Advice for charterers as legal liabilities grow

A surge in the volume of fixed premium business managed by the UK P&I Club and the proportion accounted for by time chartering has highlighted the growth and complexity of insuring these types of shipping operation.

The financial results for the year ended February 20th 2007, discussed by the UK Club's directors earlier this month (May), revealed that $65 million of the Club's total gross premium income ($358 million) was fixed premium business - and that two-thirds of this came from time charterers.

Risk is increasing, not only through aggregations of value carried on ever larger ships and increasing commodity prices but also because of significant claims inflation. Legal and regulatory changes, the approach of port authorities and court decisions have effectively meant an increase in charterers' legal liabilities across a wide spectrum of marine incidents.

These growing liabilities concern slot, space, voyage and time charterers, traditional charterers with a ship operating background, trading companies moving raw materials or finished products, and traders moving goods on a scale which requires chartering. In a serious accident, all connected parties may be involved.

Consequently, P&I clubs have been receiving a growing number of enquiries about charterers' liabilities and more requests for protection & indemnity cover to meet possible exposure. Increasingly, charterers are looking for cover tailored to their particular situations, which integrates hull and other covers, provides pure liability protection for non-operational charters and offers pollution liability without sub-limit.

These factors have prompted the UK Club to extend its cover to meet these requirements and to publish an eight-page guide on Charterers' Liability Cover, available in newsletter or online format on www.ukpandi.com. The key charterer's risks can be categorised as direct liability to third parties, indemnification of owners and hull damage.

Third party liabilities are examined in terms of standard and extended cargo cover, pollution, personnel and fines. Charter parties may have to indemnify owners in respect of unsafe port conditions or berths, crew and stevedore injury, dangerous goods, stowage incidents, bunker quality and pollution. Hull damage may also involve stevedores, port or berth, stowage, hazardous cargo and bunker quality. General Average and salvage liability may be involved.

Freight Demurrage and Defence cover for legal costs is available from the UK Defence Club.

According to Dr Chao Wu, Legal Director, Thomas Miller P&I Ltd: "A charterer needs standard P&I cover for the same risks as are usually insured by an owner. However, a charterer may need to widen the scope of cover for direct liabilities if he agrees to take on contractual risks that would not fall to him as a matter of law. He will also need cover for liability where he indemnifies the owner for such risks."

In choosing a P&I club, charterers need also to consider the support network, the ability to minimise delay due to arrest or detention and speed of response to continual changes in the chartered fleet.

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