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November 6th 2014
Are Private Maritime Security Companies boarding vessels without essential Insurance Cover?  

CSO Alliance followed up on rumours on this issue with contacts in the insurance broking community and the following is our understanding. 

The insurance regime of GUARDCON underpins the relationship between the owners and the PMSC and sets the minimum level of insurance for the liability for the PMSC insurers at US$5m. That includes insurance for death and personal accident up to $250,000 per person and costs for medical assistance and emergency repatriation. As part of the owners due diligence copies of policies may be demanded.  

There is evidence in the insurance market that some PMSCs have bought insurance but, through financial hardship or cost cutting, have failed to pay all or any instalments and may have had their policies cancelled as a result. However, they retain possession of the documentation in an attempt to prove to their ship owner/port authority clients that they have the requisite cover. In the case of non-payment there is a risk that the insurance will not respond to a claim. In the case of cancellation it definitely will not. In both cases it will leave the ship owner or its P & I Club exposed to claims that would ordinarily be borne by the PMSC’s liability insurer. It may also mean that the individuals have no accident insurance.

Effective Due Diligence

There is no effective way for the broker to check if the Security Company has actually purchased a policy with another provider, but his duty of care is to inform the relevant underwriter and the crisis response teams who may well not move to respond to a call for assistance if there is no guarantee that they will be paid. Furthermore he may have to advise those insurers who cover the vessels against hijack and K&R, and who keep a list of approved PMSCs, that a security team is uninsured and thus below the standard required to protect the vessel.

We checked with Stephen Askins of Ince and Co. what due diligence options were open to a CSO. His insight was that it if a CSO asks to see a copy of their policy, a PMSC would be obliged to produce it but he conceded that they could do that, even if they know the cover is no longer in place. The best way to exercise due diligence would be to ask for confirmation of the policy number, proof that the policy is fully paid up with no missed instalments according to the payment terms and for an email from the placing broker that this was the case. At this point, the PMSC has to be absolutely clear on what he has or importantly does not have in place. 

Why do this? 

In this short investigation we have heard of six PMSCs who have had their policies cancelled. They may well have new policies in place, offering a different cover, however if they are indeed sailing without cover it means that if any contractor is injured they simply are not covered. Importantly, if there is any negligent act on board the ship during a transit or at anchorage, the PMSC is not insured to respond to litigation. Many PMSC do not have significant assets and, as the market rates for transits have reduced year on year, so their margins have been squeezed. It is naïve to believe this revenue reduction will not have any impact, but the one area of concern which we are highlighting here is that insurance policies must be ring fenced, and that CSOs may need to focus on this area. 

Next steps…

There may be a simpler way of managing this issue, so we are open to ideas.