Letters of Indemnity: A Guide to Good Practice (Second Edition)

This guide to letters of indemnity looks at the practical issues and potential problems that can arise when using them, as well as how to avoid disputes. It provides commentary on the common types of letters of indemnity, the reasons they are used, the pitfalls and risks and some of the legal and insurance issues that may arise. Practical guidance is supported by a notes section showing the legal foundations of advice given.

This publication is designed to be used in conjunction with Bills of Lading – A Guide to Good Practice.

In 1998 The North of England P&I Association published a loss prevention guide to bills of lading entitled Bills of Lading – A Guide to Good Practice by Stephen Mills. The second edition was published in 2005 and the third edition in 2014.

The aim of the guide is to assist ship’s officers, operators and managers, as well as those advising them, on the problems and practical issues surrounding the everyday use of bills of lading and also to identify the legal principles and standards against which the use of that document would be judged.

However, the cry of many involved in international trade is that the ‘real world’ is a different place. Whereas the law expects that the documentary aspects of international sale transactions will comply with long-established principles and standards, those engaged in international trade may sometimes find those principles and standards difficult, if not impossible, to apply or achieve in each and every transaction. In their hour of need they often look to letters of indemnity.

In recognition of the widespread use of letters of indemnity in international trade and shipping in conjunction with, and sometimes in substitution for, bills of lading, an accompanying guide to Bills of Lading – A Guide to Good Practice, was published in 2008. This provided commentary on the common types of letter of indemnity, the reasons they are used, the pitfalls, and risks, and some of the legal and insurance issues which arise out of their use. This is the second edition of that guide, having been fully reviewed and updated for 2017. In the interests of mutuality, the P&I clubs need to work to the same principles and standards as the law applies to the use of bills of lading. The publication of this guide by The North of England P&I Association is not intended to condone or ratify the use of letters of indemnity, or to suggest that they, or their continued use, will be viewed with any greater enthusiasm in the future by the P&I clubs than is currently the case. Using letters of indemnity may give rise to risks which are uninsured and / or uninsurable, and to obligations which may be unenforceable or which may not be worth the paper they are written on.

However, it is recognised that letters of indemnity may legitimately assist trade on many occasions, and hence the advice given in this guide may be welcome, notwithstanding the caveat above. The aim of this guide is to assist ship’s officers, operators and managers in the understanding of letters of indemnity and the problems and practical issues surrounding their use.

1. Introduction

2. Quick Reference

3. Practical Guidance

4. Detailed Analysis

5. Anatomy of a Letter of Indemnity

6. Legal Notes

Appendices

I. P&I club circulars on standard letters of indemnity

II. Standard letters of indemnity

Bibliography

Index

NorthStandard is one of the leading providers of global marine insurance products and services across the maritime industries. Established through the merger of North P&I Club and the Standard Club in February 2023, NorthStandard brings together over 300 years of marine insurance heritage.

From headquarters in the UK and with offices throughout Europe, Asia and the Americas, NorthStandard offers a unique blend of worldwide presence and class-leading expertise across multiple specialist areas, including P&I, FD&D, War Risks, Strike & Delay, Hull and Machinery and ancillary insurance. Its Sunderland Marine and Coastal & Inland divisions also provide cover for owners’ fixed premium P&I, fishing vessels, inland waterway and coastal trading vessels and aquaculture. NorthStandard’s comprehensive local market and sector knowledge is underpinned by continuous investments in market-leading digital technologies.

NorthStandard is a leading member of the International Group of P&I Clubs (IG) and is fully committed to upholding the shared objectives of its 12 independent member clubs, which provide liability cover for approximately 90% of the world’s ocean-going tonnage.