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Section 2: Liability of the assured to third parties

  • Clause 5-9. Duties of the assured when a claim for damages covered by the insurance is brought against the assured

    The provision is closely bound up with Cl. 3-29 concerning the duty of the assured to notify the insurer of a casualty.

    Sub-clause 1 applies first and foremost where the assured is held liable for a loss which he has caused a third party, but it may also become applicable where a third party makes a claim for a salvage award or payment for repairs. Accordingly, the first sentence of the Clause uses the term “liability” and not “liability to pay damages”.

    In the event of a dispute with third parties, the assured and the insurer will normally have common interests. However, there may be cases where a certain conflict exists, first of all in the event of fault on the part of the assured. Consequently, the insurer must have unconditional and immediate access to all documents and other evidence, cf. third sentence.

    Under the 1964 Plan, the insurer also had the right to be represented by his own counsel. This provision has been deleted. Under Section 3-1 of the Norwegian Dispute Act (Tvisteloven), the court may allow the assured to be represented by more than one counsel if there are special reasons for doing so. If the insurer wishes to be joined as a party to the action, the ordinary rules relating to joinder of causes of action and accessory intervention apply.

    Under sub-clause 2, the insurer may only plead that the assured has been in breach of his duty if the assured has shown intentional or gross negligence, cf. also Cl. 3-31 as regards breach of the duty to avert and minimise loss.

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    Clause 5-9. Duties of the assured when a claim for damages covered by the insurance is brought against the assured

    If a claim in respect of which liability is covered by the insurance is brought against the assured, the insurer shall be notified by  the assured forthwith. The assured shall safeguard the insurer’s interests in the best manner possible, and, if necessary, make use of expert technical and legal...

  • Clause 5-10. Right of the insurer to take over the handling of the claim

    The first sentence states that the insurer may, subject to the consent of the assured, take over the handling of a claim brought against him. From the insurer’s point of view, it will always be desirable to be able to take over the handling of the assured’s disputes with third parties. In this area the insurer has the widest experience, and it will therefore normally also be in the assured’s own best interest to give his consent. That the insurer takes over the case obviously does not imply acceptance on his part of any obligation to pay the amount for which the assured may be held liable; in order to avoid any misunderstanding, this is stated explicitly, cf. second sentence.

    The insurer does not have an unconditional right to take over the handling of the claim, nor to bring an action in the name of the assured. Such a solution could be unreasonable vis-à-vis the assured in situations where he himself has interests in the dispute, which are of greater economic importance than the insurer’s, for example, in connection with his own counterclaims concerning loss of time. It is also conceivable that both the hull insurer and the P&I insurer will want to take over the case when it is evident that they will each be covering their part of the assured’s liability. In that event, the most reasonable procedure will be for the assured himself to conduct the case on behalf of both insurers.

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    Clause 5-10. Right of the insurer to take over the handling of the claim

    The insurer may, subject to the consent of the assured, take over the handling of a claim brought against the assured and, if appropriate, institute legal proceedings in this respect in the name of the assured. This does not constitute an acknowledgement by the insurer of any obligation to cover...

  • Clause 5-11. Decisions concerning legal proceedings or appeals

    Sub-clause 1 was amended in the 2013 Plan.

    Difficult questions may arise where the assured and his liability insurer disagree as to how to handle a dispute with a third party, for instance, whether to accept an offer of an out-of-court settlement, or whether to accept or appeal against a court decision. Relevant questions are: who is authorized to make the decisions, the insurer’s liability if the assured refuses to comply with his decision, and liability for litigation costs in connection with the various outcomes the dispute may have. The situation is made even more complex by the fact that there will often be two liability insurers behind the assured - the hull and the P&I insurer, respectively - and the fact that their interest in the outcome of the assured’s dispute with a third party may differ. The following example shows how the conflict may arise: insured vessel A has collided with vessel B, which is lost with a valuable cargo and many passengers. The cargo on board vessel A is also damaged. Disputes arising from the collision are to be tried under American law. By a judgment of a court of first instance, the fault has been attributed entirely to A, but the owner has been granted the right to limit his liability. The owner and the hull insurer want to appeal against the judgment with a view to obtaining an apportionment of fault, under which the owner would obtain partial cover of his loss of time, and the hull insurer would obtain a reduction of the collision liability and partial cover of the repair costs. The P&I insurer objects to an appeal for two reasons: partly because an apportionment of fault would impose an indirect liability on him for half of the damage to A’s own cargo and partly because he fears that the superior courts would not only place the entire fault with vessel A, but would also find this to be a case of fault, which would deprive the owner of the right to limit liability. Unlimited liability for damages would first and foremost affect the P&I insurer, given that the hull insurer’s liability for collision damages is limited to the sum insured, cf. Cl. 13-3.

    Normally the parties will reach an agreement. In case of disagreement, the parties will as a rule consult internal expertise. However, if one of the parties brings the matter to a head, there must be rules to fall back on.

    Under sub-clause 1, conflicts between the assured and the insurer about the filing of suits or appeals shall be decided with binding effect by an umpire designated by the Association of Nordic Average Adjusters. In earlier versions the appointment of the umpire was to be made jointly by the Norwegian average adjusters, but this is changed due to the Plan now being Nordic.

    Sub-clause 2 lays down certain principles the umpire shall adhere to in his decision. The basic rule is that he must choose the solution which, in his opinion, will in all probability result in the least overall loss for the assured and his insurers, cf. first sentence. A crucial point in this connection will be the risk of the assured being denied the right to limit his liability by the court of appeal. However, sub-clause 2, second sentence, also indicates a factor which the umpire shall not take into account. As evidenced by the example given above, the P&I insurer will sometimes prefer the fault for a collision to be placed solely with the assured, in view of the fact that he will thus avoid the so-called “indirect cargo liability”. The assured will have a similar interest in relation to the hull insurer if he has not taken out P&I insurance. However, attempting to have the degree of fault of the insured vessel reduced through a hearing of the case by a higher court must at all events be a legitimate interest worth protecting. A rule has accordingly been incorporated to the effect that the umpire shall not take into account the advantage which the assured or his P&I insurer may have through an acceptance of, or an attempt to be allocated, a higher degree of fault than necessary in a collision case.

    The umpire shall decide the conflict of interest between the assured and his insurers with final effect, but there are no enforcement measures vis-à-vis the assured if he does not comply with the umpire’s directions. The assured’s failure to do so will affect both the liability of an insurer in whose favour the umpire’s decision was made, and the payment of the litigation costs, cf. sub-clause 3. If the insurer wants to accept an offer of an out-of-court settlement or a court decision and is supported on this point by the umpire, he shall cover the liability which would have been imposed on the assured by the out-of-court settlement or a court decision, cf. first sentence. If the insurer wishes to lodge an appeal and is supported by the umpire, he will cover the liability he anticipated would be imposed on the assured by a superior court and which he has accordingly offered to cover. It is therefore important that, during the umpire’s consideration of the matter, the insurer makes it clear to him exactly what he wants to achieve by lodging an appeal. As mentioned in Cl. 4-21, the insurer does not in such situations have the right to pay out the sum insured for the liability and refuse any further involvement in the case.

    Should it turn out that the umpire was wrong, and the assured’s choice was justified so that the insurer in actual fact incurs less extensive liability than that which he had declared himself prepared to accept, it is reasonable that he shall also pay his proportionate share of the litigation costs. This is explicitly stated in the second sentence.

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    Clause 5-11. Decisions concerning legal proceedings or appeals

    If there is disagreement between the insurer and the assured concerning the institution of legal proceedings or the lodging of appeals, the matter shall be finally decided by an umpire appointed jointly by the Nordic average adjusters. The umpire shall choose the solution which, in its discretion...

  • Clause 5-12. Provision of security

    Under sub-clause 1, the insurer has no legal obligation to provide security. Such an obligation could result in liability for him vis-à-vis the assured in cases where the security is provided too late, or where no security is provided at all due to unforeseen difficulties. However, in practice the claims leader will, to a large extent and at the assured’s request, provide security for liability covered by the insurance, and this practice will obviously continue. If the insurer refuses to provide security, and the assured is able to document that this refusal constitutes arbitrary discrimination, he may claim compensation from the insurer.

    Sub-clause 2 states explicitly that the provision of security does not imply an acceptance of liability.

    The costs involved in the provision of security constitute an expense that follows from the fact that liability has been invoked against the assured. If the insurer covers the liability, he must also cover these costs. However, if it turns out that the liability does not concern him, he will be able to claim a refund of his expenses from the assured, cf. sub-clause 3.

    The questions which arise in the relationship between the claims leader and the co-insurers in connection with the provision of security are discussed in Cl. 9-7.

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    Clause 5-12. Provision of security

    The insurer has no obligation to provide security for the assured's liability to third parties. The provision of such security by the insurer in no way affects the question of  its liability to the assured. If the insurer has provided security for a liability which is proved not to concern it , t...