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11 February 2015
The unprecedented retreat of sea ice and changes to season lengths and weather patterns in the Arctic region have provided new opportunities and risks for the shipping industry. In particular, the reduction in journey time achievable by sailing through the Northern Sea Route along Russia's coastline is attracting increasing interest. This emerging reality is illustrated by:
The marine insurance industry is responding, and will increasingly respond, to the growing desire to navigate the Northern Sea Route and other polar waters. This update takes a bird's-eye view of the insurance cover under the Nordic Marine Insurance Plan in respect of navigation in the Northern Sea Route.
The Northern Sea Route is part of the excluded trading area. This follows from Nordic Plan Clause 3-15 and also from the so-called Cefor Trading Area Clause, which was issued in November 2013. Hence, insurance cover is suspended unless permission to transit the Northern Sea Route has been obtained from the insurer.
But what is the legal position if permission to transit the Northern Sea Route is granted by the insurer?
Breach of safety regulations, as defined in the Nordic Plan, may lead to loss of cover if there is causation between the breach and the casualty and there is negligence on the part of the insured.(1) Safety regulations include the classification society's rules and the flag state's regulations; further, coastal states' regulations constitute safety regulations to the extent that they are binding on the insured. Regarding the Northern Sea Route, provisions and orders given by the Russian authorities on the safety of navigation (eg, icebreaker assistance, use of ice pilots and shipboard ice navigators and rules on the regulation of maritime traffic) therefore constitute relevant safety regulations to the extent that they are legally binding on the insured.
Information about the Russian regulations can be found on the Northern Sea Route Administration website. Views differ on the extent of Russia's jurisdiction over the Northern Sea Route and questions may arise as to the scope of the applicable safety regulations.
In addition to the statutory safety regulations and the rules of the classification society, the Nordic Plan provides the possibility to incorporate particular safety regulations into the policy. Such safety regulations may include requirements for:
If such agreed safety regulations are breached, cover will be lost if there is causation and negligence on the part of the insured or anyone whose duty it is to ensure compliance on behalf of the insured. Alternatively, special safety rules may be drafted as warranties, such as in the English marine insurance system, even where the policy is based on the Nordic Plan. However, it is probably less likely that Nordic insurers will adopt this approach.
If a casualty has been caused by gross negligence, cover may be lost.(2) Although the new Cefor Trading Area Clause (if incorporated into the policy) implies that the classification societies' rules regarding ice class no longer constitute safety regulations due to the deletion of Clause 3-22 Sub-clause 3, it may – depending on the circumstances – still be considered gross negligence to navigate through ice-infested waters without appropriate ice class.
For further information on this topic please contact Anders W Færden, Trond Eilertsen or Herman Steen at Wikborg Rein by telephone (+47 22 82 75 00), fax (+47 22 82 75 01) or email (email@example.com, firstname.lastname@example.org or email@example.com).
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