Marine insurance. How does it work?

Do not think risks and liabilities can be averted by means of operational excellence. Do not think that the insurance of the shipowner or of the cargo will protect your liabilities as a charterer. The issue of cargo insurance needs to be addressed thoroughly by experts as the charterer’s liability for damage to or loss of the vessel can occur in a number of circumstances.

We see situations where charterers think they are insured but in fact are not. 

In this article we explain for example how the charterer’s liability can be engaged and what to do in the unlikely event of a claim?

The different kinds of owners’ insurance

1. Hull and Machinery (H&M) insurance 

As the name suggests, this covers hull and machinery. H&M insurance can also be extended to cover war risks, kidnap and ransom (K&R) and can include strike insurance at high cost. This insurance is contracted by the shipowners.

2. Protection & Indemnity (P&I) insurance.

Such insurance is provided by P&I clubs (whose history dates back to 1800), namely Shipowners’ Mutual Insurance (1855) covering liabilities for third party risks which are not otherwise catered for in H&M and other policies.

Protection

Risks associated with the ownership of the vessel, e.g., claims involving the crew.

Indemnity

Risks associated with the charter of the vessel, for example, cargo claims.

Freight, Demurrage and Defence (FD&D) 

Also known as ‘Defence’ cover, it provides members with coverage for support in handling claims and legal costs relating to a broad range of litigation.

A number of marine insurers offer reliable charterers’ liability insurance. All are linked in some way, directly or indirectly to Lloyds of London. The charterer’s Comprehensive Liability Insurance standard cover includes:

— Cargo

— Pollution

— Personal injury

— Hull damage

— Damage to other assets

— Contribution of freight and bunkers to the General Average

— War risks (this includes terrorism)

— Fines (customs, immigration and accidental pollution)

— Wreck removal

Typical charterer risks

The charterer’s liability for damage to or loss of the vessel can occur in a number of circumstances:

— Damage to or loss of the vessel arising from charterers nominating an unsafe port or berth.

— Damage to tanks resulting from the cargo per se, such as a corrosive cargo or sediment, or from being displaced during transport.

— Damage to the vessel in the course of an STS operation or lightering.

— Damage to the vessel’s engines caused by inadequate quality of bunkers, which are paid for and supplied by the charterer.

What is a typical Charterer’s Comprehensive Liability Insurance?

Charterers’ Liability cover is open to time and voyage charterers, as well as part cargo charterers who satisfy the Club’s stringent profile and operating standards requirements. 

The cover is not available to bareboat charterers who are required to take out owner’s P&I insurance. The level of cover is up to USD 750 million and USD 1 billion is available on application. The policy holder can choose different single limits combined up to a maximum of USD 750 million per occurrence at a fixed premium, with no additional call.

The premium for the Charterers Comprehensive Liability Cover is dependent on the limit subscribed by the policy holder, the chartering level of activity and the aggregate exposure as per the standard underwriting criteria. The premium payable by the policy holder is billed on a fixed basis, without any additional calls for capital.

There are various packages of premium offers tailored to the needs and activities. For example, an open cover, subject to a fixed non-adjustable premium, is available without the need to declare chartered vessels, as long as they meet certain pre-agreed quality requisites.

What to do in the unlikely event of a claim?

Notify the Club insurer, if necessary, through the broker as quickly as possible. The insurer will determine the merits of the claim, act as a liaison between the various parties, appoint a competent marine claims handler and/or a local surveyor/lawyer to safeguard the claimant’s interests. In addition, your claims handler will compile facts and evidence, conduct negotiations with third parties, issue recommendations on appropriate action and will ensure that insurers get the information they need.

We offer courses, seminars and workshops that combine theoretical and practical training. If you are interested in participating in our programmes, then please contact us

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