Freight Insurance in Charter Parties – Solutions Provided by National Legislation and Institute Clauses

  • Freight Insurance in Charter Parties – Solutions Provided by National Legislation and Institute Clauses

    Author: Dr. Marija Pijaca

    Key words: freight, insurance, Maritime Code, freight insurance institute clauses, marine insurance comparative law regulations

    Various interests of shipowners and charterers can be a subject of insurance in transport of cargo by sea, such as material goods (ship, cargo), persons, legal relationships (claims, liabilities, expenditures, costs, responsibility, loss of profit). In charter parties, as a type of contract on transport of goods by sea, shipowner who is an exponent of maritime venture, in addition to many rights and obligations also has a justified material and legal interest in hull and machinery insurance and liability insurance (P&I risks). In addition to hull and machinery insurance and liability insurance the shipowner also has a material interest in freight insurance. Importance of this type of insurance is special due to the role of the freight, given the fact that the freight is the main economic purpose of charter parties i.e. economic price for exploitation of a ship. Therefore, freight insurance is one of the forms of marine insurance in which the subject is freight insurance exposed to risks from usual marine risks as well as to possible war risks and other risks. During the charter period, the shipowner can be prevented in executing their contractual obligation of transport of cargo and collection of freight for a variety of reasons, and therefore the shipowners have an interest in freight insurance with regard to such risks. Shipowners also have insurable interest when they have well-founded expectations for income from future ship operation. For example, when entering into time charter, there is a possibility that the shipowner will suffer a loss of freight, determined per unit of time, because the ship was out of operation for a certain period of time due to a need to effect repairs of suffered damage, therefore, interest of the shipowners from charter party in freight insurance in logical. By taking this fact into account, we found it necessary to establish basic characteristics of this form of insurance starting from legislative and autonomous legal sources.

    Even though a large number of references from the field of maritime would seem to indicate that there is a scientific interest for certain aspects of maritime insurance, a review of research to date shows that the topics dedicated to freight insurance in charter parties are not sufficiently represented. For this reason, we have considered it necessary to carefully investigate relevant legal issues of freight insurance in the subject charter party by encompassing all of its statutory and autonomous legal sources in one place. Therefore, the main goal of this paper is to study and analyse all important legal issues of freight insurance in agreement in principal within Croatian legislative framework, provisions of institute clauses and comparative legal regulations. Issues of current quality of legal regulation of freight insurance and tendency for its future development will be pointed out. For the purpose of achieving this goal, in the introduction of the paper we establish in more detail the Introduction provides basic characteristics of the charter party and principal rights and obligations of this contractual relationship between shipowner and charterer. Then we establish the definition of freight and explanations in respect of which one of the contractual parties has a material interest in freight insurance. Then we define the term freight insurance and features of the material interest in freight insurance existence on the vessel’s side and the goods being carried are described severally. Basic ways of insurance interests in relation to the freight, i.e. freight insurance within the insurance of the vessel, or cargo, or concluding a separate contract on freight insurance, are set out, as well as which one is the most common in practice. A detailed analysis of the freight insurance provisions pursuant to the Maritime Code is presented, with a particular stress on the freight loss due to total loss of cargo and determining the amount of compensation from the insurance. Special institute clauses related to the freight insurance against maritime risks, such as: Institute Time Clauses – Fright, 1/10/83 and Institute Voyage Clauses – Freight, 1/10/83., also the clauses for the freight insurance against the war and strike risks: Institute War and Strikes Clauses, Freight – Time, 1/10/83 and Institute War and Strikes Clauses, Freight – Voyage, 1/10/83, are analysed. The Paper also includes the analysis of the institute clauses for vessels’ insurance, containing the provisions on freight insurance from 1995. A comparative analysis of the comparative law legal regulations on freight insurance (e.g. English Marine Insurance Act, 1906, Australian Marine Insurance Act, 1909) is given. In the conclusion the reference is made to the most important provisions of the Maritime Code, institute clauses and comparative law regulations in the standardization of the freight insurance in charter parties, and the quality of the freight insurance valuation is explained from the standpoint of selected legal regulations and institute clauses. Critical review of the quality of legal regulations regarding freight insurance and measures for their further improvement within the provisions of selected laws and institute clauses are also presented.