P&I Clubs are involved a lot in what I like to call ECO issues. Like ship owners, Clubs are being asked to align traditional functions and practices with the increasing drive towards environmental protection and preservation. The Clubs are not set up to lead in this area. On the whole, our function as a liability insurer requires us to follow the Law and Regulation not push for its reform. The Law, in turn, is notoriously slow to advance. So, in general terms, the Clubs represent a reactive rather than proactive force where eco-issues are concerned. However, for the purposes of enhancing environmental awareness, I will now focus on the primary areas in which “ECO-issues” and P&I converge.
The Clubs and the mutual membership we indemnify service and to an extent represent all take an increasingly responsible view of the duty to protect our environment. There is no doubt we are all getting “greener”. Most would say that is because our members are forced by lawmakers and enforcement bodies to be more responsible. To a great extent they are probably right. But without the stick of financial penalties being brandished at us we would probably not have come this far. That does not mean that there is no room for improvement. Clearly, there is. But historically the main driving force for reform in business has been commercial interest. And for P&I / Insurance in general that translates to claims or premium. Money is undoubtedly the carrot that matters in shipping and the manner in which success or failure in our business is measured. First and foremost the Clubs provide a vital financial service for the mutual membership but it is the members who ultimately dictate our interests.
There can be no doubt that the urge to protect the environment has had an increasing effect on P&I. As mutual entities run principally by ship owners for ship owners, the Clubs are required to respond to developments that affect, or are likely to affect, liabilities. To explore how P&I has become “greener”, we should take into consideration the following areas:
- Salvage
- Pollution
- Wreck removal
- Fines / Regulatory infringements
- Loss Prevention
The first three of those areas fit together to an extent. They have a direct connection with the environment. Responding to casualties and dealing with their consequences is the main reason P&I came to existence. Decisive and effective casualty response is also vital if we want to preserve our environment. It is, if you like, the Clubs’ main eco-issue. Owners and operators of ships experiencing a casualty are ever-increasingly bound to ensure that, as well as life and property, the environment is preserved.
The more you ignore or fail in that obligation the greater the punitive compensation claims, statutory penalties and reputational fall out you will experience. That is the main lesson learned from the big spills such as the Prestige, Erika and EXXON Valdez. Recently, though not a shipping case, the Deepwater Horizon has also reinforced that message.
Following a full-blown casualty like those just referred to, the Clubs will (among other costs) be asked to pay for special compensation to salvors for the prevention of pollution. Part of the challenge professional salvors voluntarily face is taking steps to prevent pollution. Early Salvage awards remunerated them sufficiently. But prevention of pollution is now such a significant head of claim in itself that it has developed into a reward component quite distinct from the preservation of life and property. SCOPIC exists to address this. The Clubs also pay for clean-up costs and reasonable compensation claims if there is a spill. Finally, if after a casualty the ship becomes a wreck, The Clubs meet the costs of lighting and marking the hazard, raising or removing the wreck and of facing liabilities that may arise thereafter. The increase of the costs arising from these types of incident have been well-publicized.
Lloyds Form Salvage Contracts (LOF) for professional salvors have existed for over a century. In response to major tanker casualties such as the TORREY CANYON, and AMOCO CADIZ revised forms evolved which refined the original salvage principle of “no cure – no pay”. The grounding of the AMOCO CADIZ off Brittany and France 1978 had terrible consequences. After AMOCO CADIZ, LOF 80 incorporated what was known as the “safety net” provision which meant that a salvor who had given salvage services to a laden tanker would receive an award whether successful or not. The purpose of the “safety net” was to deter salvors assisting a laden tanker from abandoning the salvage project when they realised that there would be no “cure”. This principle was refined further and extended in LOF 1990 and LOF 1995. Articles 13 and 14 of the 1989 Salvage Convention were introduced. These combined to develop the “safety net” principle so as to provide payment for a “fair rate” for the services provided. Unfortunately, these provisions led to protracted and expensive litigation as to what constituted the “fair rate”. One case, the NAGASAKI SPIRIT, reached the ultimate court in England, which was then the House of Lords. As a result of the litigation, extensive discussion between the ISU (International Salvage Union) the property underwriters, both Cargo and Hull and Machinery, and the International Group of P&I Clubs resulted in a special compensation provision, named “the SCOPIC clause”. This was incorporated into LOF 2000.
The SCOPIC clause supplements the LOF. The two work in tandem. However, SCOPIC only becomes material if the initial salvage award for the salved property (or Art. 13 recovery) is less than the SCOPIC costs total. Effectively SCOPIC is a daily rate contract added on to the LOF contract. It’s purpose is to incentivise salvors to continue providing their services in serious casualties even if they do not believe the value of the salved property will result in an award that covers their costs. It allows salvors to continue salvage operations solely to prevent damage to the environment. P&I Clubs provide cover for the SCOPIC costs as it is clearly to their benefit to avoid pollution damages. The Clubs are also hopeful that SCOPIC helps to avoid the risk of wreck removal in the event that the salvor abandons the ship without salving her. Today, of the LOF’s signed many invoke SCOPIC. SCOPIC has recently been revised so as to update the tariffs it designates for services.
Regarding pollution, it is well known that there has in recent years been a huge increase in the exposure of shipowners to liability claims in respect of pollution caused by cargoes from their vessels, in particular cargoes of oil. As with LOF contracts, the TORREY CANYON and AMOCO CADIZ acted as drivers for the international pollution conventions which deal with civil liability for oil pollution – the CLC. Whilst not perhaps driven as much by direct environmental concerns as opposed to the concern to regulate the obligation to pay damages for causing pollution, the CLC has pushed the industry in a “greener” direction. The CLC imposes liabilities for oil pollution. But liabilities are also imposed by domestic statute such as OPA 90 or by the common law. There are also liabilities assumed voluntarily by ship owners in accordance with schemes such as STOPIA. All these liabilities are insured by the Clubs, although with a limit in respect of oil pollution claims which presently stands at US$1bn each entered ship each accident or occurrence.
Another crucial eco-issue for P&I Clubs is fines. The Club Rules stipulate that cover is provided for fines “in respect of an accidental discharge or escape of oil or other substance, or the threat thereof”. Note the scope of that wording, particularly the expressions “escape” and “other substance”. Potentially, all liquid or gas cargoes and bunkers are included therefore. The Rule is somewhat restricted by a series of provisos, the most significant of which is that which prevents the member from recovering in the event of a MARPOL violation. Equally, if the owner has overloaded his ship deliberately, he will not be able to recover.
Lastly, but certainly not least, I couldn’t stand up here to talk about eco-issues without mentioning Loss Prevention. This is a mainstay of the Club service offering. Again, it makes commercial sense in that by assisting members to avoid situations that might give rise to loss, claims records are improved. Part of the Loss Prevention focus is naturally environmental risk avoidance in all its respects. Resources are created so as to advise, educate and raise awareness. To an extent, ship vetting can also play its part in reducing potential damage to the environment by helping to restrict the number of avoidable casualties, infringements and incidents generally. Moreover, by working together in relevant International Group sub-committees which meet regularly (e.g. Salvage, Claims co-operation, Pollution and ship standards) the full range of eco-issues are monitored, discussed and considered by the Clubs on a regular basis. The IG is often consulted when developments within the shipping industry are contemplated. That extends to issues of an environmental nature, of course.
Issues are always coming up which require our attention.
Here is by no means an exhaustive list of ones which have recently come to our attention:
Cold ironing / Shore power
Whilst the UK Club’s office in San Francisco tell me that there have not yet been any incidents of note arising from the re-introduction of the apparently green practice of ships “cold ironing” at the Californian ports, we are concerned about the potential liability that could arise if such an operation were to cause a local power failure or loss, not to mention injury if an incident were to occur. California has, in case you didn’t know, stipulated that shore-based power will be mandatory for a certain percentage of ship calls by shipping lines regularly using their port facilities. Hapag-Lloyd are already have 15 ships doing so. The practice is being encouraged for the benefit in reduced emissions it gives. Presumably there is an economic benefit arising from the lower port fuel consumption too.
International Environmental Compliance
This resource page on the Club website collates material in respect of International environmental compliance issues affecting our Members. Information from the Club, Loss Prevention and external resources has been collated in one place for ease of reference. Key areas are BWM, Emissions, Pollution and Anti-fouling. Feel free to take a look!
Polar shipping
Again on its website, the UK Club last week launched a dedicated section collating Club advice and that drawn from a variety of other industry and government agencies and organisations to offer a practical starting point for Members who may trade to these regions. Ships navigating the remote waters of the Arctic and Antarctic face some unique risks. Poor weather conditions can compound the relative lack of good charts, communication systems and navigational aids. Search and rescue or environmental clean-up operations can be extremely difficult and, as a result, potentially very costly. The anticipated growth in polar traffic for a variety of shipping sectors presents a number of challenges to ship operators, not least of which are safety and risk of permanently damaging one of the most fragile ecosystems on our planet.
STS Transfer
With an estimated frequency of over 12,000 STS Transfers taking place at sea every year and rising the Club is a supporter of initiatives that assist in making what is already a statistically very safe operation even more reliable. STS is in effect a “consensual collision” so presents interesting liability issues for those involved.
US SOx Emissions Regulations
Two weeks ago we issued an LP Bulletin advising that the EPA has recently served substantial document subpoenas on several ship owners and operators that had previously filed numerous FONARs. This suggest an interest in enforcing the Regulations which, set against the risk of onerous fines, will no doubt have the effect of encouraging compliance.
One final thought is what ECO word really means; ECO-logical or ECO-nomic? For P&I Clubs certainly means economic issues.
Above article is an edited version of Nick Milner’s presentation during 2014 GREEN4SEA Forum
More details may be found by viewing his Presentation video
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