Sub-clauses 3 and 4 were amended in the 2013 Plan.
In the event of a total loss, it is the notice of the casualty, and not the claim for total loss, that forms the basis of the duty to pay interest. This also applies to condemnation, even if it takes a long time to decide the question of condemnation. If the matter is delayed because the assured is late in submitting the request, the question of applying the rule in sub-clause 2 may arise.
Under Cl. 11-7, sub-clauses 1 and 2, the assured’s right to compensation for total loss will, in certain cases, be contingent on the expiry of a certain time-limit. However, under Cl. 11-7, sub-clause 3, he may claim compensation without awaiting the expiry of the time-limit if he can prove that he will not recover the ship. In such cases, the obligation to pay interest will accrue one month after the assured proves that he has definitively lost the ship.
In the event of the insurer having to refund the assured’s disbursements, interest does not accrue until the date of the disbursement, cf. sub-clause 1, second sentence. Thus, no interest is charged on costs that have not yet been incurred.
If the assured has had disbursements at different times, interest shall be calculated separately for each disbursement. In such cases, the deductible shall be apportioned over the various disbursements on a proportional basis so that the assured can only claim interest on that part of the disbursement which exceeds the relevant proportion of the deductible, cf. the Commentary on Cl. 12-18.
Sub-clause 1, third sentence, states that in the case of loss-of-hire insurance the interest accrues from one month after expiry of the period for which the insurer is liable. There is no reason why the duty to pay interest shall be postponed until the repairs have been completed if the insurer’s liability is limited to a shorter period.
The provision in sub-clause 2, first sentence, regulates the duty to pay interest if the assured fails to provide information under Cl. 5-1; in that event, he cannot claim interest for the loss of time resulting from the delay.
By making payments on account the insurer will, to a large extent, eliminate the duty to pay interest. If the assured refuses to accept such payments on account, or if he unrightfully refuses to accept settlement, wholly or in part, he cannot claim interest for the resulting loss of time, cf. sub-clause 2, second sentence.
In order to establish a calculation system where the Plan rule automatically reflects the general level of interest at the time in question, the rate of interest has been tied to CIBOR (Copenhagen Interbank Offered Rate) if the sum insured is given in Danish Kroner, NIBOR (Norwegian Interbank Offered Rate) if the sum insured is given in Norwegian Kroner or STIBOR (Stockholm Interbank Offered Rate) if the sum insured is given in Swedish Kronor, and LIBOR (London Interbank Offered Rate) if the sum insured is in some other currency, cf. sub-clause 3, first sentence. By CIBOR, NIBOR and STIBOR is meant the interest offered by the leading banks in the respective Nordic countries for interbank loans in DKK, NOK or SEK for the interest period in question in the respective interbank markets, i.e. the market where the banks can obtain deposits in Danish Kroner, Norwegian Kroner or Swedish Kronor, respectively through the international swap market. CIBOR, NIBOR and STIBOR will vary depending on the life of the loans. In the Plan, the six-month CIBOR, NIBOR and STIBOR has been adopted as a basis, because it is somewhat more stable than the three-month rate of interest.
If the sum insured is in another currency, the six-month LIBOR shall be used. By LIBOR is meant the rate of interest determined for interbank loans in the relevant currency for the corresponding period in the London Interbank Market. The rate of interest is determined at 11:00 a.m. London time with effect from and including spot, i.e. two banking days after the setting of the rate of interest. Average rates of interest for various periods are readily available in all major banks.
The mark-up on CIBOR, NIBOR, STIBOR and LIBOR is calculated at 2%.
As regards the time to which the rate of interest shall be tied, there are basically three alternatives. The rate of interest may be tied to the time when compensation is paid. This is the logically correct solution, but it is complicated, because it is necessary to calculate the interest for each individual payment. Another alternative is to tie the interest to the time of loss. This solution is also complicated, however: there will be a rate of interest for each insured event, and it may also be difficult to pinpoint the individual incident in time. A final alternative is to tie the rate of interest to the time the insurance contract attaches. This is the simplest solution, and the one on which the Plan is based, cf. sub-clause 3, second sentence. The rate of interest shall be determined as at 1 January “of the year the insurance contract comes into effect”. By this is meant the time when the individual insurance contract takes effect. If the insurance has been renewed with the same insurer, the time of renewal is decisive. The time when the insurance contract comes into effect poses no problems for ordinary insurance contracts which attach for one year. If it has been agreed that the insurance shall attach for a period longer than one year, Cl. 1-5, sub-clause 4, which was added in the 2003 version, provides that the insurance period shall be deemed to be one year in relation to Cl. 5-4, sub-clause 3. The calculation of the insurance period is explained in further detail in the Commentary on Cl. 1-5. In order to prevent the rate of interest becoming dependent on major, random fluctuations in the market, the applicable rate is the average rate of interest for the last two months of the year preceding the attachment of the insurance contract. The relevant average rate of interest will be calculated on request by most banks. The Nordic Association of Marine Insurers (Cefor) publishes on its web-site early January every year the applicable rates for the most important currencies.
Sub-clause 4 was amended in 2013 to abolish the reference to the Norwegian Interest Act. Instead the rate for overdue payments is to be the same rate as in sub-clause 3 with an addition of 2%. This amendment will further facilitate calculation of interest on overdue payments.
Pursuant to Cl. 4-19 (b), interest shall be covered in addition to the sum insured.
If the claims leader has had disbursements on behalf of the insurers, he will be entitled to charge interest under Cl. 9-11.