Proper Lay-up Arrangements Curb Claims

Friday, February 20, 2009

Against a background of rising claims costs, the UK P&I Club has issued guidelines to its owners about P&I cover for laid-up ships to help them prepare and maintain their vessels − and a comprehensive note on the return of calls.

The Club is keen to minimize claims for personal injury, wreck removal, pollution, anti-fouling, environmental contamination and damage to other vessels, underwater cables, beaches and reefs.

The note points out that crew claims frequently add up to greater total costs than cargo claims. A decade back, cargo claims generally cost more than crew claims. Given the rising cost of the latter, it would be illogical to base P&I call returns solely on the absence of cargo.

The Club is concerned that the terms of contractual compensation for seamen are now potentially onerous and whether a ship is in lay-up or in active trading, some medical and injury risks do not change significantly.

Further, collision risks remain during lay-up. These are potentially greater now than during the last round of lay-ups because the average ship size has increased.

Normal P&I cover continues during lay-up, subject to the terms of entry and the rules. As a basic premise, a ship in lay-up should reduce P&I risks, enabling the club to return a portion of its calls to the owners.

Lay-up arrangements should maintain the security, safety and protection of the vessel, crew and environment, and preserve and maintain the structure and machinery, providing protection against corrosion and static seizure.

A full risk assessment should proceed, covering site suitability, crew safety, vessel, machinery and environment.

The guidelines, prepared with BMT Marine & Offshore Surveys, contain extensive checklists relating to the lay-up site; mooring arrangements; security, safety, protection and environment; preservation and maintenance; preparation procedures; and approval and inspection arrangements.

A ship must have been laid up for at least 30 consecutive days after mooring, without cargo on board, to qualify for call returns. Ships with cargo on board will not qualify for lay-up returns under any circumstances.

The guidelines make the essential distinction between a ‘hot’ lay-up, where seamen, i.e. those contractually employed by the owner and obliged to serve on the vessel, are present, and a ‘cold’ lay-up where they are absent. Risk changes when employees are on board as contract compensation amounts are now so high.

A hot lay-up is characterized by a reduced crew, some working machinery and the prospect of quicker, less expensive activation. A cold lay-up is a longer term exercise with all systems shut down with minimum ongoing maintenance to prevent deterioration of hull structure and machinery.

The managers look to Class, the Salvage Association and other third party technical advisers for evidence of safe lay-up. Hull underwriters may make the certifications and survey arrangements which document and approve the technical aspects of lay-up. However, the Club managers will retain discretion about what qualifies for a return.

For example, if a vessel breaks loose from its moorings during lay-up and an expensive wreck removal claim ensues, the safety of the initial lay-up will be carefully considered.

If a ship is laid up for six months, the Club must have seven days notice before she leaves the place of lay-up. The vessel may have to undergo a special survey at the Club’s discretion. Failure to provide notice before recommissioning could prejudice cover.

Regardless of the length of lay-up, members have to pay the full trading rate P&I premium calls on time – even where an entered ship commences a new policy year during lay-up. The Club will not process returns while a vessel is still in lay-up but owners should apply for premium returns within six months of the end of the policy year. Special accounting arrangements relate to a ship concluding a policy year in lay-up and for assessing outstanding installments.

There will be no return for charterers’ or any other fixed premium entries although many time charterers will terminate the contract of insurance for a ship in lay-up.

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