The document discusses the risks faced by charterers in shipping and the importance of liability insurance. It notes that while charterers have little practical control over operations, they are still responsible contractually for actions of port operators, shippers, terminals and others. It provides examples where charterers were found liable for millions due to ship sinkings or cargo damage. The document advocates for charterers to carefully review clauses, understand assumed risks, ensure adequate counterparty and financial due diligence, and properly insure against risks to limit liability exposure in the case of incidents.

1. The Insurance Market
A Charterers View Point
Gavin Ritchie
Underwriting Director
The Charterers P&I Club

2. Who needs liability insurance?
• Simplistic view of the principal
– If you operate ships commercially you seek to employ the vessel to ensure
maximum efficiency of voyages, cargoes and profit and you are exposed to
both a head and sub-charter which often have very different terms.
– If you are an exporter selling CIF or CFR or an importer buying FOB you
agree a charter party in which its likely you are exposed to shipping risk.

3. What are the underlying risks?
• Both as a time charter operator and as a voyage charterer
• The charterparty is a complex contract under which you give
representations and warranties with regard to:
• The nature of the cargo to be carried
• The ports and/or berths at which the ship might call
• You are at risk of serious claims, including loss of the ship, wreck
removal and death or injury that may arise from:
– Spontaneous combustion – eg a fire
– Failure of the port or berth operator to ensure safety of the port or a berth
» Negligence of the pilot
» Underwater obstruction at berth

4. A Practical Demonstration

5. It’s not just a theoretical risk
• “Ocean Victory” - sank within port limits at Kashima, Japan – charterers were
in the first instance found liable for sending the vessel to an unsafe port
US$138 million claim against the Charterer for breach of ‘safe port’ warranty –
final appeal pending
• “Smart”– sank outside the port of Richards Bay, South Africa having loaded coal
– owners allege port was unsafe claim US$150 million.
• “Athos 1” – unsafe berth claim in the US –damage and pollution caused by an
obstructed berth – claim circa US$130 million.
• “NASCO Diamond” – sank at sea having loaded a cargo of Nickel Ore in
Indonesia.

6. The Charterer has little or no effective practical control
over operations, but still takes responsibility
for the actions of others eg:
• the Port fails to maintain safe working systems
• Shore based handling facilities collapse
• the Shipper mis-declares a dangerous cargo
• the Terminal operator is negligent
…The Charterer is responsible!
• Responsible not through ‘actual fault’ but contractually under the terms of the
charterparty entered into
Stepping into a Contractual Minefield

7. What if ?
• The permutations are endless – each case is unique
• The particular set of circumstances surrounding any serious casualty are only
revealed with hindsight
• No set of procedures or charterparty is ever perfect
• The reliability of your counterparty and others on whom you rely is critical
– Operational standards
– Risk Management
– Credit worthy
– Fully insured with reputable underwriters

8. Operator v Voyage Charterer
• Its taken for granted that operators or those that charter on period or TCT have
a requirement for P&I Cover, yet some still don’t have cover.
• About half of our very large claims ie exceeding USD 2 million are under voyage
contracts; our second largest claim – USD 7 million – Gencon C/P unsafe port.
• When considered its only a matter of different degrees of risk when you review
the types of exposure.

9. The Clauses - Hull
NYPE
The Vessel shall be employed in such
lawful trades between safe ports and
safe places…..as the Charterer shall
direct.
Gencon
One safe berth one safe port xxx where
the vessel can always lie safely afloat.

10. The Clauses - Cargo
NYPE
Cl 8 – …. The Charterer shall perform all
cargo handling, including but, not
limited to loading, stowing, trimming,
lashing, securing, unlashing, discharging
….. at their risk and expense.
Cl 27 – Cargo claims ….. will be settled
between the Owners and Charterers in
accordance with the Interclub
agreement.
Gencon
Cl 2 - The owners are to be responsible
for loss of or damage of the goods
only in case the loss, damage or delay
has been caused by the want of due
diligence on the part of the owners
…. to make the vessel seaworthy
And the owners are not responsible
for loss, damage or delay from any other
cause whatsoever…..

11. A Changing Market
• BIMCO and IG Clauses transferring actual and commercial risk
• Wreck removal now compulsory in many jurisdictions
• More parties aware of their rights
• Less due diligence in what is going into charter contracts
• Lack of understanding of what risk is accepted

12. Shipping Market Clauses
• BIMCO act as a powerful representative body for ship-owners:
– Political lobbying
– loss prevention,
– maritime safety
– BIMCO Contractual framework
• BIMCO clauses are not compulsory
– Their Members are owners and they reflect the views of their Membership ie owners
– They should be reviewed carefully
– Often more balanced clauses are available
• Many examples of Market Clauses that determine risk
– Stevedore damage
– Cargo Claims
– Shortage claims
• Review each clause very carefully;

13. BIMCO Clauses for voyage charterers
• BIMCO Gulf of Mexico Oil Spill Clause for Voyage Charter Parties
• BIMCO Bunker Rise Clause for Voyage Chartering
• BIMCO Containers Clause 2002
• War Risks Clause for Voyage Chartering
• BIMCO Infectious or Contagious Diseases Clause for Voyage Charter Parties
• BIMCO Piracy Clause for Single Voyage Charter Parties 2013
• BIMCO Slow Steaming Clause for Voyage Charter Parties
• BIMCO Ice Clause for Voyage Charter Parties
• BIMCO Stevedore Damage Clause for FIO Voyage Charter Parties 2008
• BIMCO EU Advance Cargo Declaration Clause for Voyage Charter Parties 2012
• International Group of P&I Clubs Financial Security In Respect Of Pollution
Clause

14. Let’s not forget the Time Charterer
• BIMCO Bunker Non-Lien Clause for Time Charter Parties
• BIMCO Bunker Quality Control Clause for Time Chartering
• BIMCO Cargo Fumigation Clause for Charter Parties
• BIMCO Hull Fouling Clause for Time Charter Parties
• BIMCO Ice Clause for Time Charter Parties
• BIMCO Infectious or Contagious Diseases Clause for Time Charter Parties
• Parties
• BIMCO Piracy Clause for Time Charter Parties 2013
• BIMCO Radioactivity Risk Clause for Time Charter Parties 2012
• BIMCO Ship to Ship Transfer Clause for Time Charter Parties
• CONWARTIME 2013 War Risks Clause for Time Chartering
• BIMCO Stowaways Clause for Time Charter Parties 2009
• BIMCO Solid Bulk Cargoes that Can Liquefy Clause for Charter Parties
• BIMCO Securing Materials Removal Clauses for Time Charter Parties

15. Blueprint for Effective Risk Management
• Understand the implication and effectiveness of key charterparty clauses
• Identify the risks you are assuming and ensure that are you comfortable
bearing that risk
• Are clauses that protect you or you might seek to rely on watertight ?
• Counterparty risk - up and down the chain and all parties for whom you are
responsible
– Contractual
– Operational/Reputational
– Financial due diligence
– Adequacy and evidence of insurance arrangements

16. Blueprint for Effective Risk Transfer
• What steps can you take to minimise or transfer the risk that you are taking?
• Pro-active management of problems
• Insure with a secure and reputable underwriter that can help you manage your
risk.
– Scope of Cover
– Expertise
– First Class Security
– Well resourced
– Give advisory services

17. Current Issues
1. Subrogation
2. Limit of Liability (exposure)

18. Subrogation
Subrogation is the right for an insurer to pursue a third party that caused an
insurance loss to the insured. This is done as a means of recovering the amount of
the claim paid to the insured for the loss.
Our largest claims over the last 10 years have all been subrogated claims where
the party pursuing our client is a subrogated Hull, Cargo or P&I Underwriter.
Trap for the unwary:
– Notify you insurers;
– Get contemporaneous evidence

19. Limit of Liability
Under Insurance is a serious problem and claims can encompass
1. Loss of vessel
2. Loss of cargo
3. Pollution
4. Wreck Removal
The Rule of thumb has changed over the last five years.

20. • Set up in 1986 and we were the first specialist Club dedicated to insuring
charterers
• No conflict with Ship-owners because we do not insure owned ships
• Largest team dedicated exclusively to handling charterers’ interests:
• Security of our polices rated AA- (S&P)
• Offices in London, Dubai and Shanghai: “3 hubs, 1 team”
• 13,000 vessels insured annually
• 2,000 claims each year
• Our large casualties can cost $$ millions in investigation fees
Questions