Concerns of the Unwelcome Guests

by Graham Barnes, Nicholson Leslie BankAssure Limited

Shipping bankers’ only formal communication with any P&I club comes through the club manager’s standard club Letter of Undertaking, which conveys the impression that mortgagees are ‘the unwelcome guests at the party.References to club rules rejecting assignment of P&I cover and the cessation of cover upon a shipowner mortgaging his vessel without the agreement of club managers are unaccommodating, if not belittling, to guests essential to club members in financing their purchase of ships from which the P&I club subsequently benefits with further premium or calls.

Unlike Letters of Undertaking from insurance brokers on the Hull & Machinery, War and other insurances placed on the open market, P&I club Letters of Undertaking are extremely limited. P&I club managers’ Letters of Undertaking merely confirm that a mortgaged vessel is entered with the P&I club subject to the member’s terms of entry, give a conditional loss payable clause and an undertaking only to advise of non-renewal or cancellation by the club for non-payment of premium or calls. There is no mention of notice being given of club managers suspending cover, or cover becoming discretionary due to the failure of the shipowner to meet the recommendations of the club’s surveyors. Club managers even decline to give mortgagees a copy of the Certificate of Entry detailing the P&I cover terms, the deductibles and any limitations of cover under the club rules; these, they say, have to be obtained from the member.

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