Interaction Between P&I Insurance and War Risk Insurance

Mutual owner entry

North’s Class 1 P&I cover is subject to Rule 24 – headed “War Risks” – which, broadly speaking, excludes from cover liabilities, costs or expenses arising from a war. The conflict in the Ukraine could lead to losses qualifying as war risks.  We would consider in any particular incident whether a loss fell within the exclusion but, where it does apply, cover for the loss may alternatively be found in a separate owner’s war policy (subject to Class 1 P&I providing an excess layer of cover beyond the war policy limit or proper value).  North may provide the primary war risks cover through an entry in Class 3, or it may have been placed by the owner with another underwriter.

So if, for example, a vessel was to become trapped in a port due to the conflict in Ukraine, and cargo onboard deteriorates, then any legal liability incurred by the owner in relation to the cargo would fall first to war risks cover and not Class 1 P&I cover.  Personal injury claims (arising from a missile strike, for example) falling to P&I would equally be borne by war risks insurers.

North’s Class 3 war risks cover is subject to its own set of rules, which may be found here and should be read in conjunction with any Class 3 terms on the Certificate of Entry.  Class 3 is a mutual provider of cover for war hull & machinery as well as primary P&I war risks. Reinsurance security is A-rated along with UK Government security for UK-flagged vessels (in the event of a war involving the UK). Some of the benefits of Class 3 cover over standard market policies are as follows.

• Mutual cover, including the discretionary element;
• Ground-up cover (no deductibles barring a few exceptions);
• Fixed limit of $500m for primary P&I risks as opposed to declared hull value;
• Fewer or more narrowly defined AP Areas;
• Longer lead times before changes to AP Areas take effect;
• Lower annual and AP rates with discounts for armed guards, K&R and block breaches.
• Detention/Diversion expenses in the form of daily additional running expenses plus a proportion of entered value per annum pro-rata but subject to a deductible;
• CTL can be declared in the event of detention lasting 6 months;
• $50m aggregate Biochem/Nuclear buy-back;
• War Loss of Hire also available;
• War PLR Certification

Please get in touch with your usual underwriting contact for any queries regarding North’s Class 3 War risks cover.

Members with Class 3 entries should speak to the Association and their other war risk underwriters before trying to enter or leave any defined AP area which may include Ukrainian port, the northwestern part of the Black Sea or the Sea of Azov.   Members outside Class 3 should also be careful about any attempt to exclude P&I risks where war policies are required to be reinstated.

Charterers entries

A charterers entry may contain a War Inclusion Clause which covers the Member on a primary basis for liabilities, costs and expenses otherwise excluded by Rule 24(1) but on additional terms set out in the Certificate of Entry, including the policy limits and deductibles.  The War Inclusion Clause will have the effect of covering a charterer for P&I and, depending on the terms of entry, Damage to Hull (“DTH”) risks caused by war perils arising from the conflict in Ukraine subject to Class 1 Rules.  In addition to setting out exclusions, the additional terms under the War Inclusion Clause will define the circumstances in which cover may be terminated automatically or upon notice.

North’s DTH cover responds to physical loss or damage to the chartered vessel.  DTH is unlikely to be engaged where a charterer member becomes liable solely as a result of blocking or trapping, due to a lack of physical damage.  DTH cover also excludes liabilities which arise solely by reason of a contract, indemnity or guarantee made by or on behalf of the Member, nor does it cover operating expenses.  So, for example, under Conwartime 1993 the charterer agrees to reimburse additional premium and additional crew wages / bonuses arising as a result of a port call involving defined war risks but these additional costs would not be claimable from the Association.

Owners’ Fixed premium

Section 52 of the Owners’ Fixed Premium Terms and Conditions (“OFP T&Cs”) excludes war risks in a manner similar to Class 1 Rule 24.  Part IV of the OFP T&Cs contains terms providing P&I war risks cover either ground-up (similar to how Class 3 Rule B operates) or on “P&I excess” basis. The latter covers certain P&I risks above the policy limits of the insured’s war risks cover.  These are optional/ additional covers to the core P&I Fixed Premium product. Details may be found in the terms of the certificate of insurance for the relevant insured vessel.

Part IV (P&I war risks) of the OFP T&Cs also sets out a mechanism to cancel, vary or restrict the terms of cover specifically in respect to P&I war risks.  Cover will be subject to a policy limit or sub-limit under the Certificate of Insurance arising out of one event, accident or occurrence.

Certified liabilities

North may face direct claims in respect of certified P&I liabilities (i.e. under “blue cards”) even though the risk is excluded under Rule 24 or under the OFP T&Cs.  However, there are often exceptions under the conventions which underpin those certificates relating to incidents resulting from an act of war or hostilities.  Where North incurs a certified liability which falls outside the limit of cover, the Member / insured will be responsible for indemnifying the insurer or the insurer may pursue a subrogated recovery against the war risks insurer (see for example Class 1 Rules 20(3)(b) and 31(1) and OFT T&Cs Section 59).

Sanctions risks

North’s P&I and war risks are all subject to an exclusion related to liabilities, costs or expenses arising from prohibitions and requirements of any economic, financial or trade sanctions administered by any State or international or supranational organisation or the risk thereof.  Cover will automatically cease if the entered ship exposes the Association to the risk of violating or becoming subject to any sanctions.  New sanctions are emerging constantly and Members must exercise the utmost due diligence to avoid sanctions risks.  Members can visit our dedicated expertise page on this topic.

Members can access our P&I and War Risks Rule books here.