Chairman, Compulsory Insurance Subcommittee
IGP&I – Annual Review 2016/17
On 18 January 2017 the amendments to the MLC 2006 on financial security for seafarer liability and compensationentered into force. Since that date, ships registered inMLC State parties are required to display on board specificfinancial security certificates. These amendments require shipowners to compensate seafarers for death or long-termdisability, and to pay outstanding wages and repatriationcosts following abandonment.
The MLC 2006 and its 2014 amendments were developedunder the auspices of the ILO tripartite forum, which involvedco-operation and consensus between Governments, shipowners, represented by the International Chamber of Shipping, and seafarers, represented by the International Transport Federation.
The entry into force of MLC 2006 had limited consequencesfor P&I Clubs. However, even before the 2006 Conventioncame into force in August 2013, it was clear that futureamendments would extend its scope and lead the InternationalGroup Clubs to adapt to new risks and shipowners liability.
Ships that are subject to the MLC are also subject to the 2014Amendments and as a result, owners are required to displayon board certificates issued by their club, or another financialsecurity provider, confirming that insurance arrangementsor other security is in place for the cost and expense of crewrepatriation. This includes up to four months’ contractualarrears of wages and entitlements following abandonment(MLC Regulation 2.5.2, as amended), and for liabilities forcontractual claims arising from seafarer personal injury,disability or death (MLC Standard A4.2, as amended). Clubshave issued these certificates in the name of the RegisteredOwner. This has been accepted by the majority of MLC StateParties, partly because they recognise that the Registered Owner will always be the shipowner under the MLC definition of shipowner, and partly because the party named on the Document of Maritime Labour Compliance may not be aninsured person for the purposes of P&I insurance. To date, thisarrangement has been widely accepted by MLC State Parties.
RIGHTS OF DIRECT ACTION AGAINSTINSURERS
The obvious requirement of the MLC financial securityprovision is that it responds to seafarer claims. The MLC 2014Amendments introduced obligations on providers of financialsecurity certificates, including accepting claims directly fromcrew members. Clubs in the International Group already havean agreed policy to pay seafarer death and injury claims, sothe security and certification required under Regulation 4.2.1is to a very large extent familiar territory for the Clubs.
INSURANCE AND REINSURANCE
Pursuant to the direction given by all International GroupClubs Boards, unpaid wages and repatriation costs would becovered by a specific IG reinsurance arrangement. For thisreason, the liabilities consequent upon abandonment fall within the scope of an MLC Extension Clause that has beenagreed by all Clubs in the International Group. This risk is newto the marine reinsurance market and currently reinsurancecapacity is lower for abandonment and back wages risksthan for traditional maritime risks. However, due to theversatility of the Clubs and their reinsurers, it has beenpossible to place reinsurance which will cover exposure ofUSD 200 million on a per fleet basis.
However, the financial security required under Regulation2.5 (seafarer abandonment) is different. MLC Standard2.5.2 includes liabilities for repatriation of crew, essentialneeds such as food, accommodation and medical careand up to four months outstanding contractual wages andentitlements in the event of abandonment. This includesabandonment arising from the shipowners financial default. Providing cover arrangements for this head of risk requiredthe Clubs to think creatively in order to provide a solutionthat sits outside of the International Group pooling andreinsurance arrangements.
A NEW TYPE OF MARITIME CONVENTION
The MLC applies on board ships flagged in a State Partyand places an obligation on State Parties to implementlegislation which ensures the “Code” applies to ships ontheir register. However, the potential for divergent legislation
by the 81 States Party to MLC is a challenge in the contextof uniform application of the new financial security andcertification provisions. This is why the International Grouphas devoted resources to effective engagement with FlagAdministrations, many of whom maintain a collaborativeworking relationship with the International Group through theGroup’s involvement in the International Labour Organisation and International Maritime Organisation.
FLAG STATE AND PORT STATE COMPLIANCE
State Parties to MLC are obliged to ensure that ships ontheir register comply with the provisions of MLC, includingthe financial security requirements that entered intoforce on 18 January 2017. They also have an obligation toinspect ships that are not flagged in an MLC State calling attheir ports to ensure they meet MLC standards. Such shipswill be subject to inspection under the “no more favourable treatment” rule which is supposed to ensure that ships thatare flagged in an MLC party are not disadvantaged by therequirements to comply with the Convention. The IG Clubshave agreed as a matter of policy that the only workable option to minimise the risk of Port State Control deficiencyor detention on the grounds of non-compliance with thefinancial security requirement is to issue ships in thiscategory with the same form of financial security that isissued to ships flagged in an MLC State Party.
MLC has been ratified by 81 States representing 92% of worldgross tonnage. This is a major achievement for ILO which givesgreater influence in the way in which maritime employmentis governed by an international regime. Providing securityfor the MLC Amendments has presented a real challenge inassisting shipowners in complying with the financial securityrequirements. Clubs took the initiative by introducing MLCCertificate wording and new procedures, consulting a groupof Government representatives representing a cross-section of all MLC States, including the largest Flag States bytonnage. This helped to ensure a degree of uniformity whichis essential for the new regulations to be effective. It is alsoa clear demonstration of the strength of the InternationalGroup system and this has been recognised in the way that innovative solutions for shipowners have facilitated the entryinto force of the amendments.
MLC – NEXT STEPS
In April 2017 the ILO revisited an issue that was initiallyraised at the February 2016 meeting of the Special TripartiteCommittee (STC) regarding captive seafarers’ wages. It islikely that proposals on the protection of a seafarer’s wageswhen a seafarer is held captive, on or off the ship, as a resultof acts such as piracy or armed robbery against ships will beput to the April 2018 meeting of the STC. These proposalsare likely to include an amendment to the MLC Code. TheInternational Group participated in the meeting as part ofthe International Chamber of Shipping delegation and willcontinue to do so as this latest issue develops and matures.