Persian Gulf: War risks revisited

Overview

As a result of increasing tension in the Persian Gulf area following recent attacks on two tankers, War Risk underwriters are charging additional premiums (AP) for calls to the Arabian Gulf/Gulf of Oman. Some underwriters are charging a flat rate for all tonnage operating in the area, while others are differentiating based on the type of tonnage, flag and port of call. AP is typically charged as a percentage of the hull value. Underwriters day top value is at present 1%.

Additional Costs

Shipowners who agree to trade in these “high risk” areas generally arrange extra insurance to cover additional hull and machinery war risk premiums and crew war bonus. APs are quoted based on a percentage of the value of the hull, and in some cases the amount can be substantial depending on the level of risk. Whether these additional costs are paid by owners or can be passed to the charterers is determined by the terms of the charter party.

The nature of conflict has changed considerably over time and BIMCO strongly recommends that parties incorporate the latest available editions of standard War Risks Clauses into their charter parties: namely the widely used CONWARTIME 2013 and VOYWAR 2013 War Risks Clauses. These clauses clearly allocate the circumstances under which these additional costs can be passed to charterers. Earlier versions of these BIMCO clauses, and other older war risk clauses, may address the allocation of costs differently or not cover it at all – so you should carefully read your charter party terms.

Master’s discretion to proceed

In addition to allocating responsibility for the cost of additional war risks insurance, BIMCO’s current War Risks Clauses also give the master discretion to refuse to proceed to a “high risk” area, or the right to leave the area if the ship is already there. However, there is no right of termination – the time charterer must provide alternative employment for the ship. Clauses which confer an automatic right of termination in the event of an outbreak of war between named countries should be studied carefully and legal advice taken before exercising any cancellation right.

Be careful with Contracts of Affreightment

VOYWAR 2013 provides the owners with a right to cancel “this Contract of Carriage” or refuse to perform such part of at any time before loading. But this means that if the clause has been incorporated into a contract of affreightment (COA) without any modifications, it may give owners the right to cancel the entire contract and not just affected voyage. Under VOYWAR 2013 owners also have the right to select an alternative route. The extra costs related to the performance of the voyage will be for charterers account.

Check your terms

It is important that both contractual parties carefully check their charter party war risk provisions to ensure that orders are issued and acted on in compliance with the relevant clauses. If trading to the Listed Areas (the “high risk” zone set by the Joint War Committee (JWC) of the London insurance market), owners should check with their insurers about extra insurance requirements and if these extra costs can be passed to charterers under the terms of the war risk clause.

 

Grant Hunter
in London,

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