Innocent Owners Interest Insurance

A registered shipowner (the actual shipowner, usually the lease finance company) who has bareboated out a vessel is exposed if Hull and/or Increased Value covers do not respond, due to the arrangements becoming void following an act by the bareboat charterer (disponent owner), being the assured. Innocent Owners Interest (IOI) Insurance pays the owner of a vessel up to the insured value.

In a bareboat charterparty there is a provision stating that the actual owner is entitled to the proceeds from Hull and Machinery cover and any Increased Value cover, in case of total loss or if the claim exceeds a set value.

Hull or Increased Value cover, in some instances, will not respond to a claim. Typically, This is when the assured - in this instance the bareboat charterer – is in breach of warranties or acted with gross negligence.

Since cover at that time is void, there is no payment from the insurers and, the actual owner will not receive any proceeds. Innocent Owners Interest Insurance may be claimed only if normal cover becomes void and provides cover for the outstanding loan amount, and is a parallel cover for the actual owner’s own investments and exposure.