War risks and mutual P&I cover

The escalating con!ict between Ukraine and Russia has led shipowners, charterers and operators of vessels to exercise extreme caution when calling within or in close proximity to those regions recently designated by the Joint War Committee (JWC) as having an elevated likelihood of war, piracy or terrorism. While the situation continues to evolve, at present, the designation encompasses: certain waters in the Sea of Azov and the Black Sea, all inland waters of Ukraine, and certain inland waters of Russia and Belarus (see JWC Circular JWLA-028 and JWLA-029). This is the !rst time in the 21st Century that European waters have been designated by the JWC. This designation requires shipowners to notify their underwriters in advance of a voyage to a designated area(s), typically resulting in a supplemental (breach) premium.

IMPACT ON MUTUAL P&I COVER

Most marine insurances expressly exclude cover for war risks and P&I insurance provided by the International Group of P&I Clubs is no exception. This coverage speci!cally excludes liabilities, costs and expenses : war, civil war, revolution, rebellion, insurrection or civil strife arising there from, or any hostile act by or against a belligerent power (unde!ned), or mines, torpedoes, bombs, rockets, shells, explosives or other similar weapons of war.

As highlighted in the preceding paragraph, for the War Risks exclusion to be triggered, the P&I liability must be proximately caused by war or similar events noted above. Indeed, even if a ship was in or near a JWC-designated area, the War Risks exclusion would only be triggered if the incident occurred as a result of a listed War Risk. For example, if a ship allied with a berth as a result of navigational error and the berth happened to be in a war zone, ordinary P&I cover would likely respond. The incident would not trigger the War Risk exclusion simply because it occurred in a designated area.

Normally, shipowners procure standalone war insurance (Primary War cover) that provides cover for war related perils that are otherwise excluded from standard Hull & Machinery (H&M) and P&I placements. This Primary War cover typically has a War P&I limit of the lesser of either the agreed to value of the vessel or US$500M.

In excess of the vessel’s value/US$500M, all P&I Clubs in the International Group provide Excess War Risks P&I cover with a limit of US$500M each vessel, any one event. It is important to note that this cover is always in excess of the value of the vessel/US$500M; where an owner does not purchase Primary War cover, the Excess War limit provided by the Clubs will attach at the value of the vessel/US$500M (with the underlying value treated as a Self-Insured Retention).

It is also important to note that certain risks are excluded from Primary and Excess War cover, such as loss or damage caused by nuclear, chemical, biochemical or electromagnetic weapons. However, the International Group provides a supplemental cover insuring this type of risk with an aggregate limit of US$30M.

For all the above War Risk policies, there is an automatic termination of cover upon the outbreak of war (whether there be a formal declaration of war or not) between any of the following countries: UK, USA, France, Russian Federation, People Republic of China – the so-called Five Powers War Exclusion. At this juncture, however, it is unclear whether this termination would be triggered by a con!ict between Russia (or another of the Five Powers) and another NATO ally, given NATO’s policy that an attack on one NATO member is an attack on all.

Given the volatility of the situation in Ukraine and the surrounding
region, we recommend that shipowners ensure that they have obtained War Risk cover with separate limits for primary H&M War and P&I War.

As mentioned above, P&I War Risk cover provided by the Clubs sit excess of the value of the vessel (or US$500M). Accordingly, where a shipowner has only one aggregate primary war limit, combined hull and third party damages may not be suf!cient to cover all damages and claims. Our team at P.L. Ferrari and Lockton remain ready to assist and clarify any P&I or H&M aspect related to this particular situation.

WAR P. & I. LIABILITIES INCLUSION CLAUSE

1. This insurance is also to cover such Protection and Indemnity risks which are excluded from the marine insurance by reason of the operation of the War Exclusion (and S.R. & C.C. & M.D. etc. and Sabotage and Vandalism, where applicable) clause or clauses in the rules of the Club covering Protection and Indemnity risks or in the policy of the insurance covering such risks and current at the time of happening of the accident or occurrence giving rise to the claim. In the event that Protection and Indemnity risks are not insured against Marine Perils this insurance shall be construed as if such insurance had been covered by the United Kingdom Mutual Steamship Assurance Association (Bermuda) Limited.
2. This insurance is also to cover liability for contractual repatriation expenses of any crewmember as a result of any of the risks set forth in the preceding clauses.
3. Claims for which these Underwriters are liable under these clauses shall not be subject to any deduction and/or franchise.
4. The Liability of Underwriters under these clauses in respect of any one accident or series of accidents arising out of the same casualty shall be limited to the sum hereby insured.
5. These Underwriters agree to accept the same percentage interest under these clauses as accepted on Hull War Risks.
6. Provided always that for the purpose of ascertaining if a claim is recoverable hereunder, the Rules of any Protection and Indemnity insurance and/or entry as mentioned above shall be deemed to exclude the so-called Omnibus Rule.
7. Should the vessel at the natural expiry time of this policy be at sea, and provided the Automatic Termination Clause in the Hull War Risk Policy have not by that time been brought into operation, this insurance shall be extended, provided previous notice be given to the Underwriters at a premium to be mutually agreed, until midnight G.M.T. of the day on which the vessel is moored at the next port to which she proceeds and 24 hours thereafter.
8. This Protection and Indemnity insurance shall terminate automatically at the same time as the Hull Insurance against War Risks and upon the terms and conditions provided for in the Automatic Termination Clause of the Hull War Risks Policy.