Commentary

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Section 7: Loss-of-hire insurance for fishing vessels

  • General comments

    Until a few years ago, insurers did not ordinarily provide loss-of-hire insurance for fishing vessels. This has changed recently since parts of the fleet now fish all year long and the units have become larger and more costly. Thus, an interruption of operations can have significant financial consequences for the assured. This is particularly the case for the seagoing fishing fleet where the largest, most costly units are to be found.

  • Clause 17-56. Relationship to Chapter 16

    Loss of time for fishing vessels is covered on the basis of Chapter 16, subject to the changes that follow from Cl. 17-57 to Cl. 17-61. These special rules are intended to apply only to fishing vessels and not to smaller freight vessels that are also insured on the basis of Chapter 17, Sections 1 – 6. Such freight vessels can obtain loss-of-hire insurance on the basis of Chapter 16 subject to any changes that might be laid down in the individual insurance contract.

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    Clause 17-56. Relationship to Chapter 16

    The provisions of Chapter 16 apply with the changes prescribed in Cl. 17-57 to Cl. 17-61.

  • Clause 17-57. Liability of the insurer/applies instead of Clause 16-1

    This Clause corresponds to Cl. 16-1, but replaces Cl. 16-1 in its entirety because it is the provisions regarding hull insurance in Chapter 17, Section 2, that determine whether compensation is payable under the loss-of-hire cover. Sub-clause 2 of Cl. 16-1 has not been incorporated and will therefore not apply to fishing vessels. The reason for this is that these provisions are not presumed to be of any practical significance for fishing vessels.

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    Clause 17-57. Liability of the insurer/applies instead of Clause 16-1

    The insurance covers loss due to the vessel being wholly or partially deprived of income on account of damage to the vessel, provided that the damage is recoverable under Chapter 17, Section 2, or would have been recoverable if no deductible had been agreed, see Cl. 12-18. If the hull insurance h...

  • Clause 17-58. Total loss/applies instead of Clause 16-2

    This Clause corresponds to Cl. 16-2, but is subject to the change that follows from Cl. 17-11 to the effect that the threshold for condemnation has been set at 90 %.

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    Clause 17-58. Total loss/applies instead of Clause 16-2

    The insurer is not liable for loss of time resulting from a casualty that gives the assured the right to compensation for total loss under Chapter 11 with Cl. 11-3, sub-clause 2, amended pursuant to Cl. 17-11 or under the corresponding conditions in the hull insurance that apply to the ship...

  • Clause 17-59. Calculation of compensation for fishing vessels/Ref. Clause 16-3

    When calculating compensation for loss of time for fishing vessels, Cl. 16-3 will apply in full in addition to Cl. 17-59, but Cl. 17-59 contains important limitations on the extent of the compensation that can be claimed under the loss-of-hire insurance.

    The rationale is that calculating compensation under loss-of-hire insurances for fishing vessels poses special challenges and difficulties compared with ordinary merchant vessels, whether they be seagoing or have a limited trading route along the coast, because fishing vessels are subject to official control of fishing operations. Official control may consist of time limitations on the fishing of certain fish species, quotas for individual fishing vessels and overall seasonal or annual catch quotas. Seagoing fishing vessels will, nevertheless, have possibilities of obtaining a licence or permit to switch from one type of fishing to another in different areas and it will thereby be possible to use the vessel for income-generating fishing operations throughout or during large parts of the year.

    Fishing is strictly regulated in almost all European countries as well as internationally through cooperation under the International Council for the Exploration of the Sea (ICES). Legal authority for regulating fishing in Norway is provided by the Act of 6 June 2008 on the Management of Wild Living Marine Resources (Marine Resources Act) (havressursloven). The Act empowers the authorities to establish national quotas, group quotas, district quotas and quotas for individual fishing vessels. Permits for individual fishing boat owners to engage in fishing are governed by the Act of 26 March 1999 No. 15 relating to the right to participate in fishing and hunting (deltakerloven). Quotas for the different types of fish are fixed for one year at a time by the fishery authorities pursuant to the Marine Resources Act.

    Cl. 17-59, sub-clause 1, therefore provides very generally that the insurance does not cover losses resulting from the vessel being deprived of income due to regulatory measures introduced by the authorities or from the authorities having stopped fishing operations. The wording “authorities” includes national authorities, authorities in other countries and supranational authorities like the EU. This provision is a logical consequence of the principle expressed in the Commentary on Cl. 16-3 with reference to the English judgment “CAPRICORN”, which determined that loss of time that occurred during a period when the vessel would have been deprived of income regardless of the damage is not recoverable.

    Therefore, the question of whether there is a recoverable loss cannot be considered solely on the basis of whether the vessel has been unable to operate regularly due to damage. Consideration must also be given to whether the vessel has been prevented from fishing its full allocated quota of a specific species of fish. If, once the vessel is back in operation after an interruption due to damage, it is able to fish its full allocated quota, the assured has suffered no loss and is thus not entitled to compensation.

    This can be illustrated by the following examples:

    (1) A purse seiner licensed to fish mackerel suffers damage to machinery on 1 October, as a result of which the vessel is unable to operate until 1 December of the same year. Mackerel is normally fished in the period September-November. Prior to the interruption, the vessel had fished two-thirds of its quota. When it began to operate again on 1 December, the assured was unable to fish the rest of his quota since the fish were no longer present in the Norwegian zone. In this case, the assured has in fact been deprived of the possibility of fishing during the period 1 October to 1 December. In principle, however, the loss will be limited to the time the vessel would need to fish the remainder of its mackerel quota. On the other hand, the vessel could conceivably lose income that it might have earned from alternative fishing operations, such as herring and autumn mackerel fishing.

    (2) A fishing vessel is licensed to trawl for Norwegian spring spawning (NSS) herring. The vessel began fishing for herring on 1 February, but due to grounding on 20 February spent 30 days in a yard for repairs. When the grounding occurred, the vessel had fished 30 % of its quota of NSS herring. After repairs of the vessel were completed, it continued to fish for blue whiting, for which it also had a quota. In the autumn of the same year, the vessel resumed fishing for NSS herring and fished its entire quota before the end of the year. The assured was able to fish the remainder of his quota of NSS herring before the end of the calendar year, but missed the opportunity to fish for blue whiting during the period in which repairs were carried out and is thus entitled to compensation for this loss of time, unless the vessel had also fished its full blue whiting quota.

    (3) A trawler has a quota to fish sand eel (tobis) in the North Sea. The fishing season starts on 1 May. On that day a fire breaks out on board the boat, which spends 30 days in a shipyard to repair the damage. On 25 May the authorities stop the fishing because the proportion of stunted fish is too high. Fishing is not re-opened that season. The vessel has had a time loss of 30 days, but due to the moratorium on fishing, the vessel would only have been able to fish for 25 days. The recoverable loss of time is therefore limited to 25 days. If, on the other hand, the vessel had had the right to fish other species for which the authorities had not halted fishing activities, the number of days of indemnity is not reduced.

    If the assured leases another vessel to fish his full quota while the insured vessel is deprived of income, the costs of such leasing must be recoverable under Cl. 16-11.

    Cl. 17-59, sub-clause 2, second sentence, provides that quotas which are not fished in full during the quota year due to damage to the vessel, cf. Cl. 17-57, and which the authorities allow to be transferred to a new quota year, are to be regarded as quotas fished in the original quota year if the quota is fished in the new quota year.  This provision has been included because in some cases the fishery authorities may allow quotas that are not fished in full in the quota year to be credited to the quota fixed for the following year. This can apply to both group quotas and vessel quotas. The legal basis for such “transfer” is provided by the individual regulations governing the fishing activities in question, which are laid down pursuant to Cl. 11 of the Marine Resources Act. If, despite the damage, the assured is able to fish his full quota for one year in the course of two quota years, he will not have suffered any loss that is recoverable under the loss-of-hire insurance. However, this is conditional on the displacement in time of the fishing activities not having negative consequences for the assured’s possibility of fishing his full quota for the new quota year or in the form of a reduced quota as a result of the transfer.

    Once the fixed quota for individual vessels or groups has been fished in full, the fishery authorities may grant an extra quota. As a rule, this is done if the fishery authorities see that a great deal of the total quota for individual species of fish remains unfished in the quota year. When the total quota has been fished in full, fishing activities are stopped. If the assured is allocated an extra quota of this nature, it may be taken into account in the calculation of loss. However, such extra quotas may raise difficult issues in practice that must be resolved on a case-by-case basis. If the assured has not been able to fish his full ordinary quota on account of the damage, but would in any event have been allocated an extra quota, he will have suffered a loss. If the assured received the extra quota because he was unable to fish his full ordinary quota, the extra quota could be seen as compensation for the loss of all or part of his ordinary quota. Quotas which the vessel would obviously not have managed to fish are not recoverable. Situations where the vessel would obviously not have managed to fish its quota may arise as a result of poor operational decisions, the unavailability of fish or the fact that extra quotas are allocated so late that they cannot be fished in the quota year or the following quota year in cases where quotas are allowed to be transferred from one year to the next.

    Under sub-clause 2, second sentence, of the provision, the rule set out in the first sentence, to the effect that quotas fished in full in the new quota year are, in certain cases, to be regarded as having been fished in full in the original quota year, applies correspondingly to quotas transferred by the vessel to other vessels in the quota year. The rationale for this expansion of cover is that shipowners may transfer all or parts of their quota to other vessels in accordance with rules laid down by the authorities. These quotas may be used both in the event of a casualty and in connection with the vessel’s ordinary operations, and consequently will limit the shipowner’s loss.

    Due to the quota rules, sub-clause 3 contains a special rule in relation to the general rule in Cl. 5-2 regarding when the claims adjustment is to be issued. Whether or not the vessel has managed to fish its full allocated quota is not ascertained until the end of a quota year. This means that the insurer will not be able to assess whether the assured has suffered a real loss until the end of the year. The duty to issue the claims adjustment has therefore been deferred to as soon as possible after the end of the quota year. The same applies when quotas are transferred to a new quota year. In such case, the duty to issue the claims adjustment arises as soon as possible after the end of the new quota year.

    Under Cl. 5-6, compensation thus falls due for payment six weeks thereafter. This applies even if the agreed insurance period has expired at an earlier date. This special rule will have relevance for the point in time when interest on overdue payments begins to accrue, cf. Cl. 5-4, last sub-clause. For loss-of-hire compensation, however, interest under Cl. 5-4 will accrue as provided in Cl. 5-4, sub-clause 1, third sentence, from one month after the end of the period for which the loss-of-hire insurer is liable, which will normally be one month after repairs of the vessel were completed, cf. Cl. 16-13. The expiry of the quota year will be of no relevance in this connection. If the insurer wishes to avoid paying interest under Cl. 5-4, he must make a payment on account under Cl. 5-7 in the usual manner.

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    Clause 17-59. Calculation of compensation for fishing vessels/Ref. Clause 16-3

    The insurance does not cover loss that is due to the vessel being deprived of income from fishing as a result of regulatory measures introduced by the authorities or the fact that the authorities have stopped fishing activities. Quotas which are not fished in full during the quota year due to...

  • Clause 17-60. The daily amount for fishing vessels/applies instead of Clause 16-5

    This Clause corresponds to Cl. 16-5, but has been rewritten because fishing vessels do not normally have freight contracts and freight rates, but have earnings from fish that are delivered to a fish landing site.  Ordinarily, there is no guaranteed price for fish delivered to a fish landing site, and consequently earnings may vary depending on the price levels at any given time. The price level may therefore change during the period before and after a loss of time.

    In the case of an open insurance contract, the daily amount fixed in the agreement will serve as a sum insured per day. The sum insured multiplied by the number of days of indemnity will constitute the maximum limit for compensation and will form the basis for the calculation of premium.

    The daily amount that is recoverable under an open insurance contract must be calculated on the basis of the average earnings of comparable vessels during the period in which the loss of time occurred. Variations in price during this period are to be taken into account when calculating averages. As a result of this method of calculation, the assured cannot invoke a right to higher compensation on account of the difference between the prices when the damage occurred and the prices when the vessel was again able to resume fishing.

    Any expenses saved or expenses that ought to have been saved as a result of the vessel being unable to operate must be deducted from the earnings.

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    Clause 17-60. The daily amount for fishing vessels/applies instead of Clause 16-5

    The assured's loss of income per day (the daily amount) shall be calculated on the basis of the average income per day from fishing for vessels of the type and size in question and the geographical area in which it is natural for the vessel to deliver fish during the period when the vessel is...

  • Clause 17-61. Agreed daily amount for fishing vessels/applies instead of Clause 16-6

    The provision establishes that a daily amount agreed in the insurance contract is to be construed as the sum insured per day and the insurer’s maximum liability per day, unless it is clearly evident that the daily amount is to be regarded as an agreed amount. Under this approach, the presumption for an agreed daily amount in Cl. 16-6 has been reversed. The provision is necessary because it is not practical, on account of the authorities’ regulation of fishing activities, to provide cover based on an agreed daily amount. Such cover should only be provided in cases where the earnings from fishing activities are reasonably stable throughout most of the year.

    If the parties have agreed on the daily amount, the insurer may only set aside the daily amount if it can be proven that the person effecting the insurance has given “misleading information about characteristics of the subject-matter insured that are relevant for the agreement”, cf. Cl. 2-3.

    Even if the daily amount is agreed, the limitations on compensation prescribed in Cl. 17-59 will apply.

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    Clause 17-61. Agreed daily amount for fishing vessels/applies instead of Clause 16-6

    If it is stated in the insurance contract that a certain amount per day shall be paid in compensation for loss of income, the said amount is the maximum compensation that may be paid out per day under Cl. 17-60 unless it is clearly evident from the contract that the amount is an agreed daily...