Case studies: Hidden liabilities charterers face

Case 1: Obligations Under Charter Party

Whilst en route from the pilot station to the discharge berth, the chartered vessel struck an object on the seabed. A subsequent underwater inspection revealed that the object was a lost anchor from another ship and it had pierced the chartered vessel’s hull, causing water to enter into the hold and damage the cargo.

Under the charter party, the charterers have guaranteed the safety of the berth. As a result, the shipowners sought recovery from the charterers for vessel damage, cargo damage and loss of hire during repairs.

Although the anchor belonged to neither the charterers nor the owners, the incident constituted a breach of the charterers' safe berth obligation. Consequently, the charterers were held responsible for the resulting losses and expenses.

Case 2: Disputed Liability and Limited Recourse

During loading a cargo of steel coils, the wire snapped from the vessel crane and as a result of which, the falling cargo injured a crew member and caused damage to the vessel.

The owners held the charterers liable for a number of liabilities including:

• the personal injury of the crew member;
• the damage to the vessel;
• the damage to the cargo, and
• the loss of time for repairing the vessel.

The charterers alleged that the wire was faulty and that the owners were to blame.

This case could go either way depending on the evidence available, but the owners are likely to ask for full security from the charterers for their claim pending finalisation and settlement, if any.

If the owners can prove that the charterers or their contractors were in breach of contract, the charterers will ultimately bear these liabilities. While the charterers may seek recovery from the stevedores if negligence is established, such recourse is not always straightforward.

However, charterers should note that stevedores often operate under contractual terms that allow them to exclude or significantly limit their liability, leaving charterers with fewer avenues for recovery than may be available under a charter party.

These examples highlight how charterers can be exposed to significant liabilities, even where they are not directly at fault.

Contractual obligations under charter parties can shift risk in ways that leave charterers financially responsible for incidents arising from third parties, latent defects or operational mishaps.

Charterers’ liability insurance plays a critical role in mitigating these exposures by providing cover for a wide range of risks, including damage to vessels and cargo, personal injury claims, and associated loss of hire.

This article is contributed by MSIG Specialty Marine, underwriting agent for MSIG Insurance in Protection & Indemnity (P&I) risks.