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Bunkers Cover

Introduction
The owners of bunkers normally encounter two different types of risk: liability to third parties for loss or damage caused by the bunkers and the loss of, or damage to, the bunkers themselves, i.e. liability risks and property risks.1 Cover for liability risks is provided either under the Association’s Standard P&I Cover2(if the bunkers are owned by the shipowner) or by the charterers’ P&I liability insurers (if the bunkers are owned by the time charterers).3However, cover is not normally available under either cover for the interest that the owners of the bunkers have in the bunkers themselves, i.e. for the property risks.4 However, the Member may be able in some circumstances to recover for such loss or damage indirectly if it is proved that the Member would have a legal liability for such loss or damage if the bunkers had been owned by a third party.5

 

The question of who owns the bunkers is a complicated one. The terms of many bunker suppliers contain Retention of Title (Romalpa) Clauses which provide that the supplier retains ownership of the bunkers until payment has been made even after the bunkers have been delivered on board a vessel that is owned by a third party.6In other cases, the ownership may pass from the supplier to the buyer once payment has been made, in which case, the ownership may have passed before the bunkers are actually taken on board the recipient vessel, e.g. whilst they are still in a barge that is carrying the bunkers to the vessel. However, if the ownership has passed from the supplier, then the question of who is the owner normally depends on the following factors:

  • if the ship is not chartered, the bunkers are owned by the shipowner.
  • if the vessel is voyage chartered, the bunkers are owned by the shipowner.
  • if the vessel is bareboat or time chartered, the bunkers are owned by the charterer.7

The Bunkers Cover is intended to protect the property interest that the owners of the bunkers (whether they be the shipowners or the bareboat or time charterers) have in the bunkers and provides cover for bunkers that either are being carried, or are intended for carriage. Consequently, cover can be in place before the bunkers are pumped onto the declared vessel if the property is owned by the Assured at such time.

The cover is made available by the Association as insurer to a named Assured or named Assureds8on a fixed premium basis in respect of a named Ship or Ships for a specified period and is subject to specially agreed terms and the exclusions and other general terms and conditions that are specified in the Rules of the Association’s Standard P&I and Defence Cover insofar as applicable to fixed premium entries. However, it is emphasised that the acceptance of the Assured by the insurer for the purposes of this Bunkers Cover does not give the Assured a right to be a Member of the Association.

Cover is available under the Bunkers Cover for any and all of the claims that are specified below, up to the value of the bunkers that were taken on board the declared vessel at her last bunkering port prior to the event that has caused the loss or damage and subject to a standard cover limit of USD 2 million per event.

Guidance

The Bunkers Cover is normally offered on the following terms and conditions which are standard terms that are offered by Lloyd’s of London and the Institute of London Underwriters (ILU) on the London insurance market:

  • Institute Bulk Oil Clauses 1.2.83.
  • Institute War Clauses (Cargo) 1.1.82.
  • Institute Strikes Clauses (Cargo) 1.1.82.
  • Institute Notice of Cancellation, Automatic Termination of Cover, War and Nuclear Exclusion Clause (Hulls etc. 01.01.95), but not to be subject to current London Market War RisksExclusions.
  • Radioactive Contamination Exclusion Clause LSW 370.

Therefore, cover is normally available for the loss or contamination of bunkers that is caused by:

  • Fire or explosion;
  • Stranding, grounding, sinking;
  • Collision or contact;
  • Discharge at port or place of distress;
  • Earthquake, volcanic eruption or lightning;
  • General Average sacrifice;
  • Jettison;
  • Leakage from connecting pipelines;
  • Negligence of Master, Officers or Crew in pumping cargo, ballast or fuel;
  • Stress of weather;
  • Contribution to General Average and Salvage award;
  • Proportional liability under the contract of affreightment ’Both to Blame Collision’ clause;
  • Strikes, lock-outs, labour disturbances, riots or civil commotions;
  • War or war-like circumstances.

Therefore, should the declared vessel run aground with the result that the ship and bunkers have become a total loss, cover is available under the Bunkers Cover for the loss of the bunkers since such loss had been caused by an insured peril, i.e. grounding.

Alternatively, cover would normally be available under the Bunkers Cover in the following scenario: after bunkering at port A, the declared vessel proceeds on her voyage using bunkers that have previously been taken on board at a different port B and before receipt of the test analysis results for the bunkers that have been loaded at port A. In due course, the test analysis results indicate that the bunkers that have been loaded at port A are ’off spec’ and need to be discharged at the next port of call C. On arrival at port C, the vessel takes on new bunkers, but such bunkers are mistakenly loaded on top of the bunkers that had been loaded at port B and in the same tank, thereby contaminating all the bunkers in that tank. Cover is available under the Bunkers Cover since the damage to all the bunkers in that tank has been caused by an insured peril (i.e. the negligence of the Master, officers or crew in pumping fuel) provided that the ’old’ bunkers that had been loaded at port B and the ‘new’ bunkers that have been loaded at port C were both owned by the Assured at the time that both batches of bunkers were contaminated at port C. However, cover would not be available for the ’off spec’ bunkers that had been loaded at port A since such bunkers had not been damaged by an insured peril.

Finally, cover would also be available under the Bunkers Cover for any general average contribution that the Assured might have to make in his capacity as the owner of the bunkers that were on board the declared vessel at the time of the incident that occasioned the general average event.9

However, cover is not available under the Bunkers Cover for purely economic losses that are caused by circumstances other than any of the perils specified above, e.g. for a depreciation in the value of bunkers that remain on board the declared vessel on termination of the charter.

Finally, it is to be noted that this cover should be viewed in conjunction with the Comprehensive Charterers’ Cover. As noted, the Bunkers Cover is a property loss or damage cover, whereas the Comprehensive Charterers’ Cover affords cover for a charterer’s liability for loss or damage caused to a vessel by the supply by charterers of inappropriate bunkers and for the cost of removing the inappropriate bunkers from the vessel and disposing of these.


1 For more detailed commentary on the various issues that can arise in relation to bunkers see Chapter 2 of the Gard Guidance on Maritime Claims and Insurance.
2 See the Guidance to Rules 38 and 39
3 The Association also provides such cover through the medium of the Comprehensive Charterers Liability Cover which is an additional cover that is provided on a fixed premium basis. Further details can be found on the Gard website.
4 See, for example, the Guidance to Rule 63.1.b.
5 See the Guidance to Rules 39 and 50.a
6 For further commentary see Chapters 2.7.3 and 2.8 of the Gard Guidance on Maritime Claims and Insurance.
7 The reason for this is that most bareboat and time charters provide that the charterer will take over and pay for all bunkers that are on board on delivery of the vessel to them and that they will provide and pay for any further bunkers that are required during the period of the charter and that the shipowners will take over and pay for any bunkers that remain on board on redelivery of the vessel to them at the end of the charter. See Chapter 2.1 of the Gard Guidance on Maritime Claims and Insurance.
8 All persons and/or companies that are named as Assured are jointly and severally liable for all sums that are due to the Association in respect of this insurance.
9 For more detailed commentary in relation to General Average see Chapter 10 of the Gard Guidance on Maritime Claims and Insurance.