The United States Military Sealift Command ("MSC")
held a public meeting on December 1, 2011 to review the
requirements of its charters that owners must name MSC as an
additional assured on all required insurance policies and obtain
from the insurer a waiver of the right of subrogation. The standard
terms and conditions included in the MSC charters are contained in
its Proformas, which are available on its website at https://www.procurement.msc.navy.mil/procurement/contract/ProformaManager.jsp?page=1.
These Proformas typically require the owner to obtain
the following types of insurance: customary full-form marine
insurance coverage on the vessel (including cover against pollution
damage and cargo loss), including Hull and Machinery, Protection
and Indemnity (P&I), War Risk Hull and Machinery, including
P&I, and Second Seamen's War Risk. With respect to these
insurances, the Proformas require that the United States
be named as an additional assured with a waiver of subrogation. The
two tanker charter Proformas, TankVoy and TankTime,
require the owner to warrant that it has in place $500 million plus
an additional $200 million in oil pollution coverage with its
P&I Club or other underwriter. In the event that financial
responsibility requirements under United States law increase during
the term of the charter to require oil pollution coverage in excess
of that amount, the owner must obtain the required additional
coverages. Other Proformas have similar language requiring
that the MSC be named as an additional assured with a waiver of
subrogation, but contain much lower coverage requirements.
An issue recently has arisen concerning the extent to which,
under club rules, a charterer that is not an affiliate or
associated company of the owner can be named as an additional
assured with a waiver of subrogation, inasmuch as the interest of
the owner and charter are not necessarily the same. The MSC's
concern is that—to the maximum extent
possible—it be immunized from liability. At the meeting,
it was generally acknowledged that this concern could not be
adequately addressed through a "Misdirected Arrow"
clause, since that clause provides coverage to an additional
assured only to the extent that the loss or damage is the
responsibility of the owner. Thus, it would not cover the MSC from
allegations of its own negligence as the charterer. Another
possibility discussed was providing cover to the MSC as a Joint
Entry on the owner's policy. A problem with this approach is
that Joint Entries are typically on a "knock-for-knock"
basis. Under a "knock-for-knock" arrangement, each party
(MSC and the owner) agrees to indemnify the other for liabilities
relating to the indemnifying party's own property and personnel
and those of his subcontractors, regardless of negligence. The
Federal Anti- Deficiency Act precludes the MSC from agreeing with
indemnity provisions, as they constitute contingent liabilities for
which there is no appropriation from Congress.
There seemed to be a general consensus that one solution might
be for the owner to obtain a Charterer's Liability Policy.
However, such policies provide standard coverage only up to $350
million, far less than the $700 million required by the TankTime
Proforma, and far less than the approximately $5.5 billion
available through the International Group pooling arrangements.
Cover in excess of $350 million is available, but the premiums
increase substantially as an additional cover is required, and a
cover up to $5.5 billion was generally acknowledged as prohibitive,
even if possible to obtain.
It was generally acknowledged that the MSC's concerns for
immunity could be achieved with respect to Hull and Machinery
policies, although the details would need to be worked out.
No date was set for a subsequent public meeting, and it is not
yet clear how the MSC will respond to the information collected.
The MSC did suggest, however, that it would be helpful for
interested parties to submit (in writing) information concerning
the insurances available as well as possible methods to address the
MSC's concern regarding obtaining effective immunity beyond the
$350 million available through the standard Charterer's
Liability Policy. Interested parties are encouraged to submit their
comments to MSC Contracting Officer Kenneth D. Allen, at 914
Charles Morris Court SE, Washington Navy Yard, DC 20398-5540.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Specific Questions relating to this article should be addressed directly to the author.
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