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by Capt. Gurjeet Warya | V.P. Business Development / Operations

In its original form, the Institute Warranties 1/7/76 stipulating vessel’s trading limits served that era of ocean going merchant vessels well, providing fair protection to the underwriters.  However, given the development on technology of vessel`s construction and advancement on navigational equipment onboard, the IWL started to feel archaic. Moreover, the insured was still being burdened by additional premium in vessel`s navigating and / or calling to the areas stipulated in the Institute Warranties 1/7/76 regardless of any changes of marine business environments. Frequent changes vide attachment and/or endorsement of the Institute Warranties 1/7/76 became a norm. The American Institute Trade Warranties of 1972 were on similar guidelines. Both worked as severe Warrantie.

In 2000, the Institute of Chartered Underwriters in London revised the Institute Warranty Limits (IWL), to take into account the change in ship size/quality, address climate changes and allow for wider global navigation. Since 1 November 2003, the limits have been referred to as the International Navigating Limits (INL). The INL define the geographical limits within which ships are able to operate without incurring additional insurance premium from hull and machinery and other relevant underwriters. Operating outside the INL, in areas which can include significant hazards such as ice, could lead to damage to the ship and delay necessitated by repair. INL are often referred to in the trading limits clauses of charter parties. These are Provisions not Warranties.

INL is the set of clauses that regulates where the ship may trade under English Hull Conditions (Institute of Chartered Underwriters).
However not all shipowners are insured according to English Hull Conditions and the trading warranties may differ depending on the conditions of cover. Thus it is proper to check the trading warranties agreed upon, especially since c/ps’ very often refer to the INL, which may not be the conditions as the owner’s hull insurance policy.

As an example to highlight the differences of IWL & INL: the INL76 clause 4 excluded Bering Sea completely while INL2003 allows Bering Sea with conditions (on through voyages, vessel does not enter, navigate or remain north of 54.5N, equipped with up-to-date largest scale nav charts, some GMDSS equipment compliance). This together with eased restrictions on the Sea of Okhotsk effectively allows trans-pacific voyages to be routed on a much shorter route saving time, fuel and in many cases providing better weather conditions than south of Aleutians, reducing the overall GHG emission.

At the same time, all three conditions (IWL76,AITW72 & INL2003 are identical for the North American East Coast region which cover Greenland, St. Lawrence and Great Lakes waters.

Assured parties take into account INL when fixing ships to ports/regions which may fall outside INL. If a shipowner intends to allow the charterer to trade outside INL, members should liaise with the relevant underwriters and ensure that the charterparty takes into account the possible outcomes of trading outside INL. A non-exhaustive list of contractual issues needs to to be considered at that stage.

Additionally, members ensure that their insurance cover is in line with the trading limits as set out in the charterparty. Some shipowners may be insured under alternative trading limits (for example the American Institute Trade Warranties limits).

To “breach” INL is to navigate into or through one of the either seasonal or permanently “excluded areas” without advising the hull insurance underwriters and without paying the additional insurance premium which will void the vessel’s hull insurance cover. Among an exhaustive list, areas permanently excluded include Polar Regions, North and South, typically above latitude 50˚ or 52˚.

The hull underwriters may allow vessels to trade outside IWL depending on conditions and the time of the season. If vessels are allowed to breach the warranties, that is, to trade in the excluded areas, the underwriter will charge an additional premium for such a voyage. Unless otherwise agreed, the premium is set for a voyage in and out of the excluded area. Should the vessel stay in the area and add ports or cross trade, the cover may be void unless the underwriters have agreed to such extension. Vessels trading in an excluded area or calling at such an excluded area regularly can often elect to pay seasonal cancellation, which is a premium for the period instead of paying on a per voyage basis. The intention of charging additional premia is to be able to keep a low basic annual premium for hull cover. Only the owners electing to expose their vessels for an increases risk have to pay, otherwise such exposure has to be borne by all owners, even those that decide not to expose their ships to ice or other hazards.

Therefore the additional premium for breaching the trading warranties may be regarded as quite high but it has to cover the increase in exposure. Winters may be different in severity and some hull conditions, will have additional premia set for the Baltic depending on the current ice situation. Other conditions often have an advisory scale that is used, irrespective of actual ice conditions and owners or charterers often complain that they have to pay high additional premia when there is no or very little ice during a voyage. In severe winter, the additional premia charges may not be sufficient to cover claims made. Past experience has shown that ice damage is directly related to the severity of the winter, the ice created and the condition of the ship, including the skill of the officers.

Remember, IWL76 & AITW72 are Warranties, which if breached without underwriter’s prior permission, invite severe penalties, whereas INL2003 are Provisions, not Warranties, thus the breach will not attract same severe penalties.

It is fairly common that a time charter will contain a clause allowing the charterers to order a ship to a place outside International Navigating Limits (INL). There is, of course, a reason why the underwriters have made the limits; trading outside those limits may be more dangerous to the ship, i.e. the risk of damage increases once the ship trades outside the INL. Generally the time charterers are aware of this and may, therefore, propose a clause such as the following:
“ The charterers are allowed from time to time to order the vessel to proceed to a port or place outside the current INL against payment of the additional insurance premium incurred. “
Such a clause is acceptable so long as there is no reason to dispute the additional premium demanded by the insurers and so long as the vessel suffers no damage. Assuming that the vessel is in fact damaged by ice, there is nothing in the clause which would support a claim from owners that the time charterers must defray the loss of time needed for the repairs. This is particularly relevant if the ship is damaged to an extent that affects its seaworthiness. The aforementioned clause would be to no avail as regards the time used for repairs and charterers might argue that the repairs may be put off until some time in the future when the ship would undergo survey or similar, if vessel’s seaworthiness is not affected. Hence the provision fails on two counts; it does not specify that the owners may take out additional insurance as they see fit, not does it specify that the time needed for repairs of damage to the vessel caused by complying with time charterer’s orders to breach INL is to be absorbed by the charterers.