Following the issuance of a Notice of Cancellation by the Association's reinsurers, on 12 February 2024 Skuld issued a Notice of Cancellation to the War Risk Cover to all fixed premium assureds, including Charterers ("Skuld Notice of Cancellation"). From noon GMT on 20 February 2024, cover for War Risks will be excluded for trading or being within the geographical region described in the Skuld Notice of Cancellation ("Red Sea Excluded Area").
This is the second Notice of Cancellation provided by the Association's reinsurers, following the cancellation of War Risks cover in any area or territory or territorial waters where Russian armed forces, Russian-backed forces, and/or Russian authorities, are engaged in conflict within the territories (including territorial waters) of the Russian Federation, Belarus, Ukraine and any disputed regions of Ukraine, the Crimean Peninsula and the Republic of Moldova ("RUB Excluded Area"). The below advice and recommendations apply to both notices.
Cover
Subject to certain exclusions, Charterers' Terms and Conditions includes cover for liabilities, costs or expenses arising out of or in connection with the following risks ("War Risks"):
- a. 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 (provided that, in the event of any dispute as to whether or not, for the purposes of this paragraph (a), an act constitutes an act of terrorism, the decision of the directors of Skuld shall be final);
- b. capture, seizure, arrest, restraint or detainment (barratry and piracy excepted) and the consequences thereof or any attempt threat;
- c. mines, torpedoes, bombs, rockets, shells, explosives or other similar weapons of war,
- d. strikers, locked-out workmen, persons taking part in labour disturbances, riots or civil commotions;
- e. any person acting maliciously or from a political motive; or
- f. confiscation, nationalisation, deprivation, requisition or expropriation.
Cover for War Risks in the Red Sea Excluded Area will be excluded from noon GMT on 20 February 2024 pursuant to the Skuld Notice of Cancellation.
Cover for losses, damages, liabilities, costs or expenses in the RUB Excluded Area are excluded under the Territorial Conflict Exclusion Clause in Charterers' 2023 and 2024 Terms and Conditions.
It is important to note that standard P&I cover is not prejudiced by trading in the affected areas. It is only the War Risk cover which is excluded; hence any ordinary P&I risks and liabilities would not be affected, even when the vessel is within the excluded areas. It is further noted that cover under Skuld's Freight, Demurrage and Defence (FD&D) product is not impacted by trading in the excluded areas.
Buy-back of War Risks P&I Cover
There is currently the possibility to buy back the War Risk P&I cover for the RUB and Red Sea Excluded Area.
With regards to the latest NoC issued for the Indian Ocean, Gulf of Aden and Southern Red Sea, charterers have the possibility to purchase a reinstatement of the excluded war risks cover. The buy-back solution is available for all incidents occurring from noon GMT 20 February 2024 to noon GMT 20 February 2025 with a limit of cover up to USD 150 million and with premium charged on a per voyage basis not exceeding 7 days.
Vessels with Israeli ownership and/or interest must be agreed by Reinsurers and Skuld in advance.
Please contact your underwriter in Skuld for further details and terms.
Recommendations
In the meantime, to limit the risk of a recourse action from owners or their subrogated insurers for losses or damage arising out of War Risks in the Excluded Area, we recommend that:
- charterers are named as co-assured on Owners' War Risks, Loss of Hire (if not included under the War Risks cover) and K&R insurance policies; and/or
- any right of recourse against charterers by owners or their subrogated insurers for the insured loss is expressly waived in the charterparty.
Each case will turn on its specific facts and the provisions contained in the relevant contracts but following the recent decision of the English Supreme Court in The Polar [2024] UKSC 2, a charterer is unlikely to succeed in avoiding a recourse claim from owner or their subrogated insurer simply because charterer is required to pay, or reimburse owner for, the insurance premiums under the charterparty.
Potential Exposure
In addition to the risk of recourse claims under the charterparty, the charterer may also be directly exposed to third party liabilities in the following hypothetical scenarios (this is a non-exhaustive list, and there may be other scenarios where the charterer may be exposed):
- Pollution incidents whereby a specific local jurisdiction may impose direct liability on the cargo owner and/or charterer. This is especially relevant if the charterers' cover includes a Cargo Owner's Legal Liability (COLL) extension
- Failure of owners' war risk insurance to react, which could force third parties and/or local governments to look to charterers for compensation
- If charterers issue the bills of lading, and there is damage to the cargo as a result of a war risk, and a claim is brought by cargo interests under the bill of lading against the charterers in the first instance
If charterers have any questions or concerns about the impact of the notices of cancellation on their covers with Skuld, we recommend that they contact their Skuld underwriter for further advice and recommendations.