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C 256/2 EN Official Journal of the European Communities 14.8.

98

Notice pursuant to Article 19(3) of the Council Regulation No 17 (Î)
Case IV/37.143/D-1 — P@I-Clubs. Pooling Agreement

(98/C 256/02)

(Text with EEA relevance)

I. Notification Pooling Agreement on behalf of the 18 P@I clubs
who are parties to it (seven from the UK, four from
Bermuda, two from Luxembourg, two from
1.ÙOn 7 July 1998 the International Group of P@I Norway, one each from the USA, Japan and
Clubs (IG) notified the Commission of the Inter- Sweden) and one P@I club (from Luxembourg)
national Group Pooling Agreement (hereafter the which is reinsured by one of the other clubs.
Pooling Agreement) and a number of amendments
to be introduced to it by next business year. It
applied for a negative clearance or, in default, for an
exemption in accordance with Article 85(3) of the
III. The market of P@I insurance
EC Treaty.

6.ÙDirect marine insurance can be divided in two broad
2.ÙThis notification was submitted after the
areas: one covers the risks of damages to the vessels
Commission, on 2 June 1997, addressed a Statement
(hull, machinery, etc.) and is normally offered by
of Objections to the International Group considering
commercial insurers. The other, called protection
that both the Pooling Agreement and the Inter-
and indemnity (P@I) insurance, covers contractual
national Group Agreement (hereafter IGA)Ø(Ï) were
and third party damages and has been traditionally
in breach of the competition rules of the EC Treaty.
insured by ship owner mutual associations, the P@I
clubs.

3.ÙThis Statement of Objections had been preceded by
a complaint against the Pooling Agreement
submitted by the Greek Shipping Cooperation 7.ÙProtection and Indemnity is a general concept which
Committee (GSCC), a shipping organisation estab- includes insurance for different types of risks: injury
lished in London, which deals with matters affecting or death of crew, passengers and other people;
ships ultimately owned by Greek interests. collision damages to vessels; other third party
property damage (e.g. harbour equipment, etc.);
pollution; cargo and other (e.g. expenses of wreck
rescue, etc.). Most P@I insurers provide all these
types of cover under a single contract.
II. The parties

4.ÙThe Protection @ Indemnity clubs (P@I-clubs) are 8.ÙAround 89Ø% of the worldwide tonnage, and almost
mutual non-profit making associations that provide 100Ø% of the European (EU-EFTA) tonnage, is
protection and indemnity (P@I) insurance to their insured by the P@I clubs which are members of the
members, the shipowners. Each of the P@I clubs is IG. At present, they offer cover up to around ECU
governed by a Board that represents the members 3,9 billion (USD 4,25 billion).
but the effective management is in the charge of
professional managers appointed by the Board.

9.ÙThe remaining tonnage is insured by small inde-
pendent P@I mutual associations or maritime
5.ÙThe International Group (IG) of P@I clubs is a commercial insurers, or it is not insured at all against
worldwide association of P@I clubs. It notified the P@I liabilities. Independent P@I mutual associations
normally focus on specific types of vessels, such as
(Î)ÙOJ 13, 12.2.1962, p. 204/62. dry-cargo or coastal or fishing vessels and offer low
(Ï)ÙThe International Group Agreement was notified to the P@I cover. The largest of these insurers are the
Commission in 1981. The Commission granted it a formal Ocean Marine mutual associations. Some
exemption for 10 years. This expired in February 1995 and commercial insurers, such as Lloyd’s Syndicates,
the IG requested a renewal of the exemption. The IGA is
the object of a case dealt with separately from this notifi- Southern Seas, Zurich or Munich Re also provide
cation. direct P@I insurance.
14.8.98 EN Official Journal of the European Communities C 256/3

IV. The Agreements (c) The excess of any claim over ECU 27,42 million
(USD 30 million) up to ECU 1,8 billion (USD 2
billion) is covered by the Group General Excess
Loss Reinsurance Contract, agreed collectively
10.ÙThe system of P@I insurance organised within the by the club with commercial insurers. Only one
IG of P@I clubs is based on two main agreements: or two claims per year reach this layer.

(a)ÙThe Pooling Agreement
(d) The excess of any claim over the amount of the
excess reinsurance and up to around ECU 3,9
(b) The IGA billion (USD 4,25 billion) is again shared by the
clubs under the Pooling Agreement. This is
known as the overspill. Until now, no claim has
ever reached this layer.
The main features of the Pooling Agreement are
described below. The IGA is the object of a case
dealt with separately from this notification.

14.ÙThe qualification ‘up to around’ ECU 3,9 billion
(USD 4,25 billion) for the ceiling set to the overspill
needs to be explained. This ceiling is indeed not a
The claim-sharing arrangement
fixed figure. If an ‘overspill’ claim arises, each
member will have to contribute up to 2,5Ø% of the
maximum liability that it would have to face
11.ÙThe Pooling Agreement is in essence a claim-sharing according to Article 6(1)(b) of the International
agreement between mutual associations. Its purpose Convention on Limitation of Liability for Maritime
is to share proportionately among all the P@I clubs Claims of 1976 (clause 14.2 of the Pooling
the claims made on one club in excess of a certain Agreement). This Article sets a series of maximum
amount. It was signed for the first time in 1899 amounts to be faced by a ship concernedØ(Î). The
between six P@I clubs incorporated in the UK. Since ECU 3,9 billion (USD 4,25 billion) figure is arrived
then it has been modified several times and new at by adding the 2,5Ø% of the maximum liability
clubs have joined it. figures for each of the ships insured by P@I clubs
participating in the Pooling Agreement.

12.ÙThis claim-sharing agreement is necessary to allow
the P@I clubs to offer the high level of cover they
provide at present. Indeed, no single club reaches 15.ÙAt the retention layer, as already said, the totality of
alone the minimum dimension that is necessary to the claim is faced by the club whose member has
have a sufficient spread of the risks insured in order incurred the liability. In each of the other layers, the
to provide such high cover. claims are shared between the clubs according to
different rules:

13.ÙThe claim-sharing agreement provides for different
layers of insurance coverage. (a)ÙBetween ECU 4,57 million (USD 5 million) up
to ECU 27,42 million (USD 30 million) of the
claims are shared according to the percentage of
(a)ÙThe first ECU 4,57 million (USD 5 million) of each club in claims, tonnage and total calls
any claim is borne by the club whose member (advance and supplementary). Each one of these
has incurred the liability. This is known as the three factors accounts for one third of the final
club’s ‘retention’. Most of the claims faced by percentage (this is why this method is called the
the clubs fall in this layer (99Ø% in number and one third formula). There are, however, two
82Ø% in value, for the period 1985 to 1995. qualifications to this formula. First, there is a
loss ratio adjustment that takes into account
whether in the past the club in question has
received more or less contributions than it
(b) The excess of any claim over ECU 4,57 million has effectively contributed to other members.
(USD 5 million) up to ECU 27,42 million (USD
30 million) is shared by the clubs under the (Î)ÙArticle 6(1)(b) establishes a table ranging from USD 50Ø000
Pooling Agreement. Around 20 claims per year for a ship of 500 gross tonnes up to USD 5,5 million for a
have fallen in this layer between 1985 and 1995. ship of 170Ø000 gross tonnes.
C 256/4 EN Official Journal of the European Communities 14.8.98

Second, between ECU 18,3 million (USD Commission considered that this high minimum level
20 million) and up to ECU 27,42 million (USD of cover was contrary to Article 85 because it
30 million), the club incurring the claim receives impeded clubs from competing by offering levels of
a 20Ø% penalty (clause 10.1 and Appendix VI of cover lower than around ECU 16,5 billion (USD 18
the Pooling Agreement). billion), for which substantial demand existed. It also
considered this agreement on a high common level
of cover as an abuse of the collective dominant
position held by the P@I clubs, consisting in limiting
(b) The cost of the Group General Excess Loss Re- the range of insurance cover available in the market
insurance Contract is shared between clubs to the prejudice of consumers.
according to the tonnage insured by each club.
However, the rate to be paid per tonne depends
on the type of vessel. Vessels that in the past 19.ÙIn reaction to the Statement of Objections, the IG
have produced claims reaching this level have clubs agreed to lower the minimum common level of
higher rates per tonne. In fact tankers have cover from around ECU 16,5 billion (USD 18
produced around 80Ø% of the claims that have billion) to ECU 3,9 billion (USD 4,25 billion), a
reached this level and, therefore, their rates per level for which no substantial part of the demand
tonne are much higher. remains unsatisfied.

20.ÙThe IG has also notified an amendment to the
(c) An overspill claim would be apportioned among Pooling Agreement which clarifies that the P@I
all the clubs in the proportion which the club clubs are free outside the Pooling Agreement to
limit of each of the clubs bears to the aggregate offer higher levels of cover than the minimum
of all the club limits, which is calculated common level and, therefore, to compete between
according to the method explained before them in providing such levels (amendment to clause
(paragraph 15). 5 of Appendix III of the Pooling Agreement). They
are also free outside the Pooling Agreement to offer
lower levels individually.
16.ÙIt should be noted that in any event in case of
overspill claims, each club is entitled to deduct from
its contribution the amounts not ‘economically Club rules approval
recoverable’ from its members (clause 14.3 of
the Pooling Agreement). A panel of experts will
determine the amounts not ‘economically recover- 21.ÙThe Pooling Agreement also includes some clauses
able’ in case of disagreement between the clubs that do not concern the method of sharing claims
(clause 15 of the Pooling Agreement). This clause between P@I clubs but are nevertheless directly
limits the exposure of the clubs to a claim, and related to it. The insurance policies (rules) and
prevents clubs from paying sums that they could accounting practices of each club are subject to
never collect in full. approval of the other members of the Pooling
Agreement (clause 16 of the Pooling Agreement).
Actually, three quarters of the P@I clubs can decide
to withhold the benefits of the pool to any P@I club
The minimum common level of cover whose rules and accounting practices are not agreed
by them. The Statement of Objections considered
that these rules are necessary for the proper func-
tioning of the Pooling Agreement.
17.ÙAs explained before (paragraphs 14 and 15), all
members of the P@I clubs are obliged to contribute
to sharing claims up to around ECU 3,9 billion
Reinsurance provisions
(USD 4,25 billion). For a claim-sharing agreement to
function properly, it is necessary that all its members
share claims up to a commonly agreed minimum
level. 22.ÙThe Pooling Agreement also includes the provisions
that should be followed by any club that wants to
provide reinsurance to a third insurer, be it a mutual
insurer or a commercial one.
18.ÙBefore 20 February 1998, this figure was set at
around ECU 16,5 billion (USD 18 billion) (20Ø% of
the maximum liability according to the International 23.ÙIn the Statement of Objections the Commission had
Convention on Limitation of Liability for Maritime considered that there was a lack of objective criteria
Claims of 1976). In the Statement of Objections the and appropriate procedures within the Pooling
14.8.98 EN Official Journal of the European Communities C 256/5

Agreement to decide whether a club could provide dation. If the decision is negative, the insurer refused
reinsurance to a third insurer. This constituted an reinsurance should be given a written notice to that
infringement of Article 86 of the EC Treaty. effect within 10 days of the vote being taken, such
notice to state the reasons for the refusal. The
24.ÙThe IG has notified amendments to the relevant insurer will have the right to appeal against any such
provisions (amendments to Appendix X of the refusal. The appeal will be considered by three arbi-
Pooling Agreement). The proposed amendments trators, who will decide whether the clubs have
provide that any club that wants to provide rein- applied the conditions listed above in a reasonable
surance to a third insurer will need to submit an manner. The parties will designate one arbitrator
application to the IG. The parties to the Pooling each within 14 days of the request for arbitration
Agreement will have to decide whether the third being submitted and the third is to be designated by
insurer satisfies several conditions. Some of these the two other ones, being a senior lawyer
conditions are general and some apply particularly to experienced in commercial and insurance matters,
mutual or commercial insurers. As regards the within 10 days of the two arbitrators being
general ones the insurer should be financially sound, appointed. The arbitrators will determine their own
the P@I cover offered by it should be similar to that procedures and will act with due expedition. They
offered by the IG clubs and it should make an should give their decision in writing, stating their
equitable contribution to pool claims and to the reasons. Their decision should have a binding
excess loss contract premiums. In addition to this, if character.
the insurer is a mutual one (not favoured by
discriminatory laws in its country restricting freedom 26.ÙIn view of the preceding paragraphs, the
of choice of insurer for owners or vessels of that Commission intends to adopt a positive decision
country), it should operate on a genuinely mutual concerning the notified agreement. Before cloing so,
non-profit making basis, its experience and policies it invites third parties concerned to submit their
in regard to claims-handling should be compatible observations within two months of the publication of
with those of the P@I clubs and it should abide by this notice in the Official Journal of the European
the terms of the IGA. If it is a commercial insurer Communities. These observations should be
(favoured by discriminatory laws in its country submitted quoting reference IV/37.143/D-1 — P@I
restricting freedom of choice of insurer for owners Clubs. Pooling Agreement, by post to the following
or vessels of that country), the reinsuring club will address:
have to be responsible for claims-handling and for
the rating on a mutual basis of shipowners on behalf
European Commission,
of the insurer.
Directorate-General for Competition Policy (DG
25.ÙAs to the procedure, a sub-committee of the IG will IV),
have to make a recommendation on the application Directorate D,
within 30 days of receipt of all the relevant Rue de la Loi/Wetstraat 200,
information (this period may be extended by a B-1049 Brussels,
further 30 days during the renewal period). The or by e-mail to
clubs will then vote on the basis of the recommen- ‘Carles.Esteva Mosso’-dg4.cec.be