What is Charterers Liability Insurance?

Charterers Liability insurance is a type of coverage which is mainly understood as very complex and probably one of the most overlooked risks. The shipping industry nowadays operates in a world where the liability environment becomes more and more legislative. One of the main reasons for this is an increasing amount of regulation on topics like safety and pollution. Also, a charterer is considered as a carrier under many jurisdictions which involves huge responsibilities and liabilities.

Risks for charterers

Charterers in all its possibilities (voyage, time, slot, space, etc.) are exposed to huge risks either directly to third parties or through contractual liabilities and indemnities. In some occasions these exposures are large enough to threaten the financial basis of even the most well-established company. That is the reason why charterers of a ship today should recognize the necessity to buy insurance protection. The so-called Charterer’s Liability-insurance provides outcome for the client.

How does charters liability work?

In order to charter a ship, ship owners and charterers will most importantly sign an agreement which is called the Charter Party. A charterer will have an obligation to indemnify the owner for third party liability where this results from a breach of the Charter Party by the charterer or arises out of activities which are the charterer’s responsibility. Most ships are chartered either on a time charter or voyage charter contract. Time charter means that the ship is being chartered for a specific period where it is available to the charterer.

The time charterer (Charter Parties: e.g. NYPE, BALTIME, SHELLTIME) can then further sub-charter the vessel to other voyage or time charterers. Voyage charter (Charter Parties: e.g. Gencon, ASBATANKVOY, AMWELSH) means that the ship is being chartered for a specific voyage from A to B with specific cargo. In both cases the charterer assumes liabilities towards the shipowner for damage caused to the ship during cargo handling, because of damage resulting from an unsafe port or berth, or due to stowage of cargo. Also, charterers can be held liable for damage to, loss or shortage of cargo. In all charter parties charterers have their liabilities for e.g. damage to hull, damage to cargo, P&I, pollution.

Coverage for vessels in three main areas

Charterama offers coverage for their clients in three main areas and is then further able to provide additional services whenever required. Our portfolio contains the following:

Class A – Charterers Liability:

• Damage to hull: Covers for e.g. hull damage as consequence of: stevedore damage, unsafe port/berth, off-spec bunkers, stowage. Also covers for time lost in repairing the vessel;
• Cargo liabilities: covers for cargo damage: shortage, etc. claimed under the Charter Party. (e.g. receiver claims owners for damage or shortage under a B/L issued by owners; owners claim charterers under Charter Party terms). This covers only claims arising during loading, sea voyage and discharge. Pre- and onward carriage may also be covered, but please get in contact with one of our underwriters for the possibilities;
• P&I: covers for illness, injury or loss of life of third parties, pollution, damage to third party property, GA, wreck removal, etc.;
• Costs: covers for costs like sue and labour, fines, stowaways, replacement of bunkers, etc.

Class B – Cargo Owners Legal Liability:

• If the charterer of the vessel is also the owner of the goods they may find a claim being brought against them in their identity as a cargo owner. In principle the Charterers Liability insurance would not respond. Class A limits the pollution cover to only the liabilities in the identity as a charterer. Class B covers the assured for liability (pollution) as per Class A, but also in their identity as cargo owner.

Class C – Defence:

• Typical disputes that involve charterers concern hire/off-hire; freight and deadfreight, laytime, breach of contract, speed/consumption issues and so on. Legal expenses from disputes under the Charter Party are covered under the Defence (FDD) cover as an extension to the main Charterers Liability cover. Even if the charterer is not liable for a damage defending yourself against false claims can become very expensive. Not only are expensive legal fees covered but Defence (FDD) also provides access to our own in-house legal expertise in providing all kinds of advice relating to contracts etc, advice on mitigating losses and the like. Please contact your underwriter for further information on this.

Published by Charterama b.v.