Charterparty requirement to issue Letter of Indemnity

Charterparty requirement to issue Letter of Indemnity: It is quite common for charterparties to contain clauses requiring the owners to accept an LOI for a charterer in certain circumstances. Why would an owner agree to this? • Risk assessment – From experience he knows there is little risk either of having to enforce an LOI, or that an LOI will not be honoured. • Commercial need – He may have to agree to this in order to do this business, which he may be very keen to do. • Ignorance – He may not appreciate the risks in agreeing this clause. • Insurance cover – He believes that he can insure his liability, so he will not have to rely on the LOI. For example, it is common for a shipowner to obtain SOL (Shipowners’ Liability) insurance cover if he loads goods on deck and issues an under-deck bill of lading. This is because he knows his P&I insurance is unlikely to cover him if the goods on deck are lost/damaqed by risk associated with on-deck cargoes. In this case, by taking insurance, he would not be relying solely on the LOI for repayment of any loss.• Limiting risk – If the charterparty clause requires a clean bill of lading, but only where there is a genuine dispute over the apparent good order and condition of the goods, then the bill of lading carrier/owner will know that any LOI he receives will be enforceable.