Broker. In the context of chartering, the most common “broker” is a “shipbroker”. In general, in shipping, a broker is a person who acts as a “middleman” between two parties and negotiates the terms of a contract into which the two parties enter. The broker acts as an agent and usually represents only one of the parties, negotiating with the other party directly or with another broker representing the other side. In addition to a shipbrokerwho can be an owner’s broker or a charterer’s agent negotiating a charter.
There are also other types of “brokers”, such as:
Sale and Purchase (S&P) brokers: negotiating contracts for the sale of a ship.
Ship’s agents: representing the shipowner and attending to the ship.
Loading brokers: finding cargo for liner ships.
Insurance brokers: effecting insurance cover for the assured.
Brokers are remunerated by the principals either by brokerage (or commission) and/or by agreed fees.
The broker is appointed by the client to act on his behalf in effecting insurance. Accordingly, the broker is the agent of the client and is treated as such by the underwriter. In other words, the underwriter considers that anything said by the broker is being said by the client. Although the broker is the agent of the client, he receives his income from brokerage allowed to him by the underwriter as a deduction from the premium. A marine insurance broker is legally responsible to the underwriter for the premium due in respect of; any risk he places, and he is entitled to hold back (to exercise a possessory lien) the policy from the assured until the assured pays him the premium. (Section 53 of the Marine Insurance Act 1906.) Without the policy, the assured cannot collect a claim.
One must not assume that Lloyd’s brokers do only marine business. Most have thriving non marine accounts that exceed their marine interests.
In addition there is a large “Excess Loss” market whereby underwriters protect themselves by reinsuring either specific classes of their business or their entire account with other “Reinsurance” underwriters. Reinsurance helps to keep premium rates down. This business is always placed trough brokers.
The broker’s responsibility is to effect the contract in accordance with his client’s instructions insofar as he is able within his skill and experience. He is expected to know his markets and the types of insurances that are available. He does not guarantee the solvency of the underwriters with whom he effects the contract, but is expected to take reasonable care to protect the assured with sound security. If the broker is negligent in his duties to the extent that the client is prejudiced (e.g., he cannot collect a claim, which would have been collectible but for the negligence of the broker), he may sue the broker for damages.
Sometimes the broker can also act as agent of the underwriter, e.g., when they issue cover notes. A practice at Lloyd’s (held to be unlawful) is where underwriters instruct the broker to obtain an assessor’s report when a claim is made.
