Shipbroker’s commission saved from the waves
Shipbrokers specialising in the offshore market arranged the charter of a semi-submersible “flotel” (a type of accommodation unit). The contractual period comprised two separate periods in successive years.
Shortly after the first period had commenced the unit was hit by a 24 metre high wave causing substantial damage. Charterers issued a notice of termination of the remainder of the first period and reserved their right to cancel the second period if the significant damage to the unit was not repaired.
The shipbrokers had entered a written agreement for commission of 1% of the hire paid. The termination of the first period of charter ended the prospect of receiving that commission. Although the cancellation was the result of an event outside their control the shipbrokers faced a potential loss of income on the first period of US$ 206,444.
The shipbrokers had however protected their income by purchasing ITIC’s loss of commission cover. ITIC’s comprehensive policy covers the shipbrokers for “commission income [….] not being paid by reason of your loss of legal entitlement to this income because of the termination of the contract due to […] any perils consequent on, or incidental to the navigation of the seas”.
ITIC covered the lost commission of US$ 206,444 that would have been payable for the balance of the first period. The unit was repaired and returned to charter for the second period. The shipbrokers therefore received commission for the second period in the usual way. Had the second period also been cancelled the lost commission would have been covered by the policy and the shipbroker’s income protected. ITIC offers two types of loss of commission cover, the simpler being loss of commission resulting from the charterparty being terminated due to actual or constructive total loss of a vessel. The more comprehensive cover includes loss of commission due to a charterparty being cancelled for a wide range of marine perils, such as heavy weather, fire, piracy, collision, engine breakdown and negligence of master or crew. Insurance is offered either on an individual declaration of a charter, sale or purchase, or the more popular annual cover for all fixtures concluded throughout the year.
Contact your ITIC Account Executive, or insurance broker, for more information.