Russia-Ukraine war – An update

Further to my earlier post Ukraine war & marine cargo insurance, the past week has seen no slow-down in hostilities. The insurance industry in India led by GIC Re has swung into action and issued notice of cancellation of War, strikes, riots and civil commotion cover to, from and within Ukraine, Ukraine territorial waters, Russian Black Sea territorial waters, Russian Black Sea ports, Sea of Azov, Sea of Azov ports and Russian territories within 200 kilometers f the Ukrainian border. The notice of cancellation from GIC Re is dated 14th March 2022. The key points to be noted are:

1. Unlike in the case of other High-Risk areas where the war & strikes cancellation can be bought back on payment of additional premium, the same is not possible to the current cancellation covering the stated areas.
2. Any subsequent notices of cancellation enlarging the areas considered High-risk will have a notice period of 48 hours only and not 7 days.

What are the consequences and expectations from assureds? It is a no-brainer that under the current circumstances, there will be no merchant vessels traversing the high-risk areas highlighted earlier. Leave alone that, no exporter/importer will be entering into fresh contracts which entail passing through these areas, even though technically, cargo insurance cover under ICC is still available under open covers/open policies for transits through these high-risk areas. It is only the war & strikes cover which is being cancelled. Having said that, India has a major trade relationship with Russia which will be continuing. Logistics teams are working overtime trying to figure out ways and means to keep the supply-chains with Russia up and running. There are sea-routes to Russia via the North Sea and Baltic Sea and to a lesser extent to the smaller ports on the eastern coastline of Russia. These could involve higher costs and longer transit times, but the options are open. Insureds would do well to present their logistics plans to insurers so that they get the full coverage for cargo risks as also against war & strikes. Simply put, Indian insurers should not shy away from anything even remotely connected with the word ‘Russia’. Air shipments from India to Russia or vice-versa can definitely continue to be insured by insurers against cargo risks plus war & strikes. The notice of cancellation by GIC Re certainly does not touch upon air shipments.

A question which may come up is what about the Sanctions & Exclusions clause? In case of claims arising on transits to Russia, US dollar payments will not be possible. However, since Indo-Russian trade is subject to Rupee-Rouble agreement, claims payments in Indian Rupees should not present difficulties.

Another major development has been the decision of the International Association of Classification Societies (IACS) to remove the Russian Register of Shipping from the membership of the IACS. The statement says that this is not due to any technical inadequacies displayed by this Registry but only as a response to the Russia-Ukraine conflict and sanctions imposed on Russia by NATO. The Russian Register of Shipping has vessels belonging to 40 different countries classed by it. So it is not only Russian vessels which will get impacted by this decision of the IACS. How exactly this will pan out is not clear. Will vessels currently holding a valid class certificate issued by the Russian Register be deemed to be without class immediately and asked to obtain class certificate from another classification society? Unlikely. It is only when the class certificate expires, that this decision’s impact would be felt. A class certificate issued after due inspections cannot be abruptly stated to be unacceptable simply because a decision ( other than on technical grounds) was suddenly taken to remove the Registry from the membership of IACS.

What does the Institute Classification Clause -CL 354 01/01/2001 say? It defines qualifying vessels as those — This insurance and the marine transit rates as agreed in the policy or open cover apply only to cargoes and/or interests carried by mechanically self-propelled vessels of steel construction classed with a Classification Society which is: 1.1 a Member or Associate Member of the International Association of Classification Societies (IACS*). or 1.2 a National Flag Society as defined in Clause 4 below, but only where the vessel is engaged exclusively in the coastal trading of that nation (including trading on an inter-island route within an archipelago of which that nation forms part)’.

It is clear from the above that any ocean-going vessel has to be a member of IACS for cargo carried by it to be insured under marine cargo insurance. There are numerous classification societies apart from the 11 who now constitute IACS. Though IACS classed vessels will form the lion’s share of ocean-going vessels, it will be pertinent to note that there are vessels duly classed but NOT by an IACS member society. Does cargo carried on such vessels cannot get cargo insurance? The Institute Classification Clause provides the answer too– Cargoes and-or interests carried by vessels not classed as above must be notified promptly to underwriters for rates and conditions to be agreed. Should a loss occur prior to such agreement being obtained cover may be provided but only if cover would have been available at a reasonable commercial market rate on reasonable commercial market terms. What if the classifying society ceases to be member of IACS ( as in this case) while it was one, when the class certificate was issued and the certificate is valid as on date? The Classification Clause is silent on this.