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.
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