Section 4: The sum insured as the limit of the liability of the insurer

• Clause 4-18. Main rule

  This provision establishes the principle that the insurer is liable up to the sum insured for each individual casualty, and shall apply in all branches where a sum insured is agreed.

  Sub-clause 1, first sentence, is based on Cl. 79 of the 1964 Plan, sub-clause 1. The insurer is liable with up to one sum insured for “loss caused by any one casualty”. The term “any one casualty” is discussed in further detail below.

  Sub-clause 1, second sentence, is based on the Special Conditions (Cefor I.3, and PIC Cl. 5.7), but with certain amendments. The provision is bound up with the traditional principle in insurance law that the insurer, in addition to the sum insured, is liable for costs of measures to avert or minimise loss. Under the 1964 Plan, the insurer originally had unlimited liability for these costs. However, this liability was limited in the Special Conditions (Cefor I.3, and PIC Cl. 5.7) so that the costs of measures to avert or minimise loss basically had to be covered up to the sum insured under Cl. 79, sub-clause 1, or possibly the separate sum insured under Cl. 196. There was nevertheless a certain extension of the cover: if the separate sum insured under Cl. 196 of the Plan was not used to cover costs of collision or measures to avert or minimise such liability, the balance could be used to cover costs of measures to avert or minimise damage to or total loss of the vessel to the extent that such measures exceeded the sum insured.

  According to this, the cover under the Special Conditions of costs to avert or minimise loss were more limited than the corresponding cover under the relevant Nordic Insurance Contracts Acts (Nordic ICAs). Under the Norwegian ICA Section 6-4, the rule is that the insurer is fully liable for costs of measures to avert or minimise loss. During the revision of the Plan, there was general agreement that the limitation in the Special Conditions went too far. The intention was originally that the P&I insurers were to cover the costs of measures to avert or minimise loss which were not recoverable under the hull insurance. However, this applied only to the Norwegian P&I insurers, and the assured therefore ran the risk of being without cover if he had a foreign P&I insurer. Nor was the solution laid down in any agreement, and it was therefore uncertain to what extent it would be complied with in practice. The regard for the interests of the assured therefore warranted a certain expansion of the scope of cover. Out of regard for the reinsurers, however, cover of costs of measures to avert or minimise loss had to be subject to a limitation. These conflicting interests have been resolved by the introduction of a separate sum insured for the costs of measures to avert or minimise loss stipulated in sub-clause 1, second sentence. This sum insured comprises the total costs of measures to avert or minimise loss for the relevant insurance under the Plan. For hull insurance, this means that both costs of measures to avert or minimise loss associated with the property insurance, as well as costs of measures incurred to avert collision liability, are included. The insurer’s maximum liability for one and the same casualty thus consists of three sums insured. Such a solution concords with the solution in the English conditions.

  If the sum insured for property damage under a hull insurance has not been exhausted by compensation paid for such damage, it should be possible to use the excess of the sum insured to cover costs of measures to avert or minimise loss that exceed the separate sum insured for such costs. This solution is reflected in sub-clause 1, third sentence. On the other hand, it should not be possible to transfer the separate sum insured for the collision liability under sub-clause 2 and Cl. 13-3 for the purpose of covering costs of measures to avert or minimise loss in this way. The provision relating to a separate sum insured for collision liability contained in sub-clause 2 and Cl. 13-3 is bound up with the regulation of the owner’s liability. According to the Limitation of Liability Convention of 1976, the owner is liable up to a certain amount per ton, regardless of the fate of the vessel. Without a separate sum insured for collision liability, collisions causing extensive damage to both vessels may result in the P&I insurer having to cover a substantial part of the collision liability.

  The fact that the insurer covers collision liability “separately” means that he does not cover collision liability within the actual hull insurance sum. Thus, whatever might be left of the ordinary sum insured after the damage to the vessel has been covered shall not be used to cover liability. The separate sum insured for collision liability has been fixed at an amount equal to the sum insured under the hull insurance, cf. Cl. 13-3.

  It follows from the regulation in Cl. 4-18 that the limit in terms of amount of the insurer’s liability is linked to “any one casualty”. The question whether one or more casualties occurred will rarely give rise to problems. Difficulties do not arise until a series of events occur in rapid succession or with a strong mutual causal connection. In that event, the distinction between one and several casualties must be decided on a case-to-case basis. Some guidance may be found in practice in connection with Cl. 12-18 concerning deductibles; the deductible, too, shall be calculated for each individual casualty. However, the content of the casualty concept will not necessarily be the same in both connections.

  The question as to when successive events constitute one or more casualties may arise in three standard scenarios:

  1. One and the same peril materializes several times. By way of example, a vessel sustains hull damage while navigating in ice on a number of clearly separate occasions, cf. e.g. ND 1974.103 NH Sunvictor, which concerned the question relating to the number of deductibles under an Anglo-American deductible clause. As a rule, this problem will concern the number of deductibles. The vessel will normally be a constructive total loss if several incidents of damage exceed the sum insured. However, in principle it may in such situations also be a question whether the insurer shall be liable for up to more than one times the sum insured.

  2. Damage caused by one event interacts with new circumstances and results in further damage. By way of example, the steering gear of a vessel is damaged in a collision with the result that the helm is locked in a starboard position. Before the crew manages to stop the engine, a new collision occurs. As regards property-damage cover, in this group of events as well, it will be the question of deductibles which is the most interesting. However, in the event of several successive collisions, the total collision liability may become so extensive that the question of whether the insurer is liable for up to one or several times the sum insured becomes relevant.

  3. One incident of damage requires several repairs. The typical example is that the first repairs were inadequately performed, or that they were not thorough enough, cf. ND 1977.38 NH Vestfold I, which concerned the question whether new damage resulting from errors committed during the repairs of the engine after a grounding was to be regarded as a consequence of the grounding. If the first damage has been repaired before the next one occurs, there may also be a need for more than one sum insured.

  There is no case law regarding the distinction between one and several casualties in relation to the sum insured. Certain elements may be taken from ND 1974.103 NH Sunvictor and ND 1977.38 NH Vestfold I, cf. above. In addition, some guidance may be found in case law concerning limitation of liability under Section 175 no. 4 of the Norwegian Maritime Code, which ties the limit of liability to “the sum total of all claims arising from one and the same event”. If it is a situation where the vessel collides with several other vessels in quick succession, causing a total loss exceeding the sum insured for the collision liability, the natural thing to do would be to tie the solution to the decision regarding the owner’s right to limit his liability to third parties. However, also in other cases where a limitation of liability under the Norwegian Maritime Code is relevant, the interpretation of the term “one and the same event” in the Norwegian Maritime Code may help shed some light on the question concerning the distinction between one and several casualties in relation to the sum insured. Reference is made to ND 1984.129 NH Tønsnes, where damage to seven net loops in the course of roughly one hour was regarded as caused by one event; and ND 1987.160 NH Ny Dolsøy, where it was regarded as one event that contaminated bunkers delivered at an interval of 24 hours to two vessels within the same fishing area caused damage to the machinery of these vessels.

  Accordingly, the question whether one or several casualties have occurred in relation to the sum insured must be the subject of a case-to-case evaluation, where the following elements may come into play:

  1. Is there a close connection in terms of location and time between the successive incidents of damage, or are the new accidents of a totally independent nature? Taking the two limitation of liability judgments referred to above as a point of departure, it is nevertheless hardly possible to stipulate very strict requirements as to connection in time and place in order for several incidents of damage to be regarded as one casualty. As long as the incidents occur within a limited area, it must be accepted that they occurred at certain intervals.

  2. What possibilities did the assured have of averting the last damage? As regards this element, a distinction must, however, be made between the number of deductibles and the number of sums insured. If it is a question of whether new damage shall trigger several deductibles, the assured’s negligence must be regarded as a new and independent cause that breaks the chain of causation from the first incident. This follows from the view that the deductible shall have a deterrent effect. However, in relation to the number of sums insured, the deterrence aspect may suggest that negligence on the part of the assured does not give rise to a new sum insured. Deterrence considerations might, in other words, warrant varying the distinction between one and several casualties depending on whether it is a question of more than one sum insured or more than one deductible.

  3. Does the initial damage or its cause entail an increased risk of new damage, or is the last incident a result of a “generally prevailing risk of damage” which would have occurred with the same effect independently of the first damage or its cause?

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  Clause 4-18. Main rule

  The insurer is liable up to the sum insured for loss caused by any one casualty. The insurer is also liable up to an equivalent amount for the costs of measures taken to avert or minimise loss arising in connection with the casualty. If the costs of such measures exceed that amount, the hull...

• Clause 4-19. Liability in excess of the sum insured

  It is a traditional principle in marine insurance that the assured, in addition to the cover which the insurance affords him within the limits of the sum insured, is entitled to separate cover of a number of accessory expenses and other losses which the casualty has caused him. In the 1964 Plan, all these expenses were stated in Cl. 80. In the new Plan, loss caused by measures to avert or minimise loss has been isolated for separate regulation in Cl. 4-18, cf. above. The other accessory costs, however, are still mentioned in Cl. 4-19.

  Sub-clauses (a) and (b) state the expenses that are to be covered in addition to the sum insured: costs of providing security, of filing suit against or defending a suit filed by a third party, costs in connection with the claims settlement, costs of necessary measures to preserve the object insured and interest on the compensation.

  It furthermore follows from Cl. 15-21, which concerns liability for the removal of war wrecks that the war-risks insurer covers such liability even if the sum insured is exceeded.

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  Clause 4-19. Liability in excess of the sum insured

  Even if the sum insured is exceeded, the insurer is liable for: loss as mentioned in Cl. 4-3 to Cl. 4-5, and Cl. 5-21, first sentence, interest on the compensation.

• Clause 4-20. Limit of liability where loss is caused by a combination of perils

  The provision is based on ND 1956.323 NH Pan, where the question was how the limitation up to the sum insured was to be applied in the event of a casualty with a “mixed cause”. Liability for the damage to the vessel was apportioned, with the marine insurer covering 40% and the war-risks insurer 60%. The costs of repairs, etc. exceeded the hull valuation, but the assured demanded full compensation, alleging that each of the insurers was liable for his share of damage to the vessel up to his sum insured. The Supreme Court rejected the claim on the grounds that the assured shall not “in a case of a combination of different perils, be in an economically more advantageous position than if there had been no combination of different perils”. This solution has been adopted as a basis in Cl. 4-20.

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  Clause 4-20. Limit of liability where loss is caused by a combination of perils

  If the insurer, in accordance with Cl. 2-13, Cl. 2-14 or Cl. 2-16, becomes liable for part of the damage, the insurer’s liability is limited to a corresponding proportion of the amounts mentioned in Cl. 4-18 and Cl. 4-19.

• Clause 4-21. Right of the insurer to avoid further liability by payment of the sum insured

  Under sub-clause 1, the insurer may avoid further liability by paying the sum insured. There is no time-limit on the insurer’s right to limit its liability.

  The principle in sub-clause 1 is only applicable in property insurance. The insurer cannot invoke the provision if the assured, contrary to its wishes, wishes to institute legal proceedings regarding liability covered by the insurance. In that case, it is necessary to resort to the rules contained in Cl. 5-11. If the assured in such a case is supported by the umpire, but liability which absorbs the entire sum insured is nevertheless imposed on the assured in the legal proceedings, the insurer shall cover the litigation costs under the general rules.

  If the insurer pays the sum insured in accordance with Cl. 4-21, the further salvage operation will be for the assured’s own account and risk. If the salvage operation is successful, the assured will keep the wreck, but he must pay the full cost. However, he may claim compensation for the costs he has incurred before he was informed that the insurer had decided to pay the sum insured, cf. sub-clause 2. The measures the assured has implemented prior to that time are for the insurer’s account, even if the costs do not accrue until later.

  This apportionment of risk has caused certain problems where the assured has entered into a salvage contract before the insurer has paid the sum insured. If the contract does not allow the assured to cancel the contract without paying salvage, the insurer will be liable for the salvage expenses; here the measure has been “implemented”, cf. sub-clause 2. If, however, the assured has the right to get out of the salvage contract, the insurer has the right to order the assured to do so, and may in that event pay the sum insured according to sub-clause 1, and avoid further liability. These principles must apply regardless of whether the salvage contract has been entered into on a no-cure-no-pay basis or is based on an hourly rate.

  Sub-clause 3 establishes that the insurer has no right to take over the object insured under Cl. 5-19, where the insurer chooses to pay the sum insured under sub-clause 1.

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  Clause 4-21. Right of the insurer to avoid further liability by payment of the sum insured

  When a casualty has occurred, the insurer may avoid further liability by informing the assured that it will pay the sum insured. Loss referred to in Cl. 4-3 to Cl. 4-5, Cl. 4-7 to Cl. 4-12 and Cl. 5-21, first sentence, is recoverable in excess of the sum insured according to the rules contained i...