Section 1: General rules relating to the liability of the insurer

• Clause 4-1. Total loss

  This Clause is identical to Cl. 62 of the 1964 Plan.

  The provision establishes the traditional principle in insurance law that the assured, in the event of a total loss, is entitled to claim the sum insured, however, not in excess of the insurable value. In the event of a total loss, the insurer’s liability is thus subject to a double limitation: it can neither exceed the sum insured nor the insurable value. The sum insured is the amount for which the interest is insured, and on the basis of which premium is calculated. The sum insured does not, however, say anything about the value of the interest insured; this value is determined by the “insurable value”. The insurable value is set at the full value of the interest at the inception of the insurance, cf. Cl. 2-2, or by agreement between the parties about the agreed insurable value, cf. Cl. 2-3. Normally, the insurable value will have been agreed and will be identical to the sum insured, cf. Cl. 2-2, sub-clause 2. In that case the insurer will, in the event of a total loss, pay the valuation amount.

  However, it is important to keep the concepts of sum insured and insurable value apart in the insurance contract, and the insurance contract should therefore specify both the insurable value and the sum insured. If only one value is given, for example, a “sum insured”, this may create uncertainty as to whether this value shall apply both as the agreed insurable value and as the sum insured, or whether the intention is merely to state the sum insured. In the latter event, the sum insured must be evaluated in relation to an open insurable value under Cl. 2-2. This will entail under-insurance (with a pro-rata reduction of the compensation) if the insurable value is higher than the “sum insured”, cf. Cl. 2-4, and over-insurance if the “sum insured” is higher, cf. Cl. 2-5. However, in hull insurance for ocean-going vessels it is presumed that where only one value is given in the insurance contract, the intention is to state both the agreed insurable value and the sum insured.

  The question as to what events will entitle the assured to compensation for total loss must be resolved in the conditions for the special types of insurance. In hull insurance the question also arises as to what will happen when the vessel, before it becomes a total loss, has sustained damage which has not been repaired. This matter has been resolved in Cl. 11-1, sub-clause 2, cf. also Cl. 5-22.

  Total losses occur only in those types of insurance that cover an asset belonging to the assured (hull insurance, freight insurance). In a situation where the insurer covers the assured’s future obligations (cover of collision liability under the hull insurance), it will merely be a question of the liability of the insurer being limited to the sum insured, and only if a sum insured has been agreed.

  No general rule can be laid down relating to the insurer’s liability for damage and other partial loss: liability will depend entirely on the conditions of the individual types of insurance.

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  Clause 4-1. Total loss

  In the event of a total loss, the assured may claim payment of the sum insured, but not in excess of the insurable value.

• Clause 4-2. General financial loss and loss resulting from delay

  This Clause is identical to Cl. 63 of the1964 Plan.

  The question concerning the interest insured will normally be regulated under the individual type of insurance. However, it should also be addressed in the general part of the Plan for pedagogical reasons.

  The provision reflects the fact that the marine insurer’s liability is normally limited to losses consisting of destruction or reduction in value of the actual interest insured. Consequential losses sustained by the assured as a result of the casualty are not recoverable. However, the Clause merely indicates a general principle, and must in many situations be read in conjunction with the liability rules in the chapters relating to the particular types of insurance.

  The exception for “general financial loss” is aimed at any general loss the assured may suffer in his trade as a result of a casualty. The casualty may result in his being forced to reorganise his business or to re-route other vessels, whereby his earnings are reduced or his administration and operating expenses are increased. Such losses are not recoverable.

  The other main group of non-recoverable losses are losses arising from the delay of the insured vessel caused by the casualty. The term “loss of time” is aimed at the assured’s operating expenses and his loss of freight. However, the Plan provides a special rule for compensation on a number of points in this respect as well, see Cl. 12-11 and Cl. 12-13 relating to loss of time in connection with the invitation to submit tenders and operating expenses during removal of the vessel to a repair yard, Cl. 12-7, Cl. 12-8 and Cl. 12-12 which, in different contexts, take into consideration the loss of time which the assured suffers as a result of the casualty, and the rules relating to the special types of insurance aimed at covering loss of time, in particular Chapter 16.

  The terms “loss due to unfavourable trade conditions” and “loss of markets” contemplate the situation where the vessel, due to a casualty, will miss the opportunity to benefit from favourable trade conditions and can only be put into service in a lower freight market. Losses of this nature are never recoverable. To avoid any mis­under­standing, the limitation of liability is extended to comprise also “similar losses resulting from delays”.

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  Clause 4-2. General financial loss and loss resulting from delay

  Unless otherwise provided in this Plan or specially agreed, the insurer is not liable for general financial loss, or for loss of time, loss due to unfavourable trade conditions, loss of markets and similar losses resulting from delays.

• Clause 4-3. Costs of providing security, etc.

  Under Cl. 5-12, the insurer is not obliged to provide security for claims brought by a third party against the assured, which are covered by the insurance. However, if the assured incurs expenses in order to obtain such security, these must, according to the first sentence, be recoverable as expenses incurred due to the casualty. That the expenses must be “reasonable” implies inter alia that the assured cannot claim compensation of the costs incurred by providing security for amounts which clearly and considerably exceed the third party’s claim. Cl. 5-7 allows the assured, under certain conditions, the right to demand payment on account. Thus, before providing security for a third party’s claim, he must submit to the insurer the question of whether the claim should be met by a payment on account. If he has failed to do so, the insurer will not be liable for the costs in connection with the provision of security, cf. second sentence.

  If it is uncertain whether the insurer is liable for an invoice from the repair yard, the insurer is not obliged to make any payment on account under Clause 5-7. If the shipowner in such situations does not have money to pay the repair invoice, it may have to provide a bank guarantee pending a settlement from the insurer. If the insurer later proves to be liable, the question arises as to whether the insurer must also pay the commission on the bank guarantee. In practice, the provision has been inter­preted to mean that it only concerns costs in connection with the provision of security for liability to third parties. However, during the revision of the Plan, there was general agreement that the insurer should have an obligation to cover costs in the above-mentioned situation as well. If the shipowner had raised a loan and paid the repair yard in cash, the insurer would have had to pay the interest on the compensation under the rules set out in the insurance contract. To be consistent, it seems reasonable that in such an event, the insurer must also pay the costs of providing security. However, it is not necessary to amend the provision in order to authorize this solution; it is covered by the wording as it was in the 1964 Plan.

  If owner’s repairs are carried out concurrently with casualty repairs, the commission must be apportioned on a proportional basis. If some of the work is paid for in cash, while a bank guarantee is provided for the balance, the cash portion as well as the guarantee must be apportioned according to the proportion of owner’s repairs/deductible to the amount for which the insurer is liable.

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  Clause 4-3. Costs of providing security, etc.

  If the assured, as a result of a casualty, has had to raise funds or provide security,  it may claim a refund from the insurer for reasonable expenses so incurred. However, this shall not apply if the assured has, without good reason, failed to exercise  its right to demand a payment on account...

• Clause 4-4. Costs of litigation

  There may be doubt as to who shall bear the litigation costs in the event of a dispute between the assured and the insurer as to whether a case against a third party shall be taken to court. In such situations, several insurers with conflicting interests will normally be interested in the question. Cl. 5-11 is an attempt to resolve the difficulties that may arise in such cases.

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  Clause 4-4. Costs of litigation

  If a claim is made against the assured in respect of liability covered by the insurance, or if the assured makes a claim against a third party for damages in connection with a loss covered by the insurance, the insurer shall be liable for the costs incurred, provided that the steps taken are...

• Clause 4-5. Costs in connection with a claim

  This Clause was amended in the 2019 Version.

  Sub-clause 1 covers all costs incurred after the casualty which are necessary in order to establish whether any recoverable loss has occurred and, if so, its extent, or which are necessary in order to secure any recourse against third parties. Thus the insurer shall pay costs in connection with the necessary factual investigation and damage surveys. The same applies  to costs in connection with the conduct of a vessel’s protest and maritime accident inquiry, provided that these measures are attributable to a casualty which resulted, or could have resulted, in recoverable losses. The provision does not distinguish between costs incurred by the insurer or the assured. The assured’s surveyor is, however, covered by sub-clause 2.

  A requirement for cover of costs is that there has been a casualty which may result in a claim under a particular insurance cover. If for example the object insured does not function as intended, the hull insurer will not cover cost of technical investigations if the conclusion is that there is no damage and that the malfunction or errors were caused by some inherent defects, or simply not fit for purpose. The same must apply even if there has been an external event with an increased risk of damage but no damage has occurred. Say that the insured object has been exposed to heavy weather and it is decided to check whether the object has suffered any damage, such investigations must be considered as part of the normal operation of the object and the cost have to be covered by the assured if no damage is found. If technical inspections are carried out on various individual and independent parts of the object, and one or more of these parts are found damaged, the costs should be apportioned as per Cl. 4-6. An external event may constitute a “casualty” where inspection costs might be covered in full even if no damage is found. The typical example is a grounding incident where the insurer will cover a dive survey even if no damage is found.

  There might be situations where costs incurred shall be considered as repair costs even if considered in isolation they have the character of determining the extent of damage. That is the situation if in parallel with repairs adjacent areas or connected interdependent parts are dismantled and checked for damages. E.g., if it is likely that there might be consequential damages to the gear following a damage to a propeller blade of a thruster, costs of dismantling the thruster for investigation should be considered as repair costs even if no other damage is found. The same solution applies if the class due to the characteristics of a grounding incident require that the vessel should be docked. 

  Even if the extent of damage has been ascertained it might be necessary to conduct further technical investigation regarding the cause of damage. If the cause, however, is sufficiently established to conclude that the loss is recoverable under the insurance, further investigations into the root cause will as a starting point be for owner’s account. Such further investigations might be required by third parties or be necessary to upgrade the insured object to avoid this kind of damage in the future. If further investigations into the root cause are necessary for the purpose of recourse against a third party, such costs may still be covered by the insurance as recovery costs.

  This provision will also cover costs of obtaining expert opinions in order to clarify technical or legal questions, for example, an opinion to document the cause of a corrosion damage or expert assistance on a specific legal question. Costs incurred by the assured by engaging legal or technical consultants in a dispute with the insurer will not be covered. However, if the dispute ends up in litigation, the applicable procedural law will regulate recovery of legal costs. 

  Sub-clause 2 covers the assured’s surveyor. This provision has according to long-standing and uniform practice been subject to a relatively strict interpretation. 

  Costs connected with the assured’s surveyor/technical consultant are only recoverable if the insurer has been given the opportunity to participate in the survey, and the insurer’s liability is normally limited to the costs of one surveyor/technical consultant engaged by or from the shipowner’s company. However, in complex or large cases with extensive workload for the assured’s surveyor/technical consultant, the costs of more than one surveyor/technical consultant is recoverable. The insurer’s liability for costs of the surveyor/technical consultant is furthermore limited to the time the repairs take plus travel and maintenance expenses in connection with travelling to and from the place of repairs. The costs will be covered even if repairs are carried out at the home town of the owners’ surveyor/technical consultant, but the costs will of course be limited to the time attending the vessel for repairs. Costs in connection with the settlement of the repair invoice are also recoverable, but planning of repairs before the vessel’s arrival and administration costs are not.

  As regards other costs, the insurer does not cover internal costs or the costs of hiring someone to draw up the statement of claim or retaining legal or expert assistance to draft the claim submission to the insurer. Internal costs and costs for external assistance that should have been obtained internally should not be recoverable.

  Nevertheless, the recovery of costs in connection with the claims settlement is subject to the condition either that it is clear in advance that the claim exceeds the deductible, or at least that there is reasonable doubt whether the claim will exceed the deductible. 

  Sub-clause 3 introduces no material changes. In previous versions the basis for cover of costs relating to handling and adjusting the claim was encompassed by the wording “costs of establishing the loss and calculating the compensation”. The provision establishes that the insurance covers costs of handling the claim as well as drawing up the adjustment. ”Costs” in this provision includes both expenses and fees for the services provided. The provision does not distinguish between work contracted to a third party or carried out with the claims leader’s internal resources. It might also be that the management and handling of the claim is carried out by the insurer and the adjusting is outsourced to a third party or vice versa.

  In the event of what is known as “aggregate deductibles” the assured will, in addition to the ordinary deductible per loss, bear a risk for a certain period. Under certain such clauses the assured must cover any damage occurring within the stated period of time until the amount of damage exceeds the amount of the aggregate deductible. In that event, until the entire aggregate deductible has been “consumed”, it may be alleged that the casualties occurring are not relevant to the insurance. This is not correct, however: an overview of the casualties occurring is needed in order to know when the aggregate deductible has been exhausted and the insurer’s liability arises. Accordingly, the insurer should cover costs in connection with survey and claims settlements for such casualties, even if the insurer, due to the aggregate deductible, does not incur any liability for the actual loss.

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  Clause 4-5. Costs in connection with a claim

  Upon the occurrence of a casualty that might give rise to a claim under the insurance, the insurer shall also pay the necessary costs of establishing whether any recoverable loss has occurred and the extent of the loss. If the assured has reasonable grounds for employing  its own surveyor, the...

• Clause 4-6. Costs in connection with measures relating to several interests

  The provision confirms the principle of apportionment when costs are incurred in connection with measures relating to several interests. The principle of pro rata apportionment is of great practical significance for litigation costs and costs in connection with the claims settlement. In a collision case both the hull insurer and the P&I insurer will often be interested on the side of the assured; in that event the litigation costs shall be apportioned taking into account the maximum amounts for which the two insurers may be held liable as a result of the legal proceedings. Likewise, the counterclaims filed by the assured in the proceedings will partly accrue to the assured and partly to its hull insurer. The costs involved in the pursuit of the counterclaims will then have to be apportioned between them in proportion to their interests in the litigation.

  According to practice, the term “several interests” does not comprise the assured’s uninsured interests, for example in the form of under-insurance or deductible. If the assured has such uninsured interests, the insurers will cover the costs in their entirety without making any apportionment. This nevertheless does not apply to costs associated with the pursuit of a counterclaim; the counterclaim shall be apportioned between the assured and the insurer, depending on the proportion of the insured to the uninsured interests, and the costs must then be apportioned in the same proportion.

  In practice, exceptions have also been made from the principle that regard shall not be had to uninsured interests if it is a question of large deductibles in the form of layers of insurance held by the assured. Even if the point of departure should be that no apportionment is to be made over such uninsured interests, regardless of how large they are, it must be correct to distribute the costs between the insurer who is liable for the deductible and the other insurers if the deductible is insured.

  The rule of apportionment in Cl. 4-6 applies regardless of whether it should prove later that the claim is lower than the deductible. In such cases the assured’s claim will not be recoverable as such, but its costs will be recoverable in full, cf. Cl. 12-18, sub-clause 3, which provides that these costs are recoverable without any deductible. However, if it is already clear from the start that the loss or liability is lower than the deductible, the insurer will not be liable for the costs.

  Cl. 12-14 contains a special rule relating to the apportionment of accessory costs of repairs.

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  Clause 4-6. Costs in connection with measures relating to several interests

  If costs mentioned in Cl. 4-3 to Cl. 4-5 have been incurred in connection with measures relating to several interests, the insurer is only liable for that proportion of the costs which may reasonably be attributed to the interest insured.