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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Chapter 7: Co-insurance of mortgagees
In the 2023 revision several clauses in Chapter 7 were amended, and the present introduction to the Chapter was extended to elaborate on its system and rationale.
Chapter 7 concerning co-insurance of mortgagees is a sub-category of the topic co-insurance of third parties, which is more generally explained under the heading General in the Commentaries to Chapter 8. In the Plan, the rules on co-insurance of third parties are governed in two different chapters. Chapter 8 provides the general rules on co-insurance of third parties, whereas the specific regulation of co-insurance of mortgagees are set out in Chapter 7. The specific and rather detailed regulation in Chapter 7 is due to the importance co-insurance of mortgagees serve in loan agreements, which often contain provisions relating to insurance of the interests of the mortgagee.
The essential feature of Chapter 7 concerning co-insurance of mortgagees is set out in Cl. 7-1, sub-clause 1, which reads: «If the interest covered by the insurance is mortgaged, the insurance also covers the mortgagee’s interest …». Hence, the provision entails that the mortgagee’s interest is automatically covered by the insurance (ipso jure). This means that a mortgagee is deemed co-insured, regardless of whether or not the mortgagee is stipulated as a beneficiary under the insurance contract and regardless of whether or not the mortgagee has received any notification thereof. By contrast, there is no automatic cover to other third parties under Chapter 8. The protection of the mortgagees is regulated exhaustively in Chapter 7.
Chapter 7 does however not provide an independent cover for the mortgagee. The automatic cover is, as set out in Cl. 7-1, sub-clause 1 in fine, derived from the assured’s position as assured. This follows from the wording that «… the insurer may invoke the rules relating to identification in Cl. 3-36 to Cl. 3-38.» also towards the co-insured mortgagee. The latter entails that the mortgagee – like the assured – may lose cover due to acts or omissions on the part of the person effecting the insurance or the assured who is responsible for the operation of the vessel.
The parties are free to deviate from Cl. 7-1, sub-clause 1 in fine, for example, by providing the mortgagee a more independent co-insurance. On this basis, the position of the mortgagee is often specifically governed in the insurance contract, typically on the request of the lenders, which then prevails over the regulation in Chapter 7.
The mortgagee may also be provided an entirely independent cover, i.e. cover that is not dependent on the owner’s insurance contract (so-called Mortgagee Interest Insurance, which must be distinguished from co-insurance). It should be noted that Cl. 8-7 allows for the possibility of a more independent cover of a third party’s interest, including a mortgagee, but such cover is limited to the insurance to which it is attached and cannot be a complete substitute for a so-called Mortgagee Interest Insurance (see the Commentaries to Cl. 8-7).
Financing vessels often takes place in an international context. Because it may be important for international banks and lenders to understand the nature of the Plan´s system for automatic co-insurance of mortgagees, it may be useful with a brief comparison with English law and English contract practice. Under the UK regulation, there is no such automatic cover for mortgagees. Hence, to have its interests as mortgagee protected by insurance, the mortgagee must proceed based on one of two alternatives.
First, by taking out a separate policy covering the mortgagees economic interest in the vessel, cf. MIA 1906 Section 14 (1). In practice, this may serve as a more independent variant of the cover under the Plan Cl. 8-7.
Second, by an assignment of a policy covering the shipowner’s interest, cf. MIA 1906 Section 50. Such assignment entails that the assured “pass the beneficial interest in such policy” to the assignee (mortgagee in this context). The assignee “is entitled to sue thereon in his own name”, but the insurer “is entitled to make any defence arising out of the contract which he would have been entitled to make if the action had been brought in the name of the person by or on behalf of whom the policy was effected”, cf. MIA 1906 Section 50 (2). That the mortgagee is entitled to sue in its own name is comparable to co-insurance under the Plan. Similarly, the insurer’s right to invoke any defence arising out of the contract is an equivalent to the regulation on identification in the Plan's Cl. 7-1, sub-clause 1 in fine (referring to Cl. 3-36 to Cl. 3-38).
By contrast to the automatic status of the mortgagee as co-insured under the Plan Chapter 7, the said UK "assignment" system must be made by “endorsement thereon or in other customary manner”, cf. MIA 1906 Section 50 (3). MIA 1906 does not require notice of the assignment to be given to the insurer. It should also be noted that such assignment, according to MIA 1906 Section 50 (1), is subject to contrary provisions in the insurance policy. The insurance conditions often require notice of the assignment; see, for example, ITCH 1/10/83 Cl. 5 or IHC 2003 Cl. 23. There are examples that international banks and syndicates familiar with the UK assignment system requires endorsement of the policy with notice to the insurer also where the vessel is insured under the Plan.
On this basis, the main difference between the system of the Plan and the UK regulation is that co-insurance according to the Plan applies automatically if the insured vessel is mortgaged, whereas the UK regulation requires that the policy is (actively) endorsed and often also that the insurer is notified of the endorsement. Furthermore, under the UK regulation the mortgagee must take out a separate policy to be granted better protection than the assured. Under the Plan Chapter 7, however, Cl. 7-1, sub-clause 2 entails that the mortgagee may be granted better protection than the assured with regard to amendments or cancellation of the insurance (Cl. 7-2), handling of claims (Cl. 7-3) and payment of compensation, merely by serving a notice to the insurer about the mortgage. These additional rights of the mortgagee apply automatically upon such notification of the insurer, even though such effects are not set out in the relevant insurance policy. However, if the relevant policy sets out specific clauses concerning coverage of mortgagees, such specific provisions in the contract will prevail over the regulation in Chapter 7. If the contractual regulation of the position of the mortgagee is incomplete, the rules of Chapter 7 may nevertheless supplement the contractual regulation.
Clause 7-1. Rights of a mortgagee against the insurerView Clause Go to Plan page
The Commentary to this Clause was rewritten in 2016.
In the 2023 revision, sub-clauses 2 and 3 were amended, new sub-clauses 4 and 5 were added, and the Commentary to sub-clause 1 was amended.
Sub-clause 1 states that the mortgagee's interest is automatically covered. As explained above in the General introduction to Chapter 7, the mortgagee is automatically co-insured, also where no notice is provided pursuant to sub-clause 2. The only consequence of no such notice is that the mortgagee will not have the benefit of the additional rights set out in Cl. 7-2 to Cl. 7-4. This approach with automatic co-insurance for holders of registered charges is in line with Nordic ICAs.
The concept of “interest” has long traditions in Nordic insurance law and is frequently used in the Plan. The term “interest” points out that different economical interests related to an insured object may be covered by insurance(s). For example, the economic interest in a vessel is not necessarily limited to the capital value of the hull. It may also include, for example, future income from the operation of the vessel. Furthermore, Chapter 7 is illustrative that the “interest” may also concern a co-insured, typically a mortgagee, not only the assured. By contrast, the narrower term “vessel” essentially points to the hull as such. Hence, the term “vessel” cannot in the same manner as the broader term “interest” serve as a reference to the different economical interests that may be related to an insured object.
The Clause applies when the vessel is "mortgaged", that is when a charge is created by agreement. Chapter 7 does not protect maritime liens and similar liens. It is not necessary that the charge is registered, but if the mortgagee's right is not legally protected, the mortgagee’s right as a co-insured will not be protected against the creditors of the shipowner, cf. Rt. 1939.343 NH.
Sub-clause 1 also establishes the principle that the co-insurance is not independent. This is achieved by way of a reference to the general rules governing identification in Cl. 3-36 to Cl. 3-38. On this point the Plan deviates from the solution in the Nordic ICAs.
The rule in Cl. 3-37 implies that the mortgagee must be identified with the assured or co-owner who has decision-making authority for the operation of the vessel. This means that the mortgagee does not acquire any greater rights than the person who is responsible for the operation of the vessel. If the party in charge of the operation of the vessel is responsible for a breach of safety regulations or sends the vessel into excluded trading areas without the insurer’s consent, the mortgagee will thus have to accept a loss of cover under Cl. 3-25 or Cl. 3-15, sub-clause 5, provided that the other conditions for applying sanctions against the assured are met.
If the vessel sails into a conditional trading area without prior notice to the insurer, the sanction is that the assured, in the event of damage, only receives compensation subject to a deductible of one fourth, however, up to a maximum of USD 200,000, cf. Cl. 3-15, sub-clause 3. This will also apply in relation to the mortgagee.
If the responsible assured has delegated decision-making authority which is of material significance for the insurance to another organisation or person, Cl. 3-36, sub-clause 2, cf. Cl. 3-37, entails that the mortgagee must also be identified with that person or organisation. If responsibility for the operation of the vessel has been delegated to several parties, the mortgagee must be identified with all of those responsible parties. Nor does the mortgagee acquire any greater rights than the assured if the insurer has paid out compensation to which it subsequently turns out the assured was not entitled. If the condictio indebiti rules lead to the assured having to pay the compensation back to the insurance company, the mortgagee must do so as well, cf. ND 1985.126 NH BIRGO and Rt. 1995.1641 TORSON.
The cover is, however, independent in relation to other co-insureds who are not responsible for organising the operation of the ship, for example co-owners without such responsibility or other mortgagees. If they make a mistake, the cover of that mortgagee remains intact.
It also follows from the reference to Cl. 3-38 that the mortgagee must be fully identified with the person effecting the insurance. If the person effecting the insurance breaches the obligation to give correct and complete information or to pay the premium, the mortgagee will not have any rights against the insurer, either. General principles of contract law dictate that the mortgagee must also be identified with any agents or sub-contractors the person effecting the insurance may use, for example, if the contract is entered into through a broker.
Naturally, the mortgagee does not acquire any greater rights than the assured in relation to limitations of the scope of cover that are not linked to the issue of breach of obligations for the assured, for example, the war risk exclusion in an insurance against marine perils or the exclusion for insolvency. This is true even though the limitation of cover may seem like a reaction to negligence on the part of the assured, but is drawn up completely objectively, e.g., the limitation of liability for damage caused by inadequate maintenance in Cl. 12-3. It is unnecessary to spell this out explicitly in the Plan text.
The principle of dependent co-insurance creates a degree of uncertainty for the mortgagee. If, for example, the vessel is lost due to a breach of a safety regulation for which the assured must be blamed, the mortgagee risks being left without cover. For insurance of ocean-going vessels, this "subjective risk" is extremely small. It is, however, conceivable that the mortgagees may wish to insure themselves against this risk as well. This can be done through independent mortgagee cover in connection with the shipowner's insurance, cf. Cl. 8-7. For vessels trading in American waters, the mortgagee may also need to take out Mortgagee Interest Additional Perils (Pollution) insurance (MAP) to ensure priority for the mortgage in situations where clean-up costs, etc. in relation to the American Oil Pollution Act give maritime liens on the vessel priority over charges created by agreement.
According to sub-clause 2, first sentence, certain additional rights is triggered for the mortgagee in its capacity as co-insured under Chapter 7, provided that the mortgage is notified to the insurer (or the claims leader as per Cl. 9-2, sub-clause 3 (a)). The aim is to protect the mortgagee against certain acts and omissions by the assured or the person effecting the insurance, for example, concerning amendments and termination of the insurance policy.
There are no requirements as to form of such notice of mortgage and the additional rights of the mortgagee will take effect as per second sentence without any assignment or endorsement of the policy.
The reference to the claims leader in sub-clause 2 second sentence was added in the 2023 revision, and entails that it is sufficient that such a notice of mortgage is provided to the claims leader as per Cl. 9-2, sub-clause 3 (a).
Sub-clause 2 second sentence was amended in the 2023 revision by adding that the notice of mortgage takes effect from the time it reaches the insurer “or the claims leader as per Cl. 9-2, sub-clause 3 (a)”.
If the mortgagee fails to give notice but the insurer or claims leader learns of the creation of the charge in some other way, this must however be sufficient to trigger the additional rights for the co-insured mortgagee.
It is important to note that merely notifying the claims leader does not as such ensure perfection towards third parties under Norwegian law, for example, concerning the priority referred to in Cl. 7-4, sub-clause 1 (as further explained in the Commentaries to Cl. 9-2).
The rule in sub-clause 3 concerning notice to the mortgagee is not a substantive rule, but only intended for informative purposes. The mortgagee is provided the additional rights under Cl. 7-2 to Cl. 7-4 even if the insurer neglects to give such notice to the mortgagee. In the 2023 revision, the provision was amended to include a reference to the claims leader as per Cl. 9-2, sub-clause 4.
Sub-clause 4 was added in the 2023 revision and states that “Any special requirements of the mortgagee to be included in the insurance contract other than the rules contained in Cl. 7-2 to Cl. 7-4 shall not take effect unless and until they are specifically agreed by the insurer. If the co-insurers are represented by a claims leader, the claims leader is authorized to accept such special requirements on behalf of the co-insurers, provided that the special requirements are within customary market practice according to Cl. 9-2, sub-clause 3 (b)”.
The backdrop of this new sub-clause 4 is that mortgagees often require special terms deviating from the Plan: Longer periods of notice of amendments and cancellation, different threshold amount for payment of claims without the consent of the mortgagee etc. Such special requirements typically emerge from loan agreements or a Notice of Assignment and/or Loss Payable Clause put forward by the mortgagee to be included in the insurance contract. The term “specifically agreed” aim to ensure clarity whether or not such special requirements are accepted by the insurer (or the claims leader) and to avoid subsequent discussions whether or not the special requirements were “tacitly accepted” etc. The second sentence of sub-clause 4, referring to the claims leader, serves as a cross-reference to the new sub-clause 3 (a) in Cl. 9-2 clarifying the claims leader’s authority to receive notice of mortgage on behalf of the co-insurers (see the Commentaries to Cl. 9-2, which also elaborates on the limits of the claims leader’s authority to accept such special requirements; that the special requirements are “within customary market practice”).
Sub-clause 5 was new in the 2023 revision and provides that “If a vessel is insured as part of a fleet, each of the vessels thereunder shall be deemed to be separately insured in respect of: (i) amendment or cancellation (cf. Cl. 7-2), and (ii) set-off (cf. Cl. 7-4, sub-clause 6)”. Traditionally, the Plan has not explicitly governed the particular issues that might arise concerning insurance of “fleets”, and the present provision merely applies to co-insured mortgagees, and it is not intended to have any general bearing on “fleet” issues. The aim of the provision is to provide a default rule that essentially reflects market practice, and the regulation is intended to facilitate the use of Chapter 7 in international loan agreements. That the provision is a default rule entails that, unless otherwise agreed, the provision applies where an insurance policy covers more than one vessel, and there is no requirement that the policy is named a “fleet insurance”, “fleet placement” etc. The references to Cl. 7-2 and Cl. 7-4, sub-clause 6, entails, however, that Cl. 7-1, sub-clause 5, only applies if the insurer is served a notice of mortgage as per Cl. 7-1, sub-clause 2, or the claims leader is served such notice according to Cl. 9-2, sub-clause 3 (a).
Item (i) entails that amendments or termination concerning vessels in the fleet that are not mortgaged, will not apply to a vessel (under the same policy) that is mortgaged (and for which there is submitted a notice of mortgage). Item (ii) entails that Cl. 7-4, sub-clause 6 applies mutatis mutandis in the sense that the insurer is not entitled to set-off towards such mortgagee with counterclaims related to other vessels covered by the policy. The term “each” of the objects shall be “separately insured” entails for example, that the insurer is prevented from set-off with a counterclaim related to vessel A (typically a due premium) towards a settlement concerning vessel B where vessel A and vessel B are mortgaged to the same mortgagee.
Clause 7-2. Amendments and cancellation of the insuranceView Clause Go to Plan page
The Commentary to this Clause was rewritten in 2016.
The first sentence of the provision states that amendments to or cancellation of the insurance contract may not be invoked against the mortgagee unless the mortgagee has been notified by the insurer. This expands somewhat the mortgagee's protection in relation to the general rule in Cl. 7-1, and is in conformity with the principles laid down in the Nordic ICAs. In the 2002 revision, however, it was emphasized that, upon cancellation of a war risk insurance contract, the position of the mortgagee is no better than that of the person effecting the insurance himself, see the reference in the provision to Cl. 15-8, sub-clause 1, second sentence.
The mortgagee is entitled to be notified in the event of amendments to the insurance contract during the insurance period and in the event of renewal of the insurance. The mortgagee does not need to be notified, however, if the insurance expires because it is not renewed, cf. below. The duty to notify rests with both the leading insurer (claims leader) and the co-insurers. The notice period is 14 days.
In marine insurance it is not considered expedient to require the insurer to notify the mortgagee when the insurance expires. A marine insurance contract signed on the terms of the Plan lapses automatically upon expiry of the insurance unless it is renewed by the person effecting the insurance, cf. Cl. 1-5, sub-clause 3, and a duty to notify would have required the insurer to keep track of failures to renew. Furthermore, the Plan contains a number of rules to the effect that the insurance expires automatically or is suspended without the insurer having to be aware of this, cf. Cl. 3-14 on loss of the main class, Cl. 3-15 on trading area and Cl. 3-21 on change of ownership. In such cases, it will not be possible for the insurer to give notice before the insurer has received notice himself of the reason for the expiry, which can take a long time. The issue of expanded protection of the mortgagee's interest upon sale of the vessel is usually resolved by the purchaser always taking out new insurance as of the time of take-over.
Clause 7-3. Handling of claims, claims adjustments, etc.View Clause Go to Plan page
Sub-clause 1 was amended in the 2023 revision.
The common practice in marine insurance is that handling of claims etc. is carried out by the person effecting the insurance or the assured who operates the vessel. It would be inefficient and administrative burdensome to involve the mortgagee in every single adjustment and settlement of a claim. The latter explains the starting point in sub-clause 1, which provides that handling of claims, claims adjustments etc. can be made without the participation of the mortgagee automatically co-insured under Chapter 7. The starting point is, however, not mandatory, and hence it may be agreed with the insurer by way of “special requirements” as per Cl. 7-1, sub-clause 3, that the mortgagee shall be involved in the settlement. Such agreement can be entered into until the time of insurer’s payment of the compensation. It should be noted that Cl. 7-4 ensures that the mortgagee in any case has reasonable control over the payment of compensation.
As a part of the 2023 revision, it was expressly and generally stated in sub-clause 1 that also “provision of security for loss or liability covered under the insurance” may be made without the participation of the mortgagee. The amendment clarifies, inter alia, that the assured, without the participation of the mortgagee, is vested with an authority to provide security to third parties concerning loss or liability covered under the insurance.
Under sub-clause 2, the right to compensation for total loss may not be waived, in full or in part, to the detriment of the mortgagee. It could be argued that the protection of the mortgagee should be expanded to apply to every payment of cash compensation (including compromised total loss), cf. Cl. 12-1, sub-clause 4 and Cl. 12-2, but this was deemed unnecessary. The mortgagee will in such cases have the protection afforded by Cl. 7-4, sub-clause 3.
Clause 7-4. Payment of compensationView Clause Go to Plan page
The Clause was amended in the 2023 revision.
Sub-clause 1 gives the mortgagee «priority» in the event of total loss of a vessel, provided that the insurer is notified about the mortgage cf. Cl. 7-1, sub-clause 2. According to Cl. 7-1, sub-clause 2, the provision applies regardless who made the notification of the insurer. Who made the notification might, however, be an issue with regard to perfection (No. “rettsvern”) for the priority towards third parties, for example the bankruptcy estate of the assured. According to the principle in Norwegian Debt Act Section 29, perfection for such an assigned claim (priority) is subject to notification of the so-called debtor cessus by the assignor (owner/assured) or the assignee (mortgagee). As pointed out in the Commentaries to Cl. 9-2 concerning co-insurance and claims leaders, such notice cannot be given to the claims leader, because the claims leader is neither assignor nor assignee.
Sub-clause 2 regulates the settlement of partial losses, i.e. where the object insured (typically the vessel) has been damaged without the rules relating to total loss being applicable. If the compensation is used to cover the cost of repairs, the mortgagee's interest will normally be protected, since the value of the mortgaged object (typically the vessel) is usually restored in such cases. Consequently, the mortgagee should not be able to object to such a payment and hence there is reason to require consent from the mortgagee. The threshold for payment is 5% of the sum insured, which as a starting point is applicable for each individual interest. However, for certain interests such as loss of hire insurance and liability insurance other provisions apply, cf. sub-clauses 4 and 5. For the hull insurance, this is a combined threshold for both damage repairs and costs of measures to avert or minimise loss, whilst collision liability covered by the hull insurance is regulated by sub-clause 5 below. If a lower or higher threshold than 5% is needed, a separate agreement must be reached for that purpose. In practice, loan agreements normally require other threshold amounts than 5% of the sum insured, typically nominated as a specific amount for 100% claim. This requires specific agreement with the insurer and is referred to on a general basis in the amended wording of sub-clause 2 (cf. also Cl. 7-1, sub-clause 3, and the Commentary on this Clause).
A particular issue arises when the shipowner goes bankrupt after the repairs have been carried out but before the shipyard has received payment. If the vessel is still at the shipyard, the shipyard may retain the vessel to enforce payment of the entire repair invoice. The insurer will, in relation to the mortgagee, not be able to pay out the amount to the bankrupt estate unless the shipyard has been paid in full, cf. the wording "upon presentation of a receipted invoice for repairs carried out". The natural course of events may then be that the insurer pays the shipyard directly. If, however, the shipyard has not exercised its possessory lien and has let the vessel sail, it is difficult to see why it should be in a better position than an ordinary creditor. In these types of situations, it is better to fall back on general rules of bankruptcy law, which entail that the insurance compensation goes into the bankrupt estate and that the shipyard only has a claim for a dividend. This approach should not create particular problems for the mortgagee.
Sub-clause 3 states that compensation under Cl. 12-1, sub-clause 4, and Cl. 12-2 may not be paid without the consent of the mortgagee. The provision is general so that the mortgagee's right to give consent applies in relation to everyone, cf. the comments above under sub-clause 1. Since the compensation in such a case is a substitute for the reduction in the value of the mortgage, the mortgagee must be entitled to have the compensation paid to the mortgagee against a corresponding reduction of the mortgage.
The provisions in sub-clauses 1 to 3 only apply in relation to mortgagees holding security in the capital value of the vessel. Sub-clause 4 gives a mortgagee holding security in the vessel’s freight income the same security in the event of loss-of-hire as other mortgagees have in relation to payments under the hull cover. However, mortgagees holding security in the value of the vessel or other security have no claim for protection in relation to payment under the loss of hire insurance.
Sub-clause 5, first sentence, states that liability to a third party (collision liability, etc.) may only be paid by the insurer upon presentation of a receipt. The clause uses the general term «liability» and not «liability to pay damages», and therefore it applies both where the assured is held liable for a loss caused to a third party as well as where a third party makes a claim for a salvage award, see the Commentary to Cl. 5-9. Under some legal systems, like the Norwegian, the rule is, strictly speaking, superfluous, since the insurer is liable towards third parties if the insurer pays compensation to others without having ascertained whether the claims of the third parties have been covered. The rule has nonetheless been retained out of consideration for the international market.
A second sentence has been added to this sub-clause for the situation where the claims leader has provided security (cf. Cl. 7-3, sub-clause 1). The reference to Cl. 9-7, sub-clause 2, clearly sets out that the claims leader’s interest takes priority under these circumstances, see the Commentary to this provision. Thus, if the security has become effective the co-insurer will have a duty to pay directly to the claims leader, and not to the assured or any other co-insured parties (like the mortgagee).
Sub-clause 6 relates to the insurer's right to set-off. Since set-off may be relevant to amounts due to the insurer other than the premium, for example, for disbursed advances for previous damage which exceed the repair invoice, the right to set-off is stated in general terms. However, the right to set-off is limited to claims which arise from the insurance contract for the vessel in question, since it is not possible to require the mortgagee to keep abreast of premium arrears or other amounts due to the insurer which arise for the assured's other vessels. Furthermore, it is reasonable to apply a certain time frame. The rule therefore states that set-off against premium arrears and other amounts due to the insurer may only be made for claims which have fallen due during the last two years.
The time limit is linked to payment of the compensation. This may entail some inconveniences if there are two years of premium arrears at the time of the casualty. In that case, the insurer will not simply be able to deduct these arrears in the compensation to be subsequently paid. The insurer must, however, have the opportunity to draw up an advance calculation as soon as the extent of the casualty has been established, and set off two years' arrears in that calculation. It is furthermore a condition that the right of set-off may only be used once per casualty. The insurer may not, in the middle of a dragged-out settlement of claim, prepare successive advance calculations and compensate more than two years' premium arrears altogether.
The limitation on the right of set-off applies not only to payment of total loss compensation when the mortgagee is to be paid in full, but also to payment of compensation for damage. From the point of the view of the mortgagee, it is of fundamental importance that the insurance ensures at all times that the shipowner has the necessary funds to carry out repairs so that the vessel may be kept in operation.