Commentary

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Section 6: Loss of hire

  • Clause 15-16. Relationship to Chapter 16

    The provision is, strictly speaking, unnecessary, but it does provide an appropriate bridge between the general loss of hire rules in Chapter 16 and the rules in Section 6. The provision shows that the general rules on loss of hire apply to both the "actual" loss of hire cover and to the extensions afforded under Cl. 15-17 and Cl. 15-18. Thus, if a loss of time has occurred as a result of a peril covered by the war risk insurance, the rules in Chapter 16 determine whether and to what extent the assured will be entitled to cover from the war risk insurer.

    On one point, however, the loss of hire cover under the war risk insurance goes further than the loss of hire insurance under marine perils insurance: with respect to loss of time due to blocking and trapping. Under Cl. 16-1, sub-clause 2 (b), for the insurer to be liable for a marine peril, the obstruction must be "physical". The loss of hire cover under war risk insurance also includes blocking and trapping due to intervention by a foreign State power, cf. sub-clause 2, which corresponds to Cl. 15-12.

    Both Cl. 15-16 and Cl. 15-12 apply only to blocking and trapping in ports or similarly limited areas. In an arbitration award rendered on 8 May 2009 between Dolphin Drilling and the Norwegian Shipowners’ Mutual War Risks Insurance Association (Bulford Dolphin), the court found that a rig anchored off the coast is not in a port or similar limited area. The court also stated that Cl. 15-16 only applies to blocking or trapping due to interventions by a State power, cf. in that respect the remark above, and that blocking or trapping due to threats of attack by terrorists or pirates is not recoverable under loss of hire insurance. This statement is an obiter dictum and concerns the construction of an issue that is highly controversial. However, as long as piracy was limited under Cl. 2-9 (d) to the “open sea”, the statement had little practical significance in relation to piracy because it is unlikely that the geographical area specified in Cl. 15-12 and Cl. 15-16 would at the same time be in the “open sea”. In view of the expansion that has now been made in the geographical aspect of the concept of piracy, however, piracy could conceivably take place within “a similar limited area”, cf. the Commentary on Cl. 2-9 (d). To avoid this expansion of the concept of piracy having an unintended effect on loss of hire cover, the Committee agrees that it is natural to limit the scope of Cl. 15-16 to only cover interventions by foreign State powers. With regard to shipowners’ overall need for loss of hire insurance in the event of attacks by pirates and terrorists, the cover provided under Cl. 15-16 will in any event be totally marginal.

    In addition, the insurer will cover loss of time for the assured in those situations referred to in the subsequent sub-clauses, although the scope of the cover in those cases will be set according to the rules in Chapter 16. The provision in Cl. 15-19 is not really an "addition" to Chapter 16; instead, it replaces one provision from that Chapter by another. The reality of the circumstances should be unproblematic, however.

    The rules on deductibles and number of days of indemnity are to be indicated in the insurance contract, see Cl. 16-7, and it is, therefore, not necessary to have a separate provision on these matters in this Section. Insofar as the general rules are not appropriate, the parties must make sure to agree separately on which deductibles and compensation days/days of indemnity are to apply, see the Commentary on Cl. 15-17 below.

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    Clause 15-16. Relationship to Chapter 16

    The provisions contained in this Section shall apply in addition to the provisions in Chapter 16. Instead of Cl. 16-1, sub-clause 2 (b), the following shall apply: The insurer is liable for loss due to the vessel being wholly or partly deprived of income because it is prevented from leaving a por...

  • Clause 15-17. Loss in connection with a call at a visitation port, a temporary stay, etc.

    Sub-clause 1 sets out the situations in which the assured is entitled to cover under the provision. Calls at a port for visitation (sub-clause 1 (a)) are usually only relevant in wartime or war-like conditions, cf. Cl. 2-9, sub-clause 1 (a), but are also possible in other circumstances, for example, when a State power intervenes, cf. Cl. 2-9, sub-clause 1 (b) in connection with sanctions against a given country.

    Capture and temporary detention (sub-clause 1 (b)) are also most relevant in wartime or war-like conditions, but may happen in peacetime as well, for example, in connection with customs inspection, embargo, etc. The detention must be by a foreign State power; thus, the provision does not apply if the vessel is detained by reason of a strike, etc.: see the arbitration award in GERMA LIONEL (referred to in Brækhus/Rein, Håndbok i kaskoforsikring (Handbook of Hull Insurance), at pp. 73-74, and pp. 239-240. The provision does not set out which type of loss is covered, but rather assumes that the general rules in Chapter 16 on the calculation of compensation for loss of time apply.

    The provision does not contain any rules on how the period for which compensation is to be paid is to be calculated. Insofar as the usual rules on deductibles which are stated in the insurance contract for loss of time are not applicable, the parties must agree separately on rules on deductible periods.

    The rules in Chapter 16 will determine the scope of the assured's claim for compensation.

    Sub-clause 2 states that, as a general rule, the assured is not entitled to compensation for loss of time in cases where he is entitled to total loss compensation under Cl. 15-11 and Cl. 15-12, except for the first month of the loss of time. In a case of total loss, the assured will be entitled to interest as of one month after the time of the intervention and the loss of hire cover must be adapted to reflect this fact. If more loss of hire compensation has already been paid out than the assured is entitled to, the excess amount will be deducted from the total loss compensation.

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    Clause 15-17. Loss in connection with a call at a visitation port, a temporary stay, etc.

    The insurer is also liable for loss of time if the vessel is brought to a port by a foreign State power for the purpose of: visitation and search of cargo, etc. capture and temporary detention. If the assured is entitled to compensation for total loss under Cl. 15-11 or Cl. 15-12, it is not...

  • Clause 15-18. Loss caused by orders issued by the insurer

    The provision must be read in conjunction with Cl. 15-13, which confers on the assured entitlement to total loss compensation in the event of orders which have considerable impact on the operation of the vessel.

    Sub-clause 1 sets out when the assured is entitled to loss of hire cover under this provision. The decisive factor is whether the order from the insurer, cf. Cl. 15-4, has caused a loss of time for the vessel. The order may result in a total loss of income, which will typically be the case when the order require the vessel to remain in port. The vessel may also be deprived of income wholly or in part if the vessel is ordered to deviate or take another (longer) route than it would have otherwise taken.

    It follows from sub-clause 1, second sentence, that the assured is not entitled to have his loss of time covered if the insurer issues an order in connection with the outbreak of war. This is such a special situation that the insurer must be allowed to "freeze" the situation until he has obtained a proper overview of the consequences. An obligation to compensate for the assured's loss of time in such cases would easily place the insurer in a difficult situation of double pressure. The insurer must, however, be under an obligation to decide which measures he wishes to implement and which ones do not need to be maintained as soon as possible after the circumstances surrounding the outbreak of war have become clear. If these decisions are dragged out, the general rule in the first sentence will apply.

    The rules in Chapter 16 on the calculation of loss of hire and adjustment of compensation shall apply.

    Sub-clause 2 states that if the assured is entitled to total loss cover under Cl. 15-13, he will only be entitled to cover of the loss of time for the first month, cf. the Commentary on Cl. 15-17, sub-clause 2.

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    Clause 15-18. Loss caused by orders issued by the insurer

    The insurer is also liable for loss of time resulting from orders issued by the insurer, cf. Cl. 15-4. However, this does not apply to orders given by the insurer in connection with the outbreak of war. If the assured is entitled to compensation for total loss under Cl. 15-13, Cl. 15-17, sub-clau...

  • Clause 15-19. Choice of repair yard

    This provision is based on the so-called alternative approach in the 1972 conditions, see the Commentary on Cl. 15-14 above. Since in war risk insurance it is usually the same insurer who covers the hull insurance portion and the loss of time portion, it has been possible to simplify the provision considerably. The alternative arrangement in the 1972 conditions also contained a separate provision on “Costs incurred to expedite repairs”. However, that provision is so similar to Cl. 16-11 that a separate provision is not necessary.

    The provision states that Cl. 16-9 does not apply to war risk insurance. It follows from Cl. 15-14 (b), sub-clause 3, and the Commentary on that provision that the hull cover ensures the assured full compensation for both repair costs and loss of time in connection with the repairs, as long as he accepts the tender from the repair yard which submits the tender with the lowest total costs, thereby eliminating the need for loss-of-time cover under Cl. 16-9.

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    Clause 15-19. Choice of repair yard

    Cl. 16-9 does not apply.

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