Commentary

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Section 5: Supplementary covers

  • Clause 19-22. Applicable rules

    The Commentary was rewritten in the 2013 Plan.

    This Clause maintains the principle that it is possible to expand the builders’ risks insurance by taking out supplementary covers. A factor common to all such supplementary covers is that the Clauses of Chapter 19, Sections 1 to 4, as a rule are applicable. The same applies to Section 5, but only insofar as the content of the Clauses does not deviate from the main rule.

    The 2013 Plan introduces one entirely new standardised supplementary cover which may be agreed upon, i.e. Cl. 19-27 covering towage of the subject-matter insured in the water or on a barge.

    Furthermore, the former Cl. 19-25 has now been divided into two parts. In the 2013 Plan, it was decided to split up the supplementary cover for the yard’s loss of interest and its daily penalties in the event of late delivery into two different clauses. This was done because it has not always been logical for the yard to buy both insurances. Cl. 19-25 now concerns only the yard’s loss of interest in the event of late delivery, while supplementary insurance of the yard’s daily penalties must from now on be covered under the new Cl. 19-26.

    All such supplementary covers must be agreed on in advance and must be explicitly included in the insurance certificate for the builders’ risks insurance.

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    Clause 19-22. Applicable rules

    If supplementary cover has been agreed according to Cl. 19-23 to Cl. 19-27 the rules in Chapter 19, Sections 1 to 4, shall apply insofar as they have not been departed from in Section 5.

  • Clause 19-23. Insurance of additional costs in connection with rebuilding and/or building of a new subject-matter insured

    The heading and the Commentary were amended in the 2013 Plan.

    This Clause concerns insurance of additional costs in connection with the rebuilding/building of a new subject-matter insured. It therefore only applies in the event of a total loss necessitating rebuilding and does not apply to repairs of damage covered under Cl. 19-14 et seq. In the event of total loss that does not result in a rebuilding, such costs are not incurred.

    The insurer’s liability is defined as the difference between what is recoverable under the builders’ risks insurance and the costs of rebuilding. The difference will normally consist of the ordinary increase in the price of materials, components and equipment, and any wage increases during the rebuilding period, e.g. if the building project should be delayed by 12 months.

    Compensation for additional costs will not be payable until the sum insured under the ordinary builders´risk insurance has been used up.

    It follows from Cl. 19-22 and the reference in Cl. 19-14 to Chapter 12, cf. Cl. 12-1, sub-clause 2, that the insurer’s liability arises as and when costs are incurred.

    Normally, the additional costs according to the building contract will be the yard’s risk which means that it is the yard that is entitled to the compensation.

    The sum insured shall always be stated in the insurance contract. The same applies to the insurable value, cf. Cl. 2-2 and Cl. 2-3. If only one amount is stated in the insurance contract, it must be presumed that the insurance has been effected with an open insurable value.

    The sum insured for additional costs is normally set at 10% of the contract price.

    This provision must not be confused with the new escalation Clause in Cl. 19-7, which also provides for an increase of up to 10% of the sum insured. The escalation cover is now part of the ordinary builders’ risks insurance, and is not defined as a supplementary cover in Chapter 5. Nor, unlike the present provision, is it applicable in the case of rebuilding after a total loss.

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    Clause 19-23. Insurance of additional costs in connection with rebuilding and/or building of a new subject-matter insured

    The insurance covers the difference between compensation paid under the builders’ risks insurance, cf. Sections 1 and 2, and the costs of rebuilding/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

    The Commentary was amended in the 2013 Plan.

    It is specified in the Clause heading that this supplementary cover applies to the yard’s liability for the buyer’s claim for interest on instalments paid. This is done in order to make it clear that it is a question of a liability insurance taken out by the yard.

    The insurance is effected by the yard and relates to the yard’s contractual obligations in relation to the buyer. In contrast to the ordinary liability cover under the builders’ risks insurance in Section 4, Cl. 19-24 therefore concerns contract liability associated with the building contract.

    The yard’s liability for the buyer’s interest claims in the event of a total loss refers to the instalments that have been paid by the buyer to the yard during the building period. The liability is limited to the sum insured.

    The supplementary cover only comprises the interest claim if ”the duty to deliver is terminated due to loss or damage which is recoverable under Cl. 19-12”. If the buyer cancels the building contract due to a breach of contract and in this connection is entitled to a refund of the instalments, the buyer’s interest claim is not covered under an insurance according to Cl. 19-24. It is also based on the assumption that the loss or damage does not result in a rebuilding, cf. the references to Cl. 19-12. In the event of rebuilding the instalments shall not be repaid. The reference to Cl. 19-12 must be seen in conjunction with the requirement that the duty to deliver is terminated; if an incident of damage is settled under the condemnation rule in Cl. 19-11 without the duty to deliver being terminated, there will be no interest cover.

    According to the second sentence, interest shall be calculated from the date of payment of the individual instalment until the time of the total loss. It follows from general rules of liability law that the buyer has the burden of proving his loss in relation to the yard, and from Cl. 2-12 that the yard has a corresponding burden of proof vis-à-vis the insurer.

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    Clause 19-24. Insurance of the yard’s liability for the buyer’s interest claim for instalments paid

    The insurance covers the yard’s liability for the buyer’s interest claim under the building contract in the event that the obligation to deliver ceases to apply due to loss or damage which is recoverable under Cl. 19-12. Interest is calculated from the time of payment of the individual instalment...

  • Clause 19-25. Insurance of the yard’s loss of interest in the event of late delivery

    The Clause was amended in the 2013 Plan. In previous versions of the Norwegian Marine Insurance Plan the insurance covered both the yard´s loss of interest and its daily penalties, but the daily penalties was removed from the cover in the 2013 Plan. Further, there was made some amendments in sub-clause 4.

    The provision is comparable to a loss of hire insurance or an insurance against late delivery of a newbuilding which is taken out by the buyer. However, the provision in Cl. 19-25 only covers the yard’s loss. The supplementary cover is expensive in relation to the ordinary builder’s risks insurance, but is in practice used to some extent,

    Sub-clause 1 states that the insurance covers the yard’s interest loss resulting from late delivery due to damage which is recoverable under the builders’ risks insurance according to Sections 1 and 2. According to Cl. 2-12 the yard has the burden of proving the loss suffered.

    Sub-clause 2 contains rules regarding deductible. In the same way as for an ordinary loss-of-hire insurance, deductible is agreed in the form of a deductible period. Today a deductible period of 14 days is customary. The deductible period shall apply to any one casualty that results in delays and subsequent loss of interest under the builders’ risks insurance.

    Sub-clause 3 states the insurer’s maximum liability for any one casualty. The insurer’s liability for the yard´s loss of interest in the event of late delivery is limited to a certain number of days. The loss of interest must be specified in whole days.

    Sub-clause 4 was editorially amended in the 2013 Plan. The terms “takeover date” and “taken over” in the 1996 Plan was replaced with “delivery date” and “taken delivery”. The Clause lays down rules regarding the length of the insurance period. If the assured and the buyer agree to postpone the delivery date due to circumstances which do not provide grounds for compensation under this supplementary cover, the insurance will automatically be extended subject to an additional premium. As in the event of an extension of the principal cover, cf. Cl. 19-2, the additional premium shall be determined in the insurance contract. Extensions are limited to nine months, cf. the reference to Cl. 19-2, sub-clause 3.

    When determining whether there has been “late delivery”, the basis for the calculation is the delivery date agreed between the assured and the buyer. Sub-clause 5 lays down a specific rule on loss due to a combination of causes and concords in that respect with the principle in Cl. 2-13. If the delay is the result partly of damage entitling the assured to compensation under the builders’ risks insurance, partly of uncovered circumstances, the insurer covers a proportional part of loss of interest calculated on the basis of the loss which the two groups of causes of delay would have entailed beyond the deductible period if they had arisen separately.

    Sub-clause 6 states that if the assured takes measures to avert or minimise the delay covered by the insurance, the insurer shall not be liable for more than the amount he should have paid if no such measures had been taken. This solution is in accordance with Cl. 16-11, sub-clauses 2 and 3. In many ways, cover under Cl. 19-25 is built up in the same way as loss-of-hire insurance, with a deductible period, etc., and it is therefore logical to include a corresponding rule here.

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    Clause 19-25. Insurance of the yard’s loss of interest in the event of late delivery

    The insurance covers the yard’s loss of interest resulting from late delivery due to damage which is recoverable under the builders’ risks insurance, cf. Sections 1 and 2. For any one casualty a deductible period shall be determined which is calculated from the start of the casualty and lasts unt...

  • Clause 19-26. Insurance of the yard’s daily penalties in the event of late delivery

    As stated in the Commentary on Cl. 19-22, in the 2013 Plan it was decided to split up the supplementary cover for the yard’s loss of interest and daily penalties in the event of late delivery into two different clauses. This has been done in order to make it easier for the yard in the event it wishes to purchase just one of the products, i.e. cover for either loss of interest or for daily penalties. It has been seen in practice that it is expedient to distinguish between the two categories because supplementary cover for loss of interest and such cover for daily penalties are almost always agreed separately and independently of one another. This Clause therefore deals only with the yard’s daily penalties in the event of late delivery. No change in the substance of the content of the former Cl. 19-25 was intended.

    For the same reason, the Commentary on Cl. 19-26 is virtually identical to the Commentary on Cl. 19-25.

    With regard to daily penalties in the event of late delivery, the Clause is comparable to a loss-of-hire insurance or an insurance for late delivery of a newbuilding that is contracted by the buyer. Sub-clause 1 states that the insurance covers the yard’s daily penalties resulting from late delivery due to damage which is recoverable under the builders’ risks insurance under Sections 1 and 2. Under Cl. 2-12, the yard has the burden of proving the loss that has been suffered.

    Sub-clause 2 contains rules regarding deductibles. As is the case for an ordinary loss-of-hire insurance, the deductible is agreed in the form of a deductible period. The deductible period applies to any one casualty that results in a delay and subsequent daily penalties under the builders’ risks insurance.

    Sub-clause 3 states the insurer’s maximum liability for any one casualty. As under loss-of-hire insurance, the insurer’s liability is defined in the form of an agreed daily amount and a certain number of days.

    Sub-clause 4 sets out rules regarding the length of the insurance period. If the assured and the buyer agree to postpone the delivery date due to circumstances that do not constitute grounds for compensation under this supplementary cover, the insurance will automatically be extended subject to an additional premium. As in the case of an extension of the principal cover, cf. Cl. 19-2, the additional premium shall be determined in the insurance contract. The extension is limited to nine months, cf. the reference to Cl. 19-2, sub-clause 3.

    When determining whether there has been “late delivery”, the basis for the calculation is the delivery date agreed between the assured and the buyer. Sub-clause 5 lays down a specific rule on loss due to a combination of causes and in that respect tallies with the principle in Cl. 2-13. If the delay is the result partly of damage entitling the assured to compensation under the builders’ risks insurance, and partly of uncovered circumstances, the insurer covers a proportional part of the daily penalties calculated on the basis of the loss which the two groups of delay causes would have entailed beyond the deductible period if they had arisen separately.

    Sub-clause 6 states that if the assured takes measures to avert or minimise the delay covered by the insurance, the insurer shall not be liable for more than the amount that he would have had to pay if no such measures had been taken, This solution concords with Cl. 16-11, sub-clauses 2 and 3. In many ways, cover under Cl. 19-26 is built up in the same way as loss- of-hire insurance, with a pre-agreed deductible period, and it is therefore logical to include a corresponding rule here.

    The problem can be illustrated by an example:

    Just before a fishing vessel is delivered, the sonar’s bottom equipment is damaged and the damage is recoverable under the builders’ risks insurance. The ordering, delivery and installation of new parts will delay delivery by 10 days. To avoid late delivery, alternative bottom equipment is leased and installed, and the replacement of this equipment with “correct” new equipment is postponed to a later date when it can be done without extra loss of hire.

    In this way, ten days of delay are avoided by paying for the lease of alternative equipment and extra installation/dismantling costs. However, covering this amount in full without regard for the fact that the assured would not have received any compensation at all if a 14-day deductible was applied is not reasonable and contrary to the solution under Cl. 16-11. In relation to Cl. 19-25, it is therefore more logical to follow the same principles as under the loss-of-hire insurance.

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    Clause 19-26. Insurance of the yard’s daily penalties in the event of late delivery

    The insurance covers the yard’s daily penalties resulting from late delivery due to damage which is recoverable under the builders’ risks insurance, cf. Sections 1 and 2. For any one casualty a deductible period shall be determined which is calculated from the start of the casualty and lasts unti...

  • Clause 19-27. Towage and removal of the subject-matter insured

    This Clause is new in the 2013 Plan. The Clause has been placed in Chapter 19, Section 5, which means that it is a “supplementary cover” that may be agreed on and included in the ordinary builders’ risks insurance contract.

    The rationale for incorporating a clause regarding towage under the builders’ risks insurance is that more and more hulls/sections and modules are being built at yards other than the outfitting yard, including foreign yards, while outfitting and commissioning largely take place at the yard that has taken out the builders’ risks insurance. Up until now, the towage risk has often been covered separately under the builders’ risks insurance, while this risk can now be covered through such supplementary cover as part of the ordinary builders’ risks insurance. However, this is conditional on the supplementary cover having been agreed in advance with the company and on this being stated in the insurance certificate. It will also be logical to include in the insurance certificate particulars regarding the agreed sum insured, the locations from and to which the tow is to be carried out, and the time period for the tow.

    The provision regarding the range of perils covered in Cl. 19-1 will also apply when the subject-matter insured is under tow. The provisions of Chapter 19 otherwise apply. This means, for instance, that the condemnation limit applicable to towage is determined by the provision in Cl. 19-11, which means that the condemnation limit is set at 100% (and not 80% as stated in Chapter 11 of the Plan). Correspondingly, some of the clauses in Chapter 12 of the Plan (damage) will be excluded in accordance with the content of Cl. 19-14. If there should be a desire to expand or limit the scope of cover during towage in this connection, it will be logical to do so by using one of the alternative covers in Chapter 10 of the Plan, cf. Cl. 10-4 to Cl. 10-8, for instance Cl. 10-5, Insurance “against total loss only”.

    With regard to liability arising during towage, it follows from Cl. 19-7 that the insurance covers liability up to the sum insured per casualty. Any payment made under the liability insurance will be additional to compensation paid for damage/total loss and salvage costs. If a special insurance for towage under Cl. 19-27 has been taken out, the sum insured agreed for the tow will be the limitation amount, as opposed to the total sum insured for the entire builders’ risks cover.

    The tow can be carried out as an ordinary “wet tow”, where the subject-matter insured is towed floating in the water. But the insurance also covers “dry tows”, where the subject-matter insured is placed on a barge. In such event, the range of perils is the same as for tows in the sea. The insurance also covers the transport of the subject-matter insured or components thereof on board a vessel during land or air transport.

    Sub-clause 2 deals with the special risk related to loading and discharge operations, which has been treated slightly differently. When the tow has arrived at the destination – which will as a rule be the outfitting yard - the builders’ risks insurance will continue to apply until the work is completed and the subject-matter insured is delivered. In other words, if additional cover has been taken out for the tow, the discharge from a barge will take place during the actual insurance period. For the same reason, it is specified in sub-clause 2 that the discharge of the subject-matter insured, is covered by the supplementary cover for the tow.

    On the other hand, loading on board a barge will not automatically be covered. Whether such loading is for the account and risk of the hull yard or the outfitting yard is determined by the delivery conditions set out in the agreement between the two. If the outfitting yard takes over the sections/modules before they are loaded on board the barge, the yard in question will usually include this operation in its insurance. In such case, this must be specified in the builders’ risks insurance contract in connection with the inception of the insurance cover, which will thus be prior to the commencement of the tow.

    Sub-clause 3 sets out the safety regulations for towage. Tows must always be surveyed and approved by a surveyor that is approved in advance by the insurer. Admittedly, there are no formal requirements or standard templates for the survey report on the towage risk. Large, reputable surveyors will normally use their own approved “Certificates of Approval”. These documents generally contain provisions regarding the securing of the tow for the voyage, stability requirements, permitted towing speed, “weather windows” (i.e. maximum wind speeds and wave height) and sometimes also provisions specifying when and where the tug must put into a port of refuge. This certificate is routinely signed by the tugmaster, i.e. the captain of the tug that is to be used for the voyage/another representative of the owner, after which it is sent to the yard and its leading insurer. If the assured has ensured that the safety regulations in Cl. 19-27, sub-clause 3 (a)-(d), are complied with prior to the commencement of the tow, any loss that may be incurred as a result of the tug not following the orders issued by the assured will not be attributed to him.

    The requirement that the tow must be surveyed does not apply to internal berth shifts and removals of the subject-matter insured on the yard’s own site, cf. the last sub-clause of the Clause. Such removals could, for instance, be a transfer from the building site to the yard’s own outfitting dock. It makes no difference whether the subject-matter insured is moved by means of winches, is towed or proceeds under its own power. The decisive factor is that it must at all times remain within the yard’s own area in order not to trigger the survey obligation.

    If the insurer wishes to make the towage risk subject to special safety regulations, this must also be specified in the insurance certificate.

    Sub-clause 4 establishes that if the subject-matter insured is moved in other ways, the safety regulations in sub-clause 3 apply correspondingly. When the subject-matter insured or components thereof are transported by ship, over land or by air, this operation will also have to be surveyed and approved.

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    Clause 19-27. Towage and removal of the subject-matter insured

    The insurance covers towage or removal of the subject-matter insured or components thereof. In the case of towage on a barge, the insurance also covers loss of or damage to the subject-matter insured or components thereof which occurred during discharge. Subject to agreement, the insurance also...