Commentary

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Section 1: Common provisions

  • Clause 19-1. Perils covered/Ref. Clause 2-8, cf. Clause 2-10

    This Commentary was amended in the 2013 Plan.

    Cl. 19-1 applies to marine perils, cf. Cl. 2-8, and to strikes and lockouts. If the assured wishes to take out cover against riots, sabotage, piracy and mutiny, it must be done under Section 6 – Supplementary cover for war perils. This cover applies from the time the subject-matter insured has been launched.

    The cover against strikes and lockouts must be seen in conjunction with the fact that the builders’ risks insurance is a hull insurance, or where relevant, a liability insurance for the yard. The insurer will therefore only become liable if a strike or lockout results in damage to the subject-matter insured or components thereof, materials etc., or in the event the yard becomes liable for damage inflicted on a third party. The fact that a strike or lockout results in a delay is not sufficient to trigger the right to indemnification under the builders’ risks insurance.

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    Clause 19-1. Perils covered/Ref. Clause 2-8 cf. Clause 2-10

    The insurance covers marine perils, cf. Cl. 2-8, and strikes and lock-outs. 

  • Clause 19-2. Insurance period/Ref. Clause 1-5

    The provision and the commentaries were amended in the 2013 Plan. The term “newbuilding” is replaced with “subject-matter insured” because practice in recent years has shown that the Chapter is increasingly also applied in connection with the rebuilding of ships and building of other units. Further, the wording is made more accurate by replacing the term “takeover” with “delivery”, and “taken over” with “taken delivery”.

    Sub-clause 1, first sentence, states that the insurance is terminated as from the delivery date stated in the building contract. However, the first sentence seen in conjunction with the second sentence entails that the insurance remains in effect until the buyer has in actual fact taken delivery of the subject-matter insured, provided this takes place before expiry of the time-limit of nine months under sub-clause 3. The primary significance of the point of departure in the first sentence is therefore that, in the event of an extension beyond the date of delivery stipulated in the building contract, the insurer is entitled to an additional premium as established in the insurance contract. If delivery takes place before the stipulated delivery date, the assured will, on the other hand, be entitled to a return of premium, cf. Cl. 6-5.

    To ensure continuous insurance cover, therefore, the basic principle has been adopted that the insurance remains in effect until delivery, regardless of whether the subject-matter insured is ready and regardless of whether the delivery date under the building contract has been met. If the parties agree to postpone the originally agreed date of delivery because of additional work, or because the yard is delayed, the builders’ risks cover therefore remains in effect until the delivery actually takes place, provided this happens within nine months, cf. sub-clause 3. However, as mentioned, the insurer is entitled to an additional premium.

    Normally, the building contract will contain a specification of the date of delivery. If no such agreement has been entered into, the delivery date will depend on the parties’ actions, assessed against the background of general principles of contract law and the provisions of the building contract in general.

    It is conceivable that the hull insurance under the agreed conditions may come into force before the builders’ risks insurance terminates, for example in the event of late delivery. In that event, the rules relating to double insurance shall be applied, cf. Cl. 2-6 and Cl. 2-7.

    Sub-clause 2 states that the insurance is extended automatically subject to an additional premium as agreed in the insurance contract if the buyer has not taken delivery of the subject-matter insured. The extension lasts until another buyer has in actual fact taken delivery of the subject-matter insured.

    Here too, however, a time-limit of nine months under sub-clause 3 shall apply.

    If i the original buyer takes delivery of the subject-matter insured after first having refused to take delivery, sub-clause 1 regulates the termination of the insurance.

    If the yard builds the subject-matter insured for its own account, the insurance must be adjusted accordingly. The parties must in that event conclude a special agreement about the insurance period.

    Sub-clause 3 stipulates a maximum period for how long the supplementary cover will remain in effect without a separate agreement, viz. up to nine months after the takeover date in the building contract.

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    Clause 19-2. Insurance period/Ref. Clause 1-5

    The insurance remains in effect until the delivery date stipulated in the building contract. If delivery is later than that date, the insurance will automatically be extended subject to an additional premium as agreed in the insurance contract  until the buyer has in actual fact taken delivery of...

  • Clause 19-2A. Premium in the event of total loss

    This Clause was added in 2016 and corresponds to Cl. 18-83.

    The combined effect of Cl. 6-3, cf. Cl. 1-5, sub-clause 4, is that for insurance contracts attaching for more than one year, the insurer would be entitled to only one year premium in case he pays the sum insured as a result of total loss, constructive total loss or payment pursuant to Cl. 4-21. For subject-matters insured pursuant to Chapter 19, Cl. 19-2A sets Cl. 6-3 aside and provides that the insurer is entitled to the entire agreed premium if the insurer compensates for total loss pursuant to Cl. 19-13, sub-clause 1. If so, the project is completed and pursuant to Cl. 19-13 the assured is entitled to payment of the whole sum insured limited to the insurable value calculated according to Cl. 19-10, sub-clause 1, if the latter is the lesser amount. Cl. 1-5, sub-clause 4, is not applicable as none of the clauses in Chapter 19 is listed therein. Therefore, the entire agreed premium is the whole premium for the total insurance period even if this period is longer than one year. 

    Sub-clause 2 provides that the insurer is only entitled to a proportion of the entire agreed premium if the insurer compensates for total loss pursuant to Cl. 19-13, sub-clause 2. If so, the project is not completed and pursuant to Cl. 19-13, sub-clause 2, the assured is only entitled to be compensated the insurable value calculated according to Cl. 19-10, sub-clause 2. This is in short the value of the subject-matter insured as far as it has been completed at the time when it is deemed to be a total loss, see further the Commentary to Cl. 19-13 and Cl. 19-10. This compensation will be lower than the sum insured, which normally will be agreed to the same amount as the total costs of the completed project. The proportion of the entire agreed premium payable under sub-clause 2 is the proportion corresponding to the ratio between the compensation paid and the sum insured. If the subject-matter insured is deemed a total loss after it is 50% completed and the compensation paid is e.g. 50% of the sum insured, then the insurer is entitled to 50% of the entire agreed premium.

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    Clause 19-2A. Premium in the event of total loss

    If the insurer compensates for total loss pursuant to Cl. 19-13, sub-clause 1, or pays the sum insured pursuant to Cl. 4-21, he is entitled to the entire agreed premium. If the insurer compensates for total loss pursuant to Cl. 19-13, sub-clause 2, he is only entitled to the proportion of the...

  • Clause 19-3. Co-insurance/Ref. Clause 8-1

    The Commentary was amended in the 2013 Plan.

    The subject-matter insured will normally be built according to a building contract entered into between the yard and the buyer. In order to safeguard the interests of both parties in the subject-matter insured and components/parts to be incorporated in the subject-matter insured, it is therefore necessary for the insurance to be for the benefit of both the yard and the buyer. Normally, it will also follow from the shipbuilding contract that one of the parties, usually the yard, is required to take out insurance. This obligation to take out insurance normally also comprises the buyer’s deliveries in the form of paid instalments and deliveries of equipment. This means that the buyer will also have a direct claim against the insurer in the event of a total loss as far as instalments and the value of delivered equipment are concerned. In relation to this type of contractual regulation as well, the builders’ risks conditions must therefore cover the interests of both parties.

    The conditions are based on a normal situation where the yard is the person effecting the insurance and the buyer is given the status of co-insured according to Cl. 8-1, cf. first sentence. This means that both the yard and the buyer will have the status of assured and be entitled to compensation for their economic interest in the subject-matter insured to the extent that this follows from the conditions.

    Only the yard takes out the insurance that is secured under Chapter 19. In principle, the insurance does not comprise the subcontractors, cf. the fact that the co-insurance provision in Cl. 19-3 applies only to the buyer. If it is desirable for the insurance also to comprise the subcontractors’ interests, it is therefore necessary to take out a separate co-insurance according to Chapter 8. In that event it is also necessary to ensure that the place of insurance as agreed under Cl. 19-5, sub-clause 2, includes the subcontractor’s premises.

    The insurance is effected for the benefit of the yard as the person effecting the insurance to the extent that the yard bears the risk for the subject-matter insured and components thereof, etc., when a casualty occurs. Normally, the risk transfers to the buyer upon delivery of the subject-matter insured. Until delivery has taken place, the yard bears the risk for the subject-matter insured. If the subject-matter insured is totally destroyed with the effect that the yard’s duty to deliver is terminated, the yard must therefore refund to the buyer the instalments on the contract price which the latter has paid during the period of construction. The “total-loss risk” for the yard therefore consists in the investments that it has made in the subject-matter insured being lost without the contract price, or a proportion thereof, being recoverable from the buyer. In addition the yard bears the risk of partial damage, which consists in the yard having to repair, at its own expense, any damage which the subject-matter insured sustains in connection with less extensive accidents before the risk has passed to the buyer.

    The co-insurance of the buyer covers the buyer’s economic interest as defined through the building contract. If the buyer is required, for his own account, to procure certain components, equipment or materials to be incorporated in the subject-matter insured, the buyer’s status as co-insured entails that these are included in the builders’ risks insurance, provided that this is set out in the insurance contract or is otherwise indicated by the conditions. However, the buyer´s deliveries (often referred to as “OFE” – Owner Furnished Equipment) are only covered by the insurance from the time they arrive in the builder’s yard in the port where the yard is located, cf. Cl. 19-5. If the buyer´s deliveries are delivered directly on board the subject-matter insured and the latter is outside the place of insurance, the buyer´s deliveries are covered from the time they arrive on board the subject-matter insured. However, this is subject to the condition that the buyer’s deliveries are covered by the insurance, cf. Cl. 19-9 (b).

    In addition to the risk for the buyer´s own deliveries, the co-insurance comprises the buyer’s interest in a refund of instalments paid on the contract price in the event of a total loss. Prior to delivery, risk relating to the subject-matter insured will normally be borne by the yard. This means that the yard must refund instalments paid in the event of a total loss. However, in exceptional cases it is conceivable that the buyer bears the risk for loss of the object of the contract prior to delivery, in which case this interest will be covered. This is also the case if the insurance period is extended beyond the date of delivery so that the risk for the subject-matter insured has passed to the buyer. However, the buyer’s position as co-insured must also give him a direct claim against the insurer in the event of a total loss, even if this is the yard’s risk. This is of significance if the yard is insolvent so that the insurance compensation would in its entirety have gone to the bankruptcy estate, while the buyer would have had to be content with a dividend claim. The co-insurance will therefore ensure that the yard, or its bankrupt estate, does not receive any total-loss compensation without the buyer at the same time being refunded his advance payments.

    Co-insurance of the buyer for the instalments paid on the contract price is, on the other hand, only valid if he has made the payments himself, or if they were paid by others on his behalf. Other intervening payers will not receive a corresponding automatic status as co-insured.

    The fact that the buyer is co-insured “under Cl. 8-1” means that his ranking right against the insurer will be no better than that of the yard. This tallies with Cl. 19-3, sub-clause 2, of the conditions. If the buyer wants a better cover in the form of an independent co-insurance, he must take out co-insurance under Cl. 8-4.

    As mentioned above, Cl. 19-3 is based on the normal situation where the yard is the person effecting the insurance. However, it is conceivable that the buyer might want to take out the insurance himself, e.g. because he has the title to the subject-matter insured. Such procedure is normal in offshore insurance. In that event, a separate agreement must be concluded if the yard is to be co-insured.

    The cover of mortgagees is effected in accordance with the general rules of the Plan: see Chapter 7.

    The second sentence states that the co-insurance does not apply to the expense coverage according to Section 3. The buyer himself must also arrange for separate insurance cover for any additional expenses incurred in connection with an unsuccessful launching or the removal of the subject-matter insured.

    Under sub-clause 2, the co-insurance also applies to liability under Section 4, i.e. liability which the buyer may incur as a result of employees or management’s wrongful acts in respect of a third party in connection with the implementation of the building project.

    Liability cover under the builders’ risks insurance is subsidiary to any other liability insurances taken out by the buyer.

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    Clause 19-3. Co-insurance/Ref. Clause 8-1

    Unless otherwise agreed, the buyer is co-insured under Cl. 8-1. However, this does not apply to cover of expenses under Section 3. If liability as mentioned in Section 4 is covered by another insurance which the co-insured has effected, the co-insured’s cover under Section 4 is subsidiary in...

  • Clause 19-4. Transfer of the building contract/Ref. Clause 3-21

    It has been made some editorial amendments in the Commentary of the 2013 Plan.

    This Clause states that the insurance will terminate if the building contract is transferred to a new yard. In the Plan, a distinction is made between a transfer to a new buyer and a transfer to a new yard. If the building contract is transferred to a new yard, the insurance will terminate. If the yard is the person effecting the insurance and the owner, the solution follows from Cl. 3-21. But the rule must apply also if the buyer is the person effecting the insurance and the owner of the subject-matter insured, and the yard is co-insured. Such transfer must be regarded as a change of ownership according to Cl. 3-21. Furthermore, the termination of the insurance will normally follow from Cl. 19-5 concerning place of insurance, because on transfer of the building contract to a new yard, the subject-matter insured will have to be moved to the new yard and will thereby move outside the place of insurance.

    The insurance continues to be in effect if the building contract is transferred to a new buyer. There is no requirement that the insurer must be notified of the transfer, but the insurer will normally be notified as a co-insured party will be changed.

    The rule that the insurance shall remain in effect even if the buyer transfers the building contract is subject to the condition that it is the yard, and not the buyer, who is the owner of the subject-matter insured. If it is the buyer who is the owner, it is stated in Cl. 3-21 that the insurance will terminate if the buyer transfers the building contract. This applies both in relation to the new buyer and in relation to the yard. In such cases, if the new buyer and possibly the yard, want the insurance to continue, this will have to be agreed with the insurer before the transfer, possibly against a payment of additional premium.

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    Clause 19-4. Transfer of the building contract/Ref. Clause 3-21

    If the building contract is transferred to a new shipyard, the insurance terminates as from the date of the transfer.

  • Clause 19-5. Place of insurance

    Cl. 19-5 sub-clause 1 (b) was amended in the 2013 Plan.

    This provision defines the geographical scope of the insurance. Sub-clause 1 (a) delimits the insurance to the builder’s yard or other premises in the port where the yard is situated and transport between these areas. A shipyard will often have its activities spread over a number of different places, partly in the form of warehouses and factories close to the building berths, partly in the sense that its building berths are located at different places within the same port. It is therefore practical that those parts and materials that are intended for the subject-matter insured are covered by the insurance, regardless of where they are located within the yard’s premises or areas, provided that it is in the same port. If parts of the subject-matter insured are to be built in a different port, however, this will fall outside the scope of the insurance, cf. the wording the builder’s yard or other premises “in the port where the yard is situated”. In that event, the yard will either have to extend the cover by a separate agreement under sub-clause 2, or take out a separate insurance.

    “Local” transport within the areas of the builder’s yard situated in the same port is in principle also covered by the insurance. If the parts or the materials are made or stored relatively close to the building berth, it would be unpractical if a separate insurance had to be taken out for each individual transport to the building site. If the parts have to be sent to a department of the yard situated in another port, the transport risk should, however, be evaluated separately, cf. sub-clause 2, or be covered by a separate insurance.

    On the other hand, the insurance does not cover transport of parts from subcontractors to the yard. This applies regardless of whether it is the yard that has ordered the parts, or they are delivered by the buyer. Parts delivered to the yard are included in the insurance once they are in the builder’s yard, cf. sub-clause (a). Where the yard has ordered the main engine or other parts for the ship from a subcontractor, the risk will pass to the yard when the part is “delivered” according to the law pertaining to the sale of goods. The time and place will depend on the terms of delivery that have been agreed.

    Sub-clause (b) was amended in the 2013 Plan. Previous versions only stated that the insurance was in effect during trial runs. It now states that the insurance comprises trial runs carried out within the area specified by the certificate, including the trading area. If the subject-matter insured proceeds beyond the specified trading limits, the insurance cover is suspended. However, the insurance will take effect again when the subject-matter insured comes within the relevant area.

    For subject-matters insured that are registered under Norwegian flag, such provisional certificates are issued by the Norwegian Maritime Directorate. In the past, the Maritime Directorate also issued provisional certificates for foreign newbuildings that were built in Norway, but that arrangement was terminated, cf. Circular 12/97. Today it is therefore the flag state of the subject-matter insured that must draw up such certificates. Different rules may apply for other countries. It was therefore discussed whether the certificate requirement would lead to problems, and whether it would be better to have an absolute limit of 250 nautical miles. The reason why it was nevertheless decided to base the trading limits on the provisional certificates is partly that the certificate requirement is absolutely fundamental in relation to the operation of the ship, and partly that the buyer and the yard must therefore be expected to ensure that these papers are in order. Additionally, a limit of 250 nautical miles may cause considerable problems in relation to a provisional certificate that prescribes a narrower trading area, because it will then be unclear whether the insurance is suspended whenever the subject-matter insured proceeds beyond the limits stated in the certificate, but stays within 250 nautical miles.

    The provision in sub-clause (b) must be seen in conjunction with Cl. 3-15 relating to trading areas. If the trading area indicated in the subject-matter insured’s provisional certificates comprises areas which entail an additional premium according to Cl. 3-15, sub-clause 2, this provision must apply to the builders’ risks insurance. In such case, the insurer must be notified if the ship has proceeded beyond the ordinary trading areas, and is entitled to demand an additional premium or other conditions. If the assured fails to notify the insurer, Cl. 3-15, sub-clause 2, second and third sentences, concerning an additional deductible shall apply in the event of a casualty.

    Sub-clause 2 states that the insurance will also apply elsewhere than in the building port, provided this is specifically agreed and set out in the insurance contract. Normally the insurer will consent to such extension of the cover for the building of sections at the assured’s own yards other than the main yard, but not for components manufactured and purchased by subcontractors. As long as the component is the subcontractor’s risk, the yard will not have any need for such additional insurance. However, it is conceivable that the yard would be interested in postponing the collection of the relevant component from the subcontractor until the work on the subject-matter insured has progressed so far as to allow the fitting of the component. In such case, it is not unusual that the yard will have to bear the risk for the component while it is stored by the supplier. The yard will then need supplementary cover in the same way as for transport of the object from the supplier’s factory, cf. above.

    If it is necessary to move the subject-matter insured outside the areas specified in Cl. 19-5, Cl. 19-27 regarding towage and removal shall apply.

    The buyer is co-insured according to Cl. 19-3, and the buyer’s deliveries will be covered by the insurance to the extent that they are stated in the insurance contract, or it is evident in some other way that the deliveries are included, cf. Cl. 19-9. However, the question as to where the deliveries must be located in order to be included must, like the other objects covered by the insurance, be resolved through the provision in Cl. 19-5 and the insurance contract’s specification, if any, of the geographical scope of application of the insurance.

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    Clause 19-5. Place of insurance

    The insurance is in effect: while in the builder’s yard or other premises in the port where the builder’s  yard is situated and whilst in transit between these areas, during seatrials carried out within the area specified by the certificate, including the trading area. If specifically agreed, the...

  • Clause 19-6. The sum insured as the limit of the liability of the insurer/Ref. Clause 4-18 and Clause 4-19

    This provision entails that the insurer may become liable for up to three sums insured: one sum insured for loss of or damage to the subject-matter insured according to Section 2, one sum insured for loss in connection with measures to prevent or minimise a casualty covered under Section 2, and one sum insured for additional costs in connection with an unsuccessful launching and costs of wreck removal (Section 3), including any liability covered under Section 4. According to Cl. 4-18, sub-clause 1, third sentence, any unused sum insured to cover loss of or damage to the subject-matter insured may furthermore be “transferred” to cover measures to avert or minimise such loss.

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    Clause 19-6. The sum insured as the limit of the liability of the insurer/Ref. Clause 4-18 and Clause 4-19

    In addition to the sum insured as mentioned in Cl. 4-18, sub-clause 1, the insurer is separately liable up to an amount corresponding to the sum insured for damage, expenses and liability under Section 3 and Section 4 caused by any one casualty. 

  • Clause 19-7. Escalation of the sum insured

    This Clause was new in the 2013 Plan.

    The rationale for this Clause is that the assured must be able to be certain that he is covered even if the contract price increases during the building process by, for instance, 5%. At present, insurers are only bound to a maximum of the sum insured fixed in the insurance certificate; in principle, any increase must be approved by the insurers. This is usually solved in practice by agreeing on a certain amount of “leeway”, either in the form of framework agreements or in the individual insurance certificate. It has been decided to introduce this flexibility into this Chapter, as has been done in ICBR 01.06.1988 and MARCAR 01.09.2007.

    Given the current situation, a 10% automatic increase is sufficient. Imposing a higher fixed limit could result in the insurer’s cover tying up substantial capacity that remains “unused” throughout the project period. If a need arises for an increase of more than 10%, this issue should be resolved on a case-by-case basis.

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    Clause 19-7. Escalation of the sum insured

    If the value of the project exceeds the sum insured, the assured shall notify the insurer of this as soon as possible. The assured shall pay a premium for the increase in value and the insurer(s) shall accept his/their share of the increase. Under no circumstances shall the sum insured exceed 110...

  • Clause 19-8. Deductible

    Sub-clause 1 of the Clause states that the deductible must be specified in the insurance contract, and that if the one and the same casualty entitles the assured to compensation under Sections 2, 3 and 4, only one deductible applies.

    Sub-clause 2 emphasizes that no deductible shall apply to total loss, costs in connection with the claims settlement or costs to avert or minimise a loss. This is in accordance with the General Plan system.

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    Clause 19-8. Deductible

    For each casualty the deductible stated in the insurance contract shall apply. If the same casualty entitles the assured to compensation according to Sections 2, 3 and/or 4, only one deductible shall apply. Total loss, cf. Cl. 19-10 and Cl. 19-11, costs in connection with the settlement of claims...