount recoverable in respect of the claim under any other policy of insurance, whether of war risks or otherwise,
whichever shall be the greater, save that such excess shall not apply where the entry of the ship is solely in the name of or on behalf a charterer other than a charterer by demise or bareboat charterer, provided that the Directors may authorise the payment, in whole or in part, of any claim or part of a claim which falls within such excess, if in their discretion and without having to give any reasons for their decision they decide that the Owner should recover from the Association.
3. The limit applying to this special cover shall be US $400 million each ship, any one event or such limit as may be applicable to the claim under the Member's individual terms and conditions of entry, whichever shall be the lesser,
PROVIDED ALWAYS that
where a ship entered in the Association by or on behalf of any person is also separately insured in the name of or on behalf of the same or any other person by the Association or by any other insurer which is a party to the Pooling Agreement and/or the Group Excess Reinsurance Policies in respect of the losses, liabilities or the costs and expenses incidental thereto which are covered pursuant to the terms of this Resolution and/or the equivalent policy provisions of such other insurer, the aggregate recovery in respect of all such losses, liabilities and the costs and expenses incidental thereto shall not exceed US$400 million each ship, any one event, and the liability of the Association to each such person insured by the Association shall be limited to such proportion of US$400 million as the maximum claim otherwise recoverable by such person from the Association bears to the aggregate of all such claims otherwise recoverable from the Association and all such insurers, or the limit applicable to the claim under that person's individual terms and conditions of entry if less.
4. All perils included in the special cover shall be subject to the following: Chemical, Bio-chemical, Electromagnetic Weapons and Cyber Attack Clause:
"This clause shall be paramount and shall override anything contained in this insurance inconsistent therewith:
1. In no case shall this insurance cover loss damage liability or expense directly or indirectly caused by or contributed to by or arising from
1.1 any chemical, bio-chemical or electromagnetic weapon.
1.2 the use or operation, as a means for inflicting harm, of any computer virus".
5. At any time or times before, or at the commencement of, or during the currency of any Policy Year of the Association, the Directors may in their discretion determine that any ports, places, countries, zones or areas (whether of land or sea) be excluded from the insurance provided by this special cover. Save as otherwise provided by the Directors this special cover shall cease in respect of such ports, places, countries, zones or areas at midnight on the seventh day following the issue to the Members of notice of such determination in accordance with Rule 41 of the Association's Rules. Unless and to the extent that the Directors in their discretion otherwise decide there shall be no recovery from the Association under this special cover in respect of any claim howsoever arising out of any event, accident or occurrence within the said area after such date.
6. Whether or not notice has been given under clause (5) above, this special cover shall terminate automatically:
i. upon the outbreak of war (whether there be a declaration of war or not) between any of the following countries: United Kingdom, United States of America, France, the Russian Federation, the People's Republic of China and this insurance excludes loss, damage, liability or expense arising from such outbreak of war;
ii. in respect of any ship, in connection with which cover is granted hereunder, in the event of such ship being requisitioned either for title or use and this insurance excludes loss, damage, liability or expense arising from such requisition.
7. Notwithstanding any other term or condition of this insurance, the Directors may in their discretion cancel this special cover giving 7 days' notice to the Members (such cancellation becoming effective on the expiry of 7 days from midnight of the day on which notice of cancellation is issued by the Association) and the Directors may at any time after the issue of notice of such cancellation resolve to reinstate special cover pursuant to the proviso to Rule 5E on such terms and conditions and subject to such limit as the Directors in their discretion may determine.