Clause 37 Decoded: Who Pays for Extra Insurance in Your Charter Party?

 ⚖️ Clause 37 Decoded: Who Pays for Extra Insurance in Your Charter Party?

❓ Are You Sure You’re Not Paying for Something You Shouldn’t?

• Does your charter party clearly define who pays for crew bonuses during wartime risks?
• Are you accounting for all extra insurance premiums tied to the vessel's flag or class?
• Could a misunderstanding of Clause 37 be silently eating into your P&L?

Let’s unravel it. 🚢💡

 

🔍 Clause 37 – Extra Insurance: What It Really Means

“Any extra insurance or taxes incurred owing to Vessel's class and/or flag to be for Charterers' account. Extra war risk insurance premium including blocking and trapping and crew bonus to be for Charterers account where applicable. Owners agree to maintain Vessel's class highest and flag during the currency of this Charter. Vessel has a valid P&I Club insurance and a valid basic war risk insurance for the currency of this Charter Party.”

 

🧠 Explanation & Implications

This clause shifts financial responsibility for certain "extra" insurance elements to the Charterers, not the Owners, under specific conditions:

1. Vessel Class & Flag

• If a vessel’s class or flag results in additional insurance (due to higher risk profiles, older class notation, or politically sensitive flags), then Charterers must bear these costs.
• Example: A Liberian-flagged vessel might incur higher war risk premiums in some jurisdictions compared to a UK-flagged vessel.

2. War Risk Premiums, Blocking & Trapping

• In high-risk regions (like Red Sea or Gulf of Guinea), extra war risk insurance is often necessary. These premiums — along with crew bonuses for sailing through dangerous waters — are for Charterers’ account.

3. Owners’ Obligation

• Owners must ensure vessel retains highest class certification and registered flag status throughout the charter.
• Also, they must maintain basic P&I and war risk insurance, regardless of where the vessel trades.

 

⚠️ Common Pitfalls

• Ambiguity on “extra”: Charterers may assume Owners are covering all insurance unless “extra” is defined or clarified.
• Overlooking crew bonuses in voyage budgets can lead to disputes.
• Not updating war zones list may lead to gaps in coverage or post-event cost shocks.

 

⚖️ Real-World Case Reference

In The Ocean Victory [2017] UKSC 35, while not directly about Clause 37, the case stressed the need for clear division of risk and insurance responsibility in charter agreements.

BIMCO Commentary (if applicable): BIMCO clauses such as War Risks Clause often recommend similar split responsibility where basic coverage = Owners, and extras due to routing/region/charter = Charterers.

 

✅ Actionable Steps for Operators, Managers, Owners, and Charterers

🧾 For Charterers:

• Request full breakdown of insurance costs before finalizing hire rate.
• Always check trading routes and flags/class implications for insurance cost exposure.
• Factor in crew war zone bonuses during voyage planning and P&L forecasting.

🛠️ For Owners:

• Maintain updated P&I and basic war risk cover certificates.
• Notify Charterers in writing if entering regions needing extra cover.
• Document all crew bonuses and extra premium invoices transparently.

📋 For Managers/Operators:

• Monitor global war risk zones via Lloyd's, JWC or insurer advisories.
• Educate commercial and ops teams about implications of Clause 37.
• Implement a charter party checklist to verify coverage compliance.

 

🧭 Final Thoughts

Clause 37 might look like legal boilerplate—but it carries financial weight and risk allocation power. Misunderstanding it can result in unplanned costs and conflict. Understand it. Clarify it. Apply it. ✅

 

📣 Call to Action

If this helped clarify Clause 37 for you:

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⚠️ Disclaimer:

This blog post is for informational purposes only and does not constitute legal advice. Readers are advised to consult with maritime legal professionals or P&I clubs before making decisions based on clause interpretations.