Sub-clause 1 was amended in the 2007 version. The sub-clause is otherwise identical to earlier versions of the 1996 Plan.
Sub-clause 1, first sentence, establishes the general principle that the claims leader has the right to bind the co-insurers in relation to the assured to the extent that this follows from Cl. 9-3 et seq. The arrangement is based on an extensive relationship of trust between the insurers, and it is therefore emphasised in the second sentence that when acting on behalf of all the insurers, the claims leader shall, as far as possible, take into consideration all the insurers’ interests. Under earlier versions of the 1996 Plan, sub-clause 1, third sentence, he was also required to consult the co-insurers whom he knows of, provided that time permitted and that it was a matter “of importance”. In the Commentary, this provision was followed up with the following wording: “If it turns out that there is a predominant desire among the insurers to resolve the matter in a specific manner, the claims leader is obliged to respect the majority’s point of view. If not, he may become liable for damages vis-à-vis the co-insurers.” This wording is not in keeping with the text of the Plan: the rule was a “should” rule and concerned consultation, not an obligation to take a poll to determine the majority opinion. Both the wording of the Commentary and the provision regarding consultation in the third sentence have given rise to problems in practice. Since the main point is that the claims leader has a duty to look after the interests of the insurers, both the rule on consultation and the statement in the Commentary have been deleted.
How far the duty to look after the co-insurers’ interests goes must be determined on the basis of past practice and the purpose of the other provisions of Chapter 9. The Commentary on Cl. 9-8 explicitly states that the claims leader must submit questions relating to the institution of legal proceedings or the lodging of an appeal to the co-insurers. The co-insurers are obviously interested in being consulted in such situations and this should not cause any problems in terms of time.
With regard to the claims adjustment, on the other hand, the basic principle is that it is binding under Cl. 9-9 “provided that it is in accordance with the insurance conditions”. An insurance settlement that is not in accordance with the insurance conditions is, on the other hand, not binding on the co-insurers and thus falls outside the scope of the claims leader’s authority to act on their behalf, cf. also the Commentary on Cl. 9-9.
Otherwise, in keeping with the purpose of the provisions of Chapter 9 the claims leader normally does not need to consult the co-insurers in order to look after their interests. For instance, some of the point of the authority provided by Cl. 9-3 whereby the claims leader may approve the lay-up plan required under Cl. 3-26 will be lost if the claims leader is required to involve the co-insurers.
With regard to the claims leader’s authority to make decisions in connection with salvage pursuant to Cl. 9-5, it will normally not be expedient to consult the co-insurers in connection with initiating a salvage operation. On the other hand, it is conceivable that the claims leader should notify the co-insurers before possibly abandoning a salvage operation, and should also keep the co-insurers informed about the salvage operation once it has commenced so that they have an opportunity to abandon the operation by paying the sum insured and limiting their liability for costs in accordance with Cl. 4-21. This applies in any case to more extensive salvage operations. Salvage can lead to great expense for insurers and the co-insurers therefore have a legitimate need to be informed about the situation in order to be able to limit their liability. The insurers who wish to continue the salvage operation may do so, provided the six-month time-limit laid down in Cl. 11-2 has not expired.
As far as removal and repairs are concerned, as well, the authority of the claims leader under Cl. 9-6 normally allows him to take action without consulting the co-insurers.
Even if the duty of the claims leader to safeguard the interests of the co-insurers normally does not entail any obligation to consult them, he is of course free to seek advice. It must be left to the discretion of the claims leader whether to consult the co-insurers in connection with questions relating to lay-up plans, salvage operations, removals and repairs.
Sub-clause 2 contains a rule concerning the authority of the claims leader that is of great importance. If the claims leader has vis-à-vis the assured taken a decision that falls within his scope of authority under Clauses 9-3 to 9-8, the decision will be binding on all co-insurers in relation to the assured.
This authority shall only apply within the area where the rules contained in this Chapter confer authority on the claims leader. However, there is nothing to prevent a provision in the agreement with the assured to the effect that the claims leader shall have either a wider or a more restricted scope of authority than indicated by the Plan. The extent of this authority will depend on an ordinary interpretation of the agreement. According to the general principles of the law of contract, the steps taken by the claims leader vis-à-vis the assured will be binding, provided they come within the agreed scope of authority, and the assured does not have any reason to believe that the interests of the co-insurers have been disregarded.
Steps which fall outside the scope of authority will, however, never be binding on the co-insurers, regardless of what the assured might believe about the claims leader’s right to act.
If the co-insurers wish to reduce the authority that the claims leader has under the rules in this Chapter, they must make an explicit reservation to that effect on the conclusion of the agreement.
If the claims leader, or one of the other co-insurers, due to special circumstances is prevented from reacting to negligence on the part of the assured or the person effecting the insurance, this will obviously not affect the legal position of the other co-insurers.