Liability for Damages During Charter: What Every Charterer and Owner Must Know

My name is Davide Ramponi, I am 20 years old and currently training as a shipping agent in Hamburg. In my blog, I take you with me on my journey into the exciting world of shipping. I share my knowledge, my experiences, and my progress on the way to becoming an expert in the field of Sale and Purchase – the trade with ships.

When a vessel is chartered, it's more than just a question of rates and routes—it’s a complex agreement where responsibility is shared, risks are transferred, and liabilities must be clearly defined. One of the biggest sources of tension in this process? **Damage to the vessel** or its equipment during the charter period.

Who pays when something breaks? What if the hull is scratched during cargo ops? Or the engine fails halfway through a voyage? These are the moments when everyone reaches for the contract—and when clarity makes all the difference.

In this blog post, I want to walk you through:

• Who is liable for what during a charter

• Common types of damage and where disputes often arise

• How damages are reported and processed

• The role of insurance (P&I and H&M)

• And finally, how to set up contracts to avoid painful misunderstandings later

Let’s unpack how smart chartering includes *clear boundaries of liability—before trouble hits.

Who Is Liable for What? Understanding Chartering Liability Basics

The starting point for any liability discussion is the type of charter. Different charter forms assign responsibility in different ways:

🔹 Time Charter

• Owner retains responsibility for:

  • Hull and machinery

  • Crew wages and performance

  • Technical maintenance

• Charterer assumes responsibility for:

  • Bunkers

  • Port charges (unless otherwise agreed)

  • Cargo operations (including stevedore damage)

➡️ Liability Key Point: Damage caused by the charterer's cargo handling or bunker usage may fall on them, even though they don’t own the ship.

🔹 Voyage Charter

• The owner bears almost all operational responsibility, including vessel condition and performance

• The charterer is only responsible for loading/unloading delays (demurrage) and cargo-related obligations

➡️ Liability Key Point: Voyage charters usually involve fewer liability disputes, but cargo-related damage claims can still occur.

🔹 Bareboat Charter

• Charterer** takes over full control, including crewing and maintenance

• They are effectively the “owner” for the period of the charter

➡️ Liability Key Point: All damage during a bareboat charter is the charterer’s responsibility—unless it stems from prior defects not disclosed.

Pro tip: Always refer to the charter party (e.g., NYPE, GENCON, BARECON) for specific clauses. These standard forms often contain default rules—but most are negotiable.

Typical Damage Scenarios During Charter

In theory, both sides want to avoid damage. But in practice, vessels operate under pressure, in tough environments. Here are some of the most common scenarios where damage occurs—and where disputes often follow:

1. Stevedore Damage

• Scratches to the hull during loading

• Bent handrails or ladders

• Damaged hatch covers due to poor cargo ops

➡️ Charterers are usually liable if stevedores were under their control—but proving that can be tricky.

2. Engine or Machinery Breakdown

• Charterer claims: “The engine failed due to poor maintenance.”

• Owner claims: “It broke down because the charterer pushed the ship too hard.”

➡️ Here, evidence and condition reporting are key to resolving the issue.

3. Contaminated Fuel

• Charterer supplies bunkers (under time charter)

• Fuel causes damage to engine or reduces performance

• Huge financial and legal consequences

➡️ Bunker quality clauses (e.g., ISO 8217 compliance) must be tightly worded to assign clear responsibility.

4. Cargo-Related Corrosion or Spillage

• Acidic cargo damages tank coating

• Spilled cargo ruins deck equipment

➡️ Liability depends on the stowage instructions, MSDS compliance, and tank inspection reports.

5. Grounding or Collision

• Can be the result of crew error, pilot misjudgment, or charterer pressure

• Involves major investigations, insurance claims, and often legal arbitration

Damage Documentation and Claims Process

When damage occurs, how it’s documented and reported makes all the difference. Here's the standard procedure:

Step 1: Notifying the Other Party

• As soon as damage is discovered, a written notice should be sent

• Include time, location, and nature of the incident

Step 2: Joint Survey

• Both parties appoint a surveyor (or agree on a single one)

• Surveyor assesses:

  • Cause

  • Extent

  • Estimated cost of repair

• The survey report becomes critical evidence in any dispute

Step 3: Damage Report & Claim Filing

• Based on survey, the injured party files a claim

• This could go to the charterer, owner, or insurance depending on fault and coverage

Step 4: Repair Execution and Settlement

• Repairs are carried out—often at the next available port

• Settlement may be reached directly, or via arbitration if contested

Important: Delays in reporting or poor documentation can weaken a party’s legal position significantly.

The Role of Insurance: H&M and P&I Explained

Insurance isn’t just paperwork—it’s the backbone of financial risk management in chartering.

🔹 Hull & Machinery Insurance (H&M)

• Covers physical damage to the ship (hull, engine, machinery)

• Typically arranged by the owner

• Doesn’t cover cargo loss or pollution fines

Example: If a main engine fails due to water ingress, H&M will step in—unless negligence or poor maintenance is proven.

🔹 Protection & Indemnity Insurance (P&I)

• Covers third-party liabilities, including:

  • Cargo claims

  • Pollution

  • Collision

  • Crew injury

• Offered by mutual clubs (e.g., Gard, UK P&I)

Example: If a cargo gets damaged due to poor tank cleaning, P&I may cover the charterer’s legal liabilities.

Charterer’s Liability Insurance

• Some charterers take out Charterers’ Liability Insurance to protect themselves against:

  • Stevedore damage

  • Bunker issues

  • Cargo claims

  • Pollution liability

Recommendation: Charterers with regular fixtures should strongly consider dedicated cover. It fills the gaps between owner coverage and legal gray areas.

Tips for Clear Liability Clauses in Charter Parties

Disputes often stem from unclear contracts. Here’s how to reduce ambiguity and protect both sides:

✅ 1. Be Specific in Damage Clauses

• Define what counts as "wear and tear" vs. "damage"

• Specify which party is liable for stevedore, bunker, or cargo-related damages

✅ 2. Include a Clear Survey Procedure

• Joint inspections at delivery and redelivery

• Agreement on surveyors, timelines, and reporting format

✅ 3. Address Bunker Quality Responsibilities

• State that fuel must meet ISO 8217 standards

• Require samples and quality certificates

✅ 4. Require Adequate Insurance

• Owners must show proof of H&M and P&I

• Charterers may be required to carry Charterers’ Liability Insurance

✅ 5. Add an Arbitration Clause

• Decide in advance how disputes will be resolved

• London Arbitration or LMAA terms are commonly used

Best practice: Always review clauses with maritime legal advisors before finalizing long-term or high-risk charters.

Conclusion: Chartering Without Surprises Means Planning for Damage

No one wants damage—but it happens. The question is: how well are you prepared for it?

Let’s recap:

• Liability during a charter depends on the type of charter and contract clauses

• Common damage scenarios include stevedore damage, engine breakdown, and bunker contamination

• Timely damage documentation and surveys are essential to protect both parties

• Insurance (H&M, P&I, and Charterers’ Liability) plays a vital role in managing risk

• Well-written contracts with clear clauses make a huge difference when things go wrong

Chartering success isn’t just about profit—it’s about protection. Knowing who is liable for what gives both owners and charterers the confidence to operate smoothly, even when things don’t go as planned.

Have you experienced a damage dispute during a charter? What steps did you take to resolve it?

Share your experiences in the comments—I look forward to the exchange!

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