COVID-19: Further Marine Insurance Considerations

With the ongoing disruption to vessel operations, further practical issues have started to arise that have a direct impact in the context of vessel operations and marine insurance.

This Marine Client Advisor examines how such operational risk can be efficiently managed and when insurance responds.

Crew

Crew illness

Crew members becoming unwell and/or a vessel being quarantined due to an infection on board. Such circumstances broadly fall within P&I cover. Reasonable cost
of medical treatment, sick wages and cost of repatriation are protected rights for seafarers and are covered under P&I policies in line with a shipowner’s legal and contractual obligations towards their crew.

Similarly, in the unfortunate event of a crew member passing away as a result of an illness on board, a shipowner’s legal obligations towards repatriating the remains, basic funeral costs and compensation remain covered. If a vessel is quarantined as a result of an outbreak on board the vessel, additional costs incurred as a result can also be covered.

Crew changes

Most shipowners find themselves with previously untested (and unbudgeted) considerations due to worldwide travel restrictions and other measures to prevent the spread of the virus. These restrictions have trapped some crew on board vessels unable to sign-off, some in their homes unable to sign-on and some in limbo, stranded
– being unable to travel neither to a ship nor back home.

Those who are able to travel may be required to remain in self-isolation due to preventative measures in those jurisdictions, which might incur additional costs. Insurance cover (in particular P&I) does not respond to such increased cost of wages, travel, maintenance and other associated costs during such circumstances.

However, if a crew member becomes unwell, whilst stranded on the way to or from the vessel, P&I Club cover is triggered and can respond in line with the shipowner’s obligations under the crew members’ employment contract and the Maritime Labour Convention (where applicable) to pay medical costs and sick wages.

Many countries in the world now have measures in place to control access of foreign nationals and in some cases own citizens and residents into the country. This includes crew and vessels arriving from ports in perceived higher risk or affected areas. Vessels might be asked to spend a number of days outside these areas before being allowed into certain ports, and free pratique may only be issued after the requisite period or on condition of recently joined crew being quarantined on board.

Such sweeping control measures and overarching quarantine measures that are imposed depending on a vessel’s previous port of call or recent travel of its crew, while creating additional costs for shipowners, do not trigger P&I Club cover. Some P&I Clubs have now issued notes to clarify available cover and a Q&A has been
prepared by certain P&I Clubs. 

As a result of the practical impossibility to arrange repatriations, many crew members are continuing to remain on board beyond the expiry of their contracts. It may be helpful to provide these crew formal contract extensions to ensure a shipowner’s liabilities are clear and the risk of open-ended liabilities are mitigated. Owners are
recommended to discuss such extensions with their P&I Clubs and crewing managers.

Where crew members are approaching or have gone beyond the maximum legally allowed duration of service on board, shipowners need to consult their vessels’ flag states to ensure they remain compliant with flag requirements. The Philippines Overseas Employment Agency (POEA) also recently issued a Circular (LINK)
allowing an extension of Filipino seafarers‘ contracts for up to 60 days under certain conditions.

More recently the IMO has written to their member states with a detailed list of recommendations for “… a practical and pragmatic approach… to issues like crew changeovers, resupply, repairs, survey and certification and licensing of seafarers”.

Shipowners should continue to check the latest travel advice with their P&I Club, crew manager, countries of travel origin and destination, and their vessels’ flag states. A prominent ship agency has made available a ‘port restrictions’ website that might help for planning purposes. 

Where technicians, superintendents, owner’s shore personnel or third-party contractors have to extend their stay on board because they cannot be disembarked or they may be stranded elsewhere, or where crew contracts and the law applicable do not impose on the shipowner an ongoing liability towards the crew beyond
the vessel, shipowners are urged to consider Personal Accident insurance. While owners might not be contractually or legally liable in these circumstances, they are likely to be practically responsible, and Personal Accident insurance will ensure that a primary insurance policy is available should it be needed, without having
to go through the process of determining liability before P&I cover responds.

Crew wellness

Shipowners need to consider additional protective measures for crew on board their vessels from exposure to COVID-19 through interactions with port officials, pilots, stevedores, cargo representatives and surveyors that have to access the vessels for routine operations, as well as new on-signing crew.

Some of these measures can mean additional costs, as well as further time and resources towards the education of crew and management of these highly unusual circumstances that do not fall within an insurance product but must nevertheless be part of any shipowner’s efforts.

Shipowners should also consider the mental stress of crew who spend extended time on board and away from families. Seafarers might be exposed to distressing news from their home countries and shipowners may wish to introduce appropriate well-being measures to manage such additional stress.
The ICC (LINK) and WHO (LINK) have issued guidance to assist shipowners in their efforts to provide a safe working environment for their crew.

Delays

Due to the lockdowns imposed, the unavailability of labour, stevedores, truck drivers and other crucial personnel is impacting the entire logistics chain, with severe delays being experienced in some parts of the world. Cargo might not be available or cannot be brought into ports, or cargo discharged cannot be delivered from ports causing port authorities to refuse further cargo to be discharged, all resulting in congestion.

Following a meeting with G20 leaders on 27th March 2020, the IMO issued a series of recommendations to member states for a pragmatic and practical approach to facilitate shipping and port operations during the pandemic IMO’s recommendations are aimed at easing pressure at ports and identifies seafarers and all other port workers as “key workers” whose movements should not be hindered. It remains to be seen whether these recommendations will alleviate pressures in the logistics chain.
There are a number of different exposures that may arise from these delays, most notably in respect of charterparties and bills of lading.

Cargo may suffer damage or its quality may deteriorate as a result of prolonged stay on board due to port congestion arising from quarantine or other restrictions imposed over the port by authorities. While there may be defences and exceptions that carriers can rely on in contracts of carriage (eg. Hague-Visby exceptions such as quarantine, restraint of princes or the catch-all exception “any other cause arising without the actual fault or privity of the carrier”)should the carrier not be able to avoid a legal liability in the relevant jurisdiction.

P&I cover should respond in respect of loss of or damage to cargo.

However, increased cost of operations (additional hire or demurrage that needs to be paid, additional port charges / costs incurred, additional bunkers used etc) as a result of congestion at ports, or due to revised orders to load or discharge at an unaffected area, do not fall within P&I cover. In addition, it may not be possible to insure such operational exposure where there is no intervening peril.

It should be noted that while some trade disruption policies include wording regarding emergency port or border closures, almost all such policies exclude disruptions arising out of or directly or indirectly caused by an epidemic disease.

Deviation 

If a vessel deviates to disembark and to seek medical assistance for an unwell member of crew, additional costs of diversion such as fuel, wages, stores, port charges and additional insurance costs such as those for war risks insurance when entering a High Risks Area, can be covered by P&I.

If however the vessel deviates to another port because cargo cannot be loaded or discharged at the original port, or congestion pushes the parties to seek alternative places for cargo operations, then insurance cover is not available for costs incurred as a result, and a solution will need to be identified within the terms of the charterparty and any contracts of carriage.

Owners and carriers need to be mindful of their obligations under bills of lading where an unreasonable deviation may result in the loss of Hague-Visby defences, the loss of the right to limit liability and thereby also potentially Club cover, if cargo loss or damage occurs following such deviation.

Whether or not a deviation is reasonable is a question of fact and outcome may be different depending on the facts and the relevant jurisdiction. If there is concern about a deviation requirement, shipowners should consider a one-off or fleet-wide Ship Owners’ Liability cover, which can be put in place with relative ease by
the vessel’s P&I Club.

Fines

The P&I Club heading of Fines has a narrow interpretation and its application in the current worldwide circumstances will not be different. It should be noted that vessels misinforming port authorities in contravention with and in an effort to avoid COVID-19 measures, with resultant fines, may not be able to rely on their P&I cover, even when a seafarer makes such misrepresentation of their own accord.

Casualties and Breakdowns

In case of casualties requiring salvage, specialist equipment and on-site input from salvage masters or other experts, unavailability of personnel and diminished flight options can create further strain in an already difficult situation. Depending on location, engineers may not be able to attend to carry out emergency repairs or spare parts may not arrive on time. Owners might consider increasing the ship’s spare parts inventories in advance of issues arising. Additional risk mitigation options include discussing with equipment makers suitable ways of
dealing with emergency repairs.

Class and Flag

Maintaining continuous, uninterrupted and valid class and flag certification remains at the core of H&M and P&I insurance. Without valid class and flag certification, vessels can find themselves without insurance cover and depending on the type of policy, its specific wording and applicable law, such cover can terminate automatically and without prior advice.

Flag states and classification societies have started to put in place protocols to ensure continuity of certification and to reduce operational disruptions where surveyors may not be available or may be unable to travel for scheduled inspections, damage surveys and sea trials.

Owners are strongly recommended to discuss any potential non-compliance with their vessels’ flag states or classification societies to ensure necessary permissions are obtained for postponement of documentation lapses, scheduled surveys or other needs, and to use remote assistance offered by some Class societies
where available.

Disputes

If current projections are correct, the impact of the COVID-19 disruption is set to continue for a while. In the process, knock-on effects will be felt across industries. While commercial counterparts look for sensible and workable solutions, disputes may, unfortunately, become inevitable.

Freight, Demurrage and Defence (FDD) cover can assist owners and charterers during difficult discussions and can provide guidance on appropriate measures that need to be taken to protect their respective positions.

FDD cover can assist with disputes arising from ship operations, be it between parties to a charterparty or a bill of lading contract, with bunker suppliers or other service providers and even in the case of employment disputes with the crew. While financial support is always subject to merits and chances of success of any
dispute, the guidance and input provided by the Clubs is invaluable in reaching legal and practical solutions.

Both owners and charterers (in particular where a vessel is bareboat chartered) are reminded that in order for FDD cover to respond, the FDD cover cannot be in the joint names of the parties between whom the dispute arises (for example, between bareboat charterer and shipowner).

For any questions regarding the contents of this Marine Client Advisor or for any other marine insurance enquiries please do get in touch. 

Howden Insurance Brokers is not a technical, commercial or legal adviser. Any commentary made in this document should not be construed as such, and we do not guarantee in any way the accuracy of the resources used or referenced in this document. In case of doubt, formal advice should be obtained that is directly relevant to your circumstances.