IMO 2020 from an H&M perspective

By Jenny Salmon, Senior Associate, HFW, IUMI Professional Partner,

With an anticipated 90 to 95% of vessels initially expected to use low sulphur bunkers rather than scrubbers to comply with the IMO's 0.5% sulphur cap due to come into force from 1 January 2020, a surge in machinery damage claims under H&M policies can be expected.

In addition to the increased risk of catalytic fines in these low sulphur products, the potential instability and varying properties of compliant fuels from different ports and refineries (such as varying viscosity, density and cold flow properties) could result in clogged filters and centrifuges, as well as damage to other essential equipment. Those shipowners and operators seeking to reduce sulphur content by blending fuels may also find that the fuels, although each compliant, are not compatible.

This lack of standardisation of compliant fuels makes proper bunker fuel management practices vital.  

In the event of a resulting machinery breakdown, assureds are likely to rely on crew negligence when presenting their claims. For such claims to be recoverable, the Institute Clauses require that the loss and damage claimed must not have resulted from "want of due diligence" by the assured, owners or managers (and, in the case of the Institute Time Clauses (Hulls) 1/11/95, this is extended to superintendents and onshore management). A similar due diligence requirement appears in the Institute Additional Perils Clause, which could also respond to machinery damage claims.

The burden of proof for showing causative lack of due diligence will most likely fall on the underwriters. "Due diligence" for the purposes of the proviso means a lack of reasonable care or, in other words, negligence. It is not a particularly high bar for underwriters to meet.

Bunker fuel management procedures may already have been assessed for underwriting purposes. However, H&M underwriters could demand that procedures should be overhauled (or, in the case of a claim, should have been overhauled) prior to 1 January 2020 to reflect the increased risk. The spotlight may well fall on the policies and procedures imposed shore-side, and a failure to take reasonable care to update these may result in claims being declined.