Executive Brief - Oil Pollution Cover

In case of an oil spill, there are two parties from which a claim can be filed:

PROTECTION & INDEMNITY INSURANCE(back to top)

"P&I" which stands for "Protection and Indemnity" is marine insurance against third party liabilities and expenses arising from owning ships or operating ships as principals. This class of insurance is distinct and separate from hull and machinery insurance.  Among others, the principal risks covered under the P&I are the following:

1.                 liability arising out of the carriage of cargo;

2.                 pollution liability

3.                 liability for loss of life and injury to crew members and passengers;

4.                 damage to fixed and floating objects and to other properties;

5.                 part of liability for collision damage not covered under the hull policy;

6.                 wreck removal

P&I Insurance has traditionally been made available by the P&I Clubs.  They are associations of shipowners who agree to insure each other in respect of specified risks arising from the operation of their ships.  It is the P&I club which in reality pays any compensation for which the ship owner is held liable.

In case of oil pollution, the limit of the P&I Club is $6.7 million for small vessels whose gross tonnage is under 5,000 tons.  The maximum limit for large ships is $133 million.

INTERNATIONAL OIL POLLUTION COMPENSATION (IOPC) FUND  (back to top)

The IOPC 1992 Fund was established as a result of the International Convention on Civil Liability for Oil Pollution Damage (1992 CLC).  The Philippines became a member in 1999.  As of date, there are 98 countries who are members of the 1992 Fund.

The Fund will respond to a pollution claim suffered by member states in excess of the compensation made by the tanker owners and its P&I Insurance.  Any member state who receives contributing oil (crude and heavy fuel oil) of more than 150,000 tons is obligated to contribute to the "1992 fund".  So far, Petron has paid Pounds1.1 million since 1999.  The maximum payable by the 1992 Fund is US$301 million. This already includes the $6.7 million (small ships) and $133 million (large ships) to be shouldered by the P&I Club.

The 1992 Fund pays for "pollution damage" which covers clean-up costs, property damage, consequential and economic loss.  Compensation is also paid for measures taken to prevent or minimize pollution.

The following are the criteria in order for claims to be admissible for compensation:

1.                 Any expense, loss or damage must actually have been incurred

2.                 Any expense must relate to measures that are considered reasonable and justifiable;

3.                 Any expense, loss or damage caused by contamination resulting from the spill;

4.                 There must be a reasonable close link between the cost or expense covered by the claim and the contamination caused by the spill;

5.                 If a person has suffered economic loss;

6.                 A claimant has to fully document the claim.

 COMPENSATION DIAGRAM (back to top)

Q&A - IOPC(back to top)

Q: What do the IOPC Funds do?

A: The IOPC Funds (1971 Fund and 1992 Fund) help compensate those who have suffered financial loss as a result of an oil spill from a tanker.

Q: How much compensation can the IOPC Funds pay?

A: The maximum payable by the 1992 Fund is US$301 million. These amounts are less the compensation paid by the shipowner.

Q: How much does the shipowner pay?

A: This depends on the size of the tanker. Under the 1992 regime the maximum to be paid by the shipowner for a small ship is US$6.7 million. The maximum for a large ship is US$133 million.

Q: Who can claim from the IOPC Funds?

A: Anyone who has suffered pollution damage (including clean-up costs) in a Member State , for example individuals, companies, local authorities or States.

Q: How should a claim be presented?

A: This is dealt with in detail in the Claims Manuals.

Q: What claims are covered?

A: The 1992 Fund pays for what is defined as 'pollution damage'. This covers the cost of clean-up operations and property damage, as well as claims for consequential loss and 'pure economic loss'. For example, fishermen whose nets have become polluted are entitled to compensation for cleaning or replacing nets, and compensation for loss of income while they are unable to fish. Hotel owners at seaside resorts are entitled to compensation for loss of tourism income resulting from an oil spill. Compensation is also paid for measures taken to prevent or minimise pollution.

Q: Does the 1992 Fund pay for environmental damage?

A: Compensation for environmental damage (other than economic loss resulting from impairment of the environment) is restricted to costs for reasonable measures to reinstate the contaminated environment. Claims for damage to the ecosystem are not admissible.

Q: Does the shipowner have insurance?

A: The shipowner has to have insurance if the tanker is carrying more than 2000 tonnes of oil in bulk as cargo.

Q: Who provides the insurance to the Shipowner?

A: The shipowner's insurance is normally provided by a protection and indemnity association, known as a P&I Club. Normally it is the P&I Club which in reality pays any compensation for which the shipowner is liable.

Q: Who can make a claim?

A: Anyone who has suffered pollution damage in a State that is Party to the 1992 Conventions may make a claim for compensation. Claimants may be private individuals, partnerships, companies, private organisations or public bodies, including States or local authorities. If several claimants suffer similar damage, it is more convenient to submit co-ordinated claims, which will also facilitate the processing and assessment of the claims.

Q: To Whom Should A Claim Be Submitted?

A:  When an incident occurs the 1992 Fund co-operates closely with the shipowner's insurer, which will normally be one of the Protection and Indemnity Associations (P&I Clubs) that insure the third-party liabilities of shipowners, including liability for oil pollution damage. The P&I Club concerned and the 1992 Fund usually co-operate in the handling of claims, particularly when it is clear from the outset that compensation will be paid under both Conventions. Since in most cases the 1992 Fund only pays compensation once the shipowner/insurer has paid up to the limit applicable to the ship involved, claims should first be submitted to the shipowner or his P&I Club. In practice, claims are often channelled through the office of the P&I Club's correspondent closest to the incident location. Because of the close co-operation between the Fund and the insurer, claims, including supporting documentation, need only be sent to either the P&I Club/correspondent or the Fund.

Occasionally, when an incident gives rise to a large number of claims, the 1992 Fund and the P&I Club jointly set up a local claims office so that claims may be processed more easily. Claimants should then submit their claims to that local claims office. Details of claims offices are given in the local press.

Q: How Should A Claim Be Presented?

A: Claims should be made in writing (including telefax or electronic mail). If appropriate, the P&I Club and/or the Fund will issue claims forms to assist claimants in the presentation of claims.  A claim should be presented clearly and with sufficient information and supporting documentation to enable the amount of the damage to be assessed. Each item of a claim must be substantiated by an invoice or other relevant supporting documentation, such as work sheets, explanatory notes, accounts and photographs. It is the responsibility of claimants to submit sufficient evidence to support their claims. It is important that the documentation is complete and accurate. If the documentation in support of a claim is likely to be considerable, claimants should contact the 1992 Fund or where appropriate the designated surveyor or local claims office as soon as possible after the incident to discuss claim presentation.

Q: What Information Should A Claim Contain?

A:  Each claim should contain the following basic information:

. The name and address of the claimant, and of any representative.

. The identity of the ship involved in the incident.

. The date, place and speci.c details of the incident, if known to the claimant, unless this information is already available to the 1992 Fund.

. The type of pollution damage sustained.

. The amount of compensation claimed.

Additional information may be required for specific types of claim (see Section III).

Q: CLAIMS ASSESSMENT AND PAYMENT

A: The 1992 Fund, normally in co-operation with the shipowner's insurer, usually appoints experts to monitor clean-up operations, to investigate the technical merits of claims and to make independent assessments of the losses.

The 1992 Fund and the P&I Clubs have developed a worldwide network of experts with expertise in the various sectors likely to be affected by oil pollution. It also draws on the advice of the International Tanker Owners Pollution Federation Ltd (ITOPF), a non-profit making organization funded primarily by ship owners through their insurers. ITOPF's technical staff has acquired considerable experience in spill response and are very familiar with the Fund's criteria for accepting claims. During the clean-up phase of an incident, members of ITOPF's technical staff usually attend on site where they are able to offer technical advice on the most appropriate response measures consistent with the Fund's admissibility criteria.

Although the 1992 Fund and the P&I Clubs rely on experts to assist in the assessment of claims, the decision as to whether to approve or reject a particular claim rests entirely with the Club concerned and the Fund.

Once the Fund and the P&I Club have made their decision regarding a claim, the claimant is contacted, usually in writing, to explain the basis of the assessment. If the claimant decides to accept an offer of compensation, he or she will be asked to sign a receipt upon payment of the amount due. In the event that the claimant does not agree with the assessment of the claim, he or she may provide additional information and request a further evaluation.

The 1992 Fund's Director has been given extensive authority to approve and pay or reject claims. However, in certain situations, for example if a claim gives rise to questions of principle, the Director must refer the claim to the Executive Committee for decision. The Executive Committee normally meets two or three times a year.

Q: HOW LONG DOES IT TAKE TO ASSESS AND PAY CLAIMS?

A: The 1992 Fund and the P&I Clubs try to reach agreement with claimants and pay compensation as promptly as possible. The speed with which claims are agreed and paid depends largely on how long it takes for claimants to provide the required information. Claimants are therefore advised to follow this Manual as closely as possible and to co-operate fully with the Fund's experts and provide all information relevant to the assessment of the claims.

Q:  WHAT IF A CLAIMANT DOES NOT AGREE WITH THE FUND'S DECISION?

A:  If it is not possible to reach an agreement on the assessment of the claim, the claimant has the right to bring his or her claim before the competent court in the State in which the damage occurred. However, since the international compensation regime was established in 1978, court actions by claimants have not proved necessary in the majority of incidents involving the 1992 Fund and its predecessor.