What is a 'Letter Of Indemnity'
In general Letter of Indemnity (LOI) is a letter guaranteeing that contractual provisions will be met, otherwise financial reparations will be made. The principle behind a Letter of Indemnity is the guarantee that losses will not be suffered if certain provisions of a contract are not met.
What is a 'Letter of Indemnity' in shipping
In case one party, which is providing the LOI fails to meet some provisions of the contract, which are also stated in the LOI, it will have to make financial repatriations, or cover financial losses of the other party, which is accepting the LOI connected with this breach. There are various situations in which a Shipowner or a Disponent Owner may be offered a Letter of Indemnity. In each case, this offer will usually be made in return for the Owner taking on some non-contractual risk.
Sometimes Owners request the LOI to be countersigned by Shippers and Shippers' bank together with Charterers' signature and stamp as a confirmation that goods are paid and Shippers do not mind of cargo discharging or changing the receiving party, or any other changes. However, that is not something that is requested very often.
Types of 'Letters of Indemnity'
Each situation, when there is a need in providing the LOI may totally differ from another. However, there are some types, that are most common and often used in shipping practice. These are LOI for:
- non presentation of BsL at discharge port;
- production of clean BsL (for shipment of unclean cargo);
- discharge and delivery of cargo at another port;
- switch of BsL;
The LOI is issued, when Owners are to be indemnified in one of the above-mentioned situations. And the possibility of any of above is usually stated in the governing Charter Party. In case, the Charter Party does not allow, for example, switch of BsL, then Owners have rights to refuse the switch and accordingly refuse to accept relevant LOI from Charterers.
