Ship managers should ensure they are named as joint-assureds on their owners’ hull and P&I policies. This is because (apart from in a handful of jurisdictions), the ship manager is always considered to be the operator of the vessel under the ISM code and so faces the same exposure as the ship owner. Therefore, it is vital for them to have the same protection as the owner.
Being named as a joint-assured doesn’t place any greater obligation on the insurer, the ship manager is only taking advantage of the cover that was offered to the ship owner when the technical function of managing the ship was previously performed in-house. Just because the owner has sub-contracted some of its functions to a third-party does not mean that any additional risk is being covered. Consequently, it makes sound business sense to include the ship manager as a co-assured.
If named jointly, the ship manager will be protected against hull and liability claims – those that are normally the responsibility of the owner. And, as a member of ITIC, the manager is further protected against claims of negligence arising from the management of the ship. These are usually matters that would not be recoverable under a P&I or hull policy, such as a technical issue at drydocking, fraud by staff, post-fixture errors, or operational errors.
There have been many examples where ITIC has been told by its ship manager members that an insurer will not name them as a joint-assured but will offer cover as an additional insured or for misdirected arrows. (Misdirected arrows are claims against a third-party, such as a ship manager, where the third-party does not have joint and several liability.) Ship managers must not accept this higher-risk alternative and should insist on being covered as a full joint assured even if, for P&I cover, they may be exposed to non-payment of premium. The credit risk is much lower than the liability risk.
For hull and machinery (H&M) insurance, some H&M underwriters may request a right of subrogation against the party who caused the loss. In effect this means the H&M insurer settling the owner’s claim but then attempting to counter-claim against a third-party, such as the ship manager. Indemnity to the manager is usually provided by the management agreement, unless the manager has been negligent. But owners could find themselves in a strange situation where the insurers pay a hull claim to the owner and then subrogate against the managers. The managers would then enforce the indemnity against the owner to recover any amount they were not liable for under the management agreement. By naming the ship manager as joint-assured, a series of costly indemnity actions is avoided and the relationship between owner and manager remains intact – clearly in the interests of all parties concerned.
ITIC insists that all its ship manager members are jointly named on the P&I and H&M slips as the implications of not doing so can be both serious and costly. Owners or insurers who refuse this perfectly reasonable condition should be treated with extreme caution.
Source: ITIC, By Robert Hodge, Director, International Transport Intermediaries Club (ITIC)