Can non-compliance with the IMO 2020 Sulphur Cap impact vessel seaworthiness, legality and marine insurance coverage?

With the introduction of global sulphur-oxide limits for marine fuels by the International Maritime Organisation (IMO), fears have abounded within the shipping industry about the potential consequences of non-compliance. Likewise, for marine insurers, there is much uncertainty concerning the impact of non-compliance on marine insurance coverage. The pervading assumption within both industries is that non-compliance would render vessels unseaworthy or that the ventures undertaken would be determined illegal, providing underwriters with corresponding policy defences. However, there is little in the way of proper research and analysis to justify these suppositions. During this study, interviews were held with legal experts and senior insurance practitioners to discuss the subject and supported with desktop research to substantiate the conclusions made. Contrary to insurance industry fears, the effects of non-compliance are not so definite. The tests for determining both unseaworthiness and illegality under English Law are very complex and very difficult to satisfy completely. Similarly, under insurance contract law and existing insurance market practice, marine underwriters will find it problematic still to exercise their underwriting defences following non-compliance. To assuage industry fears going forward, this study puts forward a series of recommendations to manage the risk of IMO Sulphur Cap non-compliance.