Covid-19: Its impact on marine P&I cover – Marsh JLT

Amid the tragic human impact of Covid-19 and governments’ restrictions on travel and commerce, businesses are feeling the economic consequences of the pandemic, reports broker and consultancy Marsh JLT Specialty in an article on the impact of the pandemic on marine P&I cover.

Mark Cracknell, head of P&I, Marsh JLT Specialty, said that Covid-19 had reshaped the marine sector’s risk landscape, and raised questions about shipowners’ P&I coverage and how this might be triggered.

The rules of the International Group (IG) Clubs are very similar, so there should be little difference in the P&I coverage they provide. However, Marsh JLT noted that Covid-19 had highlighted some discrepancies, particularly relating to quarantine.

The broker said that it was not possible to give definitive answers on all aspects of cover, because many claims would be subject to Club boards’ discretion. “This will leave many shipowners in a difficult position, with one Club possibly covering a risk that is rejected by another”, said Marsh JLT.

For the purposes of its commentary, Marsh JLT referenced the rules of UK Club, but it strongly recommended that members check the rules of their specific Club(s) when considering any of the issues referenced.

Because it is classed as an “infectious disease”, Covid-19 was most likely to trigger claims under the following aspects of cover:

  • Liability to persons other than seamen (including passengers).
  • Illness and death of seamen.
  • Repatriation and substitute expenses.
  • Loss of or damage to the effects of seamen and other persons on board.
  • Diversion expenses.
  • Quarantine expenses.
  • Fines.
  • Cargo-related claims.

There might also be claims that give rise to enquiry expenses, “expenses incidental to the operation of ships,” sue and labour costs, and expenses incurred “at the direction of” the Club. Some of these claims would, by their very nature, be entirely discretionary.

Some examples:

Liability to Persons Other Than Seamen:

Liability to pay damages or compensation to persons other than seamen owing to Covid-19 seems most likely to arise in respect of passengers, although cover will also exist where a shipowner is deemed to have a liability to, say, shore workers (such as stevedores), state personnel, and third-party surveyors attending the ship.

Marsh JLT said that passenger risk had received much media coverage and noted that several Clubs were handling significant claims. Liability to passengers covered illness and death claims, and also extended to damages and compensation to passengers on board “as a consequence of a casualty to that ship.”

A casualty is defined in the UK Club rules, inter alia, as “a threat to the life, health or safety of passengers in general.”

Marsh JLT said that a Covid-19 outbreak clearly fell under that definition and would therefore, in the broker’s opinion, fall under Club cover. Cover could also include “the cost of forwarding passengers to destination or return to port of embarkation” and “maintenance of passengers ashore.”

Illness and Death of Seamen

Liability to seamen again has illness or death triggers, and would likely be defined under a contract of employment. Liability could additionally arise in tort.

Cover for seamen should also extend to repatriation and substitution expenses arising from a statutory obligation, to which Covid-19 could clearly give rise, Marsh JLT said.

Claims for mental injury might also arise as a result of an outbreak of Covid-19 — especially after an extended period of quarantine (this applies equally to passengers, seamen, and “others”).

Loss of or Damage to the Effects of Seamen and Other Persons on Board

Liability to pay compensation for the loss or damage to the “effects of seamen or others” could result from quarantine and disinfection — although these costs may equally be recoverable under the quarantine rule itself.

Diversion Expenses

Diversion expenses (like quarantine expenses) do not require a liability on the part of the shipowner to trigger cover. These are covered where they represent the net loss to the member above what would otherwise have been incurred in respect of fuel, insurance, wages, and so on, and where they are incurred “solely for the purpose of securing treatment for an injured or sick person…” Some vessels (mainly passenger) appear to have been diverted for this purpose, but it could equally happen with cargo vessels.

Quarantine Expenses

How cover for quarantine expenses would be triggered varied between the Clubs, with the UK Club covering “additional expenses incurred…as a direct consequence of an outbreak of infectious disease…including quarantine and disinfection expenses,” without any requirement for a formal quarantine order.

Other Clubs’ rules, however, do require a formal quarantine order.

In practice, said Marsh JLT, this should not be a problem, as it seemed unlikely that a ship would be quarantined due to Covid-19 without the close attention of a government authority. As mentioned above, the disposal of crew or passenger effects could potentially be a recoverable cost under the quarantine rule.

Fines

Shipowners could be subject to fines because of Covid-19 — for example, for breaches of the Maritime Labour Convention regulations on crew changes, or allegations of misdeclarations about the true health of all the crew/passengers on board. Except in a limited number of specified circumstances, P&I cover for fines was discretionary, “so careful examination of the rules and circumstances will be necessary in each case”, said the broker.

For most heads of claim, P&I cover required that the shipowner had a legal liability to pay a claim — quarantine being an exception.

All Clubs would therefore expect shipowners to preserve all potential defences, both as regards liability and quantum, and keep accurate records of expenses incurred and their decision-making processes.

In respect of illness and death claims, the Clubs have a wealth of experience from which to assess whether it is best to defend or settle a claim and, if settling, how much to pay. It was therefore important always to follow their advice, the broker said.

Cargo-related claims

Covid-19 was causing severe imbalances in world trade. Shipowners (especially in the liner trades) were increasingly facing port congestion, requiring containerized cargos to be offloaded short of their ultimately intended port of delivery, and stored, pending delivery at a later date. Although this was a normal feature of the container trades, much-longer-than-usual delays were anticipated, making it more difficult to assess what constituted “reasonable dispatch”.

Marsh JLT said that this might result in a technical deviation under the contract of carriage, the potential loss of Hague-Visby (or similar) defences, and the risk of a breach of Club cover.

With banks physically closed in more than a third of the world, there was also the potential problem of Bills of Lading not being processed by the banking system, resulting in pressure on shipowners to release cargo without production of the Bill of Lading. Any resultant claims as a result of this would generally only be covered by the Clubs at the discretion of their boards of directors.

Finally, the broker said that, while it was inevitable that some of the extra expenditure falling on shipowners was simply the enhanced cost of operating vessels, a considerable amount of additional expense would be incurred in order to mitigate claims that would otherwise fall under P&I Club cover.

“In these unprecedented times, we believe strongly it is incumbent on the P&I Clubs to do all they can to exercise their discretion in favour of their members”, said Marsh JLT.

The broker noted that the Group Clubs had built a reputation for providing quick and clear advice and said that, therefore, in all the situations described above, the Clubs should be consulted as to the best course of action and involved as much as possible in the decision-making process. This was especially true where potential claims might be at the board’s discretion. “Even if a Club cannot say what will and what will not be covered, it can advise on the best reasonable course of action and highlight any actions that might risk prejudicing a claim.”

https://www.marsh.com/uk/insights/research/covid-19-impact-on-marine-protection-indemnity-coverage.html