Brazil’s New Insurance Law and salvage costs in hull and machinery policies

Bernardo de Senna     
Costa & Rocha Sociedade de Advogados, Rio de Janeiro, Brazil
bernardo.desenna@car-law.com.br

Introduction

As the maritime sector faces unique risks, having clear and reliable insurance arrangements is essential. Hull and Machinery (H&M) policies play a key role, protecting shipowners against physical damage to vessels and often covering costs linked to salvage operations and general average.

Brazil’s New Insurance Law (Federal Law 15,040/2024), which came into force in December 2025, has introduced important changes to how sue and labour expenses are treated. One of the issues the industry is now discussing is whether the new law could affect the traditional way salvage costs are dealt with under H&M cover.

This is because the statute does not clearly distinguish between sue and labour costs and salvage costs, creating uncertainty about how insurers and shipowners should interpret their obligations. Understanding these changes is important, as they may influence how risks are allocated, how claims are handled, and how reinsurance is placed.

Salvage costs in H&M policies

H&M policies usually cover expenses involved in saving a vessel and her cargo from danger – for example, hiring tugboats or engaging professional salvors. These costs are traditionally recoverable when the actions taken were reasonable and aimed at preventing or reducing loss from an insured peril.

Shipowners are generally expected to show that there was an imminent threat, that steps taken were sensible, and that salvors acted prudently. Environmental pollution aside, the actions must also yield a positive result under the widely accepted ‘no cure no pay’ principle.

Salvage is also closely linked to general average. When salvage operations form part of a general average event, H&M policies will normally respond to the owner’s contribution.

However, policy wording plays a crucial role. Under many standard international wordings, such as the ITC Hulls 1.10.83, salvage and general average costs are treated separately from sue and labour expenses.

Brazil’s New Insurance Law and its impact

Brazil’s new statute modernises the country’s insurance framework, aiming to increase clarity, improve policyholder protection, and encourage greater insurance penetration.

One of the most relevant parts of the law for the marine market is Article 67, which provides that sue and labour and mitigation expenses – including when performed by third parties – must be paid by insurers up to the agreed limit, and do not reduce policy limits.

Article 67 also states, among other provisions, that:

• cover applies even if the loss is below the deductible or mitigation efforts are unsuccessful;
• unless agreed otherwise, reimbursement is capped at 20 per cent of the indemnity limit; and
• if the insurer recommends measures, all resulting expenses must be covered, even if above the agreed or statutory cap.

These rules may overlap with how salvage costs are traditionally handled and raise the following questions: Could salvage costs now be treated as mitigation expenses within the meaning of Article 67? If so, might they be recoverable even when below the deductible, or without eroding policy limits? If so, these would be significant departures from international marine insurance practice?

Industry concerns and practical challenges

Domestic H&M policies in Brazil often incorporate, refer to, or mirror ITC Hulls 1.10.83, aligning local practice with the international re/insurance market. Under these wordings, salvage and general average costs fall within Clause 11, while sue and labour expenses are included in Clause 13 and are subject to the deductible (Clause 12). In addition, salvage costs normally erode the policy limit.

Brazil’s new law, however, introduces rules that differ from these established principles. If salvage costs were argued to fall under Article 67, this could lead to results that conflict with the intention of the ITC Hulls framework and the traditional wordings of Brazilian H&M policies.

Although there are clear differences between the nature of salvage and sue and labour expenses – legally, contractually, and practically – the broad wording of the statute opens the door to disputes. Parties may attempt to argue that salvage costs should follow the statute’s treatment rather than the traditional approach.

This uncertainty poses challenges for all market participants, especially where policies are reinsured internationally under the traditional wordings.

Conclusion

The New Insurance Law aims to bring clarity, but it has also created fresh uncertainty for marine insurance, particularly around salvage and general average. Shipowners, insurers, brokers, and legal advisers should reassess existing policies and ensure that wordings align with the parties’ intentions. Clear communication and documentation remain essential.

Going forward, insurers may need to adjust underwriting and claims practices, and shipowners should ensure that steps taken during salvage situations are properly recorded and promptly notified. Reinsurers may also require clearer drafting in Brazilian underlying direct insurance policies to avoid inconsistencies.

While the new statute tries to simplify the treatment of mitigation costs, it also raises important questions about how far its provisions extend into areas traditionally governed by well-established marine insurance principles and international market practice. These issues are likely to arise in negotiations and claims handling until further guidance – regulatory and/or judicial – provides clarity as to which approach will prevail.