The recent threats and attacks on merchant vessels by Yemen’s Houthi militia have given rise to safety concerns to vessel owners and charterers alike. In light of the current situation in the Red Sea, a number of members have asked how Club cover may respond to the liabilities that they may incur, as either vessel owner or charterer.
The following FAQs are intended to provide a general overview of Club cover for liabilities arising from War Risks. The War Risks wordings of the Club’s Owners (Rule 21) and Charterers (Clause 16) Rules are set out in full at the end of these FAQs but these provisions of the Club’s Rules address liabilities, costs or expenses caused by:
war, civil war, revolution, rebellion, insurrection or civil strife arising therefrom, or any hostile act by or against a belligerent power or any act of terrorism;
capture, seizure, arrest, restraint or detainment (barratry or piracy excepted) and the consequences thereof or any attempt threat;
mines, torpedoes, bombs, rockets, shells, explosives or other similar weapons of war, save for those liabilities, costs or expenses which arise solely by reason of:
the transport of any such weapons whether on board the entered ship or not, or
the use of any such weapons ……
Members should refer to the Club Rules together with their Certificates of Entry for the detailed terms of their cover.
A. Owners
Do owner’s P&I liabilities arising from incidents caused by war fall within the scope of the customary Club P&I cover?
No, such liabilities are excluded from Club cover under Rule 21 (but see (2) below). An owner’s P&I liabilities arising from incidents caused by war (which includes civil war, revolution, rebellion, insurrection or civil strife arising therefrom, or any hostile act by or against a belligerent power or any act of terrorism) are typically covered by the vessel’s hull war risk insurers. The same exclusion applies to liabilities arising from incidents caused by weapons of war, such as mines and torpedoes and to capture, seizure, arrest, restraint or detainment (but not piracy).
Is there a limit under a hull war risk policy and how can an owner insure P&I war liabilities in excess of such limit?
Yes, P&I cover provided as part of a hull war risk policy will usually only respond up to the insured value of the vessel. However, Club cover is available by agreement for P&I war liabilities in excess of the “proper value” of the entered ship (deemed not to exceed US$500 million), or the amount recoverable in respect of the claim under any other policy, whichever is greater. Unless otherwise agreed, the limit of this “excess” cover is US$500 million in the aggregate per occurrence, inclusive of interest and costs. It should be noted however that there is a sub-limit of US$80m in respect of war risks in the Russia Ukraine Belarus High Risk Area. If the vessel has no or inadequate hull cover in place then the “proper value” is deemed to be a sum which represents the free uncommitted market value.
As an example, if an owner is liable for the wreck removal of an entered vessel, where such wreck was caused by a war event, owner’s hull war P&I insurer will likely provide cover for that wreck removal up to the insured value of the vessel, and the Club’s extended P&I cover will then respond to liabilities in excess of that amount, up to the US$500 million limit.
Are there any exclusions or other provisions that apply to this extended cover?
Yes, the Rules provide for an automatic cessation of cover on the outbreak of war between any of the UK, the USA, France, the Russian Federation, and the People’s Republic of China; the so called “five powers” clause . There are also provisions allowing for (i) the cancellation of cover with a discretion to reinstate cover on revised terms, and (ii) the exclusion of any geographical location on seven days’ notice.
Do P&I war risk liabilities fall within the scope of non-poolable extended covers?
Where an extended cover is in place for P&I liabilities excluded under the Club’s Class I Rules – such as non-poolable contractual indemnities, excess Hague/Hague-Visby cargo liabilities or voluntary wreck removal - liabilities, costs and expenses arising from incidents caused by war are again excluded under from Club cover. However, as with poolable cover, subject to prior agreement the Club is able to reinstate P&I war risk cover for these non-poolable liabilities up to an agreed limit of liability. When a non poolable extended cover is reinstated to include liabilities arising from war risks, the extended cover/s will respond from the “ground-up”. This is because there is no underlying hull war P&I insurance. .
These covers are also subject cancellation or geographic restrictions.Does the Club offer hull war risks cover to its owners members?
Yes. The Club can provide hull war risks cover for owner members of the Club for, including cover during transits to listed high risk or “breach” areas and war loss of hire. The cover includes the P&I war risks from the “ground up”, up to the entry point of the “excess” war cover as discussed above.
Further information on that cover is available here.
B. Charterers
Do charterer’s war risks liabilities fall within the scope of Charterers’ Terms?
Yes. Charterers can also become exposed to liabilities arising from war risks and as there is no underlying hull war P&I cover in place to respond to a charterer’s liabilities the Club’s Charterers’ Terms provide for P&I cover from the “ground-up” to an agreed limit of liability. This cover is conditional on: (a) the relevant charter party enabling the owner to refuse orders to send the ship to any geographical location that is dangerous by reason of war risks, and (b) no express indemnity having been given by the Charterer Member to the vessel owner in respect of such voyage.
Unlike most owners’ hull war cover, the Club’s charterers’ damage to hull cover for incidents caused by war or weapons of war does not typically restrict cover for certain geographical areas, and, therefore, transits to “breach areas” listed by the Joint War Committee can be covered, subject to the voyage being permissible under the relevant charter party, and subject to there being no express indemnity from the Charterer Member in respect of such voyages.
What is the effect on Charterers’ cover of the recent Notice of Cancellation in respect of war risks relating to vessels transiting the Red Sea?
The effect of the recent Notice of Cancellation issued to the Club by its reinsurers and, subsequently, by the Club to its members, is the exclusion of all war risks claims arising within the geographical limits set out therein. Although such exclusion does not apply to mutual entries for P&I (Class I) and FD&D (Class II) cover, nor to the Club’s own Hull War, Kidnap & Ransom or PLR War covers, it applies to all Charterers covers, fixed premium P&I entries reinsured outside of the International Group Programme and any owners’ or charterers’ ancillary or cover extensions, which include war risks.
What are the options available to Charterers’ members following the above Notice of Cancellation?
The Club can now offer Charterers cover to reinstate the exclusion the Club was recently required to impose for Chartered entries in respect of war risks in the lower part of the Red Sea. This is in addition to the Buyback already available for vessels trading in the Russia Ukraine Belarus area, including the Black Sea. Please contact your Underwriting team for details.
The Managers continue to monitor developments in the Red Sea area and will be happy to respond to any further enquiries that members may have.
