The war in Ukraine raises many challenging legal issues for the marine insurance industry.
Ukrainian ports have been closed for entry and exit since 25 February 2022. Although some dry bulk vessels have been able to sail in the "grain corridor" established since July, there is a substantial number of vessels remaining trapped in ports and rivers, or otherwise stuck in Ukrainian waters.
Few doubt that these vessels are struck by a war peril, although each vessel must be considered individually. The closure of Ukrainian ports may be regarded as an implement of "war" according to the Nordic Plan clause 2-9 (1) (a). Accordingly, the cover of losses is determined by the Nordic Plan Chapter 15 (War risks insurance), which offers cover for total loss, damage, loss of hire and Owners' liability (P&I). Out of these, there is a clear anticipation that many of the vessels will be claimed as total losses around 25 February 2023, being 12 months after the closure of Ukrainian ports.
There are two provisions in the Nordic Plan Chapter 15 that may be considered when assessing a total loss claim arising from the closure of Ukrainian ports. Clause 15-11 states that the assured may claim for a total loss in cases of "intervention by a foreign State power" that has deprived the assured of the vessel. However, according to the Nordic Plan Commentary, a total loss under this clause requires that the vessel has been "taken from the assured". Thus it will be an intervention against a particular vessel, typically by some form of detention or similar. A general closure of ports affecting all vessels would not be regarded as an intervention against one or several particular vessels.
More relevant is clause 15-12, stating that: "If the vessel is prevented from leaving a port or a similar limited area due to blocking, the assured may claim for a total loss, if the relevant obstruction has not ceased within twelve months after the day it occurred". It is clear from the Nordic Plan Commentary that the "obstruction" is not required to be of a physical nature:
"The provision is aimed primarily at cases where the hindrance is of a physical nature, for example, when the vessel remains trapped because the lock gates have been destroyed by bombing, or because a bridge has been blown up by sabotage and blocks the way out of port. The lines are fluid, however, between hindrances of this type and hindrances consisting of a foreign State power detaining the vessel in port due to fear that it will fall into enemy hands. The detention may be reinforced by the area around the vessel being mined or by other measures aimed at preventing the vessel from leaving the area. Regardless of whether the authority in question implements separate physical measures, a detention of this nature will be deemed to be blocking and trapping within the meaning of the provision, and will also fall within the scope of Cl. 15-11."
Potential legal issues
The closure of Ukrainian ports may be deemed as "other measures aimed at preventing the vessel from leaving the area", ref. the quote from the Nordic Plan Commentary cited above, but the situation for each vessel must be assessed individually, on its own merits. Each claim for total loss cover must be handled and adjusted by the respective marine war risk insurers. Still, it is expected that many claims for total losses will, subsequent to 25 February 2023, be accepted as covered by war risk insurers. This opens for many other legal issues to explore:
- What happens if a vessel is able to leave Ukraine after 12 months have elapsed? The Nordic Plan clause 15-12 (2) refers to clause 15-11 (4): If the time-limit of 12 months has expired and the assured has brought a claim for total loss, a subsequent release of the vessel is irrelevant for the total loss claim.
- What happens if a vessel is struck by a new marine or war peril while it is trapped in Ukraine, but before the 12 months have elapsed? New marine perils will as a starting point be covered by the regular H&M insurance, however such cover may have elapsed or been cancelled according to various clauses in the Nordic Plan Chapter 3 section 2 on alteration of the risk. According to clause 3-19, the insurance against marine perils is suspended when the vessel is "temporarily seized", and then the war risk shall also cover marine perils. The closure of ports will probably not be deemed as a "temporary seizure" of a vessel. So if there is no policy in place for cover against marine perils, there is a clear risk that there is no insurance cover for such claims. But this will likely be debated, as the vessel may be regarded as in the grip of such perils as from 25 February 2022, being unable to move, without regular crew, supplies, maintenance etc. For new war perils striking the vessel, there will as a starting point be cover under the war risk insurance, provided that such is in force when the new peril strikes. Under the Nordic Plan clause 2-11, the blocking of the vessel is deemed to have struck on 25 February 2022, while a new war peril (e.g. a missile or a mine) will be regarded to strike at the time when the new incident occur. Again, each case here will need to be examined on its own merits.
- Who will own the vessel after a payment of total loss compensation by the war risk insurer? This is regulated by the Nordic Plan clause 5-19.The war risk insurer subrogates into ownership upon payment of the total loss compensation, being the sum insured, ref. clause 4-1. Such subrogation can be waived by the insurer ("abandon title"), but this has to be done no later than at the time of payment. The latter is quite normal if the vessel is physically lost or severely damaged, because a marine insurer would not want to assume a wreck removal liability etc. But the majority of the vessels trapped in Ukraina are presumed to be functional and have a value. It is therefore expected that relevant insurers will subrogate into ownership in many cases, and seek some recovery by selling the vessels to interested third parties.
- What about the vessel's insurances after a total loss has been paid? Normally, the existing insurances will be cancelled, and it will be for the new owners to insure the vessel onwards. In cases where insurers abandon title and ownership remains with the assured, the existing covers may continue on the basis of new insurable values. If unrepaired damage is discovered after a vessel has been sold or taken over, the damage will be consumed by the total loss compensation according to Nordic Plan clauses 11-1 (2) and the principle that "a total loss absorbs partial damage".
The above represents just some of the issues that may arise when insurance covers are to be determined and claims resolved under the Nordic Plan for vessels trapped in Ukrainian waters. Many of the same issues will probably arise also under other war risk conditions than those of the Nordic Plan.