Recent development of legal issue in Marine Insurance

The 2002 Protocol to the Athens Convention was finalised by the International Maritime Organization last year and will come into force in mid-2008. The Protocol was on the following basis in respect of terrorism: (1) The insurance cover to be certified (and shipowner liability) could be limited to US$500million. (2) It would be acceptable for certification of terrorism and non-terrorism insurances to be given by different underwriters or guarantors. (3) Insurance against ‘excluded’ risks would not be required.

Under this Athens Protocol, shipowners would be obliged to obtain a “blue card” showing that they had appropriate risk cover. Thus, Athens Convention produced a formula to solve the problem of uninsurable risk in the event of a catastrophic event resulting from terrorism. There will be two separate insurance covers: one cover to be provided by P&I clubs in respect of the traditional risks relating to injury and death of passengers not caused by terrorism, another separate cover to be provided specifically for terrorism risks.

It is expected that P&I Clubs will be in a position to issue certificates (“Blue card”) for non- terrorism risks on the basis of US$360,000 per passengers. Market insurers will provide a separate “Blue Card” to cover terrorism risks on the basis of US$360,000 per passenger to a maximum of US$500 million per ship, per incident. Under the protocol, Marsh, the leading broking group prominent in marine and terrorist risk advice, will establish a facility certifying cover a UD$500 million for terrorist risk, but excluding biological and nuclear risks.

However, other conventions may not readily be amended so as to permit a similar solution. In order to due with the shortfalls of terrorism coverage in shipping, the International group of P&I clubs may establish a separate sub-club which is specialized in the terrorism coverage. Only the shipowners who used to purchase terrorism insurance join this ‘terrorism club’. The shipowners will be required to pay a higher premium (call) as member fee.

This club is just like the P&I clubs, which the shipowners grouped together to insure each other terrorism risk on a mutual non-profit making basis, for their third-party liabilities. Government could be liable for part of the losses caused by terrorism. It is because government should maintain security in the county. It there is terrorist attack, it is the government neglect to protect the citizens and their capitals. For instance, if there is a negligence on checking a container with weapons, so that the container ship exploded at commencement.

Then, part the losses might be cover by government. In addition, an aggressive policy made by the government might also caused terrorist attack. So, government might bare 10% of a terrorism loss if the loss is higher than a specific amount of claims, eg. US$2 billion. Marine Terrorism Insurance, which may cause a serious loss of capacity in the insurance market, is being scared in the market. It is difficult for the brokers the find the terrorism coverage for the shipowners.

The implementation of the Athens Convention in mid-2008, will require the shipowners to buy a compulsory insurance so as to obtain a ‘blue card’, otherwise the ship will not allow to trade. As a result, shipowners are concerning the shortfalls in the terrorism coverage might greatly affect their operation. As the losses claim of a marine terrorism insurance must be great, an estimated figure shows that the total loss of a cruise ship with all hands at US$3 billion.

Shipowners must buy a terrorism coverage to limit their liabilities and to guarantee the security for the passengers and customers, so compulsory insurance of terrorism is necessary. Athens Convention is producing a solution to solve the shortfalls. Their formula is to separate a marine insurance policy into two parts, terrorism and non-terrorism, so that P&I clubs can cover part of the risk which is not cause by terrorism. However, there are problems for those companies covering the terrorism risk, as some of the risks are still uninsurable.

It indicates that those insurance companies are still unwilling to provide terrorism coverage. In long term, the International Maritime Organization and the other Conventions should find another solution to solve the problem. We recommend the P&I clubs to establish an separated international mutual pool for the shipowners to join. The government should also help to maintain a peace and safety environment for the marine trade. If necessary, they could be a insurer for the terrorism coverage in the future. Then, the problem of the shortfalls in terrorism coverage could be solved.

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