Ship Management : Tuesday 3rd October

09.40 - 10.10 Herry Lawford - Thomas Miller P & I Ltd

Implications of Splitting Crew and Owner's P&I Insurance

I have been asked to talk to you today about some of the implications of splitting crew and owner's P&I insurance. It may be a surprise to some of you that crew insurance may be split from an owner's or manager's P&I cover as in the vast majority of cases it is not. What is known as "crew insurance" is cover in respect of death, illness, injury and total or partial invalidity which give rise to claims for compensation, wages, medical expenses, repatriation costs and fines. Crew insurance does not include insurance for the acts and neglect of the crew which may be the cause of other types of claim, such as collision. Such claims can only be insured by the owners and managers’ P&I or hull underwriters.

In fact, those of you who employ crew from certain countries - such as Italy, Turkey, France, Germany, Switzerland and Japan - will already know that local employment law provides that their nationals must be insured under their applicable national scheme. In the case of Italy, this is the known as the Cassa Maritima. The Cassa Maritima provides a no fault death and injury cover in respect of Italian crews. However where such national schemes exist, the owner is advised, when excluding crew insurance from his P&I cover, to do so only insofar as insurance is actually provided under the State scheme, and to leave a residual cover with the P&I Club to deal with any gaps. For instance, Cassa Maritima does not provide cover until the crewmember has been repatriated to Italy. Thus the P&I Club would still need to pick up any bills for medical expenses abroad, as well as the costs of repatriation.

This illustrates the first "implication" of splitting crew insurance from P&I cover - the risk that there may be a gap between what is insured either with a stand-alone insurer or under a national scheme and the full worldwide cover that is provided by the Clubs.

The second "implication" involves subrogation. There is nothing to stop the Cassa Maritima, having paid for treatment of an Italian seaman under its scheme from bringing a claim in subrogation against the ship owner. As a matter of practice the Cassa Maritima does not appear to be geared up to pursue such claims, but the possibility certainly exists. Again, this possibility must either be protected by a residual P&I cover or a waiver of subrogation arranged. A waiver of course is not an option when dealing with a national scheme.

Certain ship owners - one well known oil major in particular, have also long excluded crew risks from their P&I placing, putting them instead into a captive or onto the market as an employer's liability risk. There is nothing wrong with this, except that if placing the cover on the market, the owner must still watch out for subrogation claims, or arrange a waiver. It is also fair to say that employer's liability cover has traditionally been an expensive and volatile part of the insurance market, and some insurers will not be geared up to deal with the world wide complications of dealing with crew claims.

Of course, talk of the employment of national crews must seem rather old-fashioned since we all know that the employment of national crews has declined drastically in the last few decades and the vast majority of crew are now drawn from crew supply countries where no such national schemes exist.

Some of these crew managers have in recent times sought to exert greater control over their own crew's insurances than simply placing them on the P&I cover designated by the ship owner. Why do they do this? One well-known crew manager described it as a matter of philosophy rather than of finance. It is certainly true that if a crew manager places his crew insurance separately from the owner's P&I cover (on which the crew manager would normally be co-assured) he does not save much money. The P&I Club will not reduce the owner's insurance premium by a significant amount - and it may hardly be enough to cover the actual cost of placing the crew insurance on a standalone basis.

The real reasons are that the crew manager has only to deal with one insurer for "his" crew risks. He can build up a claims handling relationship with that insurer which will allow him to deal more appropriately and more consistently with their claims, irrespective of which P&I Club the various ships on which his crew sail are entered with. Furthermore the owners of the ship his crew sail on may be relatively unfamiliar with dealing with the claims of the particular nationality of crew supplied by the crew manager.

The crew manager's desire to handle crew claims with his "own" insurer arises also from the greater control that he can have over the handling of individual claims. Some crew managers negotiate special arrangements which allow him significant authority to deal with his own claims up to a certain pre-determined limit without the necessity of reporting to the insurer.

Concurrent with the desire of crew managers to place their own standalone crew insurance, there has naturally arisen a market for this cover. As I have said, the traditional employer's liability markets are usually too expensive and too inflexible at dealing with claims that might arise anywhere in the world to be a viable alternative. Which insurers are used to dealing with crew claims all over the world? The P&I Clubs, of course. Thus over the last few years two or three of the Clubs have developed standalone crew cover which they offer to the large crew managers - usually those crew managers who also place a substantial number of ships with them in any event.

The standalone crew cover provided by the Clubs usually has an overall limit of US$5 million, although cover of US$10 million or more is sometimes provided, and it is on an each and every occurrence basis, never in the aggregate.

While the benefits of taking out standalone crew cover for certain of the big crew managers may be relatively clear (although I do stress that there is probably little financial advantage in doing so) the third "implication" of splitting crew insurance from the owner's P&I insurance needs to be considered. Think about your P&I cover. Much to the irritation of some people, it still contains enormous limits - more than US$4 billion each accident or occurrence for all types of claims except pollution - where the limit is now US$1 billion. A limit of US$4 billion for crew claim sounds ridiculous, but it is certainly the ultimate "sleep easy".

If you buy standalone crew cover, you have to think of an appropriate limit and it is not always evident that it must be a high one. For instance, it is wrong to suppose that a crew manager's exposure for death and injury claims will be limited in any way to the amounts contained in the crew's contracts. To take the standard POEA contract as an example, this provides "the crew manager shall be liable for the full cost of such medical treatment… until the seafarer is declared fit to work or be repatriated".

The effect of this is to place an obligation on the crew manager to cover the costs of medical treatment without any monetary limit at all (until repatriation or until the crewmember is fit to return to work). Those of you who participate in the UK Club's crew fitness project have all heard the story of the US$4 million kidney - a crew member whose kidney transplant in the United States ended up costing this extraordinary amount. And it is certainly by no means unusual for extended medical treatment for serious injuries or burns to cost more than US$1 million. It is therefore very necessary, when purchasing standalone crew insurance, to ensure that the limit is a substantial one and that there are no surprise sub-limits (such as for different nationalities of seafarer) as are sometimes imposed.

To sum up, therefore, the implications of splitting crew and owner's P&I insurance are the usual ones that arise when you extract a particular risk from a very well established all round world wide cover - P& I. You need to keep your wits about you if you wish to continue to sleep easy in your beds.