P&I Clubs invariably provide insurance cover for infectious diseases. COVID-19 related cover encompasses crew illness and deviation to ensure treatment, whereas the extent of quarantine cover varies between the individual rules.
This article is the third in our series dedicated to the impact of the ongoing COVID-19 pandemic on the wider maritime sector. It follows our recent article on the impact of the pandemic on marine insurance, and explores the extent to which Protection and Indemnity Clubs (P&I Clubs) provide cover.
P&I Clubs are associations of shipowners and charterers, which are owned and controlled by their members, and are designed to operate on a non-profit mutual basis. They provide protection and indemnity insurance against third party liabilities and expenses arising out of the use and operation of ships, which include cargo loss, cargo damage, crew illness/injury/loss of life, collisions, wreck removal, and environmental pollution. Members’ contributions aim to cover incoming claims, reinsurance, and administrative costs. Thirteen[1] of the world’s P&I clubs, which together control 90% of the global market, come under the ambits of an unincorporated association known as the International Group (IG). The IG (i) operates ‘pooling’ and reinsurance arrangements for claims in excess of $10 million (ii) provides a forum for discussion between the Clubs and (iii) engages with external stakeholders such as Governments and maritime organisations/authorities. Although the scope of cover offered by the 13 Clubs is broadly similar, their individual rules are not identical. Therefore, one has to review similarities and differences in their respective wordings vis-à-vis infectious diseases, to provide accurate advice to shipowners/charterers.
COVID-related P&I Claims
There is wide potential for COVD-19 related claims on: contracts of affreightment, charterparties, and bills of lading; ship delay; cargo damage; and/or personal injury/loss of life. Claims may be brought by owners, charterers, and third parties, respectively.
Owners may claim for breach of safe port warranty; unpaid hire; demurrage/detention; crew illness/death; third party claims; losses deriving from a vessel acquiring bunkers/supplies outside an infected area; losses deriving from port entry denial/blacklisting of vessels owing to previous calls to infected ports; and disinfection and quarantine costs.
Charterers may claim against owners’ claims for unsafe port; for overpaid hire; off-hire during quarantine/detention; third party claims; force majeure/frustration claims to avoid contractual obligations; and demurrage/laytime exclusions.
Finally, third parties may claim for late delivery/non-delivery of cargo; damage to cargo resulting from delays e.g. perishable goods; and unrelated claims of owners/charterers disseminating COVID-19.
Crew Illness and Ship Deviation
The individual P&I Clubs will provide cover where a seafarer contracts COVID-19, in much the same way as for any other disease, including evacuation, hospitalisation, medical care, maintenance, and repatriation costs. What appears paramount is not whether the seafarer contracted COVID-19 on board the vessel, but rather whether they contracted the disease during a period covered under their employment contract and/or applicable law. This may include time ashore while in service of the vessel, travel towards joining the vessel, and/or travel after leaving the vessel on their return home. Costs associated with temporary contract extensions and/or doubling-up of crew owing to difficulties in repatriating seafarers are broadly not covered. Moreover, where non-crew such as port agents, surveyors, and stevedores contract COVID-19 while performing a function on board, cover is only provided under the applicable law following breach of a duty of care (for instance due to failing to take adequate precautionary measures), or under the terms of any third-party contract, by the employer/shoreside insurer of the personnel involved (for example, see Gard Rule 30).
Similarly, the P&I Clubs will cover ship deviation expenses which extend to the usual recoverable costs, such as bunkers, insurance, stores, wages, port charges and provisions, where the ship has to deviate owing to a seafarer contracting the disease (or in certain cases owing to a seafarer being suspected of having contracted the disease), provided that the deviation is in order to obtain medical treatment (for example, see UK P&I Rule 2 Section 7). These costs are only covered where they represent a net loss over and above expenses that would have been incurred without the deviation (see American P&I Class I Rule 2 Section 12), and may be subject to the diversion being reasonable (see Skuld Rule 11.1).
Quarantine
The P&I Clubs commonly feature a dedicated quarantine rule (unsurprising perhaps, given the very term ‘quarantine’ derives from Italian ‘quaranta’ and refers to the 40 days ships would wait outside Venice to shield against infectious disease spread). The various rules broadly agree there must be an infectious disease, which results in the loss. That is however where similarities end. Some rules specifically require the infectious disease be present on board, such as Gard’s Rule 48, which refers to ‘costs and expenses … on account of infectious diseases on board’, and North’s Rule 19(9), which refers to ‘Additional expenses … as a direct consequence of an outbreak of infectious disease on an Entered Ship’. By contrast, SOP’s Rule 13 does not feature an ‘on board’ requirement and simply refers to ‘Additional expenses … as a direct consequence of an outbreak of infectious disease’, and therefore may potentially cover the general outbreak of a pandemic, such as COVID-19. Wordings that feature the ‘on board’ requirement are unlikely to cover quarantine expenses resulting from the crew’s nationality or previous port visits. One should also scrutinise the different rules in terms of causation, contrasting Gard’s ‘on account of’ to North’s and SOP’s ‘as a direct consequence’ wordings.
In terms of what is potentially covered, the individual rules also show some variety. Gard’s Rule 48 generally refers to ‘costs and expenses, incurred by the Member in connection with quarantine orders or disinfection of the Ship or Crew’, while Steamship’s Rule 25 xii features three subparagraphs (a-c), and specifically mentions disinfection under quarantine or by public health order, quarantine fuel, loading/discharging cargo and victualling of passengers and crew, fuel consumed and/or towage to and from a special quarantine berth, and ship deviation by reason of quarantine and health order. As with deviation, costs are covered to the extent they represent a net loss, as for example under SPO’s Rule 13 which refers to ‘ the net loss to the Member (over and above such expenses as would have been incurred but for the outbreak ) in respect of fuel, insurance, wages, stores, provisions and port charges’.
Summary
P&I Club rules invariably provide cover for infectious diseases such as COVID-19. A comparison between the individual rules of P&I Clubs that fall under the ambits of the IG reveal they extend cover to evacuation, hospitalisation, medical care, maintenance, and repatriation, where a crew member contracts COVID-19. Moreover, any net loss resulting from expenses incurred when a ship deviates to ensure medical treatment of an infected seafarer is also covered. In respect of quarantine, net losses are broadly covered, though shipowners and charterers should pay attention to whether their P&I rules list specific expenses, and feature an ‘on board’ infectious disease requirement, to determine the extent of that cover.
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[1] American, Britannia, Gard, JPIA, London, North, SOP, Skuld, Standard, Steamship, Swedish, UK, and West.