Shipowners’ Club changes terms on towage risks in Latin America

Shipowners’ Club, which focuses on smaller-sized vessels than the other P&I Clubs, has noted that during the past 10 years it has experienced a major deterioration in the loss record for tugs that perform third-party towage operating in the Latin America region.

It said that it was clear that premium levels were inadequate for the level of risk to which Club cover could be expected to respond. The countries most affected were Argentina, Brazil, Chile, Peru, Paraguay and Uruguay.

Shipowners’ further noted that in most of these jurisdictions the downside risk was compounded by the fact that limitation of liability was not available.

In addition to low- and medium-value claims the Club said that it had experienced a number of high-value claims (overall cost is between $500,000 and $10m). This was particularly the case for vessels performing berthing and unberthing operations.

Many of these large value claims involved damage to shore-side infrastructure, caused by contact with the towed vessel. The Club noted that it did not experience the same extent of losses in most other parts of the world, because favourable towage conditions were applied in jurisdictions that supported them, resulting in “a significantly more favourable outcome for the tug operator”.

Shipowners’ said that it was apparent that it had a disproportionately high risk in Latin America, and that this could not be addressed purely through higher premiums. As such this risk could not be shared on a mutual basis.

The Club said that it recognized that it would be difficult for Members to pay substantial increases in premiums. “As a Club, we always seek to find solutions to help Members maintain stability of premiums and reduce their risks of exposure to larger claims. With this in mind the Club, in conjunction with our network of correspondents and lawyers, have investigated how tug operators could better protect themselves.”

Shipowners’ Club has therefore concluded that Members’ interests would be better protected through undertaking third-party towage under contract terms that incorporated English Law and Jurisdiction, in line with industry practice elsewhere in the world, which had over many years provided much certainty in the event of an incident and were acceptable to all International Group P&I Clubs.

As such. when offering renewal terms for the 2018/19 policy year to operators of tugs operating in Latin America, all quotations will contain a clause specifying that towage claims relating to damage to shore-side infrastructure caused by the towed vessel or object will only be covered where the Member has contracted on either UK Standard Towage Conditions or BIMCO Towcon/Towhire and incorporating English law and jurisdiction.

Extended towage cover

In addition to the towage cover provided under the Rules many of the Club’s Members purchased ‘Extended Towage’ cover. This cover was primarily intended to respond to claims brought against a Member as the operator of the tug for loss of, or damage to, or wreck removal of the towed object or vessel and any cargo thereon, in cases where a Member had not contracted on one of the approved contract forms set out in the Rules that achieved a fair allocation of risk between the tug and the tow.

Shipowners’ said that the objective of the new clause wording was to assist Members in improving in the levels of risks they faced, and to address the imbalance between claims and premiums for the region. Therefore, the Club did not intend to cover the risks taken on by Members operating without using the contract forms noted in the clause (and incorporating English law and jurisdiction) by offering an extension to standard P&I cover.

The Club therefore will not be offering Extended Towage cover to respond to the claims Members may face if they chose to undertake third-party towage without incorporating the contract forms (and law and jurisdiction requirement) set out in the clause wording.

However, the Club said that it would continue to provide Extended Towage cover on a case-by-case basis for individual short term risks (such as specific towage manoeuvres) where there was a liability exposure for loss of or damage to or wreck removal of the towed object or cargo thereon.

Shipowners’ said it believed that this approach should reduce the risks Members face and help the Club to continue supporting its valued Members in the region in a way that fits its mutual ethos for all Members around the world.