Co-assurance for ship managers: The Club explains its position

ITIC makes it a condition for its ship management Members to be co-assured because ship managers are deemed to be the operator in many jurisdictions around the world. By being named on the hull and P & I policies, the ship manager is only taking advantage of the cover that has been available to the ship owner in the past when the technical function of managing the ship was still in house. The insurer is not offering any more cover by including the ship manager as a co-assured just because the ship owner has sub-contracted some of the functions he used to perform himself to another company.

Ship managers needs to be co-assured because they are paid a limited fee for the management of the ship. Compared to the value of the ship and the hire or freight earned, the management fee is a very small part of the overall cost of running the ship. It is clear that the manager cannot afford to take out a separate P & I and hull insurance to protect their own interests up to the full value of the ship. This is even more of an issue if that insurance is already available, for no additional cost, as part of the owner’s usual marine insurances.

Whereas P&I insurers are used to naming the ship and crew manager as a full joint assured, there is sometimes more opposition from hull underwriters, who want to resist expanding the cover to the ship operator as well. They would rather see the manager as a target for a subrogated claim rather than as a co-assured. Insisting that cover be provided as a co-assured on hull policies (even if by reference to the managers obligations on the ITIC insurance policy) certainly helps focus the mind of the owner and the hull insurer to name the manager as well.

Under a BIMCO Shipman 98 contract, the owner provides an indemnity to the manager. Potentially any subrogated claim from a hull or P&I underwriter that was not caused by a fault as set out in the ship management contract, could be re-imbursed by the owner via this indemnity. The owner would then be in a unique position of having been paid out by the underwriter and then having to pay it back via the ship manager under the management contract. Not ideal!

ITIC is there to cover claims of negligence against the manager arising out of the management of the ship. These are often not concerning matters that would be covered on a P&I or hull policy, such as a fraud by staff, post fixture errors, operational errors etc.

ITIC therefore makes it a requirement for a ship manager to be co-assured, not to avoid claims for negligence against the manager – that is what ITIC insures - but to protect the manager from claims that are the responsibility of the owners.