Commentary

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Section 1: General rules relating to the liability of the insurer

  • Clause 4-1. Total loss

    This Clause is identical to Cl. 62 of the 1964 Plan.

    The provision establishes the traditional principle in insurance law that the assured, in the event of a total loss, is entitled to claim the sum insured, however, not in excess of the insurable value. In the event of a total loss, the insurer’s liability is thus subject to a double limitation: it can neither exceed the sum insured nor the insurable value. The sum insured is the amount for which the interest is insured, and on the basis of which premium is calculated. The sum insured does not, however, say anything about the value of the interest insured; this value is determined by the “insurable value”. The insurable value is set at the full value of the interest at the inception of the insurance, cf. Cl. 2-2, or by agreement between the parties about the agreed insurable value, cf. Cl. 2-3. Normally, the insurable value will have been agreed and will be identical to the sum insured, cf. Cl. 2-2, sub-clause 2. In that case the insurer will, in the event of a total loss, pay the valuation amount.

    However, it is important to keep the concepts of sum insured and insurable value apart in the insurance contract, and the insurance contract should therefore specify both the insurable value and the sum insured. If only one value is given, for example, a “sum insured”, this may create uncertainty as to whether this value shall apply both as the agreed insurable value and as the sum insured, or whether the intention is merely to state the sum insured. In the latter event, the sum insured must be evaluated in relation to an open insurable value under Cl. 2-2. This will entail under-insurance (with a pro-rata reduction of the compensation) if the insurable value is higher than the “sum insured”, cf. Cl. 2-4, and over-insurance if the “sum insured” is higher, cf. Cl. 2-5. However, in hull insurance for ocean-going vessels it is presumed that where only one value is given in the insurance contract, the intention is to state both the agreed insurable value and the sum insured.

    The question as to what events will entitle the assured to compensation for total loss must be resolved in the conditions for the special types of insurance. In hull insurance the question also arises as to what will happen when the ship, before it becomes a total loss, has sustained damage which has not been repaired. This matter has been resolved in Cl. 11-1, sub-clause 2, cf. also Cl. 5-22.

    Total losses occur only in those types of insurance that cover an asset belonging to the assured (hull insurance, freight insurance). In a situation where the insurer covers the assured’s future obligations (cover of collision liability under the hull insurance), it will merely be a question of the liability of the insurer being limited to the sum insured, and only if a sum insured has been agreed.

    No general rule can be laid down relating to the insurer’s liability for damage and other partial loss: liability will depend entirely on the conditions of the individual types of insurance.

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    Clause 4-1. Total loss

    In the event of a total loss, the assured may claim payment of the sum insured, but not in excess of the insurable value.

  • Clause 4-2. General financial loss and loss resulting from delay

    This Clause is identical to Cl. 63 of the1964 Plan.

    The question concerning the interest insured will normally be regulated under the individual type of insurance. However, it should also be addressed in the general part of the Plan for pedagogical reasons.

    The provision reflects the fact that the marine insurer’s liability is normally limited to losses consisting of destruction or reduction in value of the actual interest insured. Consequential losses sustained by the assured as a result of the casualty are not recoverable. However, the Clause merely indicates a general principle, and must in many situations be read in conjunction with the liability rules in the chapters relating to the particular types of insurance.

    The exception for “general financial loss” is aimed at any general loss the assured may suffer in his trade as a result of a casualty. The casualty may result in his being forced to reorganise his business or to re-route other ships, whereby his earnings are reduced or his administration and operating expenses are increased. Such losses are not recoverable.

    The other main group of non-recoverable losses are losses arising from the delay of the insured ship caused by the casualty. The term “loss of time” is aimed at the assured’s operating expenses and his loss of freight. However, the Plan provides a special rule for compensation on a number of points in this respect as well, see Cl. 12-11 and Cl. 12-13 relating to loss of time in connection with the invitation to submit tenders and operating expenses during removal of the ship to a repair yard, Cl. 12-7, Cl. 12-8 and Cl. 12-12 which, in different contexts, take into consideration the loss of time which the assured suffers as a result of the casualty, and the rules relating to the special types of insurance aimed at covering loss of time, in particular Chapter 16.

    The terms “loss due to unfavourable trade conditions” and “loss of markets” contemplate the situation where the ship, due to a casualty, will miss the opportunity to benefit from favourable trade conditions and can only be put into service in a lower freight market. Losses of this nature are never recoverable. To avoid any mis­under­standing, the limitation of liability is extended to comprise also “similar losses resulting from delays”.

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    Clause 4-2. General financial loss and loss resulting from delay

    Unless otherwise provided in this Plan or specially agreed, the insurer is not liable for general financial loss, or for loss of time, loss due to unfavourable trade conditions, loss of markets and similar losses resulting from delays.

  • Clause 4-3. Costs of providing security, etc.

    This Clause is identical to Cl. 64 of the 1964 Plan.

    Under Cl. 5-12, the insurer is not obliged to provide security for claims brought by a third party against the assured, which are covered by the insurance. However, if the assured incurs expenses in order to obtain such security, these must, according to the first sentence, be recoverable as expenses incurred due to the casualty. That the expenses must be “reasonable” implies inter alia that the assured cannot claim compensation of the costs incurred by providing security for amounts which clearly and considerably exceed the third party’s claim. Cl. 5-7 allows the assured, under certain conditions, the right to demand payment on account. Thus, before providing security for a third party’s claim, he must submit to the insurer the question of whether the claim should be met by a payment on account. If he has failed to do so, the insurer will not be liable for the costs in connection with the provision of security, cf. second sentence.

    If it is uncertain whether the insurer is liable for an invoice from the repair yard, the insurer is not obliged to make any payment on account under Clause 5-7. If the shipowner in such situations does not have money to pay the repair invoice, it may have to provide a bank guarantee pending a settlement from the insurer. If the insurer later proves to be liable, the question arises as to whether the insurer must also pay the commission on the bank guarantee. In practice, the provision has been inter­preted to mean that it only concerns costs in connection with the provision of security for liability to third parties. However, during the revision of the Plan, there was general agreement that the insurer should have an obligation to cover costs in the above-mentioned situation as well. If the shipowner had raised a loan and paid the repair yard in cash, the insurer would have had to pay the interest on the compensation under the rules set out in the insurance contract. To be consistent, it seems reasonable that in such an event, the insurer must also pay the costs of providing security. However, it is not necessary to amend the provision in order to authorize this solution; it is covered by the wording as it was in the 1964 Plan.

    If owner’s repairs are carried out concurrently with casualty repairs, the commission must be apportioned on a proportional basis. If some of the work is paid for in cash, while a bank guarantee is provided for the balance, the cash portion as well as the guarantee must be apportioned according to the proportion of owner’s repairs/deductible to the amount for which the insurer is liable.

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    Clause 4-3. Costs of providing security, etc.

    If the assured, as a result of a casualty, has had to raise funds or provide security, he may claim a refund from the insurer for reasonable expenses so incurred. However, this shall not apply if the assured has, without good reason, failed to exercise his right to demand a payment on account fro...

  • Clause 4-4. Costs of litigation

    This Clause is identical to Cl. 65 of the 1964 Plan.

    There may be doubt as to who shall bear the litigation costs in the event of a dispute between the assured and the insurer as to whether a case against a third party shall be taken to court. In such situations, several insurers with conflicting interests will normally be interested in the question. Cl. 5-11 is an attempt to resolve the difficulties that may arise in such cases.

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    Clause 4-4. Costs of litigation

    If a claim is made against the assured in respect of liability covered by the insurance, or if the assured makes a claim against a third party for damages in connection with a loss covered by the insurance, the insurer shall be liable for the costs incurred, provided that the steps taken are...

  • Clause 4-5. Costs in connection with settlement of claims

    This Clause is identical to Cl. 66 of the 1964 Plan.

    Sub-clause 1 establishes that the insurer is also liable for the necessary costs of determining the loss and calculating the compensation. The provision covers all expenses incurred after the casualty which are necessary in order to establish whether any damage has occurred and, if so, its extent, or which are necessary in order to secure any recourse against third parties. Thus the insurer shall pay costs in connection with the conduct of a ship’s protest and maritime accident inquiry, provided that these measures are attributable to a casualty which resulted, or could have resulted, in recoverable losses.

    The term “necessary costs” has, according to long-standing and uniform practice, been subject to a relatively strict interpretation. Costs connected with the shipowner’s surveyor are only recoverable if the insurer has had the opportunity to participate in the survey, and liability is normally limited to the expenses of one technical consultant from the shipowner’s company. The insurer’s liability for the technical consultant is furthermore limited to the time the repairs take, and include travel and maintenance expenses in connection with travelling to and from the place of repairs. Travel expenses in connection with the settlement of the repair invoice are also recoverable, but planning of repairs before the ship’s arrival and administration costs are not.

    As regards other costs, practice has been that the insurer does not cover internal costs or the costs of hiring someone to draw up a general invoice or retaining legal or expert assistance. During the Plan revision, it was agreed that internal costs and expenses for external assistance that should have been obtained internally should not be recoverable. However, the cost of obtaining outside expert opinions in order to clarify technical or legal questions, for example, an opinion from the University of Trondheim to document that corrosion damage had in reality been caused by wet rot, should be covered. On this point “necessary costs” must therefore be subject to a slightly wider interpretation than was formerly the practice. The same applies to expenses for external legal assistance, provided that the legal assistance is in the nature of expert assistance. It cannot be a condition that the issue is taken to court; other legal assistance must be covered as well. However, if a conflict concerning the insurance ends up in court, the recovery of litigation costs is subject to the condition that the case is won. If the assured loses the case, he has no claim against the insurer, and in that event the insurer is obviously not liable to pay the litigation costs either. If the assured partly wins the case, a reasonable amount of costs should be covered.

    Nevertheless, the recovery of expenses in connection with the claims settlement is subject to the condition that it is clear in advance that the claim exceeds the deductible, or that the claim is doubtful. If it is perfectly clear that the casualty is not relevant to the insurance, the insurer cannot be held liable for the costs.

    In the event of what is known as “aggregate deductibles” the assured will, in addition to the ordinary deductible per loss, bear a risk for a certain period. Under certain such clauses the assured must cover any damage occurring within the stated period of time until the amount of damage exceeds the amount of the aggregate deductible. In that event, until the entire aggregate deductible has been “consumed”, it may be alleged that the casualties occurring are not relevant to the insurance. This is not correct, however: an overview of the casualties occurring is needed in order to know when the aggregate deductible has been exhausted and the insurer’s liability arises. Accordingly, the insurer should cover expenses in connection with the claims settlements for such casualties, even if he, due to the aggregate deductible, does not incur any liability for the actual loss.

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    Clause 4-5. Costs in connection with settlement of claims

    If the insurer is liable for the loss, he shall also pay the necessary costs of establishing the loss and calculating the compensation. If the assured has reasonable grounds for employing his own surveyor, the insurer is liable for necessary expenses in this connection.

  • Clause 4-6. Costs in connection with measures relating to several interests

    This Clause is identical to Cl. 67 of the 1964 Plan.

    The provision confirms the principle of apportionment when costs are incurred in connection with measures relating to several interests. The principle of pro rata apportionment is of great practical significance for litigation costs and costs in connection with the claims settlement. In a collision case both the hull insurer and the P&I insurer will often be interested on the side of the assured; in that event the litigation costs shall be apportioned taking into account the maximum amounts for which the two insurers may be held liable as a result of the legal proceedings. Likewise, the counterclaims filed by the assured in the proceedings will partly accrue to him and partly to his hull insurer. The costs involved in the pursuit of the counterclaims will then have to be apportioned between them in proportion to their interests in the litigation.

    According to practice, the term “several interests” does not comprise the assured’s uninsured interests, for example in the form of under-insurance or deductible. If the assured has such uninsured interests, the insurers will cover the costs in their entirety without making any apportionment. This nevertheless does not apply to costs associated with the pursuit of a counterclaim; the counterclaim shall be apportioned between the assured and the insurer, depending on the proportion of the insured to the uninsured interests, and the costs must then be apportioned in the same proportion.

    In practice, exceptions have also been made from the principle that regard shall not be had to uninsured interests if it is a question of large deductibles in the form of layers of insurance held by the assured. Even if the point of departure should be that no apportionment is to be made over such uninsured interests, regardless of how large they are, it must be correct to distribute the costs between the insurer who is liable for the deductible and the other insurers if the deductible is insured.

    The rule of apportionment in Cl. 4-6 applies regardless of whether it should prove later that the claim is lower than the deductible. In such cases the assured’s claim will not be recoverable as such, but his costs will be recoverable in full, cf. Cl. 12-18, sub-clause 3, which provides that these costs are recoverable without any deductible. However, if it is already clear from the start that the loss or liability is lower than the deductible, the insurer will not be liable for the costs.

    Cl. 12-14 contains a special rule relating to the apportionment of accessory costs of repairs.

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    Clause 4-6. Costs in connection with measures relating to several interests

    If costs mentioned in Cl. 4-3 to Cl. 4-5 have been incurred in connection with measures relating to several interests, the insurer is only liable for that proportion of the costs which may reasonably be attributed to the interest insured.