Charterers' Liability Cover - UK P&I

Charterers’
Liability Cover
If things go wrong, being a charterer can be very
expensive in terms of potential losses and liabilities

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Charterers’ Liability Cover
Risk is increasing, and not only because of aggregations of value carried
on ever larger ships, and increasing commodity prices.
The regulatory environment underpins claims
inflation and will look at all connected parties in
the event of a serious shipping accident, not just
the shipowner.
You may be a slot, space, voyage or time charterer.
You may be a traditional chart-erer with a ship
operating background, or a trading company moving
raw materials or finished product, or a trader buying
and selling on a scale that requires chartering.
Whichever you are, you will find what you need
in UK Club’s Charterers’ Liability Cover facility,
which can be adapted to meet your exact needs.
You certainly need insurance. It may be that the
traditional product meets your needs well – and it
remains available. However, increasingly charterers
are seeking something specifically tailored to their
particular situation – in which case the flexibility
of our new product can provide what you need.
• Tailored package of cover and premium
• Integrates with hull and other covers
• Pure liability protection for non-operational
charterers
• Pollution liability without sub-limit
• Most extensive network support
• Minimise delay due to arrest/detention
• Responds to continual changes in charter fleet
• Minimises administrative burden
Why a UK Club cover?
Financial security and service are the twin pillars upon which the UK
Club bases all its activities. The cover and service provided to the
charterer member is no exception.
The UK Club’s strength as the world's largest P&I
club enables it to negotiate covers offering greater
scope and limit, and deliver them for a more
competitive and stable price than charterers might
achieve individually.
The resources and economies of scale that the UK
Club enjoys as the world’s largest mutual P&I
insurer confer considerable benefits on its owned
and chartered Members including:
Claims
As a mutual, the Club takes a positive, co-operative
attitude towards its Members’ claims. The wide
spread of international offices and staff makes it
sensitive to the needs of different regional and
trade areas.
Genuine 24 hours claims handling response
The UK Club possesses the largest international
office network in the P&I industry. Offices in
New Jersey, San Francisco, London, Piraeus,
Singapore, Hong Kong, Beijing, Shanghai and
Tokyo are manned by dedicated UK Club service
teams. Recruited from a variety of operational,
legal and technical backgrounds, they combine
in-depth expertise with awareness of commercial
realities – to advise on shipping, liability and
insurance issues.
An unrivalled online claims support service
Innovative web-based technology, including our
“ClaimsTrac” system, allows you to access and
analyse your claims data and loss record at your
convenience – day or night.
Commercial underwriting
The UK P&I Club takes a flexible, individual
approach to cover for all Members. Many of its
underwriters have been longstanding specialists in

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particular sectors or geographical regions.
Financial security
The UK Club’s considerable reserves, prudent
reserving policy and comprehensive reinsurance
protection provide great financial security. The
Club has maintained a Standard and Poors rating
at the highest level of any P&I club since that
agency began reporting on the mutual P&I
industry.
Flexible and innovative service
The UK P&I Club continues to pioneer many
new service initiatives such as its “value for
money” system, managing the performance and
costs of all parties in the claims process. Increased
recent exposure of ship operators to criminal
liability and media attention has been met with
more developed specialist expertise and
relationships with the relevant agencies.
Loss prevention and advice
The UK P&I Club is committed to safety. Its
high-level loss prevention programme – the most
extensive in the industry – aims to offset rising
claims and maintain quality amongst Members.
Flexible Charterers’ P&I Cover
UK Club charterers’ liability insurance provides
the benefit of access to the broad cover described
within the Club’s Rules. However, the unique
position of the charterer in the maritime industry
requires an enhanced and tailored cover to ensure
that those exposures which go beyond those of the
conventional owner-operator are addressed and
financially secured.
Comprehensive cover with high limits at a
competitive prices
The flexible charterers’ cover offers variable limits
of cover up to US$750 million any one accident
or occurrence.
No sub-limit for pollution
There are no sub-limits imposed below the overall
agreed limit of the cover for either pollution risks
or other exposures arising from the ship owners
limitation clause.
Integrates with hull and other covers
The flexible charterers cover is designed to be
combined with the Damage to Hull cover as well
as other risks (see below)
Pollution liability cover for charterer’s
own cargo
Cover can be extended to include cargo owner’s
pollution liability where the charterer or an
affiliated/associated company is also the cargo owner.
Pure liability protection for non-operational
charterers
Cover can also be extended to include the
Members’ legal liability as cargo owners and/or
shippers where no charterers interest in the
carrying vessel exists.
Flexible range of additional tailored covers
Many operators require additional specialist risks
to be included to reflect the particular hazards
faced by their sector or trading pattern. A review
of some of the key additional covers can be found
on the back page of this brochure.
Damage to Hull
All risks cover for charterers’ ships
Cover extends to include financial loss, liability,
costs or expenses arising as a direct consequence of
loss of, or damage to, the entered ship.
Associated costs and expenses
Sue and labour and legal costs in accordance with
the cover provided under the flexible charterers
liability cover.
General average and salvage exposure
Cover includes the charterer’s general average and
salvage contributions and salvage charges in
respect of loss of or damage to the entered ship,
charterer’s bunkers on board and the freight at risk
in relation to the ship.
High limits of cover
The flexible charterers’ cover offers variable limits
of cover up to US$750 million on any one
accident or occurrence. To obtain the full limit of
US$750 million, cover must be purchased on a
combined basis.
War Risks
Standard cover includes War Risks on a worldwide
trading basis.
Additional covers
A charterer often requires protection for loss of or
damage to his bunkers arising from an incident
involving his ship (see back page for additional
covers).

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What are the key charterers’ risks?
Dr Chao Wu, Legal Director of Thomas Miller P&I Ltd explains the
key risks to which a charterer is most commonly exposed and for which
cover is available.
P&I
A charterer needs standard P&I cover under the
Rules for the same risks as are usually insured by
an owner – and will therefore have cover for his
direct liabilities to third parties in respect of risks
set out in Rule 2. 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 (I).
However, a Charterer also needs cover for liability
to indemnify the owner for such risks, set out in
Rule 2 (II).
Let us look at each in turn.
Charterer’s direct liability to
third parties
This can arise either in contract or in tort, as in
the examples below.
Cargo
A charterer will be liable directly to the owner of
damaged or lost cargo when he is the carrier
under his own bill of lading, or, as may happen in
some jurisdictions, if he is considered to be the
carrier under an owner’s bill of lading. Less
commonly, a charterer may face a claim in tort
where the carriage contract is with the shipowner,
especially if the claim is unsecured and the
prospects of recovery from the owner are
uncertain.
Extended Cargo Cover
A charterer may need an extension to the scope of
his direct P&I cover. He may for example enter
into cargo service contracts that are more onerous
than the Club’s standard terms, Hague-Visby. He
may need cover for geographical or contractual
deviations, such as dry docking with cargo on board.
This extended scope of P&I can also respond to
claims arising from the delivery of cargo without
the production of an original bill of lading provided
the charterer has taken a letter of indemnity on
the standard form of wording recommended by
the International Group. The policy can also cover
claims arising from delivery at a port other than
that mentioned in the bill of lading, ad valorem
bills of lading, rare and valuable cargo, and
liabilities arising from unreasonable periods of
storage. There is a US$50 million limit on cover
although more is available if required. The policy
excludes inherent vice, delay and loss of market.
This extended cargo cover is of course not just
available to charterers but is also available to ship
owner Members.
Pollution
In certain jurisdictions e.g. California, Alaska &
Japan, a charterer can incur direct and even strict
liability for pollution caused by the ship. This may
arise in a variety of ways.
First, by force of law due to the vessel’s operations.
For instance, in the United States Oil Pollution
Act 1990 (OPA 90) provides that “any person
owning, operating or demise chartering the vessel”
may be liable. Although under OPA 90 it seems
that a time charterer is only liable if considered to
be the operator of the vessel as well, the individual
states in the US have been able to enact their own
legislation and most states target, “transporter of
oil”, “person having control over oil”, “person
taking responsibility” so that a time charterer can
be at risk. Additionally, in some states such as
Alaska, strict liability for pollution is also imposed
on cargo interests, so that a charterer who owns
cargo attracts liability through that route.
Third Parties
A charterer may incur liability directly to a
stevedore, or any third party, who suffers personal
injury or property damage as a result of the
charterer’s negligence. How might such claims
arise against the charterer? One example would be
the improper description of noxious cargo,
resulting in injury being caused to an unprotected
stevedore. Another would be a negligent order
resulting in injury to a longshoreman. In some US
circuits, the NYPE clause 8 has been held to shift

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responsibility for negligence, during loading/
discharging from the owner to the charterer.
Fines
A charterer, if falling into the definition of
“carrier”, can be subject to fines e.g. if in noncompliance
with the US “Automated Manifest
System” Regulations (see Club Circular Ref
10/04). Guidance by the US Customs & Border
Patrol (CBP) advised that it views the carrier as
the entity that “controls” the vessel which includes:
(a) determining ports of call; (b) controlling
loading and discharging cargo; (c) knowledge of
cargo information; (d) issuing of bills of lading; and
(e) the entity which has typically provided the CF
1302 cargo declaration or the cargo information
to prepare the CF 1302 to the vessel agent.
Indemnification of owners
A charterer will have an obligation to indemnify
the owner for third party liability where this
results from a breach of the charterparty by the
charterer, or arises out of activities which are the
charterer’s responsibility.
Typical examples of situations where charterers
may have to indemnify owners for P&I liability
include the following.
Unsafe port
Most charterparties have a safe port or berth
warranty. Sending the ship to an unsafe port in
breach of that warranty could result in P&I
liabilities such as cargo loss or damage, personal
injury, pollution, or even wreck removal.
Crew
A charterer will rarely be liable for the owner’s
crew, but may be responsible to indemnify the
owner for liabilities towards stevedores and other
such personnel.
Dangerous goods
The charterer will be liable to indemnify the
owner for any property damage or personal injury
arising from loading or carriage of dangerous
cargo. If, as happens with increasing frequency,
such cargo has not been properly declared by the
shipper, the charterer will nevertheless remain
liable to the owner for the consequences. Such
consequences can be severe and can extend to
cargo damage, death or personal injury, pollution,
or wreck removal.
Stowage incidents
Under the unamended NYPE clause 8, the
charterer is responsible for loading, stowage, etc. If
as a result of a collapse of stow due to bad stowage,
property damage or personal injury is caused, the
charterer will be liable to indemnify the owner for
such damage or injury.
Bunker quality
In most time charterparties, the charterer should
supply bunkers to the vessel meeting agreed
specifications. He will have to indemnify the
owner for any damages resulting from the supply
of off-specification bunkers.

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Stevedores
Liability for damage caused to the ship by
stevedores. Most time charters, particularly in the
bulk and general cargo trades, have a stevedore
damage clause, which will make the charterer
liable, in certain circumstances, for stevedore
damage.
Safe port
Liability for damage to the ship arising from the
failure to provide a safe port or berth.
Marpol Annex VI has introduced restrictions on
the sulphur content of fuel. As a result, a charterer
will now have to supply bunkers not only of a
quality to meet charterparty specifications, but also
to enable the vessel to meet particular port
requirements depending on whether or not the
state has ratified Annex VI. Failure to do so may
result in the charterer having to indemnify the
owner for any resulting loss or liability – which
could include liability for fines.
Poor stowage
Damage to the ship resulting from stowage
contrary to the terms of the charter party, where
the charterer is responsible for loading and
stowage of cargo.
Hazardous or dangerous cargo
Damage to the ship caused by the nature of the
cargo itself, such as where cargoes are corrosive or
explosive.
For example, BIMCO’s “Fuel Sulphur Content
Clause for Time Charter Parties” provides for the
charterer to indemnify the owner for loss or
liability arising from a failure to “permit the Vessel,
at all times, to meet the maximum sulphur content
requirements of any emission control zone when
the Vessel is trading within that zone.”
Pollution
Although most states outside the USA are party to
the CLC (Civil Liability Convention) under
which tanker pollution claims are channeled solely
to the registered shipowner, if the cause of the
pollution is something for which the charterer is
responsible (such as in an unsafe port situation)
then the charterer may be obliged to indemnify
the shipowner.
Damage to Hull
The standard P&I cover that is provided to
shipowners excludes cover for damage to the
entered ship. However, for the charterer, such
cover can be important because of the variety of
ways in which a charterer may become liable for
damage to a ship. Many of the above examples of
situations which might give rise to traditional P&I
liabilities are also situations where the chartered
ship may be damaged and the costs thereof may be
recoverable from the charterer.
Bunker quality
Damage to ship’s engines if inferior bunkers have
been provided by the charterer. Off-spec bunkers
can cause damage to the ship’s main and auxiliary
engines, aside from many other difficulties such as
that of finding a place to discharge off-spec fuel,
diverting for new bunkers, and losses resulting
from slow speeding where this is necessary.
General average and salvage liability
General average and salvage contributions in respect
of loss or damage to the ship, Member’s freight at
risk or Member’s bunkers on board the ship.

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FD&D risks
As a charterer enjoying the
benefits of our flexible cover, you
will get the legal costs of dealing
with any P&I claim included as
part of the package. However,
many charterers will prefer the
added security of cover for freight,
delay and demurrage risks
(FD&D risks).
The additional step of purchasing a cover from the
UK Defence Club provides protection for legal
and other costs of resolving a wide range of
disputes about uninsured matters. These include
disputes under charterparties on matters such as
off hire, bunker quality, speed and performance,
unsafe port or berth, laytime and demurrage.
• Prompt legal and practical advice on the merits
of cases
• The way cases should be handled and the course
they should follow
• Negotiating with opponents
• Finding the best lawyers and experts for each case
• Clear, practical communication with you, the
lawyers and the experts
• Co-ordination of large cases
• Monitoring of costs and fees
• Advice on drafting documentation
The UK Defence Club is the largest organisation
of its kind and has access to the same international
network of correspondents, lawyers and other
experts as are used by UK P&I. The same UK P&I
Club underwriting contact that provides your
charterers P&I and hull risks is also able to arrange
an entry with the Defence Club to protect this
other important aspect of your exposure.
In addition to providing cover, the Defence Club
and its managers offer advice on:
Keeping ships on the move
The UK Club provides insurance to around 5,000 charter entries every
year. These entries have generated an average of 1,700 claims each year,
which represents a considerable fund of expertise in this specialist area.
The UK Club’s network of offices in Europe,
Asia-Pacific and the Americas are well placed to
support them. In turn, that network can call on
the Club’s correspon-dency network of some 350
legal, commercial and technical specialists for local
support in the handling of claims.
development of streamlined declaration systems to
minimise the administrative burden of obtaining
cover for a continually changing charter fleet.
As well as direct problem solving expertise, they
provide the essential support and guarantee systems
that enable a ship to sail with minimum delay in
the event of arrest or other legal detentions.
Minimising delay means minimising costs.
The UK P&I Club recognises that ease of use is
essential for any charterers’ package. The volume of
charter business handled by the Club has led to the

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Flexible options
Charterers’ Bunkers
As a charterer you risk sustaining your own losses
where an accident is serious enough to cause loss
of the ships bunkers. You may therefore want to
include in your cover protection for loss of or
damage to charterers’ bunkers reasonably attributable
to fire or explosion, stranding, grounding, sinking
or capsizing of the entered ship, or to collision of
the entered ship with any external object.
This cover is based on Institute clauses including
the relevant Wars and Strikes Clauses and available
up to a limit of US$2 million any accident or
occurrence.
Charterers’ Freight
This cover is provided under the Institute Time or
Voyage Clauses Freight (1.11.95) for up to US$5
million any one accident or occurrence. Cover can
be obtained for all risks or as total loss only, but
including salvage charges and sue and labour.
Blocking and Trapping
If a charterer should be caught by a closure or
restriction of navigation within his declared
trading area, the daily time charter hire payments
can be recovered under this cover.
Passenger Ships Special Risks
The cover available to owner Members in respect
of additional risks arising from passenger can
also be included in a charterer’s package.
Such risks include loss of effects, liabilities to
passengers arising away from the ship such as
additional compensation and legal costs.
Further information on special passenger
related risks can be obtained from your normal
underwriting contact.
Causes of such delay or detention can include
breakdown of locks or seaway equipment,
blockage by sunken or stranded objects or ice, and
strikes or stoppages by any personnel essential to
the transit of a seaway. The cover can also be
extended to include additional expenses incurred
in re-routing ships to avoid such a delay.
Further assistance
The UK P&I Club will be pleased to provide you
or your broker with further information on how
the Club’s charterers’ covers can be tailored to the
specific needs of your current charter fleet.
Either you or your broker are welcome to contact
the underwriting department in London directly.
The direct contact details of all individual
underwriters are listed in the “Making Contact”
section of the UK P&I Club website –
www.ukpandi.com. That website enables you to
identify the individual underwriter specialising in
your particular area.
The underwriting department can be contacted by
fax at +44 20 7621 9761 or by email at
underwriting.ukclub@thomasmiller.com.
Alternatively, the Club’s managers and agents can
be contacted at the numbers provided at the foot
of this brochure for more information.
If you require more general information on the
UK P&I Club, the Club’s marketing department
would welcome your enquiry. Contact Nick
Whitear (nick.whitear@thomasmiller.com) or
Jenny Whitehead
(jenny.whitehead@thomasmiller.com).
Alternatively, the UK Club website is an
exhaustive source of information on the Club and
P&I issues in general.
For more information, please contact:
Thomas Miller P&I Ltd – London
Tel: +44 20 7283 4646 Fax: +44 20 7283 5614
Thomas Miller (Hellas) Ltd – Piraeus H1
Tel: +30 210 42 91 200 Fax: +30 210 42 91 207/8
Thomas Miller (Americas) Inc – New Jersey
Tel: +1 201 557 7300 Fax: +1 201 946 0167
Thomas Miller (Hong Kong) Ltd – Hong Kong
Tel: + 852 2832 9301 Fax: + 852 2574 5025
www.ukpandi.com