Marine Insurance for the Northern Sea Route

(By Valery Musin ; INSROP Working Paper No. 98 – 1998, IV.3.3)

Marine insurance law, like maritime law in general, is of an international character. However the legislation of each country certainly has some peculiarities of its own. The aim of this paper is to outline some problems of marine insurance (with specific reference to navigation by the Northern Sea Route) in the light of Russian law.

A brief overview of the issues related to insurance coverage for those involved in navigation by the Northern Sea Route shows clearly enough that the Russian insurance market is now developed in a market direction. There is no state insurance monopoly any longer in Russia, so many insurance companies compete with each other and offer different kinds of insurance protection, the terms and conditions of which are negotiable. Forms of marine insurance cover recognised world-wide (such as different types of Institute of London Underwriters Hull clauses as well as Cargo Clauses (A, B, C) are in use in Russia, and a number of Russian insurance companies have long-term experience in their application.

Each Russian insurance company may have Rules of its own provided they do not contradict the mandatory norms of Russian law. When preparing such Rules, insurers are at liberty to take account of precedents developed in the international insurance market. Such a situation creates sufficient flexibility for Russian insurers to meet the demands of international trade including carriage of goods by the Northern Sea Route. Modern Russian law (primarily the Civil Code of the Russian Federation 1996) contains norms specifically intended to regulate insurance protection of civil liability (the norms of which may certainly be extended to ship owners' liability insurance).

According to the RF Civil Code 1996 such object as sea- (and river-) going ships as well as aircraft and space are legally deemed real property (Section 1 (paragraph 2) of Article 130). Right of ownership to any kind of real property (as well as its mortgage etc.) is subject to state registration in Russia. Given that, such object remain (in legal terms) closely connected with Russia irrespective of their actual location in some particular time. Such object as, inter alia, sea-going ships should be registered with insurance companies having a licence to operate in Russia. On the other hand, vessels may be reinsured abroad. It is also possible to obtain an insurance coverage for ship owner's liability from foreign P and I clubs. The issues above mentioned directly relate to the procedure of insurance of ship, goods and ship owners liability, including insurance with due consideration of specific conditions of the Northern Sea Route.

Now let us specifically consider environmental contamination risk which may result in extreme damage or even the irreversible violation of the ecological balance of the Arctic Ocean and the Northern coast of Russia as well as in the infringement of the interests and wealth of the population of the Far North (See: Section 3 of the Rules of navigation by the Northern Sea Route). This is apparently the main reason for the particular approach of the Russian authorities to this kind of insurance. While hull and cargo insurance (as well as the insurance of the marine carrier's liability for loss of or damage to goods) are quite voluntary and it is up to ship owner's or cargo owner's discretion to obtain appropriate insurance coverage (in relation to cargo insurance its terms and conditions may also to some extent be agreed by the seller and the buyer of the goods), insurance of liability for contamination of the environment is mandatory (at least within certain limits).

Due to historic tradition, in the international insurance market the protection for ship owners liability (including that for environment contamination) is usually arranged by P and I Clubs (see: Simon Poland and Tony Rooth. Gard Handbook on P. and I. Insurance. London, 1996, p.20; 366). There is currently no insurance monopoly in Russia. This means that generally speaking Russian ship owners may apply to foreign P and I Clubs to have their ships entered for insurance coverage of their liability to non-Russian parties. Still it should be borne in mind that since transfer of currency calls (both advanced and additional) abroad is a kind of currency operation connected with the movement of capital, a special license of the RF Central Bank was required until recently, through now there is no need for it.

Speaking in practical terms, insurance coverage of all forms of ship owner's liability may currently be obtained in this country from Russian insurance companies. It should be noted that in order to offer liability insurance, the insurance company needs to obtain a special license for liability insurance. Until recently the body responsible for licensing in the field of insurance was «Rosstrakhnadzor» (The Federal Administration of Russia for the Supervision of Insurance Business), which acted in compliance with the «Conditions for licensing of insurance business in the territory of the Russian Federation» approved by the Order of Rosstrakhnadzor 19th May 1994 No. 02-02/08. Ac-cording to the Decree of the President of the Russian Federation 14 August 1996 No. 1177 «On the structure of federal bodies of executive power» Rosstrakhnadzor was abolished and its functions were transferred to the Finance Ministry of the Russian Federation.

Valery Musin, 1998, Marine Insurance for the Northern Sea Route, INSROP.©