Beast from the East: Gard Insight

Frigid arctic air, nicknamed the Beast from the East, brought sub-zero temperatures to much of Europe for periods in February and March. Gard said that the severe winter was a reminder that ice remained a significant source of hazard in shipping.

Gard said that the difficult ice conditions had forced many shipowners and charterers to review their insurance contracts and charterparty ice clauses.

Gard said that Hull and Machinery insurance had always paid attention to the hazards of ice and underwriters had regulated their exposure through different ice related warranties and exclusions. There were permanently excluded areas, such as Arctic and Antarctic areas, where ice and navigational risks were very high due to such factors as multi-year ice, remoteness, inadequacy of charts, limited emergency response and extreme weather variations.

There were also so-called conditional areas, such as Gulf of St. Lawrence, Alaska, Sakhalin area and Baltic Sea, including Gulf of Bothnia and Gulf of Finland, where policy terms allowed trading on terms agreed by the underwriter.

Historically English marine insurance policies contained Institute Warranties Limits (IWL) that identified conditional areas. These clauses contained a description of the excluded and conditional areas, as well as date limits when warranties applied. Similar conditions were used in the other marine insurance contracts, including the Nordic Plan, and the geographic limits were quite similar.

The IWL (1976) was revised and replaced in 2000 by the International Navigating Limits (INL) that became effective in 2003. This improved the description of both excluded and conditional areas compared with the IWL 1976.

Under English terms, a vessel owner’s breach of an insurance condition would mean that resulting damage to the ship would fall outside of the Hull and Machinery cover. However, by seeking prior permission from the underwriter to breach INL, and by adhering to amended terms of cover and any additional premium, the cover for damage to the ship may be reinstated.

Charterers determine where the ship is to go and may wish to enter conditional areas. The risk of navigating in ice is allocated by contract terms – the charter party between the Owner and the charterer.  Some common charter party clauses do not specifically reference International Navigating Limits but provide in general that the vessel “shall not be obliged to force ice” (BIMCO Ice Clause for Time Charter Parties). Other clauses refer to IWL or INL and may provide for charterers to pay additional premium if Owners both agree to breach the limits and obtain approval to do so from the Owner’s Hull and Machinery underwriter.

Gard noted that Charterers would be exposed to potential liability for damage to the ship and related financial losses caused by ice either generally under a safe port clause or under a specific ice clause. Liability for damage to hull was a covered risk under the Gard Charterer’s liability product, with caveats.

If a charterer instructed a non-ice classed ship to breach ice trading limits, the charterer would prejudice its cover with Gard even if the charterer paid the additional premium required to re-instate the Owner’s Hull and Machinery policy. The charterer could notify Gard underwriters and confirm cover on amended terms. Gard said that the key was the prior notification to Gard and approval on amended terms.

Gard said that it had reviewed the potential insurance consequences of breaching ice trading limits for both Owners and Charterers insured by Gard for hull and machinery risks and charterer’s liability for damage to hull. “Despite this winter’s visit from the ‘Beast from the East’, trading in conditional areas has been on the rise due to generally warming seas so we expect to receive increasing requests from both Owners and Charterers for confirmation of cover on amended terms”, concluded Gard