When the topic of breaching International Navigating Limits (INL) is discussed the focus tends to be on owners and their hull and machinery insurance. In this article we will look into breaching INL from a charterers’ perspective, both in terms of potential liability for damage to the vessel and in terms of potential cover issues under charterers’ liability insurance.
Background
INL define the geographical limits within which vessels can operate without incurring additional insurance premium from hull and machinery underwriters. Until 2003 the limits were referred to as IWL (Institute Warranties Limits) and the term IWL is still frequently found in charterparties today. Such references should be updated to refer to INL as the revision involved quite significant changes in some areas.
INL has two types of excluded areas; seasonally or permanently excluded areas. These areas represent additional hazards or increased exposure to the vessel, including ice which can be extremely hazardous to vessels. Even for ice classed vessels the risk of damage is high when navigating in ice and operating outside of INL could lead to damage to the vessel and delay necessitated by repairs.
When breaching INL a vessel navigates into or through one of the excluded areas without the owners advising the vessel’s hull and machinery insurer. Traditionally, hull and machinery underwriters regulate exposure caused by hazards of ice through warranties and exclusions in the insurance policy or agreed special terms and premium. Under English terms, if a vessel owner is in breach of an insurance warranty, this would have the effect that any damage caused to the ship by the ice would fall outside cover. The conclusion would, however, depend on the specific conditions agreed in the individual policy, i.e. the Nordic terms are different from English Institute Time Clauses (Hulls) (ITCH).
Liability exposure
A time charterparty will often contain clauses allocating risks when navigating in areas with ice, or clauses which specifically refer to INL (or IWL). Charterers should carefully review such clauses before ordering a vessel to breach INL.
Some charterparties contain a clause allowing the charterers to order the vessel to a port or place which is outside INL against payment of the additional hull and machinery premium incurred. In such instances the damage to the vessel will be covered by the owner’s hull and machinery insurer, provided notice has been given prior to entering the conditional or excluded area(s), but the clause will often say nothing about the loss of time needed for the repairs. Assuming there is no additional wording regulating this issue there is in fact nothing in the clause that would support a claim from owners against charterers for the loss if time.
Other clauses will give charterers the right to breach INL but will place all risk and consequences on charterers. Considering how extremely hazardous ice can be, this would be an exceptional risk to take on for a charterer, particularly if the vessel is not ice classed.
In addition to clauses referring to INL or IWL, charterers will often be exposed to liability for damage to the vessel and any related financial losses caused by ice either under a safe port clause or under a specific ice clause. Under an unsafe port clause, the charterer may be found liable for consequences of ordering the vessel to a port found to be unsafe because of ice obstruction. Should damage to the vessel occur – the charterer may be liable towards the shipowner for any such damage. The same would apply if there is damage to the vessel and that damage is caused by charterers’ breach of an ice clause, by ordering the vessel to an area with ice.
Skuld’s Charterers’ Liability Cover
Charterers’ liability for damage to hull is a covered risk under Clause 5 of Skuld’s Charterers’ Terms and Conditions. The cover is worldwide, and there is no express exclusion for breaching INL. Nevertheless, charterers should be aware of the potential consequences on cover of chartering or trading a vessel which is unfit or unsuitable for the intended trade. Charterers should always perform a due diligence process regarding the presence of ice and potential hazards in the trading area.
Our underwriters are regularly contacted by charterers clients before fixing a vessel for voyages which would breach any ice trading limits. If charterers are required to sign a letter of indemnity (LOI) to owners, additional cover will probably be needed. Your dedicated underwriter will in close cooperation with members and brokers assess the intended voyage or trade and liaise with your dedicated claims handler to evaluate the exposure under the LOI. To avoid any gaps in the insurance cover, Skuld would always recommend that charterers enquire with owners to ensure that the hull and machinery underwriters have been informed of the intention to breach INL. If hull and machinery insurers have not been informed, charterers are potentially taking on an increased risk of being liable for consequences arising under the LOI because of ordering the vessel outside INL.
Conclusion
Charterers should carefully review charterparty terms before fixing vessels for voyages in breach of INL or similar navigational limits in order to be fully informed of their contractual exposure. In terms of insurance cover, Skuld is available to assist with advice and recommendations. We will also assess tailormade additional cover should this be required for the specific voyage.