Part One: Rules common to all types of insurance
- Chapter 1: Introductory provisions
Chapter 2: General rules relating to the scope of the insurance
Section 1: Insurable interest and insurable value
- Clause 2-1. Insurance unrelated to any interest
- Clause 2-2. Insurable value
- Clause 2-3. Agreed insurable value
- Clause 2-4. Under-insurance
- Clause 2-5. Over-insurance
- Clause 2-6. Liability of the insurer when the interest is also insured with another insurer
- Clause 2-7. Recourse between the insurers where the interest is insured with two or more insurers
Section 2: Perils insured against, causation and loss
- Clause 2-8. Perils covered by an insurance against marine perils
- Clause 2-9. Perils covered by an insurance against war perils
- Clause 2-10. Perils insured against when no agreement has been made as to what perils are covered by the insurance
- Clause 2-11. Causation. Incidence of loss
- Clause 2-12. Main rule relating to the burden of proof
- Clause 2-13. Combination of perils
- Clause 2-14. Combination of marine and war perils
- Clause 2-15. Losses deemed to be caused entirely by war perils
- Clause 2-16. Loss attributable either to marine or war perils
- Clause 2-17. Sanction limitation and exclusion
- Section 1: Insurable interest and insurable value
Chapter 3: Duties of the person effecting the insurance and of the assured
- General remarks
Section 1: Duty of disclosure of the person effecting the insurance
- Clause 3-1. Scope of the duty of disclosure
- Clause 3-2. Fraudulent misrepresentation
- Clause 3-3. Other failure to fulfil the duty of disclosure
- Clause 3-4. Innocent breach of the duty of disclosure
- Clause 3-5. Cases where the insurer may not invoke breach of the duty of disclosure
- Clause 3-6. Duty of the insurer to give notice
- Clause 3-7. Right of the insurer to obtain particulars from the vessel's classification society, etc.
Section 2: Alteration of the risk
- Clause 3-8. Alteration of the risk
- Clause 3-9. Alteration of the risk caused or agreed to by the assured
- Clause 3-10. Right of the insurer to cancel the insurance
- Clause 3-11. Duty of the assured to give notice
- Clause 3-12. Cases where the insurer may not invoke alteration of the risk
- Clause 3-13. Duty of the insurer to give notice
- Clause 3-14. Loss of the main class
- Clause 3-15. Trading areas
- Clause 3-16. Illegal undertakings
- Clause 3-17. Suspension of insurance in the event of requisition
- Clause 3-18. Notification of requisition
- Clause 3-19. Suspension of insurance while the vessel is temporarily seized
- Clause 3-20. Removal of the vessel to a repair yard
- Clause 3-21. Change of ownership
- Section 3: Safety regulations
- Section 4: Measures to avert or minimise loss, etc.
- Section 5: Casualties caused intentionally or negligently by the assured
- Section 6. Identification
Chapter 4: Liability of the insurer
- Section 1: General rules relating to the liability of the insurer
Section 2: Costs of measures to avert or minimise the loss, including salvage awards and general average
- Clause 4-7. Compensation of the costs of measures to avert or minimise loss
- Clause 4-8. General average
- Clause 4-9. General average apportionment where the interests belong to the same person
- Clause 4-10. Damage to and loss of the object insured
- Clause 4-11. Assumed general average
- Clause 4-12. Costs of particular measures taken to avert or minimise loss
- Section 3: Liability of the assured to third parties
- Section 4: The sum insured as the limit of the liability of the insurer
Chapter 5: Settlement of claims
Section 1: Claims adjustment, interest, payments on account, etc.
- Clause 5-1. Duty of the assured to provide information and documents
- Clause 5-2. Claims adjustment
- Clause 5-3. Rates of exchange
- Clause 5-4. Interest on the compensation
- Clause 5-5. Disputes concerning the adjustment of the claim
- Clause 5-6. Due date
- Clause 5-7. Duty of the insurer to make a payment on account
- Clause 5-8. Payment on account when there is a dispute as to which insurer is liable for the loss
- Section 2: Liability of the assured to third parties
Section 3: Claims by the assured for damages against third parties
- Clause 5-13. Right of subrogation of the insurer to claims by the assured for damages against third parties
- Clause 5-14. Waiver of claim for damages
- Clause 5-15. Duty of the assured to assist the insurer with information and documents
- Clause 5-16. Duty of the assured to maintain and safeguard the claim
- Clause 5-17. Decisions concerning legal proceedings or appeals
- Clause 5-18. Salvage award which entails compensation for loss covered by the insurer
- Section 4: Right of the insurer to take over the object insured upon payment of a claim
- Section 5: Limitation, etc.
- Section 1: Claims adjustment, interest, payments on account, etc.
Chapter 6: Premium
- Clause 6-1. Payment of premium
- Clause 6-2. Right of the insurer to cancel the insurance in the event of non-payment of premium
- Clause 6-3. Premium in the event of total loss
- Clause 6-4. Additional premium when the insurance is extended
- Clause 6-5. Reduction of premium
- Clause 6-6. Reduction of premium when the vessel is laid up or in similar situations
- Clause 6-7. Claim for a reduction of premium
- Chapter 7: Co-insurance of mortgagees
Chapter 8: Co-insurance of third parties
- Clause 8-1. Rights of third parties against the insurer
- Clause 8-2. Protection of third parties against subrogation claims from the insurer
- Clause 8-3. Application of the rules in Chapter 3 and Clause 5-1
- Clause 8-4. Amendments and cancellation of the insurance contract
- Clause 8-5. Handling of claims, claims adjustment, etc.
- Clause 8-6. Other insurance
- Clause 8-7. Independent co-insurance of mortgagees or named third parties
Chapter 9: Relations between the claims leader and co-insurers
- Clause 9-1. Definitions
- Clause 9-2. The right of the claims leader to act on behalf of the co-insurers
- Clause 9-3. Lay-up plan
- Clause 9-4. Notification of a casualty
- Clause 9-5. Salvage
- Clause 9-6. Removal and repairs
- Clause 9-7. Provision of security
- Clause 9-8. Disputes with third parties
- Clause 9-9. Claims adjustment
- Clause 9-10. Insolvency of a co-insurer
- Clause 9-11. Interest on the disbursements of the claims leader
Part Two: Hull insurance
Chapter 10: General rules relating to the scope of the hull insurance
- Clause 10-1. Objects insured
- Clause 10-2. Objects, etc. temporarily removed from the vessel
- Clause 10-3. Loss due to ordinary use
- Clause 10-4. Insurance "on full conditions"
- Clause 10-5. Insurance “against total loss only” (T.L.O.)
- Clause 10-6. Insurance “against total loss and general average contribution only”
- Clause 10-7. Insurance “against total loss, general average contribution and collision liability only”
- Clause 10-8. Insurance "on stranding terms"
- Clause 10-9. Duration of voyage insurance
- Clause 10-10. Extension of the insurance
- Clause 10-11. Liability of the insurer if the vessel is salvaged by the assured
- Clause 10-12. Reduction of liability in consequence of an interest insurance
Chapter 11: Total loss
- Clause 11-1. Total loss
- Clause 11-2. Salvage attempts
- Clause 11-3. Condemnation
- Clause 11-4. Condemnation in the event of a combination of perils
- Clause 11-5. Request for condemnation
- Clause 11-6. Removal of the vessel
- Clause 11-7. Missing or abandoned vessel
- Clause 11-8. Extension of the insurance when the vessel is missing or abandoned
- Clause 11-9. Liability of the insurer during the period of clarification
Chapter 12: Damage
- Clause 12-1. Main rule concerning liability of the insurer
- Clause 12-2. Compensation for unrepaired damage
- Clause 12-3. Inadequate maintenance, etc.
- Clause 12-4. Error in design, etc.
- Clause 12-5. Losses that are not recoverable
- Clause 12-6. Deferred repairs
- Clause 12-7. Temporary repairs
- Clause 12-8. Costs incurred in expediting repairs
- Clause 12-9. Repairs of a vessel that is condemnable
- Clause 12-10. Survey of damage
- Clause 12-11. Invitations to tender
- Clause 12-12. Choice of repair yard
- Clause 12-13. Removal of the vessel
- Clause 12-14. Apportionment of common expenses
- Clause 12-15. Ice damage deductions
- Clause 12-16. Machinery damage deductions
- Clause 12-17. Compensation without deductions
- Clause 12-18. Deductible
- Clause 12-19. Basis for calculation of deductions according to Clauses 12-15 to 12-18 and Clause 3-15
- Chapter 13: Liability of the assured arising from collision or striking
- Chapter 10: General rules relating to the scope of the hull insurance
Part Three: Other insurances for ocean-going vessels
Chapter 14: Separate insurances against total loss
- Clause 14-1. Insurance against total loss and excess collision liability (hull interest insurance)
- Clause 14-2. Insurance against loss of long-term freight income (freight interest insurance)
- Clause 14-3. Common rules for separate insurances against total loss
- Clause 14-4. Limitations on the right to effect separate insurances against total loss
Chapter 15: War risks insurance
- Section 1: General rules relating to the scope of war risks insurance
- Section 2: Termination of the insurance
- Section 3: Trading areas
- Section 4: Total loss
- Section 5: Damage
- Section 6: Loss of hire
- Section 7: Owner’s liability, etc. (P&I)
- Section 8: Occupational injury insurance, etc.
Chapter 16: Loss of hire insurance
- Clause 16-1. Main rules regarding the liability of the insurer
- Clause 16-2. Total loss
- Clause 16-3. Main rule for calculating compensation
- Clause 16-4. Calculation of the loss of time
- Clause 16-5. The daily amount
- Clause 16-6. Agreed daily amount
- Clause 16-7. Deductible period
- Clause 16-8. Survey of damage
- Clause 16-9. Choice of repair yard
- Clause 16-10. Removal to the repair yard, etc.
- Clause 16-11. Extra costs incurred in order to avert or minimise loss
- Clause 16-12. Simultaneous repairs
- Clause 16-13. Loss of time after completion of repairs
- Clause 16-14. Repairs carried out after expiry of the insurance period
- Clause 16-15. Liability of the insurer when the vessel is transferred to a new owner
- Clause 16-16. Relationship to other insurances and general average
- Chapter 14: Separate insurances against total loss
Part Four: Other insurances
Chapter 17: Insurance for fishing vessels
Section 1: General provisions
- Clause 17-1. Scope of application
- Clause 17-2. Renewal of the insurance/Ref. Clause 1-5
- Clause 17-3. Trading areas for fishing vessels/Ref. Clause 3-15
- Clause 17-4. Classification and vessel inspection/Ref. Clause 3-14 and Clause 3-8
- Clause 17-5. Safety regulations/Ref. Clause 3-22 and Clause 3-25
- Clause 17-6. Savings to the assured
Section 2: Hull insurance
- Clause 17-7. The relationship to Chapters 10-13
- Clause 17-7A. Fixed equipment temporarily removed from the vessel
- Clause 17-8. Change of the open or agreed insurable value/Ref. Clause 2-2 and Clause 2-3
- Clause 17-9. Damage to lifeboats, fishing, whaling and sealing tackle and catch/Ref. Clause 4-7 to Clause 4-12 and Clause 4-16
- Clause 17-10. Hull and freight-interest insurance/Ref. Clause 10-12
- Clause 17-11. Condemnation/Ref. Clause 11-3
- Clause 17-12. Damage to the hull of vessels which are not built of steel/Ref. Clause 12-1
- Clause 17-13. Limited cover of damage to machinery
- Clause 17-14. Costs incurred in saving time/Ref. Clause 12-7, Clause 12-8, Clause 12-11 and Clause 12-12
- Clause 17-15. Deductions/Ref. Clause 12-15, Clause 12-16 and Clause 12-18
- Clause 17-16. Collision liability for fishing vessels/Ref. Clause 13-1
- Clause 17-17. Collision liability/Ref. Clause 13-1
- Section 3: Hull insurance - extended cover
Section 4: Catch and equipment insurance - standard cover
- Clause 17-19. Objects insured
- Clause 17-20. Insurable value
- Clause 17-21. Extraordinary handling costs
- Clause 17-22. Excluded perils/Ref. Clause 2-8
- Clause 17-23. Deck cargo
- Clause 17-24. Total loss
- Clause 17-25. Damage to or loss of catch
- Clause 17-26. Damage to other objects
- Clause 17-27. Survey of damage
- Clause 17-28. Deductible
- Section 5: Supplementary cover for nets and seines in the sea
Section 6: Loss of hire insurance for fishing vessels
- General comments
- Clause 17-33. Relationship to Chapter 16
- Clause 17-34. Liability of the insurer/applies instead of Clause 16-1
- Clause 17-35. Total loss/applies instead of Clause 16-2
- Clause 17-36. Calculation of compensation for fishing vessels/Ref. Clause 16-3
- Clause 17-37. The daily amount for fishing vessels/applies instead of Clause 16-5
- Clause 17-38. Agreed daily amount for fishing vessels/applies instead of Clause 16-6
Chapter 18: Insurance of mobile offshore units (MOUs)
- Section 1: General rules relating to the scope of the insurance
Section 2: Hull insurance
Section 2-1: General rules relating to the scope of the H&M insurance
- Clause 18-2. Objects insured
- Clause 18-3. Objects temporarily removed or separated etc. from the MOU
- Clause 18-4. Loss due to ordinary use
- Clause 18-5. Extension of the insurance
- Clause 18-6. Liability of the insurer if the MOU is salvaged by the assured
- Clause 18-7. Reduction of liability in consequence of an interest insurance
Section 2-2: Total loss
- Clause 18-8. Total loss
- Clause 18-9. Salvage attempts
- Clause 18-10. Condemnation
- Clause 18-11. Condemnation in the event of a combination of perils
- Clause 18-12. Request for condemnation
- Clause 18-13. Removal of the MOU
- Clause 18-14. Missing or abandoned MOU
- Clause 18-15. Extension of the insurance when the MOU is missing or abandoned
- Clause 18-16. Liability of the insurer during the period of clarification
Section 2-3: Damage
- Clause 18-17. Main rule concerning liability of the insurer
- Clause 18-18. Compensation for unrepaired damage
- Clause 18-19. Inadequate maintenance
- Clause 18-20. Error in design, etc.
- Clause 18-21. Losses that are not recoverable
- Clause 18-22. Damage to the drill string
- Clause 18-23. Deferred repairs
- Clause 18-24. Temporary repairs
- Clause 18-25. Costs incurred in expediting repairs
- Clause 18-26. Repairs of an MOU that is condemnable
- Clause 18-27. Survey of damage
- Clause 18-28. Invitations to tender
- Clause 18-29. Choice of repairers
- Clause 18-30. Removal for repairs
- Clause 18-31. Apportionment of common expenses
- Clause 18-32. Ice damage deductions
- Clause 18-33. Deductible
- Clause 18-34. Basis for calculation of deductions according to Clauses 18-32, 18-33 and 3-15
- Section 2-4: Liability of the assured arising from collision or striking
- Section 2-1: General rules relating to the scope of the H&M insurance
Section 3: Separate insurances against total loss
- Clause 18-39. Insurance against total loss and excess collision liability (hull interest insurance)
- Clause 18-40. Insurance against loss of long-term freight income (freight interest insurance)
- Clause 18-41. Common rules for separate insurances against total loss
- Clause 18-42. Limitations on the right to insure separately against total loss
Section 4: Loss of hire insurance
- Clause 18-43. Main rules regarding the liability of the insurer
- Clause 18-44. Total loss
- Clause 18-45. Main rule for calculating compensation
- Clause 18-46. Calculation of the loss of time
- Clause 18-47. The daily amount
- Clause 18-48. Agreed daily amount
- Clause 18-49. Deductible period
- Clause 18-50. Survey of damage
- Clause 18-51. Choice of repairer
- Clause 18-52. Move to the repair location, etc.
- Clause 18-53. Extra costs incurred in order to avert or minimise loss
- Clause 18-54. Simultaneous works
- Clause 18-55. Loss of time after completion of repairs
- Clause 18-56. Repairs carried out after expiry of the insurance period
- Clause 18-57. Liability of the insurer when the MOU is transferred to a new owner
- Clause 18-58. Relationship to other insurances and general average
Section 5: War risks insurance
- Section 5-1: General rules relating to the scope of war risks insurance
- Section 5-2: Termination of the insurance
- Section 5-3: Areas of operation
- Section 5-4: Total loss
- Section 5-5: Damage
- Section 5-6: Loss of hire
- Section 5-7: Owner’s liability, etc. (P&I)
- Section 5-8: Occupational injury insurance, etc.
Section 6: Construction risks insurance
- Section 6-1: General rules relating to the scope of construction risks insurance
Section 6-2: Loss of or damage to the MOU
- Clause 18-87. Objects insured/Ref Clause 18-2
- Clause 18-88. Insurable value
- Clause 18-89. Compensation in the event of a total loss/Ref. Clause 4-1
- Clause 18-90. Total Loss/Ref. Section 2-2
- Clause 18-91. Damage/Ref. Section 2-3
- Clause 18-92. Error in design, etc.
- Clause 18-93. Costs incurred in order to save time/Ref. Clauses 18-24, 18-28 and 18-29
- Section 6-3: Supplementary covers
Chapter 19: Builders’ risks insurance
Section 1: Common provisions
- Clause 19-1. Perils covered/Ref. Clause 2-8, cf. Clause 2-10
- Clause 19-2. Insurance period/Ref. Clause 1-5
- Clause 19-2A. Premium in the event of total loss
- Clause 19-3. Co-insurance/Ref. Clause 8-1
- Clause 19-4. Transfer of the building contract/Ref. Clause 3-21
- Clause 19-5. Place of insurance
- Clause 19-6. The sum insured as the limit of the liability of the insurer/Ref. Clause 4-18 and Clause 4-19
- Clause 19-7. Escalation of the sum insured
- Clause 19-8. Deductible
Section 2: Loss of or damage to the subject-matter insured
- Clause 19-9. Objects insured/Ref. Clause 10-1
- Clause 19-10. Insurable value
- Clause 19-11. Total loss in the event of condemnation
- Clause 19-12. Total loss where the yard’s obligation to deliver no longer applies
- Clause 19-13. Compensation in the event of a total loss/Ref. Clause 4-1
- Clause 19-14. Damage/Ref. Chapter 12
- Clause 19-15. Limitation of the insurer’s liability/Ref. Clause 12-1
- Clause 19-16. Compensation for unrepaired damage/Ref. Clause 12-2
- Clause 19-17. Costs incurred in order to save time/Ref. Clause 12-7, Clause 12-11 and Clause 12-12
- Section 3: Indemnification of additional costs incurred in an unsuccessful launching and costs of wreck removal
- Section 4: Liability insurance
Section 5: Supplementary covers
- Clause 19-22. Applicable rules
- Clause 19-23. Insurance of additional costs in connection with rebuilding and/or building of a new subject-matter insured
- Clause 19-24. Insurance of the yard’s liability for the buyer’s interest claim for instalments paid
- Clause 19-25. Insurance of the yard’s loss of interest in the event of late delivery
- Clause 19-26. Insurance of the yard’s daily penalties in the event of late delivery
- Clause 19-27. Towage and removal of the subject-matter insured
- Section 6: Supplementary cover for war risks
Chapter 20: Insurance for vessels with trading certificates
- Section 1: Common provisions
Section 2: Hull insurance
- Clause 20-6. The relationship to Chapters 10-13
- Clause 20-7. Hull and freight-interest insurance/Ref. Clause 10-12
- Clause 20-8. Condemnation/Ref. Clause 11-3
- Clause 20-9. Damage to the hull of vessels which are not built of steel/Ref. Clause 12-1
- Clause 20-10. Limited cover of damage to machinery
- Clause 20-11. Costs incurred in saving time/Ref. Clause 12-7, Clause 12-8, Clause 12-11 and Clause 12-12
- Clause 20-12. Deductions/Ref. Clause 12-15, Clause 12-16 and Clause 12-18
- Clause 20-13. Collision liability/Ref. Clause 13-1
- Section 3: Hull insurance - extended cover
- Section 4: Hull insurance - limited cover
Chapter 21: Liability insurance
- Clause 21-1. Scope of application
- Clause 21-2. Renewal of the insurance/Ref. Clause 1-5
- Clause 21-3. Classification and vessel inspection/Ref. Clause 3-14 and Clause 3-8
- Clause 21-4. Savings to the assured
- Clause 21-5. Perils covered
- Clause 21-6. Liability for personal injury
- Clause 21-7. Liability for property damage
- Clause 21-8. Liability for description
- Clause 21-9. Liability for the misdelivery of goods
- Clause 21-10. General average contributions
- Clause 21-11. Liability for removal of wrecks
- Clause 21-12. Liability for special salvage compensation
- Clause 21-13. Liability for bunker oil pollution damage and damage to the environment
- Clause 21-14. Stowaways
- Clause 21-15. Liability for fines, etc.
- Clause 21-16. Liability for social benefits for the crew
- Clause 21-17. Travel expenses for replacement crew
- Clause 21-18. Expenses for disinfection and quarantine
- Clause 21-19. Limitation due to other insurance, etc.
- Clause 21-20. Safety regulations/Ref. Clause 3-22 and Clause 3-25
- Clause 21-21. Assured's fault
- Clause 21-22. The insurer's rights in the event of liability
- Clause 21-23. Liability for loss that occurred during other transport, etc.
- Clause 21-24. Limitation of liability for fishing vessels
- Clause 21-25. Limitation of the insurer's liability for measures to avert or minimise loss
- Clause 21-26. The sum insured as a limit to the insurer's liability
- Clause 21-27. Deductible
- Chapter 17: Insurance for fishing vessels
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Section 3: Claims by the assured for damages against third parties
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Sub-clause 1 establishes the insurer’s right to be subrogated to the assured’s claims against third parties. When the assured has a claim for damages against a third party on account of a loss, either wholly or in part, e.g., as a general average contribution or as compensation for collision damage, the insurer will automatically be subrogated to the assured’s claim against the third party when he pays compensation under the insurance contract.
The insurer is subrogated to “the rights of the assured against the third party concerned”. This entails that he takes over the claim for damages regardless of the basis on which it is founded. However, this does not apply where the assured has a claim by virtue of another insurance contract. Here the special rules relating to double insurance contained in Cl. 2-6 and Cl. 2-7 shall apply. If one of the insurers is liable by virtue of the rules relating to costs of measures to avert or minimise loss, however, the entire loss shall be covered by that insurer, cf. Cl. 2-7, sub-clause 3.
The insurer is subrogated to the claim as it is in the assured’s hands. If there is a maritime lien or some other security connected with the claim, the insurer may exercise this right, cf. ND 1939.269 NH Congo.
The insurer only takes over claims for damages that are connected with the interest insured and refer to the very losses that the insurer has covered. If the assured has suffered any other loss that is not covered under the insurance (e.g., loss of time in connection with a collision), he retains the claim for damages or the claim for contribution in respect of these items.
For H&M insurance, situations have arisen where e.g. an engine maker or a shipyard have accepted liability (wholly or partly) for damage done to the vessel, a guarantee claim or the like. In such situations it may not be readily apparent whether there is a recovery to be dealt with under this Clause, or whether there is e.g. a “discount” or the like to be deducted from the claim.
In this respect, it should be noted that there cannot be any recovery to be dealt with under Cl. 5-13 unless there is a liability for insurers to pay compensation in the first place. As an example, in case an engine maker accepts liability for damage to an engine and repairs the engine free of charge, there is no liability on H&M insurers to pay compensation under Cl. 12-1 for the work by engine makers, as nothing is payable to them (see particularly Cl. 12-1, sub-clause 2). The value of repairs by engine maker therefore represents unbilled repairs, which would be equivalent to a discount to be deducted from the claim, and Cl. 5-13 is not applicable. The assured may however have to pay associated costs such as shipyard expenses for repair support, classification of repairs and other costs, which would be claimable under the H&M insurance contract pursuant to Chapter 12 of the Plan. In case engine makers accept liability and reimburse such costs, the reimbursement will represent a recovery to be dealt with under Cl. 5-13. Therefore, as a general guideline the value of unbilled and/or unpaid repairs do not give rise to application of Cl. 5-13, whilst reimbursement of recoverable repair costs previously paid (incl. costs which are obviously payable although not yet paid) by the assured constitutes a recovery to be dealt with under Cl. 5-13.
The rule in sub-clause 1, second sentence, is referred to in connection with Cl. 4-14.
Sub-clause 2 regulates the situation where the insurer is only partly liable for the loss. In marine insurance the situation will often be that the insurance conditions provide that the assured shall bear part of the loss in the form of deductions or deductibles. In that event, the assured shall retain a proportion of the claim for damages against the third party concerned equivalent to the loss he has sustained himself, cf. first sentence.
A simple example:
A shipowner has agreed the deductible for PA damage per Cl. 12-18 to be USD 100,000. The shipowner's vessel (vessel A) is damaged in a collision. Cost of repairs is USD 400,000, and insurers therefore pay compensation for damage to vessel A in the amount of USD 300,000 net of deductible. Thereafter the opponent vessel (vessel B) is held liable and are eventually found 60% to blame. Recovery is consequently USD 240,000. Pursuant to Cl. 5-13, sub-clause 2, the recovery shall be apportioned as follows:
Insurers recover 300,000/400,000ths of USD 240,000 = USD 180,000
And owners of vessel A recover 100,000/400,000ths of USD 240,000 = USD 60,000
This is relatively straightforward when the deductible is agreed with a fixed amount for PA damage, pursuant to the standard Cl. 12-18 solution. And even if the insured vessel has incurred liability during the same event (e.g. 40% in the above example), the standard Plan solution is that the parties should agree a separate deductible to be applied for any collision liability, see Cl. 13-4.
In practice it is sometimes agreed in the policy that in case there are PA damage to the vessel as well as liability under the Plan’s Chapter 13 during the same event (e.g. in a both to blame collision), the maximum total amount to be deducted shall be equivalent to the higher of the 2 deductibles agreed (Cl. 12-18 and Cl. 13-4). However, for recovery purposes it is necessary to identify the amount of deductible attaching to each of the two categories of claim (i.e. PA damage to own vessel and liability to the other vessel). The general principle for a H&M claim is that a deductible is proportioned over all claim items / disbursements to which the deductible is applicable. (This will also follow from interest calculation guidelines found in the Commentary to Cl. 5-4.) As a starting point, the same principle must apply in case a deductible attaches to PA damage as well as to liability. If we expand on the example above we can assume that in the policy for vessel A the agreed PA deductible (Cl. 12-18) is USD 100,000, and the liability deductible (Cl. 13-4) is USD 50,000, With damage to the vessel and liability during the same event, the maximum total deductible for damage and liability should be equivalent to the higher of the two (i.e. USD 100,000). The following examples may serve as a guideline:
- Vessel A suffers PA damage USD 400,000 (recoverable under Chapter 12) and vessel B suffers damage in the amount of USD 250,000. Vessel A was 40% to blame and had to pay liability 40% of B’s loss = USD 100,000. Total claim subject to deductible for vessel A would then be (vessel damage 400,000 + liability 100,000) USD 500,000 and the deductible shall then be apportioned with 400,000/500,000ths of deductible 100,000 = USD 80,000 attaching to PA damage, and 100,000/500,000ths of deductible 100,000 = USD 20,000 attaching to liability. In other words, the deductible is apportioned pro rata in accordance with general principles. The consequence for apportionment of recovery from opponent vessel would be that the assured has carried USD 80,000 of vessels own damage, and therefore receives 80,000/400,000ths of recovery from vessel B. If total recovery is (60% of 400,000) USD 240,000, then the assured receives (60% of 80,000) USD 48,000, and the balance (60% of 320,000) USD 192,000 is credited the insurer.
- Vessel A suffers PA damage USD 400,000 (as the example above), but now vessel B suffers damage in the amount of USD 1.5 million, whereof vessel A is liable for 40% or USD 600,000. Total claim subject to deductible for vessel A would then be (vessel damage 400,000 + liability 600,000) USD 1,000,000 and if deductible is proportioned, the share attaching to liability would be USD 60,000. However, as the deductible applicable for liability is stated to be USD 50,000 in the policy, this is the maximum amount applicable to the liability claim, and therefore USD 50,000 would be applicable to liability, and the balance of the total deductible USD 50,000 would be applicable to damage to own vessel. The consequence for apportionment of recovery from opponent vessel would be that the assured has carried USD 50,000 of vessels own damage, and therefore receives 50,000/400,000ths of recovery from vessel B. If total recovery is (60% of 400,000) USD 240,000, then the assured receives (60% of 50,000) USD 30,000, and the balance (60% of 350,000) USD 210,000 is credited the insurer.
It should also be noted that the above principles for apportionment of deductible is applicable irrespective of whether the PA claim or liability claim is settled first. For collision cases, usually the PA claim is adjusted and settled before the collision claim, and then in practice the full deductible will be deducted on the PA adjustment. Still, the deductible must be reapportioned in the collision adjustment, primarily in order to obtain a correct basis for apportionment of recovery.
The claim for damages shall also be divided when the value of the interest affected by the loss is estimated to be a higher amount in the relationship between the assured and the third party than in the relationship between the assured and the insurer, and the third party is only liable for a portion of the loss, or is unable to cover the full value of the interest, cf. second sentence. Hence, the claim for damages shall be divided proportionately if the vessel becomes a total loss as the result of a collision and its value is estimated to be higher than the hull valuation, whilst the third party, due to the rules relating to limitation of liability, pays a smaller amount in damages than what the insurer has paid to the assured. Conversely, if the value of the vessel in a collision case is estimated to be an amount equivalent to or lower than the hull valuation, the insurer shall keep the entire claim for damages, unless the assured has also suffered other losses.
It is the assured’s claim against third parties which may be subjected to a proportionate division, and not the amount of damages which may be paid. The insurer shall invoke his portion of the claim in his own name. If the assured does not wish to pursue his part of the claim, he is free to drop it. If both the insurer and the assured invoke their claims, it would be natural to try these claims in the same action; such action shall then be conducted in the names of both parties.
Where it is the assured’s claim that is divided, it is superfluous to issue rules relating to the apportionment of the costs of recovery. Each of the parties shall bear the costs that have been necessary in order to recover his own claim.
If the claims brought by the assured and the insurer against the third party concerned are not met in full, for example because the third party only has limited liability or is insolvent, the assured competes on a par with the insurer. The Plan has not adopted the rule that is common in types of insurance of a more social nature to the effect that the assured’s claim for damages prevails over that of the insurer in the event of the relevant third party’s bankruptcy.
If the value of the interest insured is set at a higher amount in the relationship between the assured and the third party than in the relationship between the assured and the insurer, and the third party is furthermore liable for the full loss and is able to pay the entire amount, the insurer’s portion of the claim will be larger than the compensation he has paid to the assured. It would not be reasonable for the insurer to make a profit from his right of subrogation in this way, and sub-clause 3 therefore establishes that such profit shall be transferred back to the assured. There will obviously be no question of any profit until the insurer has been reimbursed the expenses covered in connection with the recovery of the claim and the interest accrued on the compensation he has paid to the assured. The loss of interest for the period following the claims settlement with the assured must also be taken into account.
If the third party’s liability is stipulated in another currency than the one set out in the insurance contract, the insurer shall bear the risk of any exchange loss during the period between the event involving liability and the enforcement of the recourse claim. On the other hand, the insurer shall also have the advantage of any exchange gain. Hence, the rule in sub-clause 3 shall not apply here.
A special question arises where several insurers are entitled to a portion of the claim for damages. The problem poses no difficulties if the various insured interests are assessed separately in the claims settlement. However, if the vessel is a total loss as a result of a collision, the compensation will be fixed at one specific amount, representing the value of the vessel, including the value of a lost charterparty, if relevant. In practice, it has been disputed how the compensation received shall be apportioned among the hull insurer, the hull-interest insurer and the freight-interest insurer. One solution is to make a proportional apportionment also among the total-loss insurers. In the alternative, the traditional layer distribution of the total-loss insurances may be adopted, and the hull insurer must be given first priority to compensation to the extent of his claim. The hull-interest insurer will then be given second priority, whilst the freight-interest insurer will only get his share if there is still anything left of the compensation. The reason for this solution is that it would not be reasonable if, in the event of a total loss, the hull insurer’s claim for damages were to be affected by the extent of the freight-interest insurance that the shipowner has taken out.
During the revision, there was general consensus that in the normal situation where the hull value is equal to or higher than the market value, the hull insurer should be given priority. In the event of a total loss with a subsequent refund from the party causing a loss of NOK 3 million and a hull valuation of NOK 18 million, the hull insurer should receive the entire compensation if the market value is lower than NOK 18 million. In these cases, the hull interest and the freight-interest insurers will not get anything. If, however, the hull valuation is lower than the market value, an apportionment must be made so that each insurer receives a portion of the compensation that is proportionate to his share of the market value. The excess amount accrues to the assured. If the market value in the example above is NOK 25 million and the hull interest is insured at NOK 4.5 million, the hull insurer will thus receive 18/25 of NOK 3 million, the hull-interest insurer 4.5/25 of NOK 3 million, and the owner 2.5/25 of NOK 3 million.
The insurer’s right of subrogation to claims by the assured for damages against third parties is also regulated in Cl. 5-22. The relationship between these provisions appears from the Commentary on that provision.
Clause 5-14. Waiver of claim for damagesView Clause Go to Plan page
The Clause regulates the effect of the assured’s waiver of his right to claim damages from a third party. It is primarily applicable in connection with damages in a contractual relationship where the assured has waived in advance its right to claim damages from the other party to the contract.
As mentioned in Cl. 4-15, the question of whether the waiver can be considered customary in the trade in question must be evaluated on a case-to-case basis. An advance waiver of the right to claim damages may, for example, occur in contracts concerning pilotage or towage. In some cases, the vessel may be able to obtain a contract where the other contracting party undertakes greater liability for any faults that may be committed, in return for higher remuneration. It is difficult to make any general statements about the assured’s right to choose the less expensive alternative. Whether it would have been reasonable to demand that the assured, by incurring a somewhat higher expense, obtain a contract which would have been more satisfactory from the insurer’s point of view must be decided on a case-to-case basis.
Sometimes clauses are used where the party to a contractual relationship who is likely to sustain damage waives any and all claims for damages to the extent its loss is covered by an indemnity insurance. When such a “benefit-of-insurance” clause becomes applicable between the parties, no claim for damages arises which the insurer can take advantage of. The clause will accordingly have to be evaluated under this Clause.
If the waiver is not made until after the claim for damages has arisen, the situation will be covered both by the present Clause and by Cl. 5-16. The assured will obviously always have the right to waive the portion of the claim that accrues to the assured. If the assured waives the insurer’s portion, the deciding factor must be whether the insurer would have had to accept the waiver if it had been made before the claim arose, cf. Brækhus/Rein: Håndbok i kaskoforsikring (Handbook of Hull Insurance), p. 600.
The provision does not cover the situation where the assured has waived the entire claim for damages after the insurer has exercised its right of subrogation. In that event, the assured is not entitled to waive the claim.
Clause 5-15. Duty of the assured to assist the insurer with information and documentsView Clause Go to Plan page
As regards the interpretation of sub-clause 1, reference is made to what is stated in Cl. 5-1, sub-clause 1.
Cl. 98, sub-clause 2, second sentence, of the 1964 Plan, contained a provision to the effect that, in the event of litigation between the assured and a third party, the insurer would be entitled to be represented separately. This provision has been deleted. This is a question that should be solved in accordance with the law of procedure in the country where the case is being tried by the courts, cf. in this respect the Commentary on Cl. 5-9.
Clause 5-16. Duty of the assured to maintain and safeguard the claimView Clause Go to Plan page
The Commentary was amended in the 2019 Version.
Under sub-clause 1, the assured shall secure a claim against third parties on behalf of the insurer. The provision is particularly relevant where the owner has the right to claim general average contributions from the cargo. The owner has the right to refuse to surrender the cargo unless the consignee assumes personal liability for the contribution (signs an “average bond”) and, possibly, provides security. This provision implies that it is the owner’s duty to obtain a general average bond before the cargo is surrendered.
If the assured, intentionally or through gross negligence, breaches sub-clause 1, the assured is liable for the loss thereby incurred by the insurer, cf. sub-clause 2. If the assured realized that it was a case of general average, surrendering the cargo without taking care of the necessary formalities with a view to securing the right of recourse will normally constitute gross negligence. In that event, the owner cannot lodge a claim for the entire general average damage against the hull insurer, cf. the comments on Cl. 4-8. If the fault was committed by the master of the vessel, the question arises as to whether the assured is to be identified with the master, cf. Cl. 3-36. Normally, it will be a question of the delegation of the decision-making authority that provides the basis for identification. If the hull insurer is to cover the entire general average by agreement, normally in the form of a general average absorption Clause, cf. Cl. 4-8, sub-clause 3, this problem will admittedly not arise as long as the claim for general average falls within the general average absorption amount agreed in the policy. In that event, the owner will be entitled to claim compensation for the entire damage from the hull insurer, even though it would not have been covered in general average. On the other hand, if the general average claim exceeds the general average absorption clause and no steps are taken by the assured to secure right of recourse, the assured will usually be liable for any loss incurred by the insurer due to such failure. An exception from this is where the assured can show that he reasonably expected the general average to remain below the general average absorption amount or that there would be no or limited prospects of recovering contribution from cargo in any event e.g. due to an obvious breach of contract.
Clause 5-17. Decisions concerning legal proceedings or appealsView Clause Go to Plan page
When the assured has a claim for damages against a third party, the latter will very often have a counterclaim against the assured. Such counterclaims must often be covered by the P&I insurer, whereas the claims for damages will usually accrue to the hull insurer. Accordingly, in such situations, there is the same need for an impartial decision on the litigation issue as when a third party brings a claim for damages against the assured.
The provision does not apply when the disagreement between the assured and the insurer merely consists of differing assessments of the chances of getting the claim for damages upheld, taking into account the costs involved in enforcing it. As mentioned in Cl. 5-13, the assured and the insurer will, in such a situation, have the right to pursue or waive their share of the claim, at their own discretion.
Clause 5-18. Salvage award which entails compensation for loss covered by the insurerView Clause Go to Plan page
Under Section 446 (f) of the Norwegian Maritime Code, the material loss sustained by the salvor in connection with the salvage operation shall be taken into account when the salvage award is determined. Under Section 451, first sub-clause, of the same Code, any damage to the vessel or cargo caused by the salvage operation shall be paid for out of the salvage award before anything is distributed among owner and crew. The payment of a salvage award does not entail that the insurer’s liability ceases, but that the salvage award shall be considered in the same way as an ordinary claim for damages. However, it would not be correct to say that the insurer “is subrogated” to the salvage award claim, cf. Cl. 5-13. The claim for a salvage award is not a “claim for damages”; the assured does not have an unconditional right to receive a salvage award covering the damage the vessel has sustained in connection with the salvage operation. It must therefore be stated explicitly that the assured shall refund the insurer whatever the latter has paid in settlement of the assured’s loss, cf. sub-clause 1. The assured’s obligation to reimburse the insurer will, first of all, comprise the portion of the salvage award with which he is credited in advance in a settlement under Section 451, first sub-clause, of the Norwegian Maritime Code, to cover damage to the vessel. If this part of the salvage award is not sufficient, for instance, because damage to the vessel was underestimated during the salvage award case, the assured shall also be obliged to reimburse the insurer out of the remainder of the salvage award which he has received.
The reference to Cl. 5-13 et seq. entails that the assured’s share of the salvage award shall be divided between him and the insurer according to the same rules as those applicable to ordinary claims for damages. The assured is therefore entitled to retain a portion equivalent to deductions and deductibles that he himself has borne. Furthermore, the assured shall, in relation to the insurer, be obliged not to waive the right to claim a salvage award to any exceptional extent, nor to neglect to pursue any claim to recover a salvage award which has arisen.