Different types of Co-Assureds and their access to policy cover

March 2018

In today’s market, documentation is more important than ever, and something which the P&I club spends a significant amount of time producing each day. Within the offshore sector, where short-term contracts involving numerous parties are so prevalent, the necessity for producing and issuing additional documentation is even greater.

Offshore P&I insurance is predicated upon the knock-for-knock [KFK] principle, where each party takes responsibility for claims arising from their own property and personnel, regardless of fault or negligence. One of the many requirements for a KFK regime to function properly is that the parties to the indemnity arrangements obtain consent from their insurers to waive their rights of subrogation and set out on their insurance policies the parties they have agreed to indemnify each other.

This process leads to one of the questions we are asked most frequently: “Can you issue endorsements naming the parties set out below on our insurance policies?”. The answer to that depends on a number of factors, including the terms of the operational contract and the capacity in which they wish to be named. However, the various capacities in which the parties can be named is something which typically causes confusion, leading to a lot of questions regarding who has, should and is entitled to access to the policies.

There are several different types of additional assureds, which we will look at separately in this article.

Joint Assured

When a vessel is accepted into the association, the owners become a member of the club, and share in the unique benefits that status brings. If there is more than one owner to the vessel, the club may accept the entry of that vessel on behalf of one or more parties. In those circumstances, the various owning parties will be Joint Assureds and members of the club. This confers on the Joint Assured the same rights as the policy holder. This means, amongst other things, that they have the right to go directly to the insurers and ask to be indemnified for their losses.

However, to continue to enjoy those benefits, both the policy holder and the Joint Assured have to ensure that their responsibilities are complied with, meaning, for example, that they would also be liable for paying the premium, release calls or deductibles. This is also the case when it comes to a fleet entry, when a Joint Assured is jointly and severally liable for all other ships in that fleet, even if they are only directly involved in the ownership of one.

There are also circumstances where we refer to Joint Assureds but where the parties are not joint owners, such as under a bare boat charter arrangement, where the bare boat owner and bare boat charterer can be named as Joint Assureds on the P&I policy. This construction is quite typical for pontoons and flat top barges where the bare boat charterer takes full commercial control of the barge for shorter periods. In such circumstances, it is often more beneficial for the owner to request their club to name the bare boat charterer as Joint Assured, but on the basis that the bare boat charterer does not become a member.  

Who is this for?

  • Joint owners of a vessel or unit
  • Bare Boat charter arrangements

Co-Assured

Although Co-Assurance may sound confusingly similar to Joint Assurance, there are significant differences in the way they operate.  Typically, Co-Assureds will have a direct operational, manning or financial interest in the vessel or unit covered and will be named under the co-assured list on the Certificate of Entry, along with their full company name and role in operations.

While a Joint Assured will be considered a member of the club, a Co-Assured is not – they are merely named as an assured on the insurance policy and entitled to access the cover provided under that. A Co-Assured is, however, jointly and severally liable for payment of premium, release calls and deductibles for policy on which they are named.

If there is a change of manager or technical manager named on the policy, it is necessary to provide the club with additional information about the new company and their experience. This is to make an assessment to confirm they can be named on the policy and to ensure we are familiar with the companies involved. However, it should be noted that P&I insurers cannot agree to name offshore charterers as a Co-assured under an owner's policy.

In terms of the cover, the policy will only respond to shipowners’ risks in line with the policy taken out and cannot respond to risks beyond those. See example - co-assured(1)

Who is this for?

  • Parties interested in the operation, management or manning of the vessel
  • Mortgagees
  • Beneficial owners

Protective Co-Assured

Protective Co-Assurance is, in our experience, the status which causes the most confusion. It is also the status which is most often updated and discussed, and which adds to the mystique.

As set out above, for a fully functioning KFK regime, “waiving and naming” is essential. It is that situation for which the Protective Co-Assurance is designed – covering parties who have entered into a KFK contract with the member for provision of services by or to the vessel or unit, in a situation where a claim is directed against the wrong party – so-called “misdirected arrow coverage”.

On the offshore side, we can, and routinely do, name parties as “protective co-assureds”. This set-up does not give the protective co-assured direct access to the policy, but rather protects them from claims directed against them which, under the contract, the assured has agreed to indemnify them for. An addendum to the policy will be issued which names the contractual partner as a protective co-assured.

To issue a protective co-assurance addendum, we need to understand the contractual arrangements and operational involvement. This will be assessed through a contractual review by the club. It is important to note that a Protective Co-Assurance can only be offered when the contract is on clean KFK terms. If the contract goes beyond that or imposes liabilities on the shipowner that is not covered by the P&I Rules, the club can then potentially offer an additional commercial cover as required to respond to the risk. See example - protective co-assured(2)

Who is this for?

  • Contractual partners of the Assured

 

 

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