After the Storms: Huge Charter Challenges in the Age of Monster Storms

Oct 25, 2017 BY KIM KAVIN, Editor, Charterwave.com

This year’s Caribbean hurricane season has been one nasty, wicked beast, and it is creating unprecedented challenges for retail charter brokers and fleet managers alike. 

The level of destruction going into this winter’s prime charter months is already unimaginable, with hurricane season still active through the end of November. Category 5 Irma was among the most intense storms on record, and she was just one among 13 named storms, including 7 hurricanes and 4 Category 3 or stronger hurricanes, that had formed in the Atlantic by mid-September. 

Only eight other years on record (since record-keeping began in the mid-1800s) have had seasons with seven or more hurricanes in play prior to September 17th, according to Colorado State University tropical meteorologist Phil Klotzbach. And if you look at the 30-year average for entire Atlantic seasons, the total number of hurricanes you would expect to see is only six, according to The Weather Channel—which predicted even before Category 4 Maria slammed into Puerto Rico that, “2017 may move into the Mount Rushmore of notorious Atlantic hurricane seasons.” 

Yes, charter brokers have long had to deal with the ramifications of storms, but this year is different. It’s one thing to discuss force majeure in terms of a yacht being wrecked, but it’s an entirely other conversation when a whole charter destination’s infrastructure is obliterated. 

That’s the case across a swath of the northern Caribbean and Virgin Islands right now. Irma alone damaged marinas (some severely) and took out the Bitter End Yacht Club on Virgin Gorda, every Pusser’s location in the Virgins, Foxy’s and the Soggy Dollar Bar on Jost Van Dyke, the Willie-T on Norman Island, the Eden Rock on St. Barth’s, Princess Juliana International Airport on Sint Maarten and much, much more.

Many charter brokers would be hard-pressed to propose a winter charter itinerary that didn’t include at least a few of those spots. 

“What happens when the boat’s fine, and the owner doesn’t want to cancel, but he also doesn’t want to go to a place with no infrastructure or services where it could be dangerous?” asks Daphne d’Offay, senior charter broker with Ocean Independence and co-chair of the IYBA Charter Professionals Committee. “Nobody knows yet. We’re trying to figure that out.” 

Experts say that retail charter brokers can suggest a few protections for their clients. For starters, there’s the standard hurricane addendum to basic charter contracts; the AYCA addendum gives clients a year to rebook if a named storm is heading to the charter location within 48 hours of the itinerary commencing. 

That helps when the storm is bearing down, but not beyond, says Charter Professionals Committee member Patricia Codere, head of Fraser Yachts charter management in the United States. “The hurricane addendum doesn’t say, ‘If the island should be so completely destroyed,’” she explains. “It says within 48 hours of a named storm, there’s an option to reschedule.” 

Looking beyond those 48 hours of a storm hitting, brokers can advise clients to purchase trip-cancellation insurance. In the current situation, where some clients are considering cancellations a month or more in advance because of damage to the destination, such insurance policies are the only protection available. 

In the past, clients may have considered trip-cancellation insurance only for a unique charter event, says Jeff Shaffer, charter management director at Superyacht Sales & Charter and co-chair of the Charter Professionals Committee. “If it’s a one-time thing, a 50th birthday or something like that, then they might want to go to the expense of taking out the insurance,” he says. 

Going forward, with the recent devastating storms in mind, brokers may want to suggest trip-cancellation insurance on a more regular basis, d’Offay says. “It’s very hard, most retail brokers would tell you, because if they start to use what sound like scare tactics to educate their clients, it may turn the client off altogether,” she says. “A lot of brokers won’t do it for just that reason. I think we have to find positive ways to help the client understand that they are protected. They’re spending a lot of money. If they’re educated, then everybody is more covered for a potential situation.” 

Compared to retail brokers, charter yacht managers face different challenges with their clients right now. Yacht owners, following Irma, started looking hard at the meaning of force majeure in pending charter contracts. Most crewed yachts survived that storm just fine, according to early reports, but some owners watching news coverage out of the islands were horrified at the thought of placing their boats and crew into what might become a dangerous situation filled with desperate people on islands with power grids and communications wiped out, and possible long-term shortages of food, water and medical supplies. 

“The first few days in the BVI were pretty scary because prisoners escaped,” Codere says. “That’s under control now, but there’s going to be a lot of unemployment. A lot of hotels need to rebuild and won’t reopen this year. The housekeepers and whatnot, they’re not going to have jobs. It’s...an unknown thing.” 

Force majeure clauses typically include phrases such as “civil commotion,” “act of God” and “war risk,” but invoking those clauses to cancel a charter booking several months ahead of time, on the prediction of possible unrest, is not something the courts have ever tested in a charter case, according to IYBA member Michael Moore, founding partner of Moore & Company, which specializes in maritime law. 

Moore says that several legal principles are likely to come into play as yacht owners and charter clients sort through the current concerns. The first is a defense known as impossibility of performance. 

“You ordinarily see it in construction contracts, but it’s part of all contracts,” Moore says. “It’s a public policy. If you can’t perform, you can’t perform, if it’s impossible. 

“Then you get into the question of whether it’s really impossible,” he adds. If charter clients and yacht owners end up in a legal dispute on that point, Moore says, judges and arbitrators are likely use what’s known as the reasonable-person standard to determine whether, to a reasonable person, performing the charter was truly impossible. “You’ve got to really use common sense,” Moore says. “You have to have a reasonable person saying, ‘Barbuda has been wiped out, but another island nearby would be good.’ You can’t say, ‘Well, let’s go to Antibes.’ If you were planning to go to Barbuda or another of the smaller islands that’s completely wasted, you have to use that reasonable person issue. The owner usually has to mitigate damages, has to try to do the best they can do to live up to the contract. The charterer has to be flexible, or they will have nothing to complain about. There is a good-faith aspect to these contracts.” 

Owners seeking to invoke force majeure or civil commotion clauses may have a challenging time, Moore says, given that a self-sufficient, 150-foot superyacht can anchor off an island’s coastline and host a terrific charter even if the buildings ashore are in disarray. And invoking a civil commotion clause, he says, is a defined concept that applies to things like roving gangs of terrorists, not to Foxy’s having only two kinds of rum punch available at a partially rebuilt bar. 

“It’s a little more than the ATMs aren’t working,” he says. “It’s more like, Hezbollah has done what? They killed who?” 

Moore’s advice to charter brokers working with clients or owners is to document everything as questions and answers come up— build a “hard record” of who’s being reasonable and who’s being unreasonable as everyone tries to come to an agreement about charters in a storm-ravaged region. Judges and arbitrators will look at who seems to be cooperating and who isn’t, Moore says, especially when the contract clauses provide no clear answers. 

Charter yacht managers also can educate owners about business-interruption insurance, Moore says. Just as trip-cancellation insurance can protect clients, business-interruption insurance can protect owners. 

“Basically you have a situation where, could you leave, could you execute the charter,” Moore says of an owner’s predicament. “And because you did not execute the charter, what were your losses. Then you have to deduct every dime of running costs that you did not incur to get a net-profit loss, which is what business-interruption insurance is designed to cover. It’s a major undertaking.” 

And for anything that contracts and insurance policies fail to cover, charter brokers on both sides of pending bookings are simply going to have to work together and try to figure out solutions while the islands rebuild. 

“If I know an owner doesn’t want to go to a place that is uninhabitable right now, and the client can be convinced to go somewhere else, then that’s what we’re going to try to do,” d’Offay says. “This really tests our communication skills right now. It’s not just about contract terms. We’re going to have to be creative and come up with possibilities.”