Commentary

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Chapter 11: Total loss

  • Clause 11-1. Total loss

    This Clause is identical to Cl. 161 of the 1964 Plan. The Commentary was amended in the 2007 version in connection with the amendment to Cl. 12-2.

    Sub-clause 1 states when the assured may claim compensation for a total loss. The provision covers both actual loss and so-called “unrepairability”. There will be a gradual transition from an absolute loss (the ship has foundered in such deep waters that it cannot be reached) to cases where it is a question of economic assessment whether or not to undertake salvage and repair work. Such assessment will depend on the extent to which the probable salvage and repair costs will exceed the agreed insurable hull value. If the agreed insurable hull value is high, it is conceivable under special market conditions that it will pay for the insurer to build a new ship around the remains of the old one. However, under sub-clause 1, the strictly economic evaluation of the repair question shall also be supplemented by a technical assessment. That the ship “cannot be repaired” implies that it must be considered destroyed as a ship, making repairs seem meaningless from a technical point of view. “Repairs” in this connection mean repairs which meet the conditions under Cl. 12-1, i.e. repairs which will restore the ship to the state it was in prior to the damage, and a state which is expected to last. The question whether it is technically possible to repair the ship is an ordinary question of evidence, which will ultimately have to be submitted to the courts.

    Sub-clause 2 establishes that no deductions shall be made in the total-loss compensation for unrepaired damage sustained by the ship in connection with an earlier casualty. If a total loss has occurred, the assured may under Cl. 4-1 demand payment of the sum insured, however not in excess of the insurable value. Where this has been defined as “the full value of the interest at the inception of the insurance”, cf. Cl. 2-2, it will not be affected by the damage which the ship sustains during the insurance period, and the assured will consequently be entitled to the full agreed insurable hull value, regardless of any unrepaired damage which the ship may have sustained in connection with earlier casualties. However, the assured may not in addition claim separate compensation for such damage; this would give him an unjustified gain at the insurer’s expense. This has now been explicitly laid down in Cl. 12-2, sub-clause 3, in connection with the generalisation of the right to  compensation. According to the traditional principle that “a total loss absorbs partial damage”, an insurer who has paid compensation for the total loss will not have recourse against the insurer who would have been liable for the repair costs if the repairs had been carried out, cf. sub-clause 2 hereof, and Cl. 12-1, sub-clause 2, which state that the insurer’s liability for repair costs will normally not arise until the repairs have been carried out.

    The principle that “a total loss absorbs partial damage” may appear to confer an unanticipated advantage on the former insurer who was liable for the unrepaired damage, or possibly on the assured if the damage was not covered by insurance. However, in the relationship between the insurers it will, in principle, even out in the long term. There are also strong practical considerations in favour of this system: it will often be difficult to establish the exact extent of damage after the ship is lost. A rule to the effect that unrepaired damage should be referred back to an earlier insurer might therefore easily give rise to a dispute between the insurers.

    If the assured has claims for damages against third parties in connection with the unrepaired damage, they accrue to the insurer who pays the total loss claim.

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    Clause 11-1. Total loss

    The assured may claim compensation for a total loss if the ship is lost without there being any prospect of it being recovered or if the ship is so badly damaged that it cannot be repaired. No deductions shall be made in the claims adjustment for unrepaired damage sustained by the ship in...

  • Clause 11-2. Salvage attempts

    This Clause corresponds to Cl. 162 of the 1964 Plan.

    The Clause constitutes a necessary supplement to the preceding clause and regulates the situation where the ship is lost under such circumstances that it is uncertain whether it can be salvaged. The time-limit within which the salvage operation must be carried out is basically six months, cf. sub-clause 2, first sentence. The time-limit is extended to a maximum of 12 months if the salvage operation is delayed due to difficult ice conditions, cf. second sentence.

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    Clause 11-2. Salvage attempts

    The insurer is entitled to attempt to salvage the ship at his own expense and risk. The assured shall in that event do his utmost to enable the insurer to carry out the salvage operation. If the salvage operation has not been completed within six months from the date the insurer was notified of t...

  • Clause 11-3. Condemnation

    This Clause is identical to Cl. 163 of the 1964 Plan. The Commentary was adjusted in the 2010 version. In the 2007 version the Commentary was adjusted in accordance with the amendments to Cl. 3-22 and Cl. 12-2.

    Sub-clause 1 sets out the principle that the total-loss cover also extends to condemnation of the ship. The rest of the provision contains the main rules on the material terms for condemnation.

    According to sub-clause 2, first sentence, the conditions for condemnation shall be deemed met and the assured entitled to claim for a total loss if the cost of repairing the ship will amount to at least 80% of the insurable value. If the ship is undervalued so that its real value in repaired condition is higher than the agreed insurable value, the de facto value shall be used as the basis. Using the higher of the two values, means that it will not be easier for the assured to obtain a condemnation by using a particularly low agreed insurable value, and that the assured may not obtain condemnation above a low market value and subsequently be paid the higher agreed insurable value.

    In accordance with the 1964 Plan, the wreck value shall not be brought into the condemnation formula, even though it might be said that this may lead to results which do not make good economic sense, cf. Brækhus/Rein: Håndbok i kaskoforsikring (Handbook of Hull Insurance), p. 434. However, an amendment on this point would entail that Norwegian condemnation conditions differed from international marine insurance practice.

    The rules in sub-clause 2, second sentence, regulate the not very frequent situation where several hull insurances have been taken out against the same peril with different agreed insurable values, e.g. by the shipowner after an upturn in the economy increasing the agreed insurable value of the ship and taking out an additional insurance for the difference between the old and the new agreed insurable values. In that event, the higher of the two values shall be used as the basis. The situation where there are different agreed insurable values in connection with the insurances against marine perils and war perils respectively is regulated in Cl. 11-4, sub-clause 2.

    When a ship is declared a constructive total loss, not only the hull insurance but also the hull-interest insurances fall due for payment. These interest insurances are in effect hull insurances against total loss which are effected in addition to the regular hull insurance. Only the agreed insurable hull value, not the sum of that value and the agreed insurable values for the hull-interest insurance and/or the freight-interest insurance, is to be taken into account when making a decision on the question of condemnation, when the agreed insurable hull value is to be used in the condemnation formula because that value is higher than the market value.

    According to sub-clause 3, it is the time when the assured makes his request for a condemnation that is decisive for the determination of the value if the alternative “value of the ship in repaired condition” is used. However, the determination of value must be based on an “objective” market value of the relevant type of ship. Consequently the question whether the casualty may have resulted in a special reduction in value of the ship concerned in the form of “bad reputation”, or the like, shall not be taken into consideration.

    Sub-clause 4 gives a further definition of “casualty damage” and “costs of repairs”. As regards what casualty damage shall be included in the condemnation formula, the question is whether the evaluation shall only take into account the damage which was caused by the latest casualty, or whether earlier unrepaired casualty damage to the ship should also be taken into account. By taking into consideration all casualty damage, the decision would be based on a realistic assessment of the possibility of restoring the ship to a seaworthy condition on a sound economic basis, and the assured and his insurers would not be forced to make unprofitable investments in a ship which should in reality have been declared a constructive total loss. At the same time, it did not seem like a good idea to take into consideration all old dents, etc., which the ship had sustained through a long life. Consequently, as under the 1964 Plan, a three-year time-limit has been set, so that casualty damage which has not been reported to the relevant insurer and been surveyed by him in the course of the three years preceding the casualty which caused the condemnation request shall not be taken into consideration. The three-year time-limit shall be calculated from the time of the actual casualty. The requirement that the damage must be surveyed does not apply to a situation where the owner has made a survey possible, but where the insurer chooses not to undertake such survey.

    In exceptional cases, it is conceivable that compensation has been paid for unrepaired damage. However, the fact that a former owner has received compensation for such damage pursuant to Cl. 12-2, sub-clause 1, will not exclude the damage from being taken into account when the question of condemnation is being decided. If, on the other hand, the assured has received such compensation earlier, no importance can be attached to the damage when deciding the question of whether the ship qualifies for condemnation.

    The term “casualty damage” also includes damage which is not recoverable under the insurance because it does not exceed the deductible or because of other forms of self-insurance. However, only damage which according to its nature is covered by the insurance shall be taken into account, and not damage consisting of rust or corrosion. The assured shall not be able to obtain a constructive total loss by ignoring the upkeep of the ship. However, if the damage is of such a nature as to make the insurer liable under Cl. 12-3 or Cl. 12-4, this will also have to be taken into consideration when determining the question of condemnation.

    As will appear from Cl. 11-1, sub-clause 2, the principle that “total loss absorbs partial damage” entails that the insurer who pays a total-loss claim does not have recourse to the insurer or insurers who should have indemnified the unrepaired damage which the ship had when it was lost. As under the 1964 Plan, this principle also applies in the event of a condemnation of a ship, given that a different solution might have resulted in very complicated settlements. Consequently, the agreed insurable hull value shall be paid in its entirety by the insurer who is liable for the casualty giving rise to the condemnation without any deductions for earlier, unrepaired damage.

    The condemnation is based on a discretionary assessment of the future expenses that will be incurred in connection with complete repairs of the ship. The basis of the assessment is the ship in the state and at the place where it is at the moment when the assured makes his request for a condemnation. Thus, costs that have already been invested, e.g. in connection with temporary repairs, shall not be taken into consideration, in contrast to all foreseeable future costs. Salvage awards shall not be taken into account, however, cf. below.

    Costs of “removal and repairs” comprise, in the first place, all costs for which the insurer would be liable if repairs were carried out. Furthermore, account must be taken of expenses the assured must cover himself in connection with the repairs, e.g. in the form of deductions or deductibles, or because the damage in question is specifically excluded from cover, e.g. in accordance with Cl. 12-5 (b) and (d)-(f). However, costs that do not refer directly to removals, repairs and similar measures, shall not be taken into account. Thus, the assured’s general operating costs concerning the ship during the period of repairs, or expenses in connection with bringing passengers ashore shall not be considered. The calculation of the probable costs shall be based on the prices at the time when the request for a condemnation was made.

    The fact that removal costs are included in the calculation means that the decision of the question of condemnation is founded on a more realistic basis than if the damage to the ship were the sole decisive factor, regardless of where the ship was. As regards the question of condemnation, there will, realistically speaking, be a material difference between a damaged ship that is in a port, e.g. Svalbard, and a ship with similar damage in a port with good possibilities of repairs.

    If this line of thought were to be followed through, the salvage award that would foreseeably accrue before the ship could be moved to a repair yard would also have to be taken into account. However, it will always be very difficult to estimate the salvage award in advance, and this would introduce a serious element of uncertainty in the condemnation formula. In addition, it is difficult to get the damage surveyed properly as long as the ship has not been salvaged. Thus, under the Plan, a salvage award that will accrue before a removal and repairs shall not be taken into consideration. The distinction between “salvage award” and such expenses as shall be included, especially removal costs, must be based on general maritime law criteria. The decisive factor must be the situation which the ship was in when the salvor was given the assignment, and not whether the remuneration agreed to on a “no cure - no pay basis” was determined in advance or shall be paid according to accounts rendered.

    Even if the salvage award is not included in the condemnation formula, the insurer must in practice also take the salvage award into consideration if the assured claims for a total loss (or a condemnation, as the case may be) before the ship has been salvaged. If the insurer wants to salvage the ship in such a situation, he must proceed according to Cl. 11-2. The significance of the condemnation request being made while the ship is still at the place of stranding, lies in the fact that this is the point in time that will be decisive for the assessment of the costs and the market value of the ship.

    According to Cl. 12-1, sub-clause 4, the insurer has the right, subject to certain conditions, to refuse to cover in full the costs of repairs that restore a ship to its former condition. In that case, he must pay special compensation for the depreciation in value caused by the fact that the ship will not be fully repaired. However, according to sub-clause 4, last sentence, the decision of the condemnation question shall not take into account the compensation for the depreciation in value which the insurer would have had to pay if he had been entitled to invoke Cl. 12-3, sub-clause 4. This rule is necessary to avoid a situation where a compensation for, e.g. damaged works of art or decorations based on a discretionary assessment would constitute the decisive amount that brings the costs of repairs above the condemnation limit. Nor would it be very reasonable if damage which does not affect the ship’s ability to comply with technical and operational safety requirements and therefore does not need to be repaired in the first place were to be taken into account in the decision whether the ship, on a realistic basis and from an economic point of view, is “worth repairing”.

    The question whether the conditions for condemnation are met is a question of fact that must be decided according to ordinary rules of evidence. The Plan does not authorise any specific procedure for deciding this question. If it is not possible to solve the question by means of negotiations, it will have to be submitted to the courts, cf. also Cl. 5-5, sub-clause 3. Nor does the Plan provide any guidance in terms of special rules of procedure relating to the survey of damage or the invitation of tenders, as is the case in the event of repairs of damage, cf. Cl. 12-10 and Cl. 12-11. In ND 1992.172 Gulating Berglift it was held that these rules could not be applied by analogy when deciding the question of condemnation.

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    Clause 11-3. Condemnation

    The assured may claim compensation for a total loss if the conditions for condemnation of the ship are met. The conditions for condemnation are met when casualty damage is so extensive that the cost of repairing the ship will amount to at least 80 % of the insurable value, or of the value of the...

  • Clause 11-4. Condemnation in the event of a combination of perils

    This Clause is identical to Cl. 164 of the 1964 Plan.

    The provision regulates the position where the casualty which gives rise to the condemnation is partly due to perils not covered by the insurance, cf. Cl. 2-13, Cl. 2-14 and Cl. 2-16. The situation may be that the assured has breached safety regulations or has sent the ship out to sea in an unseaworthy condition, and that the insurer is therefore only partly liable for the casualty, or that the casualty is attributable to a combination of marine and war perils under such circumstances that the rule of equal distribution contained in Cl. 2-14, second sentence, or Cl. 2-16, shall apply. In such cases, the insurer is only liable for a proportionate share of the total-loss claim. If liability is to be divided between the insurer against war perils and the insurer against marine perils, each of them shall pay half of the agreed value under the insurance in question.

    In practice, the insurance against war perils is often effected with a higher agreed value than the ordinary hull insurance. With a view to the combination-of-perils cases, sub-clause 2 provides that the valuation applicable to the insurance against marine perils shall be used as the basis when deciding the question of condemnation.

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    Clause 11-4. Condemnation in the event of a combination of perils

    If the casualty which gives rise to the condemnation is also caused by perils not covered by the insurance, the compensation shall be reduced correspondingly, cf. Cl. 2-13, Cl. 2-14 and Cl. 2-16. If the casualty is caused by such combination of marine and war perils as referred to in Cl. 2-14,...

  • Clause 11-5. Request for condemnation

    This Clause is identical to Cl. 165 of the 1964 Plan.

    Sub-clause 1 regulates the conditions for the request for condemnation. The provision must be interpreted antithetically: It is only the assured who can request condemnation. Hence, the insurer may not take advantage of an upward turn in the market to speculate by paying out the sum insured and taking over a damaged ship for the purpose of repairs and sale.

    On the other hand, the insurer must be protected against the assured demanding that the ship be repaired, despite the fact that it is in reality fit for condemnation. Under Cl. 12-9, the insurer’s liability for repair costs in such a situation is limited to the amount he would have had to pay if the ship had been declared a constructive total loss, in other words, the sum insured less the value of the wreck.

    If the assured wants a condemnation, he must make a request without undue delay after the ship has been salvaged and he has had an opportunity to inspect the damage, cf. first sentence. He can not keep the question open and see how the market develops. If he does not make a decision, he will only be entitled to indemnity under the rules relating to damage, cf. inter alia the insurer’s right to limit his liability for the costs of repairs under Cl. 12-9. However, this does not apply if the ship is in actual fact so severely damaged that it must be regarded as a total loss, cf. the comments on Cl. 11-1, sub-clause 1. In that event, the assured’s right to claim for a total loss is not subject to any time-limit (apart from the standard limitation rules and rules on duty of notification).

    On the other hand, the request for condemnation is not an irrevocable offer to the insurer which he may invoke. Thus, according to sub-clause 1, second sentence, the request may be withdrawn as long as it has not been accepted by the insurer. However, if a final agreement for a condemnation has been concluded, it will be binding on both parties.

    Until the ship has been salvaged and the assured has had an opportunity to inspect the damage, it will often be uncertain whether a condemnation will be requested. It would be most unfortunate if the assured during this period of time were to take a passive approach to the salvage operation out of fear that an active approach would be interpreted as a waiver of his right to demand a condemnation. sub-clause 2 therefore establishes that salvage or failure to salvage the ship by one of the parties shall not be regarded as an approval or a waiver of the right to condemnation.

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    Clause 11-5. Request for condemnation

    If the assured wishes the ship to be condemned, he must submit a request to the insurer without undue delay after the ship has been salvaged and he has had an opportunity to survey the damage. This request may be withdrawn as long as it has not been accepted by the insurer. Whether the assured or...

  • Clause 11-6. Removal of the ship

    This Clause is identical to Cl. 166 of the 1964 Plan.

    When the assured makes a request for condemnation, it is important that the insurer be given the opportunity to have the ship inspected in a proper manner, e.g. in dock. The insurer therefore has an unconditional right to demand that the ship be moved to wherever he wants in order to have a proper survey conducted, cf. sub-clause 1, first sentence. According to the second sentence, this demand must be made without undue delay; the insurer should not be able to procrastinate later on, during the negotiations with the assured, by demanding a removal for a further survey. Consequently, the insurer must inspect the ship as soon as it has been salvaged and decide what type of survey he wants carried out.

    A removal results in costs and may also entail a risk of loss. Such liability shall be borne by the insurer who demands the removal, cf. sub-clause 2. A removal for the purpose of a survey is undertaken as a defensive move by an insurer who has been presented with a claim for a total loss. If the ship is condemned, despite the new survey, the insurer will bear the risk of all losses that may arise after the casualty, cf. Cl. 11-9 and the Commentary on that provision. Under Cl. 43 of the 1964 Plan, an insurer who did not wish to bear the risk of removal could limit his liability for losses incurred during such removal. This provision has been deleted, and the claims leader has now been authorised to decide the question of removal, cf. Cl. 9-6. The co-insurers are therefore jointly liable for damage that arises during a removal decided by the claims leader. The claims leader's decision to remove a ship will also be binding on the interest insurers, cf. Cl. 14-3, sub-clause 4. If the other insurers wish to limit their liability for such damage, they may have to exercise the right in Cl. 4-21 to avoid further liability by paying the sum insured. If this is done, the insurer who causes the removal shall not only bear the costs, but also the risk of any loss that arises during or as a result of the removal, and which is not covered by other insurers, cf. sub-clause 2. The insurer who demands a removal of the ship will thus bear the risk of losses which should otherwise have been covered by other insurers (e.g. war damage or liability for damages to third parties). In relation to the assured, he also bears the risk of losses which would normally have been uninsured. In practice this will mean that the insurer must take out the necessary supplementary insurances during the removal. If the risk is of such a nature that it is uninsurable, this is in itself an indication that the removal should not be carried out.

    The costs incurred during the removal and the survey are incurred after the request for a condemnation is made and must be taken into account when deciding the condemnation question, cf. Cl. 11-3, sub-clause 4. However, any liability to third parties that may arise during the removal shall not be taken into consideration. If the ship is damaged, such damage shall be taken into account if the assured submits a new formal request for condemnation after the damage has occurred. It will then be the repair prices at that time which will be decisive for the assessment of the ship’s total damage, cf. Cl. 11-3, sub-clause 4, second sentence.

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    Clause 11-6. Removal of the ship

    If the assured has requested a condemnation of the ship, the insurer may demand its removal to a place where the damage may be properly surveyed. The demand must be made without undue delay after the ship has been salvaged. The insurer shall bear the costs of the removal and liability for any los...

  • Clause 11-7. Missing or abandoned ship

    This Clause corresponds to Cl. 168 and Cl. 170 of the 1964 Plan.

    The 1964 Plan contained rules on missing or abandoned ships in Cl. 168, on seizure, requisition and piracy in Cl. 169 and joint rules for the two groups of cases in Cl. 170. In the new Plan, rules on seizure, etc. have been moved to the Chapter on war-risk insurance, cf. Cl. 15-11. Cl. 168 and Cl. 170 of the 1964 Plan have been combined into the present Clause.

    According to sub-clause 1, the assured may claim for a total loss if the ship is reported missing and three months have elapsed from the date on which the ship was, at the latest, expected to arrive at a port. If there is reason to believe that the ship may be icebound, the time-limit is 12 months. According to sub-clause 2, the same applies if the ship has been abandoned by the crew at sea, but the point of departure for the time-limit is slightly different. In view of current means of communication at sea, the provisions will be of little practical significance, given that the assured will, as a rule, have the right to demand payment of the total-loss claim at an earlier point in time under sub-clause 3. It is nevertheless considered expedient to retain sub-clauses 1 and 2 as a point of departure.

    The rule in sub-clause 3 corresponds to Cl. 170, sub-clause 1, of the 1964 Plan and may be of considerable practical significance, e.g. if the ship is reported missing and survivors or wreckage from the ship are found before expiry of the time-limit.

     If the ship or the wreck causes striking damage during the period before a total-loss claim has been paid according to Cl. 11-7, the hull insurer must be liable under Chapter 13 in the ordinary manner, provided that the damage is a result of a peril that struck during the insurance period, cf. ND 1990.8 S. dispasch vinca gorthon. If the wreck causes damage after the total-loss claim has been paid, however, the hull insurer must be exempt from liability, unless he has taken over the right to the wreck according to Cl. 5-19.

     Under sub-clauses 1 and 2, the ship must be “reported missing” or “abandoned … without its subsequent fate being known” at the time when the request for a total-loss claim is presented. If the ship has been recovered or released, the assured obviously may not submit a claim for total-loss compensation. However, sub-clause 4, which is taken from Cl. 170, sub-clause 2, of the 1964 Plan, regulates the situation where the conditions for a total-loss claim are met when the claim is presented, but where the ship is subsequently recovered or released before the compensation has been paid. In that event, the insurer cannot deny the request on the grounds that the ship has been recovered or released. The reason the assured submits the request will often be that he is making other arrangements in order to acquire a new ship. He should therefore, in the light of the request, have acquired an irrevocable right to total-loss compensation.

     If it is an established fact that the assured will not get the ship back before expiry of the time-limits under sub-clauses 1 and 2, the limitation period in Cl. 5-24 will take effect from 1 January of the year after the fact has become clear and the conditions for the payment of total-loss compensation under sub-clauses 3 and 4 have been met.

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    Clause 11-7. Missing or abandoned ship

    If the ship is reported missing, the assured may claim for a total loss when three months have elapsed from the date on which the ship was, at the latest, expected to arrive at a port. If the ship is reported missing under circumstances that give reason to assume that it is icebound and will...

  • Clause 11-8. Extension of the insurance when the ship is missing or abandoned

    This Clause corresponds to Cl. 171 of the 1964 Plan.

    Sub-clause 1 states that the insurance will be extended if the ship, on expiry of the insurance period, is missing or abandoned and is subsequently recovered without the assured being entitled to claim for a total loss. The provision is based on practical considerations: if, for the expiring insurance year, the insurer was not made liable for the damage which the ship turns out to have when it is again recovered, it would be necessary to establish the exact time when this damage occurred, which may be difficult or impossible. Furthermore, the assured will rarely have taken out any new insurances in such a case. The insurance is extended according to rules similar to those that apply when the ship has sustained serious damage, cf. Cl. 10-10, and the extension applies to all the ship’s insurances under the Plan.

    The wording “upon expiry of the insurance period” must be interpreted here as meaning expiry of the agreed insurance period regardless of whether an insurance period of one year or more than one year has been agreed upon, compare Cl. 1-5, sub-clause 4, which explicitly mentions the provisions under which a multi-year insurance contract shall be divided up into one-year periods. The present provision is not included.

    When a time-limit under Cl. 11-7 has expired, the assured obtains a right, but not an obligation, to claim for a total loss. Under the Plan he may keep the question open until he recovers the ship or it is later established that the ship is definitively lost. Under Cl. 6-4, sub-clause 2, he shall not pay premium for the period of time from expiry of the agreed insurance period until he regains control of the ship. Sub-clause 2, however, establishes that the old insurance shall not be extended beyond two years from expiry of the insurance period. If the assured recovers the ship at a later point in time, he will not be entitled to claim compensation for damage to it without proving that it occurred less than two years after expiry of the original insurance. Moreover, he must take out a new insurance in order to be covered while the ship is brought into port and the damage repaired.

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    Clause 11-8. Extension of the insurance when the ship is missing or abandoned

    If, upon expiry of the insurance period, a situation exists as referred to in Cl. 11-7, and the ship is subsequently recovered without the assured being entitled to claim for a total loss, the insurance is extended until the ship has dropped anchor or has been moored in the first port. If the shi...

  • Clause 11-9. Liability of the insurer during the period of clarification

    If the ship has sustained extensive damage as a result of a casualty and the assured claims for a total loss, there will be a period of uncertainty when it is not known whether or not the condemnation conditions under Cl. 11-3 are met. The same applies when the ship is stranded and the insurer wishes to use the time-limit to which he is entitled under Cl. 11-2, sub-clause 2, to attempt to salvage it, or when it has been abandoned or reported missing but the time-limits under Cl. 11-7 have not yet expired. If the end result is that the ship is not considered a total loss - its damage is not sufficiently extensive, or it is recovered before expiry of the stipulated time-limits or before the assured has lodged a claim for a total loss - no problems will arise. In that event, all insurances will have been continuously in effect throughout the period of uncertainty (see Cl. 11-8 regarding an extension of the insurance when the period of uncertainty extends beyond the agreed insurance period).

    If, however, the end result is that a total-loss claim shall be paid, the insurer who is liable for the total loss shall take over the wreck in view of the payment of the claim, cf. Cl. 5-19. If there has been a further depreciation in the value of the wreck as a result of new events during the period of uncertainty, the risk shall be borne by the insurer concerned. Under Cl. 5-22, he is also barred from exercising any rights the assured might have under an insurance contract as regards such subsequent events. Thus, the insurer who is liable for the total loss will in actual fact bear the risk in respect of everything that happens to the wreck as from and including time of the casualty which gave rise to the total loss, whereas the other insurers, by contrast, will not bear any risk as of that same moment. This is explicitly set out in sub-clause 1. Under Cl. 6-3, sub-clause 2, the other insurers are also barred from claiming premiums for the period during which they did not bear any risk.

    However, during the period of uncertainty there is a risk, not only of a further depreciation in the value of the ship, but also of the assured incurring liability for damages, which is covered by the insurance. Such liability may, depending on its nature, fall outside the scope of cover of the insurer who is liable for the total loss. It is, for example, conceivable that the ship has sustained extensive bombing damage that later proves to have made the ship condemnable. During the manoeuvring of the wreck to or in a port, the master makes a clear nautical error, which imposes a collision liability on the assured. A liability of this nature must be covered by the insurer who is liable for the total loss, cf. sub-clause 2. He must be regarded as having assumed the risk for the wreck in every respect after the casualty which gave rise to the total loss. The rule can be justified by the fact that there will often be a certain connection between the damage to the ship and the event entailing liability. In this way the difficult questions of causation which might otherwise arise are avoided.

    The fact that the insurance period has expired when it is established that a total-loss claim may be lodged is irrelevant for the insurer’s cover of collision liability. However, it has been established that liability shall not remain in effect for more than two years from expiry of the original insurance period, cf. Cl. 11-8, sub-clause 2. After that point, the assured must arrange for liability cover himself. The insurer may not demand any additional premium for the period for which the liability insurance is extended under this Clause, cf. Cl. 6-4, sub-clause 1.

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    Clause 11-9. Liability of the insurer during the period of clarification

    If the assured is entitled to claim for a total loss in accordance with Cl. 11-2, sub-clause 2, Cl. 11-3 and Cl. 11-7, an insurer who is not liable for the total loss shall not be liable for new casualties occurring after the casualty that resulted in a total loss. The insurer who is liable for t...