Red Sea War Risks: Insurance And Safety Challenges

• Amid escalating conflicts involving Israel, Hamas, and Houthi rebels in the Red Sea, the maritime industry faces complex questions regarding safety protocols, insurance coverage, and financial responsibilities.
• The situation prompts a closer look at the legal ramifications, particularly in the context of war risk clauses, as vessels grapple with the implications of potential route deviations.

Background and Emerging Challenges

The conflict, which unfolded in October 2023, initially centered around Israel and Hamas in Gaza. Subsequently, Houthi rebels targeted commercial vessels, initially focusing on those with perceived “Israeli links.” However, the situation evolved, with ships associated with the U.S. and the UK becoming prime targets. Gard, a leading P&I club, received numerous inquiries from concerned stakeholders, including owners, charterers, and crews, contemplating the risks of traversing the Red Sea amidst the heightened war-like activities.

While the risks are evident, there’s a commercial incentive to traverse the Red Sea due to the considerable time and cost associated with rerouting around the Cape of Good Hope. The decision to proceed through the Red Sea or take an alternative route becomes a critical consideration for maritime operators.

Master’s Authority and Financial Implications

The Master, entrusted with the vessel’s safety, holds the authority to deviate from the Red Sea route based on security concerns. However, the financial implications of such deviations depend on charterparty terms, specifically the routing agreement and any applicable war risk clauses. The Master’s discretion is not without contractual considerations, and the terms set forth in CONWARTIME 2013 for time charters and VOYWAR 2013 for voyage charters play a crucial role in shaping financial responsibilities.

Charting a Course Amidst Uncertainties

In scenarios where parties have expressly agreed to transit the Red Sea, contractual obligations come into play. Fixture recaps outlining specific routes, especially via the Suez Canal, bind owners to accepted risks. However, if circumstances have changed since the charterparty’s inception, the dynamics of risk allocation may shift, impacting financial responsibilities.

The absence of a war risk clause prompts a reliance on other charterparty clauses governing the right to deviate, posing challenges in terms of financial responsibilities and contractual obligations. Factors such as safety assessments, individual ship characteristics, and regional affiliations further complicate the decision-making process.

Safety Measures and Legal Considerations

Assessing safety in this volatile environment requires individualized scrutiny, considering various factors such as vessel type, flag state, and associated geopolitical risks. Recommendations, including traveling at night and switching off AIS, highlight the evolving nature of security measures. Additionally, the relevance of safe port warranties, force majeure clauses, and the rarely invoked frustration concept in English law add layers of complexity to the decision-making process.

Insurance Implications and Subrogation Risks

The potential damage caused by missile attacks raises questions about insurance coverage and subrogation risks. The article explores how owners could file claims under war risk insurance, delving into the implications for charterers. The Supreme Court’s clarification on the “insurance code” solution adds a layer of complexity, emphasizing the need for thorough consideration of insurance positions before transiting the Red Sea.

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Source: Gard

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