Section 2: Alteration of the risk

• The Commentary was amended in the 2010 version.<strong> </strong>This Section corresponds to Clauses 31-44 of the 1964 Plan and the relevant Nordic Insurance Contracts Acts (Nordic ICAs). The provisions of the Nordic ICAs only deal with the general rules relating to change of risk while this Section deals with general rules as well as special rules concerning change of class, breach of trading areas and rules of a similar nature such as Cl. 3-16 on illegal activities, Cl. 3-17 and Cl. 3-18 concerning the effect of requisition, Cl. 3-20 on removal of a damaged vessel and Cl. 3-21 on change of ownership. Cl. 43 of the 1964 Plan also contained rules which gave the insurer the right to limit his liability in the event of the vessel being moved to a different location to avoid condemnation. This rule is superfluous now that the claims leader has been given authority to decide the issue of moving the vessel on behalf of the whole group of insurers, cf. Cl. 9-4.

  The relevant Nordic ICAs provisions on alteration of the risk give the insurer the right to limit liability in the event of alteration of the risk or changes in circumstances which are material to the calculation of the premium. The relevant sanctions are total or partial exemption from liability, or a proportionate reduction in liability. For the insurer to be able to invoke these sanctions, however, the requirements of fault and causation must be met. These provisions from the Nordic ICAs are not, however, all suited for application to marine insurance, however. Accordingly, the relevant rules from the 1964 Plan have been for the most part retained.

  The general rules on the effect of alteration of the risk are found in Cl. 3-8 to Cl. 3-13. Presumably these rules will not frequently be invoked as the practical instances of alteration of the risk are dealt with by specific provisions. Moreover, the rules on safety regulations in Chapter 3, Section 3 encompass a number of cases which otherwise would have been decided according to the general rules on alteration of the risk.

  The rules in this and succeeding sections are aimed at the assured and link legal consequences to his actions or omissions. The assured is the party who is entitled to an indemnity or the amount insured, cf. Cl. 1-1 (c) of the Plan, i.e. the party who owns the financial interest which has been affected by the casualty. A single casualty can give rise to indemnity claims from several assureds under a single insurance contract, e.g., where the vessel is co-owned. The main principle in such situations is that each assured shall be judged separately. Fault on the part of one will not affect the others, although exceptions can be envisaged. On the other hand, it is not necessary for the assured to have personally been at fault for the rules to apply, however. To some extent the assured must be held vicariously liable for the acts or omissions of those persons acting on his behalf. This type of issue, such as whether the act or omission of an assured may affect the legal position of another, or whether the assured may be held vicariously liable for the acts or omissions of his employees, servants or agents, are dealt with under one heading in Chapter 3, Section 6.

• Clause 3-8. Alteration of the risk

  Sub-clause 2, second sentence, was added in the 2007 version. Sub-clause 2 was amended in the 2003 version. The provision is otherwise identical to earlier versions of the 1996 Plan and corresponds to Cl. 31 of the 1964 Plan and the relevant Nordic Insurance Contracts Acts (Nordic ICAs).

  The general rules on alteration of the risk correspond to the relevant Nordic ICAs, but the definitions of alteration of the risk, the threshold/criteria for triggering sanctions and the sanction structure are all different. As mentioned earlier, the issue of harmonisation with Nordic ICAs provisions has been examined, but it was decided that it was most suitable to retain the rules of the Plan.

  An insurance contract is one under which an insurer is to bear the risk of specified perils to which the insured interest is exposed. If one of these perils increases in intensity, this will not constitute an alteration of the risk which the insurer can then invoke. Thus, Cl. 3-11 does not require the assured to notify the insurer if the vessel runs into extremely bad weather or ice-filled waters.

  Accordingly, it is necessary to distinguish between alterations of the risk having the effect of terminating the insurance contract by frustration of the contract, and alterations which are not of such character. Sub-clause 1 sets out two general conditions which must be met: there must have been a change of a fortuitous nature, and the change must amount to frustration of the fundamental expectations upon which the contract was based. For both aspects, the decisive factor will be the construction of the insurance contract in question. The issue becomes one of whether the insurer should be bound to maintain the cover without an additional premium in the new situation which has arisen, or whether it would be reasonable to give the insurer the opportunity to apply the sanctions provided in the Plan. On this point it largely becomes necessary to fall back on basic principles of insurance and contract law; exhaustive exemplification is not possible.

  Like the relevant Nordic ICAs, the Plan uses the wording "alteration of the risk" and not "increase of the risk". This expression was chosen out of consideration for situations where a change in the risk can clearly be ascertained due to evolving external circumstances, but it is difficult to determine whether the risk has in fact become demonstrably greater.

  Cl. 31, sub-clause 2 of the 1964 Plan contained a rule on loss of class as an alteration of the risk. On the other hand, the additional insurance conditions dealt with loss of class and change of class under separate rules, cf. Cefor I.23, and PIC Cl. 5.5. During the revision, the view was taken that the general rules on alteration of the risk did not provide a suitable regulatory framework for dealing with classification problems. Accordingly, the issue was made subject to specific regulation in Cl. 3-14 of the 1996 Plan. In the 2007 revision, however, change of class was removed from the specific regulation in Cl. 3-14 and moved back to the rules regarding alteration of the risk, cf. below.

  Sub-clause 2 provides that a change of the State of registration, the manager of the vessel or the company which is responsible for the technical/maritime operation of the vessel shall be deemed to be an alteration of the risk as defined by sub-clause 1. This provision was amended in 2003 through the addition of  “a change of the State of registration”. The addition corresponds with the English ITCH rules, as well as with a number of continental conditions. The remainder of the provision tallies with the 2002 version and has been taken from the additional insurance conditions, cf. Cefor I.22 and PIC Cl. 5.13, which dealt with change of operating company as well as change of ownership and transfer of shares. However, the special rules regarding changes in the ownership structure of the company have been deleted as they were considered unnecessary. A transfer of shares in the owner company will not in itself be significant for the insurers – the decisive factor is whether there is a change in the company or companies responsible for operating the vessel. On the other hand, the rule regarding change of operating company has been retained here, while the rule regarding change of ownership has been moved to Cl. 3-21 and is further commented on under that Clause.

  The provision is based on a presumption that a change of the State of registration, manager or operating company will be of significance to the insurer. On the other hand, automatic termination of the cover, which is the solution in many other countries, will be an unnecessarily severe sanction. A milder approach is obtained by explicitly classifying a change of the State of registration, the manager or the company responsible for the technical/maritime operation of the vessel as an alteration of the risk. The assured must notify the insurer of this type of change pursuant to Cl. 3-11, and the insurer has the right to terminate the contract regardless of whether notification is given, cf. Cl. 3-10. If an insurance event occurs, the insurer will be free from liability if it can be assumed that the insurer would not have accepted the risk had he known that the change would take place, cf. Cl. 3-9, sub-clause 1. If it can be assumed that the insurer would have accepted the risk but on other conditions, the insurer will only be liable to the extent it is established that the loss is not due to the alteration of the risk, cf. Cl. 3-9, sub-clause 2. This type of sanction structure gives the insurer sufficient protection against this kind of change.

  The term “State of registration” refers to the State in which the vessel is registered. It makes no difference if the vessel is registered in another register in the same State, such as in the case of a change from NOR to NIS. The expression "manager" has a long tradition in marine insurance law, and covers the company which has the overall responsibility for the vessel’s technical/maritime and commercial operation. A change of manager will thus entail a change in all management functions, i.e. technical, maritime and commercial management. The term "manager", by contrast, does not encompass a company which is only responsible for part of the vessel’s operation. If the management functions are separated, it will be crucial for the purposes of insurance which company is responsible for the "technical/maritime" operation. Responsibility for the technical/maritime management functions will usually be combined in one company, and the functions must be combined in this way for the change to automatically constitute an alteration of the risk pursuant to Cl. 3-8, sub-clause 2: if the technical and maritime functions are split up among two or more companies, a change of one of these companies will not automatically constitute an alteration of the risk but may, depending on the circumstances, constitute a general alteration of the risk under Cl. 3-8, sub-clause 1. The same applies if there is a change of the company which is only responsible for the commercial operation of the vessel, or for the crewing of the vessel. As the threshold for a relevant change under sub-clause 1 is high, an insurer wishing to protect his position where there is a change of the company responsible for functions other than technical/maritime operation must include a specific clause to that effect.

  Sub-clause 2, second sentence, was new in the 2007 version. According to Cl. 3-14, sub-clause 2, of the 1996 Plan, the rule was that the insurance terminated in the event of a change of classification society unless the insurer explicitly consented to a continuation of the insurance. As a result of this rule, the shipowner’s simply forgetting to give notification of such a change could result in the termination of the insurance, even if the insurer might well have approved continuation of the insurance had he been notified of the change of classification society. It is therefore more suitable to apply the general rules governing alteration of the risk in respect of this point. As a result of the amendment, the rules stating that insurance cover does not terminate until the vessel has reached its next port no longer applies in relation to a change of classification society. Thus, if the insurer would not have approved the change, he is not liable for casualties that occur after the change took place, cf. Cl. 3-19, sub-clause 1.

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  Clause 3-8. Alteration of the risk

  An alteration of the risk occurs when there is a change in the circumstances which, according to the contract, are to form the basis of the insurance, and the risk is thereby altered contrary to the implied conditions of the contract. A change of the State of registration, of the manager of the...

• Clause 3-9. Alteration of the risk caused or agreed to by the assured

  This Clause is identical to Cl. 32 of the 1964 Plan.

  Reference is made to the Commentary on Cl. 3-3 with respect to the burden of proof and combination of causes.

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  Clause 3-9. Alteration of the risk caused or agreed to by the assured

  If, after the conclusion of the contract, the assured has intentionally caused or agreed to an alteration of the risk, the insurer is free from liability, provided that it may be assumed that it  would not have accepted the insurance if, at the time the contract was concluded, it had known that t...

• Clause 3-10. Right of the insurer to cancel the insurance

  This Clause is identical to Cl. 33 of the 1964 Plan.

  The rule corresponds to the relevant Nordic Insurance Contracts Acts (Nordic ICAs), although the Nordic ICASs contains the additional requirement that the cancellation be reasonable. the Nordic ICAs also contains rules on how the cancellation is to be carried out. These rules are superfluous in marine insurance.

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  Clause 3-10. Right of the insurer to cancel the insurance

  If an alteration of the risk occurs, the insurer may cancel the insurance by giving fourteen days’ notice.

• Clause 3-11. Duty of the assured to give notice

  This Clause corresponds to Cl. 34 of the 1964 Plan.

  The first sentence imposes on the assured a duty to inform the insurer in the event of an alteration of the risk. The second sentence allows the insurer, in the event of a failure to notify, to cancel the contract or take other action. The period of notice has been changed to 14 days, in keeping with the rules for the duty of disclosure.

  The relevant Nordic ICAs contain a rule to the effect that the rules on alteration of the risk may not be invoked if the assured has taken reasonable steps to notify the insurer as soon as the assured knew about the change. This provision is not entirely suitable within the Plan system.

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  Clause 3-11. Duty of the assured to give notice

  If the assured becomes aware that an alteration of the risk will take place or has taken place,  it shall, without undue delay, notify the insurer. If the assured, without justifiable reason, fails to do so, the rule in Cl. 3-9 shall apply, even if the alteration was not caused by the assured or...

• Clause 3-12. Cases where the insurer may not invoke alteration of the risk

  This Clause is identical to Cl. 35 of the 1964 Plan.

  Sub-clause 1 sets out the same rule for alteration of the risk as that in Cl. 3-5, second sentence, regarding the duty of disclosure. However, it is only the rights referred to in Cl. 3-9 and Cl. 3-10 which are lost by the insurer once circumstances have returned to normal, and not the right under Cl. 3-11. The duty to give notice of relevant alterations of the risk is so important from the insurer’s standpoint that an assured who has neglected this duty must be prepared to face cancellation on 14 days’ notice, even if the contractual level of risk has been restored.

  Sub-clause 2 prohibits the insurer from invoking an alteration of the risk caused by measures taken to save human life. This provision corresponds to the similar provision in the relevant Nordic Insurance Contracts Acts (Nordic ICAs). However, the rules are somewhat different when there is an alteration of the risk due to measures taken to salvage goods of material value: under the Plan, the insurer must accept an alteration of the risk occurring for the purpose of saving a vessel or goods "during the voyage", while the rule in Nordic ICAs applies generally without any similar restriction to salvaging of goods. Unrestricted allowance of the vessel to be used in salvage operations at the expense of the insurer is not appropriate in marine insurance. Coverage of the alteration of the risk in salvage operations to save goods must be limited to the occasional salvage operation decided upon more or less spontaneously, and which it is natural for a commercial vessel to undertake. This limitation is expressed in the requirement that the salvage operation must take place "during the voyage". The salvage operation takes place "during the voyage" when the vessel in distress is located in the immediate vicinity of the sailing route. However, the formulation also encompasses the situation where the vessel departs from a port of call in order to assist a vessel in distress, if the casualty has occurred in the proximity of the port and the insured vessel is the closest vessel available to assist the vessel in distress, cf. ND 1966.200 Lyngen NINNI.

  It does not matter, for the purposes of insurance cover, whether the assured has consented to the salvage operation or not. A requirement of consent on the part of the assured might make the master hesitate to report a salvage operation which he finds appropriate and correct to carry out. Therefore, as long as the salvage operation takes place "during the voyage", it is permitted.

  Salvage operations will often involve the insured vessel being used for towing. This would normally affect the liability coverage under the hull insurance contract but, under Cl. 13-1, sub-clause 2, sub-clause (a), the coverage will remain in force when the salvage operation is permitted pursuant to Cl. 3-12, sub-clause 2.

  If the salvage operation is not permitted, the insurer may invoke Cl. 3-9 and Cl. 3-10. Cancellation by giving 14 days’ notice is, however, not very practical in this kind of situation. Consequently, the insurer’s main protection will come from Cl. 3-9: if the insurer would not have accepted the risk, the entire contract ceases, besides which the insurer is free from all liability arising from the salvage attempt. On the other hand, accidental damage occurring completely independently of the salvage operation will still be covered. The alternative would have been to suspend the insurance cover while the salvage operation was being carried out, but this would have been too stringent.

  A salvage operation which the assured opts to carry out contrary to Cl. 3-12, sub-clause 2, will constitute an alteration of the risk which he will have a duty to notify Cl. 3-11. If the assured neglects this duty, the insurer may use that neglect as a basis for cancelling the insurance contract, even though the salvage operation is completed without damage to the vessel, cf. the comments above on sub-clause 1.

  In determining the salvage reward, consideration shall also be given to damage and loss sustained by the salvor, cf. Norwegian Maritime Code (Sjøloven) Section 442, no. 1 (f), and under Section 446, first sub-clause, damage sustained by the salvor shall receive first priority when the salvage reward is distributed. Insofar as the salvage reward is sufficient to cover the assured’s loss, the insurer should be indemnified, cf. Cl. 5-18 which applies mutatis mutandis to the rules on claims against third parties.

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  Clause 3-12. Cases where the insurer may not invoke alteration of the risk

  The insurer may not invoke Cl. 3-9 and Cl. 3-10 after the alteration of the risk has ceased to be material to it . The same applies if the risk is altered by measures taken for the purpose of saving human life, or by the insured vessel salvaging or attempting to salvage vessels or goods during th...

• Clause 3-13. Duty of the insurer to give notice

  This Clause corresponds to Cl. 36 of the 1964 Plan and has a parallel in the relevant Nordic Insurance Contracts Acts.

  The provision is identical to the one regarding the duty to notify in Cl. 3-6 above.

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  Clause 3-13. Duty of the insurer to give notice

  If the insurer becomes aware that an alteration of the risk has taken place,  the insurer shall, without undue delay and in writing, notify the assured of the extent to which the insurer intends to invoke Cl. 3-9 and Cl. 3-10. If  the insurer fails to do so, it forfeits  its right to invoke those...

• Clause 3-14. Loss of the main class

  In the 2013 Plan it has been expressly stated what previously was implied in the text and the Commentary that Cl. 3-14 only apply to loss of the main class. The provision is otherwise identical to earlier versions of the 1996 Plan.

  In addition to the main class the vessel with its equipment may be given optional additional class notations according to the individual classification society’s rules. Unless the insurer expressly has made Cl. 3-14 applicable also for any such additional class notations, loss of same will not result in an automatic termination of the insurance cover.

  Sub-clause 1 sets out the principle that, at the time the insurance cover commences, the vessel shall be classed with a classification society approved by the insurer.

  In earlier versions of the 1996 Plan, the rule under sub-clause 1 was that both loss of class and change of classification society led to automatic termination of the insurance. In the 2007 version, this was amended to the effect that only loss of class causes the insurance to terminate, sub-clause 2, first sentence. A change of classification society was made an alteration of the risk, cf. Cl. 3-8, sub-clause 2. The rule that the insurance cover will not terminate if the insurer expressly consents to continuation of the insurance therefore only applies in relation to loss of main class. The provision ensures that the assured may not argue that he has informed the insurer, who has then given tacit acceptance. Furthermore, cover is maintained in any event until the vessel reaches the nearest port, sub-clause 2, second sentence. In keeping with the formulation of Cl. 3-7, sub-clause 2, the closest safe port as instructed by the insurer is specified, cf. also the Commentary on Cl. 3-7. Sub-clause 3 sets out what is to be deemed a loss of the main class. Because some classification societies cancel the vessel’s main class when a casualty has occurred, it is explicitly stated that suspension or loss of main class resulting from a "casualty which has occurred" is not to be deemed a loss of main class. In this situation the assured should not be deprived of cover. It does not matter in this connection whether the casualty is recoverable under the insurance or not. The insurance remains intact, even if the main class is suspended following a casualty which is not recoverable, e.g., because the vessel was not complying with the required technical standard. The insurer may, of course, invoke any of the defences pursuant to Chapter 3 if applicable.

  There is no requirement for cessation of the insurance that the loss of main class results from a formal decision by the classification society. The trend among classification societies is to introduce rules on automatic suspension of class when the assured has failed to carry out one of the three periodic surveys: Renewal Survey (every five years), Intermediate Survey (every second or third year) and the Annual Survey. The main class can thus be suspended without a formal decision on the part of the administration in the classification society.

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  Clause 3-14. Loss of the main class

  When the insurance commences the vessel shall be classed with a classification society approved by the insurer. The insurance terminates in the event of loss of the main class, unless the insurer explicitly consents to a continuation of the insurance contract. If the vessel is under way when the...

• Clause 3-15. Trading areas

  The Clause was amended in 2016, due to a disagreement that had arisen on the effect of the requirement for compliance with ice class rules introduced in 2007. Hence, Cl. 3-22, sub-clause 3, was deleted in 2016.

  The rules are still based on a tripartite division: ordinary trading areas, excluded trading areas (areas where there is no cover unless express prior approval has been given), and conditional trading areas (areas where the shipowner may trade but on certain conditions such as e.g. additional premium). Sub-clause 1, first sentence defines the ordinary trading areas, as comprising all waters except those which are defined as excluded or conditional areas. The excluded or conditional trading areas are defined in the Appendix to the Plan. Sub-clause 1, second sentence, provides that the person effecting the insurance has a duty to notify the insurer in advance whenever the vessel sails outside of the ordinary trading area. Cl. 3-15 is intended to be exhaustive as regards the consequences of sailing outside the trading areas, in the sense that the general rules regarding alteration of the risk in Clauses 3-8 to 3-13 do not apply to this particular type of alteration of the risk. But other general rules may apply as explained further below.

  Sub-clause 2 provides that the insurer may as before give his consent to trade outside the ordinary trading area subject to payment of an additional premium and other conditions. The insurer may e.g. provide cover subject to an increased deductible for any damage occurring outside the ordinary trading area. If the insurer should make his consent subject to compliance with other conditions aiming to prevent a loss, such conditions shall constitute safety regulations, cf. Cl. 3-22 and Cl. 3-25, sub-clause 1. The insurer may make such safety regulations special safety regulations, cf. Cl. 3-22 and Cl. 3-25, sub-clause 2. If the assured has failed to notify the insurer pursuant to sub-clause 1 of trade outside the trading area, the insurer cannot retroactively impose a safety regulation unless such safety regulation is in conformity with the insurer’s normal practice for the trade in question.

  The classification societies that are members of the International Association of Classification Societies (IACS) have not agreed on any common ice class notations, and ice class is not a part of the main class. Ice class is currently a voluntary additional class notation, documenting that the vessel is designed to operate in certain ice conditions. The higher the ice class, the thicker ice the vessel is designed to operate in. The classification societies’ rules as such do not regulate the way in which a vessel may be operated in ice-infested waters. The vessel’s class will not be lost or suspended if the vessel operates in ice conditions that it is not designed for. Even so, information about whether the vessel has any ice class, and if so which one, is of importance for the insurer’s risk assessment. If the insurer has consented to trade in a conditional trading area subject to a certain ice class, the requirement of ice class will constitute a special safety regulation that shall apply in addition to any safety regulation that might apply by virtue of Cl. 3-22, sub-clause 1.

  Local authorities may issue their own rules, recommendations or guidelines for operation in ice-infested waters within their area of jurisdiction. Examples of these are rules similar to the classification societies’ rules on ice class, requirements to follow ice breakers and other regulations issued by the local ice navigation surveillance authorities. Whether such rules, recommendations or guidelines will satisfy the definition of a safety regulation in Cl. 3-22 will depend on whether such rules, recommendations or guidelines are binding on the assured, see further the Commentary to Cl. 3-22. In the Baltic, Finnish and Swedish ice surveillance authorities issue such recommendations. However, vessels are reportedly free to operate without complying with them. The only sanction will be that non-complying vessels will not get assistance from state owned icebreakers if stuck in the ice. Hence, the Finnish and Swedish ice surveillance authorities’ recommendations cannot be deemed binding on the assured and therefore do not constitute a safety regulation according to Cl. 3-22. However, if authorities issue binding rules for navigation in ice-infested areas within their jurisdiction, then breach of these rules will also be a breach of safety regulations as governed by Cl. 3-25, sub-clause 1.

  Sub-clause 3, deals with navigation in conditional trading areas. It is expressly provided that the vessel is held covered for trade in the conditional trading areas, but the insurer may charge an additional premium and impose other conditions, cf. sub-clause 2. Entitlement to additional premium and to stipulate other conditions requires a genuine increase in the risk. If the ice in the Baltic Sea in a mild winter has formed later than the date stipulated in the appendix to the Plan, the requirements for imposing an additional premium are not met during the ice-free period. If the person effecting the insurance is not willing to accept the additional premium or any special conditions, it may request suspension of cover while the vessel is in that area.

  If the insurer has not been given prior notice as required by sub-clause 1, second sentence, the additional premium and any conditions must be set when the insurer is informed that the vessel has sailed in a conditional area. In these cases, the person effecting the insurance must simply accept any additional premium and conditions the insurer might impose. Failure to notify will not have any other consequences for the person effecting the insurance unless damage occurs, cf. sub-clause 3, first sentence. If the vessel sails in a conditional area with the consent of the assured and without notification having been given, the claim is recoverable subject to a deduction of 1/4, maximum USD 200,000. The word “claim” applies to any type of claim. It is not only the claim for repair of ice damage under the hull insurance that is subject to the deduction, but any claim for repair of any type of damage and any claim under a loss of hire insurance. One such deduction will apply to each individual insurance. The rationale is that the assured would have nothing to lose if there was no sanction for a failure to give notice. The deduction does not apply to total loss. It is also a requirement for application of the deduction that the assured has consented to vessel’s entry into a conditional area. If the vessel enters into the conditional trading area without the consent of the assured, e.g., due to a mistake by the master or crew, or due to ice, any damage occurring will not trigger the extra deduction. The insurer will, however, always be entitled to charge an extra premium or impose other conditions pursuant to sub-clause 2 regardless of whether a deduction of ¼ (max. USD 200,000) is to be applied.

  The deduction pursuant to sub-clause 3 is applicable in addition to the ordinary deductions prescribed in Cl. 12-15, 12-16 and 12-18. When calculating the deduction, the provision in Cl. 12-19 shall apply correspondingly, cf. second sentence.

  Sub-clause 3, third sentence was new in 2016 and imposes a further reduction of the claim if the damage is a result of the assured’s failure to exercise due care and diligence by neglecting to notify the insurer that the vessel has entered a conditional trading area in accordance with sub-clause 1, second sentence. The further reduction of the claim shall be based on the degree of the assured’s fault and the circumstances generally, cf. Cl. 3-33. As opposed to Cl. 3-33, ordinary negligence of the assured is sufficient to entitle the insurer to a further reduction of the claim. Delay due to non-service from e.g. state owned ice breakers because the assured has neglected to follow the local authorities recommendations, may not be recoverable under the loss of hire insurance. Likewise, additional costs incurred for the same reason such as e.g. hiring, if available, non-state owned ice breakers may also be deemed unrecoverable.

  Examples of relevant criteria for deciding whether the assured has exercised due care and diligence will be ­

  • the experience of the master and/or duty officer in navigating in ice and the use of an ice pilot when appropriate,­
  • that the master and crew have received timely and appropriate information and instructions concerning the construction and capabilities of the insured vessel in relation to the conditions prevailing,
  • that requirements, recommendations and regulations of local authorities in respect of navigating in ice are complied with.

  If the vessel has no ice class, it may be deemed negligent to operate it in ice-infested waters. The same applies if the vessel operates in ice conditions without having the appropriate ice class. Breach of local requirements etc. may amount to breach of safety regulations under Cl. 3-22 if the local regulations are binding on the assured. If so, the consequence of a breach is governed by Cl. 3-25. The ordinary rules on identification will apply, cf. Cl. 3-36 to Cl. 3-38.

  Sub-clause 4 is new and spells out that the insurance remains in full force and effect if the assured has given notice in accordance with sub-clause 1, and provided that the assured complies with the conditions, if any, as stipulated by the insurer.

  If the damage is deemed to be caused by gross negligence of the assured, cf. Cl. 3-33, then the claim may be forfeited. The ordinary rules on identification will apply, cf. Cl. 3-36 to Cl. 3-38, unless otherwise is agreed.

  Sub-clause 5 sets out the rules for navigation in excluded trading areas. It follows from the first sentence that the assured is allowed to sail in excluded trading areas provided he has obtained advance approval from the insurer, subject to agreed terms. If no agreement has been reached, the cover will be suspended from the moment the vessel enters the excluded area. For the insurance to be suspended, however, the master must have acted intentionally in exceeding the trading limit. Suspension pursuant to sub-clause 5 will apply only as long as the vessel is inside the excluded area, cf. second sentence.

  Cover will not be suspended if the vessel enters into an excluded area as part of measures being taken to save human life or to salvage vessel or goods, cf. the reference to Cl. 3-12, sub-clause 2, in the third sentence. In relation to Cl. 3-15, sub-clause 5 the insurance will not be suspended if the vessel enters into an excluded area to seek a port of refuge or similar measures to save herself and/or her cargo.

  If a casualty has occurred after insurance cover has resumed following a deviation, the general rules on causation in Cl. 2-11 apply. If it is clear that the vessel sustained damage during the deviation, the insurer will not be liable for new casualties occurring as a result of that damage. The reason is that these casualties must be attributed to the vessel having been "struck by a peril" during the suspension period, cf. Cl. 2-11, sub-clause 1, but since the damage is known, the special rules on unknown damage in sub-clause 2 of the same Clause would not apply. If separate hull cover was taken out during the deviation, new casualties will be recoverable under that insurance contract. If, however, the damage sustained by the vessel during the deviation is unknown, the new casualties will fall entirely under the ordinary hull insurer’s liability.

  Here, as elsewhere, the rules on apportionment in the event of a combination of causes must be applied. If a subsequent casualty is partly due to known damage which occurred during the suspension period and partly due to impact during subsequent exposure, the insurer will only be liable for a proportionate share of the loss, cf. Cl. 2-13.

  The rules on trading areas under an insurance contract are separate from the issue of where a vessel is allowed to sail under its trading certificate. A trading certificate is a certificate used instead of class approval for smaller vessels governing the area where it is permitted to trade, and loss of the trading certificate is dealt with specifically in Cl. 17-4, sub-clause 2. On the other hand, sailing outside the areas permitted by the trading certificate would be a breach of a safety regulation, and is governed by Cl. 3-22, or in the case of fishing vessels and smaller coasters, Cl. 17-5 (b).

  In the 2007 version a number of amendments were also made to the appendix to the Plan regarding trading areas. The appendix contains further comments on these amendments.

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  Clause 3-15. Trading areas

  The ordinary trading area under the insurance comprises all waters, subject to the limitations laid down in the Appendix to the Plan as regards conditional and excluded areas. The person effecting the insurance shall notify the insurer before the vessel proceeds beyond the ordinary trading area....

• Clause 3-16. Illegal undertakings

  This Clause corresponds to Cl. 40 of the 1964 Plan. The provision has no direct parallel in the relevant Nordic Insurance Contracts Acts.

  Sub-clause 1 establishes that use of the vessel for illegal purposes constitutes a special alteration of the risk. Sub-clause 3, according to which the insurance terminates if the vessel, with the consent of the assured, is substantially used for the furtherance of illegal purposes, has its origins in the 1930 ICA Section 35, which prohibited insurance of an "illegal interest"; see also the Commentary on Cl. 2-1 and Cl. 2-8 above. NL 5-1-2, which forbids contracts which offend decency, is based on somewhat different criteria, but leads to substantially the same result.

  Under sub-clause 1 the insurer is free from liability for "loss that is a consequence of the vessel being used for illegal purposes". Judging the causation issue may give rise to difficulty. It is not sufficient that the vessel runs aground on a voyage with an illegal purpose about which the assured knew. The damage must, to a certain extent, be a foreseeable consequence of the illegal undertaking, e.g., where the vessel must venture into hazardous waters in connection with a smuggling operation and runs aground. The more detailed application of this rule is a matter which must be left to the courts.

  It is also a requirement that the assured "knew or ought to have known" of the illegal nature of the undertaking at a time when it would have been possible for the assured to intervene. If the crew uses the vessel for illegal purposes without the knowledge of the assured, this is a risk against which the assured should be protected. Once the assured learns of the matter, however, the assured must intervene promptly, failing which the insurer may cancel the insurance contract on 14 days’ notice, pursuant to sub-clause 2. The period of notice was three days under the 1964 Plan, but this has now been amended to conform with the other notice periods. The burden of proving good faith lies with the assured.

  An undertaking or an activity is illegal not only when it violates the laws of the flag State, but also when it is unlawful under the laws of the State which has authority over the vessel in the situation in question. The issue of whether the vessel had a duty to comply with prohibitions or orders of another country’s authorities must be determined in each situation, cf. also the comments to Cl. 3-22.

  When the vessel is being used for illegal purposes without the knowledge of the assured, the consequence will often be that government authorities intervene. If the vessel sustains damage as a result of a customs search, this will have to be indemnified by the marine hull insurer. The same applies if the vessel is definitively seized because of the illegal undertaking. Damage and intervention of this nature do not fall under Cl. 2-9, sub-clause 1 (b), cf. the Commentary to that provision, and are therefore not excluded from the perils covered by the marine insurer. 

  There may sometimes be some doubt as to whether it is the marine perils insurer or the war risks insurer which must pay for a loss that is the consequence of an illegal activity undertaken without the knowledge of the assured. The deciding factor will be what falls under the expression "other similar intervention" in Cl. 2-9, sub-clause 1 (b).

  The rule in sub-clause 3 will apply, e.g., if the assured puts the vessel to use in regular smuggling traffic. If so, it should not matter that the vessel also carries some legal cargo. The decisive factor will be whether the vessel is used principally for the purposes of the illegal undertaking.

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  Clause 3-16. Illegal undertakings

  The insurer is not liable for loss which results from the vessel being used for illegal purposes, unless the assured neither knew nor ought to have known of the facts at such a time that it would have been possible for it  to intervene. If the assured fails to intervene without undue delay after...

• Clause 3-17. Suspension of insurance in the event of requisition

  Sub-clause 2 was moved to Cl. 15-24 (b) in the 2007 version. The sub-clause is otherwise identical to earlier versions of the 1996 Plan.

  Sub-clause 1, first sentence sets out the principal rule, i.e. that in the event of requisition by a State power, all of the vessel’s insurances are suspended. This applies regardless of whether the insurance is against marine perils, cf. Cl. 2-8, or war risks, cf. Cl. 2-9, and regardless of whether the requisition is carried out by the vessel’s "own" State power or a "foreign" one. It does not matter, for the purposes of the provision, whether it is the ownership or merely the use of the vessel which is requisitioned, although Cl. 3-21 does provide that the insurance cover terminates if the vessel changes owner. It is often difficult to determine whether a requisition is intended to be temporary or of a permanent nature, and for this reason it is most appropriate that cover be suspended and not definitively terminated. This provision is thus a specific rule in relation to Cl. 3-21. If the requisition ceases before the insurance period expires, the insurance will again come into effect, cf. second sentence. The second sentence regulates the right of the insurer to cancel the insurance. In the 2007 version, sub-clause 2 was moved to Cl. 15-24 (b) in connection with the fact that all the specific rules for insurance with the Norwegian Shipowners’ Mutual War Risk Insurance Association were collected in a new Section 9 in Chapter 15. The move entails no change in points of substance.

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  Clause 3-17. Suspension of the insurance in the event of requisition

  If the vessel is requisitioned by a State power, the insurance against both marine perils and war perils is suspended. If the requisition ceases before expiry of the insurance period, the insurance comes into force again. If the vessel proves to be in substantially worse condition than it was pri...

• Clause 3-18. Notification of requisition

  This Clause corresponds to Cl. 42 of the 1964 Plan.

  Sub-clause 1 imposes on the assured a duty to notify the insurer if the vessel is requisitioned or is returned, while sub-clause 2 gives the insurer authority to demand a survey of the vessel when the requisition is over and the vessel has been returned. When the insurance comes into effect again after a requisition, the same types of causation problems arise as when the insurance cover has been suspended due to the vessel navigating beyond the trading areas. The Plan’s general rules on causation also apply in the event of requisition, cf. Cl. 2-11. If the vessel has sustained unknown latent damage during the requisition period, the insurer will bear the risk of the later effects of that damage. Consequently, the insurer has a specific interest in receiving notice of the return of the vessel, so that he may exercise his right to demand a survey pursuant to sub-clause 2. Latent damage discovered in the survey shall be deemed to be "known" for the purposes of Cl. 2-11. If the survey reveals that the vessel is a significantly worse risk than prior to the requisition, the insurer may then cancel the insurance pursuant to Cl. 3-17, sub-clause 1, third sentence.

  If the vessel sustains a casualty after it is returned, and the insurer wishes to plead that the casualty is due to a casualty or circumstance which occurred while cover was suspended, the burden of proof will be on the insurer, cf. Cl. 2-12, sub-clause 2. If the shipowner fails to report the return of the vessel, thereby depriving the insurer of the opportunity to obtain evidence, it is reasonable to then place the burden of proof on the assured. Sub-clause 3 of the clause contains a rule to this effect.

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  Clause 3-18. Notification of requisition

  If the assured is informed that the vessel has been or will be requisitioned, or that it has been or will be returned after the requisition, it shall notify the insurer without undue delay. The insurer may demand that the assured have the vessel surveyed in a dock for  its own account immediately...

• Clause 3-19. Suspension of insurance while the vessel is temporarily seized

  This Clause corresponds in part to Cl. 16 of the 1964 Plan, sub-clause 3.

  If the vessel is temporarily seized by a foreign State power, without there being a requisition within the meaning of Cl. 2-9 and Cl. 3-17, it is appropriate that the insurance against marine perils be suspended, as in the event of requisition under Cl. 3-17, although suspension of the war risks cover is not necessary. On the contrary, in keeping with Cl. 16, sub-clause 3, of the 1964 Plan, it is natural to let the war risks cover take over the risk of marine perils as well.

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  Clause 3-19. Suspension of insurance while the vessel is temporarily seized

  If the vessel is temporarily seized by a State power without Cl. 3-17 becoming applicable, the insurance against marine perils is suspended. In that event the insurance against war perils shall also cover marine perils as defined in Cl. 2-8. Cl. 3-18 shall apply correspondingly.

• Clause 3-20. Removal of the vessel to a repair yard

  The Commentary was amended in the 2010 version. This Clause corresponds to Cl. 44 of the 1964 Plan.

  Sub-clause 1 imposes on the assured an obligation to notify the insurer if a removal of the vessel to a repair yard entails an increase in the risk. The provision is identical to Cl. 44, sub-clause 1 of the 1964 Plan with the addition that the risk must have increased as a result of damage. Notice is necessary to give the insurer the opportunity to assess whether to object to the removal, cf. below. It is sufficient to give notice to the claims leader, cf. Cl. 9-6.

  A "removal" of the vessel means that it will undertake a voyage, under its own propulsion or under towage, exclusively for the purpose of being brought to a dry-dock or repair yard. The voyage will not be regarded as a removal if the vessel is in such good condition that it takes a new cargo to the port where the survey or repairs are to be carried out. It may be deemed a "removal", however, even if the vessel retains a cargo which was on board at the time the casualty occurred; the decisive factor will be whether the vessel is in such condition that the shipowner may incur liability for unseaworthiness if a new cargo were to be taken on board after the casualty has occurred.

  A vessel will not usually be given permission by the relevant authorities to sail when there is a breach of the rules regarding technical or operational safety. For "removal", however, the authorities will usually grant dispensation based on an assessment of the situation, in which the economic aspects of a removal will play a certain role. As long as the assured takes up the matter with the authorities and obtains the necessary permits, the insurer who is liable for the casualty may not invoke a breach of technical or operational safety regulations during the removal. However, if the assured deceives the insurer on this aspect, all cover relating to the vessel will be lost (cf. rules on breach of safety regulations).

  Sub-clause 2, first sentence gives the insurer the right to object to a removal to a repair yard which creates a substantial increase of the risk. This provision must be read in conjunction with the Plan’s other provisions relating to removal. Under Cl. 11-6, the insurer may, in response to a request for condemnation, request that the vessel be moved to a port where it may be properly surveyed. The risk thereof shall be transferred to the insurer who requests that the removal be carried out, cf. Cl. 11-6, sub-clause 2; it is not possible to object to the removal in this situation. It will not normally be possible to object to an ordinary removal to a repair yard under Cl. 12-13, either. A removal of this nature is an entirely ordinary use of the vessel which any marine insurer must be prepared to expect during the period of insurance. Consequently, the removal should be able to take place without any extra premium being charged during the move (provided there is no breach of technical or operational safety regulations).

  Even an ordinary removal to a repair yard may involve a substantial increase of the risk, if the assured opts to have the vessel repaired at a particularly remote repair yard or at a place that can only be reached by sailing through hazardous waters. In that case, it is reasonable that the assured bear the extra risk that a removal of this type entails. This is achieved in the second sub-clause, under which the insurer may impose a veto in certain situations, with the effect that the insurance cover is suspended and the assured must take steps to obtain other insurance to cover the risk.

  The provision may be invoked by any insurer who has granted cover for the vessel in question, cf. Cl. 12-13, sub-clause 3, which expressly states that the provision may also be used by a hull insurer which is liable for the damage to be repaired.

  In practice, a claims leader will ordinarily be appointed for the hull insurance. In such case, the claims leader decides the issue of removal on behalf of the co-insurers, cf. Cl. 9-6, and the insurers for the separate insurances against total loss, cf. Cl. 14-3, sub-clause 4. If the claims leader has accepted the removal of the vessel, the individual co-insurer or total loss insurer may not invoke the provision in Cl. 3-20.

  For the insurer to be able to disclaim liability during the removal, it must entail a "substantial increase of the risk". If this is the case, a determination must be made in relation to each insurer invoking the provision. A hull insurer against marine perils will be able to object to a particularly hazardous removal of a vessel damaged by war perils, for example, or to a removal which requires the vessel to be towed across open stretches of sea.

  If a hull insurer who is liable for the vessel’s damage is to be able to invoke the provision, there must be other, less perilous options available. If there is only one single possibility of the vessel being repaired at all, the alternative can be that the vessel may be condemned where it lies. If the hull insurers do not want the vessel condemned, then they must bear the risk during the removal. On the other hand, a hull insurer who is not liable for the casualty may, depending on the circumstances, be able to invoke Cl. 3-20.

  Sub-clause 2, second sentence, provides that an insurer who has objected to a removal will not be liable for "loss that occurs during or as a consequence of the removal". If the claims leader under the hull insurance has objected to the removal, the co-insurers and interest insurers will also be free from liability in this connection, cf. above. The insurer(s) freed of liability will not be liable for any loss which occurs while the removal is under way, even though the loss may be unconnected to the increase of the risk. Likewise, the insurer may disclaim liability for loss arising later on, although only to the extent that he proves that the loss is due to the removal. The question of the insurer’s liability must thus be determined on the basis of the general rules of causation. The insurer may not disclaim liability for a casualty which occurs purely by chance at the port to which the vessel has been removed, on the grounds that the casualty would not have occurred had the vessel remained where it was.

  To the extent that it is the claims leader under the hull insurance who has objected to the removal, the assured will not be covered under this insurance or under the separate total loss insurances for damage or loss occurring during the removal, unless he takes out a special hull insurance for the removal period. If, in exceptional cases, no claims leader has been appointed, one or more of the co-insurers under the hull insurance may accept the removal. In such case, these insurers will accept the risk for which the other co-insurers have disclaimed liability by objecting to the removal, cf. Section 12-13, sub-clause 2.

  The assured must be notified of a disclaimer of liability under sub-clause 2, first sentence, before the removal is commenced, so that the assured and any other insurers he may have may arrange necessary additional insurance. If the assured has failed to notify the insurer pursuant to sub-clause 1, the insurer has no opportunity to object to the removal, and thus will not be liable for any loss arising during or as a consequence of the removal, cf. sub-clause 2, second sentence. The risk is, in that case, transferred to the assured and not to another insurer. This may seem a rather stringent sanction for negligence on the part of the assured, but it is difficult, from a legal standpoint, to come up with any other satisfactory rule. A rule freeing the insurer in question from indemnification of loss resulting from the extra risk during the removal, for example, would create major difficulties in evaluating causation.

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  Clause 3-20. Removal of the vessel to a repair yard

  If there is reason to believe that the removal of a damaged vessel to a repair yard will result in an increase of the risk, the assured shall notify the insurer of the removal in advance. If the removal will result in a substantial increase of the risk, the insurer may, before the removal...

• Clause 3-21. Change of ownership

  The Commentary was amended in the 2019 Version.

  The provision sets out that the insurance cover will automatically lapse if the ownership of the vessel changes. In reality, the issue of cover in the event of a change of ownership is usually one of cover of a third party’s (the purchaser’s) interests in the vessel. The Plan’s approach in this connection differs from the relevant Nordic Insurance Contracts Acts (Nordic ICAs), which gives the purchaser, as a starting premise, automatic co-insurance cover. Cover is even mandatory for the first 14 days after the transfer for insurance subject to the Nordic ICAs’ compulsory rules. In marine insurance, however, the risk is usually so closely related to who is controlling the vessel and with that the management and other matters, that a change of ownership should unconditionally result in termination of insurance cover.

  The provision only applies in the event of a transfer to a "new owner". First of all, if a transfer is simply part of an intra-company re-organisation which does not entail a change in the actual ownership interests, the insurance will remain in effect in the usual manner. Nor will a change in the shareholder structure of a shipowning company be covered by the rules. The same applies if a shipowning company is merged with another company or is subject to a demerger. Merger and demerger are based on a principle of continuity meaning that the old company continues within the merged or demerged company.

  The provision affects all types of insurance relating to the vessel, and not just the hull insurance.

  The insurance will lapse only as regards casualties which occur after the change in ownership. If the vessel has known, unrepaired damage at the time of the transfer for which the insurer is liable, the vendor has a conditional claim against the insurer which can be transferred along with the vessel, cf. the Commentary below on Cl. 12-2.

  When the insurance terminates pursuant to Cl. 3-21, the person effecting the insurance may claim a reduction of the premium pursuant to Cl. 6-5.

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  Clause 3-21. Change of ownership

  The insurance terminates if the ownership of the vessel changes by sale or in any other manner.