Charterers Liability Insurance

Why do I need Charterers Liability (P&I) Insurance ?

Charterers sometimes accept words in a Charterparty, which purport to provide them with the full benefit of the Shipowner’s P&I cover, as being sufficient for their needs. This is not the case because the benefit of Shipowners P&I cover cannot be assigned or extended to include another party unless the P&I entry itself has been formally amended. More importantly, even if the benefit of Shipowners P&I is successfully assigned, its Shipowner focused terms of cover would not be adequate to protect against the additional and special P&I risks that are particular to Charterers.

The principal Charterers P&I risks covered by Maritime Mutual entry are as summarised below – specific details are contained in Maritime Mutuals  Rules of Entry, Class VI, Rule 4, Risks Covered

Defence and Legal Costs

Maritime Mutual Charterers P&I is designed to cover their Members’ exposure to legal liabilities which may arise in contract, in tort (negligence) or as a breach of maritime or other law. In addition to covering the direct cost of these liabilities, Maritime Mutual P&I also covers the expense of comprehensive and pro-active liability defence inclusive of survey, claims adjustment, legal advice and ultimate settlement on best terms for the Member.

Damage to Hull (DTH)

Charterparties invariably contain specific terms that obligate the Charterer to both nominate and ensure a safe berth or port. A breach of these obligations could result in a badly damaged ship’s hull and a massive H&M led recovery claim against Charterers for repair costs and consequential losses. Charterers might also be ultimately held liable for wreck removal costs as well. Maritime Mutual Charterers P&I covers all of these risks.

Cargo Damage

Charterers operating in the liner trades often issue B/L’s that name them as the contracting carrier. As such they will be directly responsible for cargo claims for damaged cargo. In other cases, Charterers may find that despite their intention that the shipowner is to be named as the contractual carrier, an error has occurred in the issue and signature of the B/L. The result being that Charterers are deemed to be the contractual carrier and directly liable for cargo damage. Another direct liability scenario is cargo damage during loading and discharge caused by stevedores engaged by Charterers.  Further, the commonly used NYPE Time Charter contractually apportions damage claims between Charterers and Shipowners. Maritime Mutual Charterers P&I covers all of these risks.

Off-spec Bunkers

Time Charterers are required to provide bunkers to a chartered ship that meet the owner’s precise technical specifications. If they do not, due to supplier failures or other causes, then Off-spec bunkers can damage the ship’s engines and contaminate the ship’s bunker tanks. Large claims from the shipowner can then be brought against the charterer for engine repairs and delay together with Off-spec bunker removal and tank cleaning charges. Recovery will then have to be accomplished against the bunker provider. Maritime Mutual Charterers P&I covers all of these risks.

Salvage and General Average (GA)

The provision of salvage services will require the benefiting parties to contribute proportionately to the salved value of the maritime property saved inclusive of cargo, bunkers, freight at risk and the ship itself. Time Charterers, with respect to the value of their bunkers, will, therefore, be required to provide a salvage guarantee and then contribute pro-rata to the salvage award. Voyage Charterers who are also the owners of the cargo on board will be obligated to do the same. Additionally, if GA is then declared by shipowners, similar but separate guarantees and contributions will be required to be made through the shipowners appointed GA adjustors. Bunker and cargo values can be very high. Maritime Mutual Charterers P&I covers all of these risks.

Fines

Fines can be imposed by maritime authorities, inclusive of customs officials, against a ship and her cargo for a variety of reasons. These can include fines arising out of alleged cargo shortage or damage claims, non-compliance with cargo related regulations, smuggling and immigration breaches. Such fines can be issued directly against a Charterer or form part of a subsequent indemnity claim by Shipowners or Sub-charterers.

Injury or Death of Stevedores, Ship’s Crew or 3rd Parties

Charterparty terms may be such that the Charterers are both financially responsible and legally liable for the loading, stowing and discharging of cargo. In such circumstances, Charterers could be held directly liable for the death or injury of any person engaged in cargo handling and tallying inclusive of stevedores, ship’s crew or other parties. Alternatively, a Shipowner’s indemnity claim against Charterers could arise in the event of negligent cargo handling or unsafe stowage resulting in personal injury or death.

Fixed and Floating Objects (FFO)

Claims for damage to jetties, shore cranes, navigational buoys and other such FFO type objects will normally be brought directly against the Shipowner. However, if the damage arose from the proven breach of a Charterparty ‘safe port/berth’ warranty, then the Shipowners and their own P&I Club would likely bring a recovery claim against Charterers.

Pollution

Pollution from a cargo of persistent oil loaded on board a tanker or from its bunker tanks will be regulated by the Civil Liability Convention (CLC). It requires claims to be brought directly against the registered Shipowner and no one else. As such, the CLC appears to provide a shield against an attack on Cargo Owners and Charterers. However, it will not negate an indemnity claim against Charterers if the spill occurred as a consequence of a proven breach of a Charterparty ‘safe port/berth’ warranty. Nor will the CLC deflect blame in countries that have created and legalised methods of attacking Charterers under the provisions of national criminal law.

Pollution from the bunker fuel tanks of any vessel, except a CLC regulated tanker, will be regulated by the Bunker Convention. This convention has extended the range of strict liability to include the Charterer of the vessel who may be held directly liable by 3rd parties for bunker spill pollution damage and consequential economic losses.  It would then be necessary for the Charterer to defend themselves by formally joining in the Shipowner to the legal proceedings. This is a complex situation that would be both time consuming and expensive.

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