Charter contracts and insurance coverage need revisions ahead of 2020 (source: Lloyd’s List)

The availability and safety of compliant fuels arguably top owners’ list of concerns about the 2020 sulphur cap, however not enough attention is being paid to existing contracts which should delegate responsibilities to charterers, warn leading legal experts
Senior Clyde & Co and Marsh chiefs note there are several unresolved and grey areas regarding insurance and contracts as a result of the 2020 sulphur cap
LEADING law and insurance experts have warned owners to revise existing charter contracts and insurance coverage ahead of the 2020 sulphur cap.
Clyde & Co legal director Beth Bradley cautioned owners that while managing the practical issues around the cap, such as the switch to compliant fuels, is important, there are outstanding contractual matters as well.
“We are broadly advising owners particularly to look at their contractual arrangements and seek to improve them to bring, as far as they can contractually, everything in line with the regulation. That is the best protection an owner can give themselves at this stage,” she said.
At the moment most time charters contracts do not refer to 2020 changes and do not yet pass down obligations to time charterers to bunker-compliant fuel, she said.
BIMCO recently adopted two of four planned bunker contract clauses outlining obligations of owners and charters in complying with the 2020 sulphur cap.
Marsh senior vice-president Steve Harris said that charterer’s concerns are “multiples” of everybody else’s as is usually the case.
“Issues about availability of adequate supplies of low-sulphur fuel oil of the correct type and of the right grade in all the necessary ports around the world should cause concern for time charterers,” he said.
But future contractual concerns transcend the physical supply of fuel.
Several owners are announcing plans to install scrubbers in hopes of getting a quick investment payback and competitive advantage based on the price differential between heavy fuel oil and compliant fuels.
Mr Harris said he is worried crews are not getting adequate training to manage the abatement technology and that could have contractual consequences.
While most marine hull insurance regimes cover costs of negligence of masters, officers and crew, Mr Harris noted there is nearly always a caveat for cases of a lack of due diligence on the part of owners and managers.
Mr Harris questioned whether insufficient training of crew using scrubbers could be deemed a lack of due diligence on owners and managers’ parts, and hence not covered.
The value of scrubbers differs per vessel but as a new piece of equipment, it adds to the value of the whole ship and could thus directly affect insurance coverage.
Following scrubber installations, the value on a marine hull and marine war policy should therefore be enhanced, according to Mr Harris.
“Because not to do so might risk partial loss claims, having average applied to them if you have not insured the full value of the vessel as it really is to underwriters,” he said.
But increased insured value means higher risk coverage for underwriters and higher premiums.
“So, it is only right underwriters are paid the amount for risk they are covering,” said Mr Harris.