Given the current state of the dry bulk market it is evident vessels may enter lay-up. Here, Clubs assess whether it is a "hot" or "cold" lay-up. Only in circumstances when they determine it is a cold lay-up will there be a reasonable return of premium granted.
The conditions for lay-up are typically:
- No cargo remaining on board
- Safe anchorage or berth as determined by Class or surveyors appointed by underwriters (Hull and/or P&I)
- Skeleton crew of no more than 2-3 crew watchmen remain on board
- Minimum number of days in one sequence of 30-45 days
- No hot works to be undertaken
- The vessel is effectively a dead ship
"Typically" the Clubs will agree between a 60%-75% return (dependent upon trading premium) of the P&I trading premium for the duration of the lay-up (no return for FD&D premium). It is important to establish real premium returns since the Clubs, in general, apply different methodology to the actual returns granted i.e. re-insurance, administration, retained premium etc., Upon re-activation, the trading premium is then re-registered.
For H&M, the majority of policies are for "Cancelling Returns Only" ("CRO") which means that no returns of premium are granted for lay-up, only for sales or scrapping etc. It is possible to re-negotiate this with underwriters but there are no guarantees they will agree to lay-up returns. However, they may agree a limited AP for H&M to the expiry of the policy on a fleet basis to reinstate lay-ups i.e. cancel the CRO condition, and then allow a 25% - 35% return on H&M "trading" premium for laid up periods in excess of 30 days, with a re-activation survey warranty if the vessel is laid up for more than 6 months. Premium returns are subject to satisfactory lay-up details.
If owners are willing to increase deductibles to say US$ 250,000 - US$500,000 each incident then underwriters may agree up to a 45% / 50% return. It is all subject to negotiation.
It is possible to cancel both H&M and P&I policies and attach cover on a port risk only policy whilst in lay-up but this only offers limited coverage, including limited P&I, up to Hull value.
Thus, for a claim for ATL/CTL, pollution, wreck removal or RDC/FFO etc. the P&I element of the claim will only cover to the maximum vessel(s) value. For the avoidance of any doubt, the limit for both Hull and P&I risk(s) is the hull value i.e. a combined single limit. It is, of course, possible to perhaps negotiate a separate limit of liability for the P&I but this will come at an additional premium.
The rate is not fixed i.e. a standard rate, and will be determined by the size of the vessel, value, location and firefighting / mooring arrangements etc., but this excludes crew cover which is typically placed as a separate cover.
Underwriters will agree a 5% (only) return for excluding P&I risks absolutely from the standard Time Clauses Hulls – Port Risks conditions.
It is possible, of course, to reduce values(s) to reduce premiums but this concurrently reduces the limits of liability available to owners.
It must be stressed this is a very limited form of cover and carries ‘risk’.