Cargo insurance

The importance of the Charterer’s Liability Insurance

What is one of the first things that most charterers arrange before they enter the market? It is the same that most shipowners ask from their counterparties before they conclude a fixture: The Charterer’s Liability Insurance. But what is this about? As shipowners have a P&I cover so as to indemnify third parties for any liability which may arise from the ship’s actions, a similar cover also exists for Charterers. In contrast to Owner’s P&I Club Insurance, Charterers’ Liability Insurance cover is not mandatory and the Charterers may decide to take all the risk themselves. However, there are a number of reasons which make most of the Charterers -if not all of them- prefer to be protected with a Charterer’s liability insurance cover.

But let’s see the main risks covered in the Charterer’s P&I Insurance:

Cargo: In case of any cargo damage, cargo shortage or late delivery, the Charterers may be liable directly to the cargo owner when they are the carriers under the bill of lading or when an Interclub clause has been agreed or in cases where the claim is unsecured and it cannot be recovered from the Shipowner.

Pollution: Under certain jurisdictions, the Charterers may be considered liable for oil pollution especially if they are considered as the operators of a vessel. In this case, the charterer’s liability insurance is very important in order to place the proper security and the vessel to resume her passage.

Indemnification of third parties: Third parties may have claims against Charterers from actions which have been arisen due to Charterer’s negligence. Such negligence may arise in many ways; for example, the charterers may be liable if they give an improper description of a cargo loaded which subsequently creates damage or injury to the stevedores or any third party. Also in certain cases under the charter party, the responsibility for the loading/discharge operations passes from Owners to Charterers and therefore the Charterers may be subject to third parties’ claims.

Indemnification of Shipowner: In case of a breach of the charter party from Charterers, Owner’s claims are covered. There are a number of issues which may arise and the Charterer’s Liability Insurance comes to cover, a few of which are the following:

  • (a) Bunkers: In time charters, the Charterer is responsible for the supply of bunkers to the vessel. If any damage to the vessel’s engine or machinery occurs due to off-specification bunkers, the Charterers will have to indemnify the Shipowner for the relevant damage and any consequential expenses.

  • (b) Stevedore damage: According to most charter parties and unless otherwise agreed between the parties, Charterers are responsible for the stowage of the cargo. Therefore, if any damage occurs with the vessel’s cranes during port operations, Shipowners will have a valid claim against Charterers.

  • (c) Safe Port: According to most charter parties, Charterers have the obligation to instruct the vessel enter into safe port/berths only. A breach of this warranty could result in liabilities related to cargo loss or damage, pollution, personal injury or wreck removal.

  • (d) Dangerous Cargo: Upon fixing the vessel, Charterers should provide the exact description of the cargo, especially when it requires special handling. More specific details should be provided to the Master prior loading in order to allow the crew to take precautions for protecting the vessel, the crew and the environment. In case this is not done properly or in cases where the Charterers misdescribe the cargo, it can result in damage to the cargo or stevedore damage or even illness/ death of crew members or maybe pollution.

Damage to Vessel’s Hull: The P&I covers offered to the Owners do not insure the damages to the hull. However, this is important for Charterer's liability Insurance cover due to the many ways that a Charterer may be liable for the damage to vessel's hull. A dangerous cargo or any mishandling at the load/discharge port from stevedores or the cargo's bad stowage may result in such a damage which is recoverable from Charterers.

FD&D Insurance (Freight, Demurrage and Defence): It covers a Charterer against legal costs which may result from defending claims arising from contractual disputes such as those under the terms of the charter party, the bills of lading or other forms of contracts of carriage. FD&D also provides legal advice to Charterer’s for any claim that they have against Shipowners or a third party. The FD&D Insurance is usually a cover which is offered additionally to the Charterer’s P&I Insurance.

The cover is not mandatory, but is this important?

Despite the fact that it is not mandatory, it is highly recommended for Charterers to take such a cover. There are several jurisdictions which consider Charterers as the carriers putting more liabilities on their arms, while the cargo claims or the claims which may arise under the charter party may be extremely complex or cost effective. It has been found that almost half of the cargo damages occur due to Charterer's omissions or faults, about one-fifth of the pollution claims occur due to the cargo or the bunkers supplied by Charterers while more than two-thirds of the damages to hull occur during port operations. For these reasons, it is very usual Shipowners not to fix with Charterers who do not hold such insurance with trustworthy P&I Clubs/Underwriters or if they fix to ask for discounts. Therefore, Charterers who have decided not to take a Charterer’s liability insurance in order to cut their costs, they finally take both the operational risk and a lower profit.

Who offers the Charterer's liability Insurance?

The Charterer’s Liability Insurance is provided by both P&I Clubs and alternative markets (independent insurance companies). Traditionally, the P&I Clubs were considered as more dedicated in shipping business and they offered higher insurance limits at a higher cost though. In general, the P&I Clubs are preferred for Charterer’s liability insurance mainly from large Charterers or from those Charterers who are also Shipowners themselves and have their vessels entered in any of these clubs. Since the P&I Clubs are associations of Shipowners, they are mainly intended for shipowners and given that they can accept a limited amount of fixed-premium business, shipowners may have a priority over charterers. Furthermore, in case of dispute between a Charterer and a Shipowner who are both entered with the same P&I Club, there may be a conflict of interest. Last but not least, the P&I covers are offered according to the Club's standard rules which have been mainly tailored as per Shipowner’s needs.

The below table shows the charterer’s tonnage entered in P&I Clubs in 2015.

Table shows the charterer’s tonnage entered in P&I Clubs in 2015

Due to the reasons explained above, a lot of Charterers take liability insurance from independent underwriters who recently offer competitive covers with higher limits than before. There are a lot of such companies available in the market and a few reputable are the following:

British Marine: They were established in 1876 and on the Charterer’s Liability they offer P&I cover up to USD 100 million with Charterer’s Damage to Hull being limited up to USD 50 million. They cover chartered vessels up to 30,000 GT.

Carina: It is a recently established firm who offer their covers since 2013. They cover Charterers of small vessels up to 5,000 gross tons, which mainly operate in domestic or inland waters. Limits for Charterers are available up to USD 50 million.

Eagle Ocean Marine: The covers of Eagle Ocean Marine are primarily focused on operators of smaller ships, up to 12,500 GT, which operate in regional waters. This is an affiliated company of The Shipowners Claims Bureau, who are the managers of the American P&I Club and Atlantic Marine Associates.

Hydor AS: They were established in 2010 and offer charterer’s liability insurance cover with limits up to 1 billion. Hydor is underwriters for a Lloyd’s of London syndicate and they can cover any size of vessel for Charterer’s liability Insurance.

Lodestar Marine: They have been established since 2004 and their Charterer’s Liability insurance covers vessels up to 10,000 GT.

RaetsMarine BV: RaetsMarine have been established since 1993 and its first operation was related to Charterer's liability insurance. Therefore RaetsMarine is now one of the largest companies offering Charterer’s liability insurance to more than 1,000 charterers, including traders, operators, NVOCC’s and others chartering vessels offering limits up to USD 500 Million.

Charterama BV: Charterama BV was established in 2009, based in Netherlands, as an underwriting agency offering a full range of Charterers’ liability coverage. The company has been grown during the last years offering Charterers’ Liability, Damage to Hull and FD&D coverage with limits up to US$ 350 Million and US$ 2 Million for FD&D. More covers, such as War insurance and Bunkers insurance are also available.

Charterer’s P&I Club: It was founded in 1986 and commenced operations by specializing in Charterer’s liability insurance. Michael Else & Co. are the managers of the Club and provide all underwriting and claims support, through their global network. The facility provides limits of liability up to USD 500 million for charterer’s liability insurance and up to USD 2 million for FD&D.

Owners & Charterers are insured. What about the shipbrokers?

Except of the Charterer’s liability insurance, there is also a specialized cover for shipbrokers: The Shipbrokers Indemnity Insurance. It covers Shipbrokers from any errors which can take place during negotiations and which could result in expensive mistakes. Time pressure can often create mistakes such as:

  • — Offers or other communication sent to wrong email address
  • — Acting without principal’s full authority or for a non-existing principal
  • — Passing forward wrong or misleading information
  • — Mistake on the details of an offer sent to the other party
  • — Negligent statements made for the background of the Shipowner or the Charterer to the other party

Proper insurance is one of the key points for Shipowners and Charterers of doing successful shipping business. Since OpenSea Team understands the importance of being insured with a reputable and stable underwriting firm, we are going to offer different types of cover for our users. Therefore, we are searching for reliable partners in this segment and open for collaboration with them.

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