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


  • War Risks P&I cover for 2004 policy year
  • Limit remains at US$400 million

  • Excess point remains "proper value" of ship

  • Recommendation to review ship values for insurance purposes

  • "Bio-chem" exclusion remains as for 2003 policy year

  • Club seeking to provide US$20 million supplementary cover for "bio-chem" risks

  • Terms of this cover to be advised soon


Dear Sirs


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



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, the US Terrorism Risk Insurance Act of 2002 (Public Law 107-267) ("the Act" or "TRIA"), which was enacted on 26th November 2002, 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, this Association, meeting the definition of "insurer", is required to make available coverage for "acts of terrorism" as defined in TRIA and is entitled under the TRIA program to an indemnification of 90% of losses resulting from certified acts of terrorism in excess of the insurer's deductible; 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 but 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 to provide the Special War Risks P&I cover including cover for terrorism risks at the same level as for the current Policy Year and that the estimated cost for TRIA-defined coverage remains 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, 2004 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 ths special cover shall be the lesser of

US$ 400 million each ship, any one accident or occurrence or series thereof arising from any one event, or


a. such limit as may be applicable to the claim under the Member's individual terms and conditions of entry, or

b. US$50 million each ship any one event in respect of vessels employed as accommodation ships in and around Athens during the period of the Olympic Games and associated sporting events,



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 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 or US$50 million, whichever shall apply, 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, or of US$50 million whichever shall apply, 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 Computer Virus 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:


a. 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;

b. 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."


Staff Author