Commentary

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Section 1: Claims adjustment, interest, payments on account, etc.

  • Clause 5-1. Duty of the assured to provide information and documents

    Sub-clause 1 establishes the duty of the assured to provide the insurer with such information and documents as are required for the purpose of settling the claim. It is irrelevant whether the insurer has specifically requested such information; the duty concerns any and all information the insurer, from an objective point of view, requires. The duty of disclosure applies both in relation to the claims leader and in relation to the co-insurers.

    In practice, the insurer often raises a number of specific questions related to the settlement. Incorrect answers to these questions represent a clear breach of Cl. 5-1, sub-clause 1. However, the provision shall also apply where the assured, on his own initiative, gives incorrect information or withholds information which he should understand is of significance for the insurer. The duty of the assured to provide information is, in other words, an active and not a passive duty of disclosure.

    The requirement to provide information may vary in the different types of insurance. In loss-of-hire insurance, the duty of disclosure under Cl. 5-1 entails that the assured shall make all accounting material that shows the vessel’s earnings, relevant bills, invoices, etc. available to the insurer in so far as this is necessary in order to calculate the correct compensation.

    If the assured fails to fulfil his duty under sub-clause 1, he risks forfeiting his right to claim interest for the time lost, cf. Cl. 5-4, sub-clause 2. However, loss of interest would normally only be a reasonable sanction where the assured has failed to comply with an explicit request from the insurer for a specific item of information or a specific document. However, an exception must be made for the general invoice. If the assured fails to submit this, he risks forfeiting his right to claim interest under Cl. 5-4, sub-clause 2, even if he has not received any specific request from the insurer.

    Sub-clause 2 is new and regulates the insurer’s sanctions if the assured, intentionally or through gross negligence, breaches the duty to provide information stipulated in sub-clause 1. The 1964 Plan did not contain any sanctions against the intentional or grossly negligent breach of this duty of disclosure, although sub-clauses 2 of Cl. 92 and Cl. 99 (cf. currently sub-clauses 2 of Cl. 5-9 and Cl. 5-16) of the 1964 Plan contained such sanctions for certain special situations. However, there is no reason why the failure to fulfil the general duty to provide information under Cl. 5-1 should result in a more lenient reaction than the failure to comply with the other provisions. Accordingly, sub-clause 2 establishes that, in the event of the assured, intentionally or through gross negligence, breaching the duty of disclosure, the insurer is not liable for any loss that would have been averted if the duty had been fulfilled.

    If the assured has acted fraudulently in connection with the claims settlement, the traditional point of departure in insurance law is that the assured forfeits any claim against the insurer. This point of departure had been softened in the 1964 Plan, where Cl. 83, sub-clause 2, merely stated that compensation might be reduced or lapse altogether where the assured had fraudulently or dishonestly failed to fulfil his duty of disclosure. However, this provision was considered unfortunate in practice, and the alternative, a reduction of liability was therefore abolished in the Special Conditions, cf. Cefor I.29 and PIC Cl. 5.8, which stated that liability lapsed where the assured had fraudulently or dishonestly breached the duty of disclosure. The solution in the Special Conditions has been maintained in the new Plan, cf. sub-clause 3, first sentence. This rule may seem strict if the fraud is of secondary importance and concerns only certain losses, and there is consequently a risk that the courts may in such cases fail to hold that fraud has been committed. However, the loss of all rights concords with the point of departure in the relevant Nordic Insurance Contracts Acts (Nordic ICAs).

    In the 1964 Plan, fraud was placed on a par with “dishonesty”. This is in accordance with the solution in the Norwegian ICA, which applies to an assured who, in connection with a claims settlement, deliberately gives incorrect or incomplete information which he knows or must understand may result in the payment of a compensation to which he is not entitled. This solution has not been maintained in the new Plan, under which a total loss of rights will only be relevant in the event of fraud. This is the most consistent procedure in relation to the other rules relating to subjective duties, and also makes it unnecessary to decide the difficult question as to what the term “dishonest” implies.

    Cl. 83, sub-clause 2, second sentence of the 1964 Plan equated fraud and dishonesty with the situation where the assured refused to provide information from the classification society. This rule has been amended and moved to Cl. 3-7, sub-clause 3.

    Sub-clause 3, second sentence, is new and gives the insurer the right to cancel any agreement with the assured by giving 14 days’ notice if the assured has acted fraudulently. This provision is taken from the Norwegian ICA Section 8-1, third paragraph, although that Section stipulates only one week’s notice. Because it is important that the assured be given clear information as to where he stands as soon as possible, it follows from the third sentence that the insurer shall act without undue delay after he has become aware of the fraudulent act, cf. the corresponding rule in Cl. 3-6.

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    Clause 5-1. Duty of the assured to provide particulars and documents

    The assured shall provide the insurer with such information and documents as are available to it and are required by the insurer for the purpose of settling the claim. If the assured, intentionally or through gross negligence, fails to fulfil its duties according to sub-clause 1, the insurer is...

  • Clause 5-2. Claims adjustment

    The first sentence to the effect that the insurer shall issue the claims adjustment as promptly as possible is identical to the 1964 Plan. However, the second sentence of the 1964 Plan contained more detailed time-limits: in the event of a settlement under the rules relating to a total loss, the claims adjustment was to be issued at the latest within 14 days, and in other cases at the latest within three months after the insurer had received the necessary information and documents. The provision was connected with Cl. 89 relating to due dates, which was tied to the time-limits in Cl. 84 and Cl. 86 relating to interest, which authorized penalty interest plus 1% in relation to the ordinary rate of interest if the due date is not adhered to. However, in the Special Conditions the system of interest on overdue payments had been superseded by a common rate of interest.

    The approach of the new Plan is to establish a due-date and interest system that is somewhere in between the solution in the 1964 Plan and the solution in the Special Conditions. On the one hand, there is reason to show caution when it comes to imposing interest on overdue payments. The sharp calculation of time-limits in Cl. 84, sub-clause 1, second sentence, of the 1964 Plan has therefore been taken out of the Plan text and does not have any direct impact on the due date. The insurers should never­the­less endeavour to meet a deadline of 14 days for total losses and three months for other settlements.

    On the other hand, a common rate of interest before and after the due date will not give the insurer very much of an incentive to be quick about the claims adjustment if the market rate is higher than the rate in the insurance contract. The possibility cannot be disregarded that the courts may in such a situation apply the Act relating to interest on overdue payments (for Norway Morarenteloven), even if the Plan did not contain any rules relating to interest on overdue payments. The due date in Cl. 5-6 therefore refers to the criterion “as promptly as possible” in Cl. 5-2, first sentence, and a rule relating to interest on overdue payments has been introduced in Cl. 5-4, sub-clause 4. An insurer who fails to pay compensation within six weeks after the “as promptly as possible” period has expired must pay overdue interest.

    The provision in the second sentence has been taken from Cl. 84, sub-clause 2, first sentence of the 1964 Plan. The insurer has been given a general right to engage an average adjuster to carry out the claim adjustment on its behalf. The 1964 Plan also contained a provision to the effect that the insurer had one month to decide whether or not to accept the average adjuster’s calculation. This rule was deemed to be superfluous and has been deleted.

    The assured does not have a right equivalent to that of the insurer to require that the adjustment is made by an average adjuster. However, there is nothing to prevent the parties from making an explicit agreement that the assured shall be given such a right.

    If the insurer has given responsibility for drafting the adjustment to an average adjuster as per Cl. 5-2, and the assured or insurer does not accept the adjustment, they may use their right under Cl. 5-5 to demand that the adjustment is submitted to a Nordic average adjuster for its opinion before the dispute is brought before the courts.

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    Clause 5-2. Claims adjustment

    The insurer shall issue the claims adjustment as promptly as possible. The insurer may give responsibility for drafting the adjustment to an average adjuster.

  • Clause 5-3. Rates of exchange

    Sub-clauses 2 and 3 was amended in the 2013 Plan to abolish the reference to “Norwegian Kroner” (NOK). The wording of paragraph 2 and 3 below was edited to clarify the relevant points. It is standard international practice that the conversion from one currency to another in the claims adjustment is based on the rate of exchange on the date of the assured’s disbursement, cf. sub-clause 1, first sentence. This means that the assured bears the exchange risk for the period of time between the disbursement and the final claims settlement.

    As regards general average, it is standard international practice for the conversion of currencies to be based on the rate of exchange on the date of disbursement. If, in exceptional cases, a different rate of exchange has been applied, the insurer has the right to apply for change of the actual average adjustment. If the adjustment is confirmed by the courts of the country concerned, the settlement should be made on the basis of the average adjustment.

    Sub-clause 2 regulates the conversion of costs that have not been paid when the adjustment is issued. The adjustment is “issued” when the completed adjustment is sent from the insurer to the interested parties. Hence, if there is a change in the rate of exchange during the period from the time the actual adjustment is issued until payment is made, this currency risk must be borne by the assured.

    Sub-clause 3 regulates the conversion of deductible and other amounts in the insurance contract if the sum insured is stipulated in a currency other than the currency stipulated for the deductible etc.; the conversion to the currency of the sum insured is based on the banks’ latest official selling rate before the insurance took effect. The meaning of “the insurance attaches” is further regulated in Cl. 1-5 of the Plan. The time at which it takes effect poses no problems for ordinary insurance contracts which attach for one year. If it has been agreed that the insurance shall attach for a period longer than one year, it follows from Cl. 1-5, sub-clause 4, that the insurance period shall be deemed to be one year in relation to Cl. 5-3, sub-clause 3. The further calculation of the period of insurance in such cases is shown in the Commentary on Cl. 1-5.

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    Chapter 5: Settlement of claims

  • Clause 5-4. Interest on the compensation

    Sub-clause 3 was amended in the 2023 Version.

    In the event of a total loss, it is the notice of the casualty, and not the claim for total loss, that forms the basis of the duty to pay interest. This also applies to condemnation, even if it takes a long time to decide the question of condemnation. If the matter is delayed because the assured is late in submitting the request, the question of applying the rule in sub-clause 2 may arise.

    Under Cl. 11-7, sub-clauses 1 and 2, the assured’s right to compensation for total loss will, in certain cases, be contingent on the expiry of a certain time-limit. However, under Cl. 11-7, sub-clause 3, the assured may claim compensation without awaiting the expiry of the time-limit if it can be proved that the vessel will not be recovered. In such cases, the obligation to pay interest will accrue one month after the assured proves that it has definitively lost the vessel.

    In the event of the insurer having to refund the assured’s disbursements, interest does not accrue until the date of the disbursement, cf. sub-clause 1, second sentence. Thus, no interest is charged on costs that have not yet been incurred.

    If the assured has had disbursements at different times, interest shall be calculated separately for each disbursement. In such cases, the deductible shall be apportioned over the various disbursements on a proportional basis so that the assured can only claim interest on that part of the disbursement which exceeds the relevant proportion of the deductible, cf. the Commentary on Cl. 12-18.

    Sub-clause 1, third sentence, states that in the case of loss of hire insurance the interest accrues from one month after expiry of the period for which the insurer is liable. There is no reason why the duty to pay interest shall be postponed until the repairs have been completed if the insurer’s liability is limited to a shorter period.

    The provision in sub-clause 2, first sentence, regulates the duty to pay interest if the assured fails to provide information under Cl. 5-1; in that event, interest cannot be claimed for the loss of time resulting from the delay.

    By making payments on account the insurer will, to a large extent, eliminate the duty to pay interest. If the assured refuses to accept such payments on account, or unrightfully refuses to accept settlement, wholly or in part, interest cannot be claimed for the resulting loss of time, cf. sub-clause 2, second sentence.

    Sub-clause 3 was amended and simplified in 2023, primarily due to termination of LIBOR settings by the UK Financial Conduct Authority, and the lack of any generally accepted replacement. The rate of interest shall now be based on the United States Prime Rate, which is a commonly used, short-term borrowing interest rate in the banking system of the United States. The prime rate is the interest rate that commercial banks charge their most creditworthy customers, and the United States Prime Rate has been agreed to be a fair interest rate to apply between insurers and assureds globally, and irrespective of the currency of the policy.

    As regards the time to which the rate of interest shall be tied, there could be various possible alternatives. The one on which the Plan is based is that the rate of interest shall be the United States Prime Rate applicable on the 1st of January “of the year the insurance contract comes into effect”. By this is meant the time when the individual insurance contract takes effect. If the insurance has been renewed with the same insurer, the time of renewal is decisive.

    The time when the insurance contract comes into effect poses no problems for ordinary insurance contracts which attach for one year. If it has been agreed that the insurance shall attach for a period longer than one year, Cl. 1-5, sub-clause 4, which was added in the 2003 Version, provides that the insurance period shall be deemed to be one year in relation to Cl. 5-4, sub-clause 3. The calculation of the insurance period is explained in further detail in the Commentary on Cl. 1-5. The Nordic Association of Marine Insurers (Cefor) publishes on its web-site early January every year the applicable rate.

    Sub-clause 4 provides that the rate for overdue payments is to be the same rate as in sub-clause 3 with an addition of 2 percentage points.

    Pursuant to Cl. 4-19 (b), interest shall be covered in addition to the sum insured.

    If the claims leader has had disbursements on behalf of the insurers, the claims leader will be entitled to charge interest under Cl. 9-11.

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    Clause 5-4. Interest on the compensation

    The assured may claim interest as from one month after the date on which notice of the casualty was sent to the insurer. If the insurer has to refund the assured's disbursements, interest accrues from the date of the disbursement. If the insurer is to indemnify the assured for loss of time,...

  • Clause 5-5. Disputes concerning the adjustment of the claim

    Sub-clause 1 of this Clause was amended and a new sub-clause 4 was added in the 2013 Plan.

    Sub-clause 1 sets out a right for both parties to demand that the adjustment be submitted to a Nordic average adjuster before the matter is brought before the courts. The average adjuster shall not make any arbitration award, but merely give his opinion as to how he believes the claims settlement should be effected. Experience shows that this provision has had a litigation-deterring effect, because the assured will often accept the opinion of the average adjuster he has designated himself even if he does not support his claim. The insurer too will normally accept an average adjuster’s decision that is not in his favour.

    The last sentence in sub-clause 1 is new in the 2013 Plan, and states that the insurer may appoint the adjuster if the assured fails to do so. There have been cases where the assured refuses to appoint an adjuster even if the insurer so request. In such cases the insurer may either leave it to the assured to pursue his claim before the competent courts, or appoint an adjuster on his own. It has then been argued by the assured that the opinion issued by an adjuster appointed by the insurer should not be given any weight. It seems unreasonable that the assured in this way may interfere with the insurer’s right to get an opinion from a Nordic adjuster pursuant to Cl. 5-5.

    Sub-clause 2 states who shall bear the costs of submitting the matter to an average adjuster. When the average adjuster submits his opinion, he must also decide this question. The costs of submitting the case to an average adjuster comprises first and foremost the adjuster’s fee. The adjuster may also incur costs by appointing or consulting with experts of his own choice previously not involved in the case. Also such costs as well as any other expenses the adjuster may have incurred must be deemed costs that shall be distributed according to sub-clause 2. The costs incurred by the parties must be distributed according to Cl. 4-5. The adjuster may if so requested by any of the parties also render an opinion on distribution of the costs incurred by the parties.

    Even if no claims adjustment exists, there may be grounds for litigation between the assured and the insurer, viz. when the latter has refused a request for condemnation, or has repudiated a claim on the ground that no recoverable casualty has taken place. Sub-clause 3 makes the provisions contained in sub-clauses 1 and 2 similarly applicable to such situations.

    If the assured and the insurer, after having obtained the average adjuster’s opinion, cannot reach an agreement about the claims settlement, the dispute must be referred to the ordinary courts or to arbitration if so agreed.

    Sub-clause 4 is new in the 2013 Plan and contains a special rule for adjustments when the insurance contract is subject to Finnish or Swedish law. The reason for the provision is that under Section 1 of the Finnish Act of 16 January 1953 relating to official adjusters and the Regulation of 6 March 1936 relating to the activities of the adjusters any disputes under insurance contracts must be placed before the official Finnish adjuster before the matter can be brought before a Finnish court. Thus in such disputes governed by Finnish law the official Finnish adjuster will be the mandatory first instance.

    Under Chapter 17, Section 9 of the Swedish Maritime Code (1994:1009), cf. Chapter 10, Section 17 of the Swedish Administration of Justice Act all marine insurance disputes must be placed before the official Swedish adjuster before the matter can be brought before a Swedish court. Thus in such disputes governed by Swedish law the official Swedish adjuster will be the mandatory first instance. By judgment of 11 December 2009 the Gothenburg first instance court (Göteborgs tingsrätt) confirmed that the law is mandatory also for disputes on insurance of pleasure boats. 

    Thus, if the individual contract is subject to either Finnish or Swedish law, the free choice of one of the Nordic adjusters pursuant to Cl. 5-5 is restricted in the sense that no party can bring suits before the Finnish or Swedish courts if a Danish or Norwegian adjuster has been appointed pursuant to Cl. 5-5. The parties may still ask for an opinion from either a Danish or Norwegian adjuster if they wish to incur the potential extra costs of an opinion from one of these adjusters in addition to the opinion from either a Finnish or Swedish adjuster required if the matter does not settle and has to be brought before either a Finnish or Swedish court.

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    Clause 5-5. Disputes concerning the adjustment of the claim

    If the assured does not accept the insurer’s adjustment, the assured as well as the insurer may demand that the adjustment be submitted to a Nordic average adjuster for its opinion before the dispute is brought before the court. The average adjuster shall be chosen by the assured. If the assured...

  • Clause 5-6. Due date

    The time-limit was changed from six to four weeks in 2016.

    The time-limit takes effect from the time the claims adjustment “is or should have been issued”, cf. Cl. 5-2 for further details. If the time-limit is exceeded, the calculation of interest will be affected, cf. Cl. 5-4, sub-clause 4.

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    Clause 5-6. Due date

    Compensation is payable four weeks after the date when the claim adjustment is or should have been issued.

  • Clause 5-7. Duty of the insurer to make a payment on account

    This Clause corresponds to Cl. 90 of the 1964 Plan. The provision has a parallel in relevant Nordic Insurance Contracts Acts (Nordic ICAs), which provides that the insurer shall make a payment on account if it is clear that he is liable for at least part of the claim.

    Sub-clause 1, first sentence, gives the assured contractual entitlement to a payment on account. In Cl. 90 of the 1964 Plan, the obligation to make a payment on account to the assured was made subject to “substantial disbursements to cover loss”. This has been amended to “major expenses or losses” in order to emphasize that this duty also applies to loss-of-hire insurance. The duty to make payments on account applies only to “major” expenses or losses; in that event, the assured is entitled to an “appropriate” payment on account. The criteria are discretionary, and leave a lot of latitude. If the assured requests a payment on account concerning expenses which he has not yet paid, the insurer has the right to pay the amount directly to the third party in question, cf. second sentence.

    However, an unconditional legal duty to make payments on account may not be advisable for the insurer. If he refuses to make a payment on account in a case that later turns out to involve major recoverable damage, he may become liable for the loss which his refusal to make a payment on account may have caused the assured, e.g. by his vessel being sold by forced auction. In order to protect the insurer against such a risk, sub-clause 2, first sentence states that the duty to make payments on account shall only exist if the insurer does not have “reasonable doubts as to his liability”. It goes without saying that a payment on account does not decide anything with regard to the question of liability, but to avoid any misunder­standing, this has been stated explicitly in sub-clause 2, second sentence.

    The insurer may deduct outstanding premiums from the payment on account and from the final claim, without this having to be stated explicitly.

    Under Cl. 90, sub-clause 3, of the 1964 Plan, the insurer was entitled to claim interest at the rate in force for savings banks on payments on account. This has been changed to the same rate as the rate used for the insurance contract, cf. the reference to Cl. 5-4, sub-clause 3, first sentence. For payments on account of amounts recoverable in general average, it follows from the second sentence that the rate of interest for the average adjustment shall apply as long as the general average interest accrues, cf. YAR 2016, rule XXI.

    The insurer’s interest claim under sub-clause 3 will normally be deducted from the final claim. However, if the interest exceeds the assured’s outstanding claim, the insurer may claim a corresponding reimbursement.

    In practice, it has turned out that owners have from time to time received excessive payments on account. In that event, the payment on account must be considered equivalent to a loan from the insurer, and interest shall be charged in the usual manner on the entire excess amount. The rate of interest should be the same on the payment on account and the claims amount.

    The provision in sub-clause 3, third sentence, is new and establishes that in loss-of-hire insurance the insurer may demand interest on payments on account from the same time as the contract interest accrues, i.e. one month after expiry of the period for which he is liable. The reason for the rule is that the assured’s loss under loss-of-hire insurance accrues as the period of repairs progresses, even if the insurer, formally speaking, starts to pay interest only as of one month after expiry of the period for which he is liable. In real terms, a payment made during the period of repairs is more in the nature of compensation rather than a payment on account.

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    Clause 5-7. Duty of the insurer to make a payment on account

    If the assured, before the adjustment can be issued, proves that it has incurred, or will in the near future incur, major expenses or losses which are covered by the insurance, the assured  is entitled to an appropriate payment on account. If the payment on account concerns expenses which the...

  • Clause 5-8. Payment on account when there is a dispute as to which insurer is liable for the loss

    According to the first sentence, the insurers shall make a proportionate payment on account of the compensation if there is a dispute as to which one of them is liable. A dispute as to which insurer is liable for a certain loss should not be to the detriment of the assured. Until it has been finally decided which of the insurers is liable for the loss, the assured may not demand any payment on account under Cl. 5-7, and special authority is therefore required in order for him to claim a payment on account from the insurers who may conceivably be liable. The wording to the effect that the insurers shall make a “proportionate payment on account” means that the disputed claims amount shall be divided equally among them. The duty to make payments on account applies only in the relationship between insurers who have in principle accepted liability, but who do not agree which one of them has to pay. If one of the insurers has any other objections to the claim, e.g. that the loss was caused by the assured by an act which is in breach of the insurance conditions, none of the insurers is obliged to make any payment on account, cf. second sentence.

    Where the insurers’ contingent liability for the loss does not represent the same amount, the payment on account shall be based on the lowest liability in order to avoid the assured having to repay the proportion of the payment on account which refers to a compensation he will not be awarded.

    This provision may become applicable in a number of situations. It will apply to the relationship between the marine-risks and war-risks insurers if it is a question of an apportionment of the loss under Cl. 2-14 or Cl. 2-15. Further, the principle will be applicable if it is a question of referring the liability for damage back to a former insurer in accordance with Cl. 2-11, sub-clause 3. Also conceivable is a dispute as to which of several successive casualties has caused a certain loss where the casualties occurred during the insurance periods of different insurers.

    Similar conflicts may also arise in the relationship between the hull insurer and the P&I insurer. If the provision is to apply in such conflicts, however, it is a prerequisite that the P&I conditions contain a reference to the Plan.

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    Clause 5-8. Payment on account when there is a dispute as to which insurer is liable for the loss

    If one or more insurers are involved in a dispute as to which of them is liable for the loss, each of them shall, on demand, make a proportionate payment on account in respect of the claim. This duty is conditional upon none of the insurers having raised other objections to the claim. If their...