State fund for insurance of maritime vessels: how it will work

On June 5, 2024, the Ukrainian government approved the Procedure for compensating damages caused to civilian vessels entering the country's ports.

This involves the process of providing guarantees for compensation for damages incurred by charterers, operators and owners of maritime and inland waterway vessels as a result of armed aggression by the Russian Federation. This applies to vessels flying both Ukrainian and foreign flags.

Such a step is important for freight carriers considering that insurance companies are reluctant to cover war risks. The last one poses a threat to non-military maritime transportation from Ukrainian ports.

The launch of the damage compensation mechanism will allow charterers and shipowners to continue accessing Ukrainian ports regardless of whether the Grain Agreement is in effect or not.

According to the procedure, compensation will be provided to shipowners to whom the insurer has formally denied compensation for damages caused by armed aggression by the Russian Federation.

Only those shipowners who have entered into an insurance contract or a Protection and Indemnity (P&I) policy in accordance with the legislation of Ukraine or another state will have the right to compensation.

The damages eligible for compensation include:

• The losses incurred by the vessel due to its loss or destruction, which cannot be restored;
• Expenses for the repair of structural damage to the vessel, resulting in the vessel losing its seaworthiness;
• Losses due to the loss or damage of cargo (regardless of its type);
• Expenses related to injury or death of a passenger or crew member of the vessel.

For this purpose, the shipowner, no later than 90 calendar days from the date of receiving the insurer's refusal to provide insurance compensation, can submit a designated package of documents to the Ministry of Infrastructure.

The total amount of compensation in 2023 will be up to 20 billion hryvnias, according to the Center for Transport Strategies.