Supplemental Cover for certain risks within the scope of Bio-Chem. Exclusion Clause

25 March 2004 No.03-024
Regarding the captioned issue, the Clubs participating in the International Group of P&I Clubs (hereinafter referred to as "the Clubs") have been circulating a notice to their members advising of the partial reinstatement of insurance cover as summarized below for your reference.

This reinstatement aims at providing a limited cover for the Clubs' members against some of the risks which are excluded from most War Risks Hull and P&I policies by "Bio- Chem. Exclusion Clause." The matter had been discussed since last year in the Group but no conclusion was made before the commencement of 2004 policy year about the scope of the cover to be provided. Now that the details and the scope of the cover is agreed, the Clubs are generally ready to provide the cover, even though our 2004 policy year contracts had already started about one month ago.

In case of Japan P&I Club, the reinstatement of the cover for Bio-Chem. claims is only possible after an amendment to the Club's Rule based on the resolution by the Board of Directors and lawful register of the amended Rules with Japanese Financial Services Agency.
Consequently, as mentioned in the following summary of some other Clubs' circulars, we will be able to provide the same cover immediately after necessary procedures are completed, which is expected by June 2004.

We will circulate an official notice of the date when we will begin to provide the cover together with a notice of amendment to our Rules for the relevant cover upon ready.

cf) As for the scope of Bio-Chem. Exclusion Clause, members are kindly requested to refer to our circular No.02-023 dated 28th March 2003 titled "War Risk P&I Cover". In that circular Bio-Chem. Exclusion Clause was explained in its full style as "Chemical, Bio-Chemical, Electromagnetic Weapons and Computer Virus Exclusion Clause".

= For the members' reference - the abstract of the Group Clubs Circular=



Members will be aware that, while the wordings differ, most War Risk Hull and P&I policies issued since February 2003 include a 'Bio-Chem Exclusion Clause' and will continue to do so for the foreseeable future.

The 2004 Excess War Risks P&I cover provided by International Group Clubs for USD400 Million in excess of an entered vessel's proper hull value also contains a 'Bio-Chem Exclusion Clause'.

The consequence for Members of these clauses is that most, if not all, Members have no cover for War P&I Risks which are caused either directly or indirectly by a chemical, biological, bio-chemical, or electro-magnetic weapon, or from the use of any computer or computer system as a means for inflicting harm. However, in light of uncertainty over the precise meaning of the wordings, the War Risk insurers have clarified that the risks arising from explosives or the methods of the detonation or attachment thereof, or the use of an entered ship or its cargo as a means of inflicting harm (unless such cargo is a chemical, biological, bio-chemical or electromagnetic weapon), or the use of any computer or computer system in the launch and/or guidance system and/or firing mechanism of any weapon or missile are covered.

All International Group Clubs (with the current exception of the Japan P&I Club) have now agreed that they should provide limited cover for two war P&I risks by way of supplement to the Group's Pooling Agreement 2004, for which there would otherwise be no cover.

Accordingly, with effect from noon on 15 March 2004, Members will be covered through the Group's new pooling facility for P&I risks in respect of (1) Members' liability to pay damages, compensation or expenses in consequence of the personal injury to or illness or death of any seaman (including diversion expenses, repatriation and substitute expenses and shipwreck unemployment indemnity) and (2) Members' legal costs and expenses incurred solely for the purpose of avoiding or minimising any other P&I liability arising from an event falling within the 'Bio-Chem Exclusion Clause'.

The detailed terms and conditions of the cover in respect of Bio-Chem Claims are requested to refer the notice of Club Rule Changes but the principal provisions are as follows:

(1) Cover, which will attach automatically for all Members, will be from the ground up (in excess of Members' usual deductible) but limited to USD20 million any one event or occurrence (or series of occurrences arising from the same event) each vessel.

(2) Individual Clubs will retain the first USD5 million of any one claim, with the USD15 million excess of USD5 million being pooled as in the case of any other Pool claim.

(3) The limit of cover (USD20 million) will apply to all interests in each vessel in aggregate, regardless of the number of interests and regardless of whether or not they are entered in different P&I Clubs (for example, owners, charterers and sub- charterers).

(4) To avoid excessive aggregation of risk, cover will have a cancellation provision and areas of particular sensitivity may also be the subject of geographical exclusions (for example, the Athens Olympics), both cancellation and geographical exclusions requiring the giving of 24 hours' notice to Members.

(5) No premium will be charged for the cover.

So far as the Japan P&I Club is concerned, it is its intention to participate in these arrangements along with all other Group Clubs once it has obtained regulatory approval to do so and which is expected by June 2004.


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