A number of insurance companies have closed the door to sanctioned Sovcomflot. The Russian carrier is thus prevented from operating internationally, explains lawyer.
Russian tanker carrier Sovcomflot has to look for insurance among smaller players following larger players like Skuld’s and Gard’s decision to halt the customer relation. British P&I clubs are similarly terminating their deals.
Should the carrier obtain insurance outside the major marine insurance companies, it doesn’t mean that Sovcomflot’s international operations can unfold as usual, says lawyer.
Partner at law firm Bech-Bruun Johannes Grove Nielsen explains to WPO that it’s not possible to sail internationally without insurance as this will be checked at the port, however, currently, ”Russian ships can under no circumstances sail to several European countries, anyway.”
We can confirm that in order to comply with UK and EU sanctions, the UK Club issued 30-day notices of termination to Sovcomflot in respect of their entered ships in early April
UK P&I CLUB to WPO
In order to operate internationally, Sovcomflot needs insurance from a club that is also willing to take on a customer hit by sanctions in many parts of the world.
”There is no Russian club in International Group, but there are certain smaller P&I clubs around the world that may be interested in taking on Sovcomflot,” says Grove Nielsen.
Currently, insurance companies are dropping Sovcomflot, for instance Norwegian Skuld, which insures around 49 of the carrier’s ships, according to VesselsValue’s database.
Norwegian Gard, the world’s largest P&I club, has also terminated the customer relation, WPO learns. Gard only insures about three vessels, though.
The UK insurance companies are terminating their relations with Sovcomflot as well. Previously, both North of England P&I Club and North P&I have ended their customer relations. And yesterday, UK P&I Club confirmed in an email to WPO that they are leaving as well, and that a warning was sent to Sovcomflot in the beginning of April.
”We can confirm that in order to comply with UK and EU sanctions, the UK Club issued 30-day notices of termination to Sovcomflot in respect of their entered ships in early April.”
Large insurance companies for Sovcomflot
* Thursday morning, several of the ships insured by North of England P&I Club have been listed as ”unknown”. This goes for 11 of the 21 vessels filing under North of England only few hours earlier.
Source: VesselsValue
According to VesselsValue, 21 ships are covered by UK Club.
As such, it will be an even bigger challenge to get insurance from the big players. And in order to get proper coverage, it is a problem not to be welcome among these.
Limited insurance power
In theory, it’s possible that Sovcomflot may find a small player willing to insure the fleet, however, this has its challenges, states Grove Nielsen.
”The problem with these clubs are that they are very small compared to the 13 in IG [International Group, -ed.], which cover around 90 percent of the world tonnage. Furthermore, the IG clubs have shared coverage in relation to major damages, something the smaller players don’t,” he adds.
Exactly because Sovcomflot is a large player, not being covered by an IG club may prove problematic, says Grove Nielsen.
This [the pool through which the major clubs share the costs, -ed.], the small players are not part of, meaning it can give major problems if a minor player has to cover huge damages
JOHANNES GROVE NIELSEN, PARTNER, BECH-BRUUN
”The small players are not part of this [the pool through which the major clubs share the costs, -ed.], meaning it can give major problems if a minor player has to cover huge damages.”
Industry organization calls for clarity
According to Trond Solvang, professor in marine law at the University of Oslo, Sovcomflot might be able to operate unaffected if the carrier sails in Russian waters and with Russian financing.
”But that sort of limited circumstances are obviously not very practical,” he says.
Industry organization International Union of Marine Insurance (IUMI) explains to WPO that their members of course intend to comply with the sanctions.
”This is a difficult time for all concerned and marine underwriters are prepared to fully comply with all sanctions imposed, but to the extent that they are permitted, marine underwriters will support their clients and at the same time encourage common sense measures that protect the ships and their crews,” states an IMUI spokesperson to WPO.
”At the same time IUMI urges regulators to ensure that potential sanctions are clear and feasible in order to enable marine underwriters to comply.”
Furthermore, it is thinkable that ending an insurance agreement on short notice will be costly to the insurance company itself.
But according to Neil Roberts, member of IUMI Policy Forum, this is not certain.
”There may not be losses. Ending a contract is not straightforward. Unless sanctioned or there is a contractual reason, contracts will run to expiry,” Roberts says.
Furthermore, it will not result in legal dilemmas for the marine insurance firms, he adds.
”None. If the client is sanctioned, then the insurer is prohibited from acting. The problem for the client is when one authority sanctions and another does not, leaving partial cover.”
