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Chartering a Vessel What Are the Risks?


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The definition of a charter party arrangement is:

"a mercantile lease of a vessel; a specific contract by which the owners of a vessel let the entire vessel, or some principal part of the vessel, to another person, to be used by the latter in transportation for his own account, either under their charge or his. "

Charter arrangements usually fall into one of three categories, each being distinguished by the degree of operational control over the vessel which the charterer exercises. The three categories are:

  1. Voyage charter - the charterer is “leasing" space on the vessel (a cargo hold or tank) for one voyage only. The charterer is essentially “along for the ride" since he exercises very little operational control over the vessel.
  2. Time Charter - the charterer leases the vessel for a period of time (usually a year or more). The charterer shares operational control of the vessel with the Vessel Owner, and the ship's Master answers to both parties. The sharing of control normally divides between the vessel's cargo operations (mostly under control of the charterer) versus vessel operations (under the control of the Vessel Owner).
  3. Bareboat (Demise) Charter - the charterer essentially stands in the shoes of the Owner and leases the vessel for a significant period of time. The charterer has full operational control over the vessel and bears all the expenses to operate and maintain the ship. This arrangement allows a charterer to “look like" a Vessel Owner but not carry the expense of this costly asset on his balance sheet.

A charterer faces many of the same exposures to liability as the Vessel Owner does, as well as specific obligations to the Owner. Examples of the exposures the charterer faces vis-à-vis liability to third parties include:

  • Liability to cargo

  • Pollution liability (in certain jurisdictions)

  • Personal injury, property damage to third parties caused by the charterer's negligence

  • Fines (depending on the jurisdiction and/or contractual obligations)

    The charterer also has a long list of obligations and exposures to the Vessel Owner. These involve damage to the hull arising out of / caused by:

  • Liability for nominating an unsafe berth / unsafe port

  • Hull and Machinery damage caused by Stevedores

  • Damage caused by carriage of hazardous / dangerous goods

  • Damage caused by poor / improper stowage of goods

  • Damage to ships’ engines caused by poor quality bunkers

  • Liability to Owners arising out of General Average / Salvage events.

    It is often said that when things go wrong on board a ship, they go very badly wrong. The charterer can face enormous liabilities and risk of financial loss even when he is only tangentially involved in the event which gave rise to the claim. What can a charterer do to manage these risks?

    Charterers Liability insurance can be the solution. This affords protection to the charterer in much the same way Protection and Indemnity insurance shields the Vessel Owner from potentially catastrophic loss.

    The key to arranging proper charterer's liability insurance is the insurance broker. A qualified marine insurance broker understands the assured's business thoroughly. Further, the broker understands the marine transportation and cargo risks, as well as the domestic and/or international legal environment. The broker must also be an expert in the language of charter party contracts which is replete with unique jargon and terminology. Finally, the broker must have the knowledge of and access to the appropriate insurance markets in order to secure the most comprehensive coverage, with sufficient limits of liability, at the most cost effective premium.

    Nausch Hogan & Murray are marine insurance brokers with extensive experience and skill in arranging charterer's liability insurance. Our staff includes dedicated marine insurance professionals, admiralty attorneys, General Average adjusters, former merchant marine officers and highly qualified, experienced claims representatives. We are also a Lloyd's brokers , a distinction not many other U. S. based insurance brokers can make. Our ability to access global insurance markets ensures that we will create the right product at the best cost for our chartering clients.

    Trust Nausch, Hogan & Murray, Inc. with your charterer's liability insurance requirements. By removing the risk factors, you enjoy the freedom to concentrate on your core business and grow your bottom line, unencumbered by worry over the uncertainty of financial loss in the fast paced (and risky) arena of marine transportation.

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