The ramifications of contaminated bunker fuel

By Andrew Preston and Mike Roderick, Partners, Clyde & Co. LLP. IUMI Professional Partner,

Marine insurers have been hit by the significant bunker fuel problems that emerged in 2018 starting with contaminated fuel supplied out of Houston, a problem which quickly spread to Singapore and elsewhere. Industry commentators estimate that in excess of 150 vessels may have been affected.  Evidence to date suggests that the problems arise from contaminants within the fuel from non-petroleum sources – although it is not yet clear whether from only one or from numerous sources. Problems experienced include the seizure of fuel-injection systems and blocked fuel filters often leading to only modest damage, but with more dramatic reports of blackouts and groundings.

Prevention is always better than cure. For "normal" off spec problems options can include the use of additives or the blending of fuels to bring the fuel back on spec. These are not without issues of their own e.g. co-mingling/blending may invalidate claims against the bunker supplier. The problem with Houston supplies is that blending cannot remove the contaminants and so is unlikely to be an option. Whether or not the fuel can be brought back on spec, recourse action against the charterers or bunker suppliers will need to be considered.   

Bunkers are typically supplied under contracts requiring compliance with ISO 8217 parameters.  Routine testing for ISO 8217 compliance does not identify the presence of these non-petroleum contaminants and bunkers may appear to be on spec. The contamination can only be identified by more advanced techniques such as GC-MS testing, but GC-MS testing takes time and requires specialised laboratory facilities, which are not always readily available.   

Under a time-charter, the charterer is obliged to supply fuel fit for consumption by a reasonably well maintained vessel. Fuel displaying the above characteristics is likely to be in breach of this fit for consumption obligation even though it may pass routine testing. An immediate recourse option for any owner fearing or actually suffering engine problems is to seek to pass on liability to the charterer and call upon the charterer to de-bunker the vessel and compensate owners for physical and financial losses. Key here is the need to obtain reliable evidence to prove the contamination.

If owners have themselves purchased fuel, the position is more complex. Bunkers are typically supplied on the supplier's terms and conditions. These are inevitably weighted in favour of the supplier and often include (a) a short time limit for the notification of claims; (b) a financial cap on liability; and (c) an exclusion of loss of use/hire claims. More fundamentally, owners may not even know they have a claim until after the notification period has expired. 

For any insurer involved in a bunker related claim these are not straightforward - but there are important steps that can be readily taken to assist and protect insurers and their insured's position.