Commentary

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Chapter 16: Loss of hire insurance

  • General

    The loss of hire conditions were revised in 2023 to improve consistency of terminology, simplify and restructure the provisions and also to make some material amendments. The Commentary was for the most part rewritten.

    Similar to hull insurance, the object of loss of hire insurance is the vessel. However, the insured interest is different. Where hull insurance covers loss of or damage to the vessel, loss of hire insurance protects the assured’s income generated from the vessel. From the perspective of insurable interest, loss of or damage to the vessel protects the (objective) capital value of the vessel as an asset, where the income value is a subjective economic interest depending on the assured’s contracts etc. There is, however, a close connection between hull insurance and loss of hire insurance in particular in two directions.

    Firstly, part of the assured’s income interest is covered by hull insurance. This is mainly the case for total loss, where the vessel’s future earning capacity will be reflected in the full insurable value under the hull insurance, hull interest insurance and freight interest insurance. A total loss in combination with a loss of hire insurance would result in double compensation. Loss of hire insurance therefore does not apply to total loss, cf. Cl. 16-2.

    Secondly, loss of hire insurance is by tradition and as a starting point triggered by damage to the vessel as defined by the vessel’s hull insurance, cf. Cl. 16-1. This means that loss of hire insurance does not cover income loss for instance caused by the vessel being unchartered due to a weak freight market, sanctions or other events that may lead to the vessel being deprived of income earning activity. Although the scope of cover for the loss of hire insurance is widened somewhat in Cl. 16-1, sub-clause 2, basically this main distinction between events that are relevant for hull cover and general market problems etc. is maintained.

    The main feature of loss of hire insurance thus is that it covers income lost for the assured due to the vessel being out of income-earning activity because of damage to the vessel or a similar event. In the previous versions loss of hire insurance was tied to “loss due to the vessel being wholly or partially deprived of income”. However, this expression does not reflect the reality of loss of hire insurance as it appears to tie the “loss” to the vessel and also implies that it is the vessel that loses income. The fact is that the insurance covers the assured’s loss, and that the vessel does not lose income, but is deprived of income-earning activity. In the new version the expression “loss” is therefore changed to “the assured’s loss” to reflect that loss must be attributed to the assured. Further, the expression “the vessel being wholly or partially deprived of income” is changed to “the vessel being deprived of income-earning activity”. These amendments are made throughout Chapter 16 but mainly explained in regard to Cl. 16-1.

    The loss of income is normally calculated based on income per day and the period of time the vessel was deprived of its income-earning activity. This period is commonly referred to as “loss of time”. The expression implies that the insurance can restore time that is lost, which of course is not correct. The period of time is gone, but the insurance restores the income that is lost during the period where the vessel does not generate any income. The Committee discussed if it would be convenient to change the expression “loss of time” to interrupted time or similar, but decided against this. There are specific insurances that cover interruption of activity after damage, but these insurances have a more narrow cover than “loss of hire” insurance. Further, the expression “loss of time” is also used in charter contracts as a reference to the period the vessel has been off hire. The use of this expression is therefore maintained.

    Similar to hull insurance, loss of hire insurance operates with the concept of insurable value, cf. Cl. 2-2, but here it is tied to the income loss per day, cf. Cl. 16-3. The relevant loss of time is stipulated in days, hours and minutes, cf. Cl. 16-4. In order to make this calculation, you need to decide a “daily amount”, cf. Cl. 16-3 and Cl. 16-5; i.e. the amount of freight per day under the current freight contract less expenses saved due to the vessel being out of regular employment, which is the daily “income” amount. In practice, the daily amount is almost always fixed by agreement in the insurance contract, see also the presumption in Cl. 16-6. An agreement of a fixed amount will be subject to the provisions in Cl. 2-3 giving the parties flexibility and predictability. An important limitation to the application of the agreed daily amount follows from Cl. 16-14, sub-clause 2.

    In addition to the mentioned changes in terminology the following clauses have been editorially amended with no material changes: 16-1, 16-3, 16-4, 16-5, 16-6, 16-7, 16-8, 16-9 sub-clause 1, 16-11 sub-clauses 2 and 3, 16-13 and 16-14.

    The following clauses have been amended with material changes:

    • Cl. 16-2 now provides that it is decisive whether the assured is entitled to total loss compensation under the actual hull conditions. If no hull insurance is effected the assessment shall be based on the Plan.
    • Cl. 16-9 now applies equally to all hull conditions whether they are based on the Plan or not. Sub-clause 2 describes how tenders shall be adjusted for the purpose of comparison. Sub-clause 3 provides a revised limitation for insurer’s liability. Sub-clause 4 corresponds with the previous sub-clause 2, but is amended to be identical to Cl. 12-12, sub-clause 3.
    • Cl. 16-11, sub-clause 1, now encompasses all measures to avert or minimise loss and the relationship to Chapter 4, Section 2 is clarified. The heading is also amended.
    • Cl. 16-12 have a new sub-clause 1 replacing the previous sub-clauses 1 to 3. The material changes are limited to equal apportionment between casualties, after expiry of the deductible period, where no owner’s work is effected. Sub-clause 2 corresponds with the previous sub-clause 4, and has only a minor amendment necessitated by re-arranging the previous sub-clauses 1 to 3 into the new sub-clause 1.
    • Cl. 16-15, sub-clause 1, was amended to include cover of wages and maintenance of the crew. Sub-clause 2 was amended to include loss of time during removal after repairs.
  • Clause 16-1. Main rules regarding the liability of the insurer

    This provision was amended in the 2003 Version. The Commentary was amended in 2013 and in 2019. In 2023, the provision was amended and the Commentary was substantially amended and restructured.

    Sub-clause 1 contains the basic conditions for cover under loss of hire insurance. The first sentence states that “The insurance covers the assured’s loss of income due to the vessel being wholly or partially deprived of income-earning activity as a consequence of damage to the vessel which is recoverable under the conditions of the Plan, or which would have been recoverable if no deductible had been agreed, see Cl. 12-18”. The words that are emphasized were added in the 2023 Version and represent a change in terminology that is made throughout the provisions of Chapter 16.

    The expression “the assured’s loss of income” instead of the simple word “loss” is meant to reflect that the assured’s economic interest under loss of hire insurance is the assured’s loss of income as contrary to other types of losses, for instance loss due to damage to the vessel or general expenses. The expression “income-earning activity” instead of “income” is meant to reflect that it is the assured, and not the vessel, that sustains the loss of income.

    The expression “the assured’s loss of income due to the vessel being wholly or partially deprived of income-earning activity” means that it is not sufficient to trigger loss of hire insurance that the vessel is out of employment; this must in fact result in an income loss for the assured. If the income under the vessel’s contract is maintained even when the vessel is not operating, the assured does not sustain a loss. For example, certain charterparties allows for hire to be paid for a number of “maintenance days” even if the vessel e.g. is out of operation for repairs (see e.g. Cl. 13 (c) of “Supplytime 2017”). Another example is where the assured employs a substitute vessel during repairs of a damaged vessel in order to maintain earnings under the charterparty of the damaged vessel. In these situations there is no loss of income for the assured and thus no basis for a claim under the loss of hire insurance, even if the insured vessel as such is unable to operate.

    In LA-2018-35513 Hamburg Cruise the Court of Appeal concluded that the assured could claim the agreed daily amount even if the assured continued the employment with another vessel. A main argument was that loss of hire insurance protected the income flow of the vessel and not the charterparty. However, if the income is maintained there is no loss and thus nothing to compensate. This follows now more clearly from the new terminology.

    On the other hand, if the assured incurs extraordinary expenses by employing a substitute vessel in order to maintain earnings, such extraordinary expenses may be allowable under Cl. 16-11. This is also contrary to the LA-2018-35513 Hamburg Cruise judgement, cf. further below under Cl. 16-11.

    The loss of time will normally coincide with the time during which the vessel is physically unable to operate. The time during which the vessel is in a yard undergoing repairs, added to the time spent on surveys, obtaining tenders and rerouting the vessel to the yard, will normally be lost in terms of income. However, loss of time may also occur if the vessel cannot resume operation immediately after repairs have been completed. These problems are solved by the provision in Cl. 16-13.

    It is not required that there be a total loss of income; loss of time due to the vessel being “partially” out of operation is also covered. This includes both the situation where the vessel can partially operate, and the situation where the vessel is operating normally but has reduced earnings due to the damage, for instance because the vessel can no longer carry particular types of cargo. This kind of loss will be recoverable under the loss of hire insurance if the assured can prove that the loss is a consequence of the damage, because the assured would have been able to accept another type of cargo at higher freight rates if the damage had not occurred.

    It is common to suspend loss of hire insurance (alternatively by cancellation or by reducing the daily amount to a nominal amount) whilst a vessel is intentionally laid up for a certain period of time due to the vessel being unable to obtain commercially satisfactory employment in the freight market. It is also common for owners to consider reattachment of loss of hire cover when the employment situation improves. By reattaching the loss of hire prior to the vessel’s planned time for reactivation and leaving of lay-up, the loss of hire insurance will provide cover for a casualty occurring after such reattachment, but only for loss of time from the planned time of re-entering income-earning activity. E.g. the vessel is laid up from 1st January with a daily amount of USD 0. On 1st March the daily amount is agreed to USD 5,000 due to negotiations of a charterparty with commencement 1st April. If a casualty occur between 1st March and 1st April the assured is insured for USD 5,000 per day, however, the loss of time will only commence on the 1st April. If the assured wait until 1st April to adjust the daily amount, a casualty occurring prior to this point in time, will result in the assured being insured for USD 0 per day from the commencement of loss of time on 1st April.

    Loss of hire insurance is triggered if the vessel is deprived of income-earning activity due to “damage to the vessel”. Damage to the vessel is therefore the main casualty under this insurance. Loss of employment due to other causes, for instance a failed market, is not covered by this insurance. However, in some cases loss of hire insurance is triggered even if there is no damage, cf. sub-clause 2 and below.

    Further, it is a basic requirement for cover that the loss of employment is caused by the damage. If the vessel would have been unable to obtain employment even if it had not been damaged and consequently would have been laid up, there is no causation between the damage and the loss of employment and the loss of time is not covered by loss of hire insurance, cf. Cepheus Shipping Corporation v. Guardian Royal Exchange Assurance PLC, The Capricorn, [1995] 1 Q.B. 622.

    However, in order for the loss of time to be recoverable, it is sufficient that the assured would have had a reasonable chance of obtaining employment for the vessel if it had not been affected by circumstances mentioned in Cl. 16-1. If the vessel, therefore, is one of many that are waiting in the Gulf to be chartered, the condition is fulfilled. The assured cannot be required to prove that its vessel would actually have obtained employment. However, the assured must prove that there was a genuine, commercially sound, chance of obtaining a charter, and that it was realistic to move the vessel from the area in which it was located when the decision to make repairs was made to the area where there was potential employment. If, therefore, a drilling platform is damaged in the North Sea area, and it is evident that it would have been unable to obtain employment in Europe, but that there are employment opportunities in the Far East, the assured must prove that it would have been commercially realistic to move the platform there.

    If the assured after a casualty decides not to repair the vessel, any loss of income after this point in time will not be considered as a consequence of the damage and will not be recoverable under the loss of hire insurance, cf. for example the LA-2020-48298 Diana and the Commentary to Cl. 16-2. Thus, there is no basis for claiming any estimated loss of income under the loss of hire insurance similar to compensation for unrepaired damage under the hull insurance. If the assured later decides to repair the vessel, the assured might still claim under the loss of hire insurance if the conditions for cover are fulfilled, i.e. that the claim is within applicable time limits.

    A sale of the vessel may also affect the loss of hire insurance. After the agreed delivery date the vessel will not generate any income for the assured as seller, thus damage to the vessel will not cause any loss of income for the assured from the agreed delivery date and onwards. A postponement of the delivery date may cause other loss for the assured, see further Cl. 16-15 which provides cover for certain items of loss in this situation.

    In order for the damage to constitute a casualty under the loss of hire insurance it must be recoverable under the conditions of the Plan as they applied at the time the loss of hire cover came into effect. This applies regardless of whether the vessel’s hull insurance has been effected on different conditions or whether the vessel has no hull insurance at all. If hull insurance has been effected on conditions other than those of the Plan, such as ITCH, and the loss of hire insurer has given its written acceptance that the loss of hire cover is to be based on the said conditions, special rules nevertheless apply, cf. the second sentence and below. The reference to the Plan applies to the standard conditions, and not to the individual insurance contract. Consequently, the damage must entitle the assured to compensation in accordance with Chapter 10 et seq. In this connection, the rules regarding full cover pursuant to Cl. 10-4 will be decisive. Consequently, it is of no significance whether the vessel is insured on conditions that are more or less favourable than the full conditions of the Plan. If the hull insurance has been effected on stranding terms pursuant to Cl. 10-8, the loss of hire insurer is therefore liable, provided that the damage would have been recoverable pursuant to Cl. 10-4. On the other hand, if the hull insurer has assumed extended liability for error in design and therefore must pay compensation for hull damage that would not have been recoverable under Cl. 12-4 of the Plan, the loss of hire insurer is not liable for the loss of time entailed by the casualty. Nor, in relation to the liability of the loss of hire insurer, does it make any difference if the damage is not covered by the hull insurance because it is less than the deductible, cf. the first sentence in fine to the effect that the deductible shall be disregarded when determining whether the damage is recoverable under the hull conditions. The same principle applies in situations where e.g. a repairer has accepted liability (wholly or partially) for damage caused to the vessel provided the damage would have been recoverable under the terms of the Plan. This constitutes “damage” and the loss of hire insurer will still be liable if the damage results in the vessel being deprived of income-earning activity regardless of whether a claim has also been made under the hull insurance.

    The term “damage” denotes the contrast to a total loss; in the event of the total loss of the vessel, the question of cover under the loss of hire insurance does not arise, cf. below under Cl. 16-2. On the other hand, there is no requirement that the damage must be recoverable as particular average in accordance with the rules of Chapter 12. Damage to the vessel which is recoverable under the hull insurance by virtue of the general average rules, cf. Cl. 4-8, also triggers the loss of hire insurance. On the other hand, if the general average situation causes a delay without there being any damage, this does not fall within the scope of sub-clause 1. In such cases, however, a special cover provision has been introduced in sub-clause 2 (d).

    The reference to the Plan aims at the objective criteria for cover in Chapter 10 et seq. If the damage, objectively speaking, is recoverable under Chapter 10 et seq. but the assured loses its hull coverage on account of a breach of the rules of Chapter 3, the assured does not necessarily also lose its loss of hire cover. Breaches of the rules of Chapter 3 must be considered in direct relation to loss of hire cover. This means, on the one hand, that breaches of the rules regarding safety regulations, for instance, will be breaches which normally also are relevant in relation to the loss of hire cover, and which the loss of hire insurer therefore must be able to invoke. On the other hand, the loss of hire insurer will not be able to argue that the assured has failed to comply with its duty of disclosure to the hull insurer as long as it itself has been given full and correct information relating to its own cover. Nor can the loss of hire insurer invoke breaches of special safety regulations included in the individual hull insurance contract, cf. what has been said above concerning cover of error in design.

    In practice, the loss of hire insurer will often follow the decisions made in respect of the hull insurance with regard to whether damage is recoverable, the apportionment fraction in the event of concurrent causes of damage, etc. However, the loss of hire insurance is an entirely independent insurance, and the decisions made by the hull insurer are not binding on the loss of hire insurer.

    The damage to the vessel which gives rise to the loss of time may have various causes. In such cases, the general rules of Cl. 2-8 and Cl. 2-9 regarding the perils insured against apply. Pursuant to Cl. 2-10, the insurance only covers marine perils, unless otherwise agreed; under Cl. 2-8, however, marine perils encompass “all perils to which the interest may be exposed”, with the exception of the perils that are mentioned in sub-clauses (a) to (c) of the provision, including “war perils”. Loss of hire insurance against war perils will be included in the war risk cover in Chapter 15, which incorporates the present Chapter. If no war risk insurance has been effected in accordance with Chapter 15 of the Plan, loss of hire insurance against war perils in accordance with Cl. 2-9 must, if relevant, be agreed separately. Such cover will be directly related to Chapter 16, and will therefore be somewhat less comprehensive than the loss of hire cover provided by Chapter 15, cf. Cl. 15-16 to Cl. 15-18, which contain a number of additions to the loss of hire cover pursuant to Chapter 16.

    The question of causation and concurrent causes of damage is also regulated by the general part of the Plan, cf. Cl. 2-13 to Cl. 2-16. E.g. if the loss has been caused by a combination of perils that are covered by the insurance and perils that are not covered, it must be apportioned proportionately between the perils insured against and the excluded perils according to the influence each of them must be assumed to have had on the occurrence and extent of the loss pursuant to Cl. 2-13.

    Concurrent causes in relation to loss of hire insurance may occur in a variety of situations, which may arise alone or in combination:

    Firstly, the hull damage that causes the loss of time may be a consequence of a concurrence of perils that are covered under the hull insurance and perils that are not covered, such as a concurrence between navigational errors and breaches of safety regulations.

    Secondly, several instances of hull damage may be repaired simultaneously. If one or more of these instances of damage is either not covered by the insurance or is covered under another insurance period, the loss of time will be a consequence of damage that is covered and damage that is not covered.

    Thirdly, there may be a situation where causes that are not covered or causes that must be attributed to another insurance period may result in the prolongation of time or stay in a repair yard that is due to the occurrence of hull damage. Such causes may be external factors in the form, for instance, of a strike, extreme weather conditions or the detention of the vessel due to its arrest and the like, or factors related to the vessel itself, such as the discovery during repairs of unknown damage to the vessel that is not covered by this insurance.

    In the first situation, where the hull damage that causes the loss of time is a consequence partly of perils that are covered and partly of perils that are not, an apportionment will be made in relation to the hull settlement on the basis of Cl. 2-13 of the Plan. In this case it will be natural to use the same percentage apportionment for the loss of hire settlement, unless the loss of hire insurer has special reasons for applying another ratio of apportionment, cf. above as regards the fact that the loss of hire insurer normally follows the decisions of the hull insurer. If, therefore, the assured itself must pay 30 per cent of the hull damage on account, for instance, of breaches of safety regulations, it is likely that the assured will also have to pay 30 per cent of the time lost in repairing the damage. If the damage is due to a concurrence of marine and war perils, the special rules of Cl. 2-14 to Cl. 2-16 apply. That portion of the loss of time that must be attributed to a war peril is not covered by a loss of hire insurance against marine perils, and must be covered by taking out either loss of hire cover under an insurance pursuant to Chapter 15 of the Plan, or an independent loss of hire insurance against war perils.

    The second situation, in which several instances of hull damage are repaired simultaneously, is dealt with separately in Cl. 16-12. Here the general, discretionary rule of apportionment in Cl. 2-13 has been replaced by fixed criteria for apportionment. These rules may be applied cumulatively with the rules of Cl. 2-13 to Cl. 2-16; for further information see below under the Commentary on Cl. 16-12, sub-clause 1.

    As to the third situation, we must fall back on the general rule of apportionment in Cl. 2-13. In this case, contrary to the first situation, there will be no apportionment settlement for the underlying hull damage, and Cl. 2-13 must thus be applied directly to the loss of hire settlement. Consequently, the loss of time shall be apportioned over the individual perils according to the influence each of them must be assumed to have had on the occurrence and extent of the loss. Guidance has to be sought in the Commentary to Cl. 2-13 where criteria for weighing the different causes in different situations are given. One of the criteria will be how foreseeable the event prolonging the loss of time is when the vessel is sent to the repair yard. In relation to loss of hire insurance, this criterion of foreseeability must be seen in connection with the rules regarding evaluation of tenders in Cl. 16-9, the assured’s duty to reduce the loss and general preventive considerations.

    Such considerations will be particularly relevant in connection with perils that prolong the time and that are so foreseeable that the assured must be expected to take account of them when considering the choice of repair yard. The tenders on which the assured’s evaluation is based pursuant to Cl. 16-9 will normally be based on the time it will take to carry out the actual repairs, and may not necessarily include an expected delay due, for instance, to a communicable disease, an announced strike or the likelihood of poor weather or the like. However, the assured has a general duty to reduce the loss. Therefore, the assured cannot merely consider tenders when choosing a repair yard; the assured must also take account of expected delays in order to determine which yard will carry out the repairs most quickly, in real terms. This means, among other things, that the assured must inform the insurer if it is aware of factors that may prolong the vessel’s stay in a repair yard, so that the insurer can take this into account when discussing which of the tenders obtained entails the least time in real terms. In the event of a grossly negligent breach of this duty, the insurer may apply Cl. 3-30 and Cl. 3-31 of the Plan.

    In less serious situations, however, preventive considerations may be used as an argument in favour of apportionment.

    On the other hand, it is conceivable that a tender based on the estimated repair time at repair yard A, added to a foreseeable delay due to an announced strike or expected climatic problems, is more reasonable than alternative tenders from other repair yards. If the parties in such a situation jointly agree to choose repair yard A, the prolongation must be covered in its entirety. Reference is otherwise made to the Commentary on Cl. 2-13.

    In practice, it is particularly the prolongation of stays in a repair yard due to strikes that has caused problems. The 1996 Commentary states that while, in principle, the apportionment rule in Cl. 2-13 was to be applied, in practice a prolongation of the stay in a repair yard due to a strike among the yard workers had been covered. However, the practice referred to consisted only of accepting local strikes at the yard as “foreseeable”, and in such cases paying “full” compensation, i.e. without proportionate apportionment. In the Committee’s view, prolongation due to a strike must be considered in the customary manner on the basis of Cl. 2-13, and not on the basis of whether or not the strike is local.

    The problems raised by the “reference-back rule” in Cl. 2-11, sub-clause 2, are discussed in the Commentary on Cl. 16-14.

    Sub-clause 1, second sentence, regulates the situation where loss of hire cover pursuant to Chapter 16 is effected for a vessel for which hull insurance has not been effected on Plan conditions.

    If these conditions have been accepted in writing by the insurer, the second sentence establishes that the provisions in these conditions which correspond to Chapters 10, 11 and 12 of the Plan are to be applied to determine whether the damage is recoverable as hull damage, thereby triggering the loss of hire insurance. If no hull insurance has been effected, or if hull insurance has been effected on Plan conditions but adapted to individual cases, or if other conditions have been used which have not been accepted, the rules of the Plan are to be followed, cf. above.

    If the insurer has accepted in writing hull conditions that are different from the Plan’s hull cover, these other conditions will be decisive for the liability of the loss of hire insurer. Consequently, if the exclusions specified by such conditions for damage due to wear and tear or error in design, etc., are more comprehensive than what is provided under Cl. 12-3 and Cl. 12-4 of the Plan, the loss of hire cover will be reduced correspondingly. On the other hand, if the conditions offer more extensive cover than the Plan, liability under the loss of hire cover pursuant to Chapter 16 will be extended. Extensions or reductions of hull cover in individual cases in relation to standard cover may thus be of significance for loss of hire cover, provided that the insurer has accepted this in writing. This will also apply if the hull insurance is based on the Plan.

    The coordination of loss of hire cover with hull conditions other than those of the Plan is binding provided the insurer has accepted the deviating hull conditions. Thus the assured may not choose to link its loss of hire cover to the Plan’s conditions for hull cover once the assured has obtained acceptance for other hull conditions.

    If the hull cover is divided up into several parts effected on different conditions, the loss of hire cover must be apportioned correspondingly. If, for instance, one third of the vessel’s hull cover has been effected on English ITCH conditions with the consent of the loss of hire insurer and two thirds on Plan conditions, one third of the loss of time must be covered in accordance with the ITCH rules that correspond to Chapters 10-12 of the Plan, while the remainder must be covered pursuant to the Plan.

    Nevertheless, only the conditions in the insurance in question that correspond to Chapters 10-12 of the Plan are relevant in relation to the loss of hire cover. This means, on the one hand, that cover must be based on the conditions in question insofar as they state which objects are covered by hull insurance and the scope of the hull cover in the event of damage to the vessel (Chapters 10 and 12). Furthermore, these rules must be followed as regards the delimitation between damage and total loss that does not entitle the assured to loss of hire insurance, cf. Chapter 11 and Cl. 16-2. However, no reference to Chapter 13 is necessary because this Chapter concerns the hull insurer’s cover of collision liability.

    On the other hand, this means that issues that are regulated by Chapters 1-9 of the Plan and that concern the perils covered, incidence of loss, causation, breaches of the assured’s duties relating to the underlying hull damage, etc. must always be decided on the basis of the rules in the general part of the Plan.

    Coordination with other hull conditions is only linked to the assessment of the underlying hull damage; issues related to the loss of hire insurance itself, such as the rules regarding the duty of disclosure or special trading areas relating to loss of hire cover must always be decided in accordance with the rules of the Plan. If the vessel is outside the trading area covered by the foreign hull insurance, but within the trading area covered by the Plan, the loss of hire insurer will therefore be liable even if no compensation is payable under the hull insurance.

    Hull insurance conditions may conceivably change in the course of the insurance period covered by the loss of hire insurance, for instance from Plan conditions to English ITCH conditions. In such case, the hull insurance and the loss of hire insurance must be coordinated on the basis of the hull conditions that applied when the loss of hire insurance was effected, unless the assured has notified the insurer of a change to other standard conditions and received the latter’s written acceptance of these. This type of solution is necessary because the loss of hire insurer calculates the premium in relation to the hull conditions that apply at the time the insurance is effected.

    Sub-clause 2 was amended in 2023 as described above by using the terms “the assured’s loss of income” and “income-earning activity”. It was further editorially amended by using the term “vessel” instead of “it”.

    Sub-clause 2 represents an extension of the cover provided by loss of hire insurance in that in certain cases loss of time is covered even if there is no damage to the vessel. This means that the loss of hire insurance’s “casualty concept” has been extended: in addition to the hull damage defined in sub-clause 1, the events mentioned under sub-clause 2 (a) to (d) must also be deemed to be “casualties” for which compensation must be paid. The rules are structured on the basis of specific cases. Pursuant to sub-clause 2 (a), the insurance covers the assured’s loss of income because the vessel “has stranded”. To say that the vessel “has stranded” means that the stranding must be in the nature of a casualty, even though there is no requirement that the stranding resulted in damage. If, on the other hand, the stranding is a consequence of “ordinary use”, for instance foreseeable strandings during navigation on a shallow river, cf. Cl. 10-3, the insurer is not liable for the loss of income. This extension of cover must be assumed to have little significance in practice, since a stranding that does not cause damage to the vessel will normally not result in a loss of time that exceeds the deductible period.

    Sub-clause 2 (b) corresponds to Cl. 15-12, but is more restrictive in two respects. Firstly, contrary to Cl. 15-12, sub-clause 2 (b) stipulates “physical” obstruction. The difference arises from the fact that Cl. 15-12 also encompasses blocking due to intervention by a State power. On the other hand, such blocking is excluded from the marine perils covered, which is decisive in relation to Cl. 16-1. Secondly, obstruction on account of ice is not included. In all other respects, reference is made to the Commentary on Cl. 15-12 as regards the scope of the provision. Loss that is covered pursuant to (b) must be deemed to be an independent casualty that triggers a separate deductible. However, this does not apply when the obstruction is a proximate consequence of an earlier stay in a repair yard. In such a case, the time lost during the vessel’s obstruction is covered pursuant to Cl. 16-1, sub-clause 1, and no new deductible is to be calculated.

    Sub-clause 2 (c) extends cover to include loss resulting from action taken to salvage or remove damaged cargo.

    Sub-clause 2 (d) extends cover to include delay resulting from a general average situation that does not lead to damage to the vessel. An example is where the cargo shifts in bad weather, and the vessel seeks a port of refuge to avoid damage. The deviation to and from the port of refuge is a general average act. The time lost in seeking a port of refuge and staying there for a while in order to discharge and reload/restow will be covered by the loss of hire insurer under sub-clause 2 (d) even though there is no damage to the vessel. This corresponds for instance with the solution under English loss of hire conditions. In connection with pirate attacks, there has been discussion of how far the cover extends when the shipowner takes steps to avert an attack or limit its consequences. The wording “event that is recoverable in general average” must be construed as a general average act, or an expense or sacrifice that is recoverable in general average. An attack by pirates is therefore no general average act. On the other hand, expenses and sacrifices undertaken by the shipowner in order to avert or limit the attack could be such an “event”, depending on the circumstances. However, what is covered by sub-clause 2 (d) is the loss of income “as a consequence of” such an expense or sacrifice. If the loss of income had already occurred when the expense or sacrifice was undertaken, the loss of income is not a consequence of the general average event. This means that loss of income resulting from a deviation or another measure taken to escape from pirates trying to board the vessel may, depending on the circumstances, be recoverable because the loss of income is a consequence of the sacrifice. However, this is less practical because this type of time loss will seldom exceed the deductible. If, on the other hand, the vessel has already been seized by pirates, the loss of income will already be a fact. In such case it is not the expense nor the sacrifice – such as ransom negotiations – that is the cause of the loss of income, but the pirate attack. In other words, the vessel was deprived of income at the time the general average act was undertaken, and there is no causation between the event and the loss of income. Therefore, the time spent on ransom negotiations or other measures after the vessel was seized by pirates is not recoverable under sub-clause 2 (d). This means that sub-clause 2 (d) will only cover a very marginal portion of a potential loss of time resulting from a pirate attack. If the assured needs loss of hire insurance for this risk, therefore, the assured must take out such cover in the market.

    Sub-clause 3 was editorially amended in 2023 by deleting “loss of time” as superfluous. The provision was also simplified by referring to the “number(s) of days insured respectively” as stated in the insurance contract, as an alternative to repeating “per casualty and altogether”.

    Pursuant to this provision, the sum insured per day multiplied by the maximum number of days covered per casualty or altogether during the period of insurance must be seen as a sum insured, i.e. a maximum monetary limit on the insurer’s liability (per casualty and altogether during the period of insurance). The insurer is liable to pay a full daily amount for up to the stated number of days or a reduced amount for a correspondingly larger number of days. The stated number of days therefore does not impose a maximum limit on the total number of days for which the insurer may be liable. The “sum insured per day” must be distinguished from the “daily amount”, the latter being the insurable value of the assured’s loss of income per day. Due to the presumption in Cl. 16-6 the sum insured per day will normally also constitute the agreed daily amount.

    Further rules governing the term “insurance period” are set out in Cl. 1-5 of the Plan. The term poses no problems for ordinary insurance policies with a term of one year. If it has been agreed that the insurance is to attach for a period of more than one year, it follows from Cl. 1-5, sub-clause 4, that the insurance period is nevertheless to be deemed to be one year in relation to, inter alia, Cl. 16-1, sub-clause 3. Further details regarding the calculation of the insurance period in these cases are found in the Commentary on Cl. 1-5.

    The rules regarding the limitation of the insurer’s liability per casualty contain no provisions regarding the delimitation of the term “casualty” in the event of damage caused by heavy weather and the like. Such provisions are included, on the other hand, in Cl. 16-7 regarding the deductible period. Should there be a need for a corresponding delimitation in relation to Cl. 16-1, the rules of Cl. 16-7, sub-clauses 2 and 3, must be applied by analogy. However, the problem is not likely to arise in practice, since a total maximum number of days equal to the maximum number of days per casualty has as a rule been agreed.

    Sub-clause 4 was added in the 2019 Version. The provision was amended in 2023 by deleting the first sentence reading “all loss of income covered by this insurance shall reduce the limit of liability from the date of damage to the vessel”. This sentence was considered superfluous as an addition to what is already stated in sub-clause 3 regarding the limit for all casualties occurring during the insurance period. It follows logically that covered losses during the policy period will reduce this overall limit. Some editorial amendments were also made. Further, the last sentence was clarified by expressly stating that time in this sentence refers to the remaining time of the insurance period.

    The provision automatically re-instates the policy to the original limit in case of a casualty during the policy period. It follows from sub-clause 3 that the insurance contract shall state a maximum liability for any one casualty and further a maximum liability for all casualties occurring during the insurance period. These limits are very often the same, e.g. 90 days cover per casualty and in all during the policy period. In the absence of a reinstatement clause, there will be less protection available for any subsequent casualties if more than one casualty occurs during the policy period. As an example, if the policy provides for 90 days cover per casualty and in all, and a casualty occurs whereby a claim is paid for 50 days in excess of the deductible, then under the provisions of sub-clause 3 there would only be 40 days protection remaining for any further casualties during the policy period. This is now remedied by including an automatic reinstatement clause, whereby the full 90 days limit is “reinstated” automatically after a casualty, against payment of a pre-defined additional premium.

    The wording is based on standard automatic reinstatement clauses which customarily have been included in most loss of hire insurance contracts in the recent years. It does not matter if a casualty occurs early or late in the policy period, reinstatement to original limits shall automatically take place in case of a casualty, and the corresponding premium automatically becomes payable. The premium rate is the same as for the original policy, however it is necessary to assess the amount to be reinstated, and the question is how much have been “used” of the sum insured which is to be multiplied with the premium rate in order to decide the amount of reinstatement premium payable. This also means that it is not possible to calculate the reinstatement premium until the adjustment of claim is completed, only then is the amount to be reinstated known to the parties. Interest allowance and certain costs are payable in addition to the sum insured (ref Cl. 4-19), and therefore no reinstatement premium is payable for such allowances. The expression “irrespective of time remaining of the insurance period” means that the reinstatement premium rate is the same as the premium rate for the original policy period, irrespective of when the casualty occurs during the policy period. However, if the insurance period is longer than one year, it will follow from Cl. 1-5 that the insurance period shall nevertheless be deemed to be one year in relation to Cl. 16-1, sub-clause 4, which means that the reinstatement premium shall be limited to the annual premium for the amount reinstated.

    In practice the loss of hire insurer deducts by way of set-off its share of the reinstatement premium from its share of compensation. To avoid accounting problems, the insurer must in this case specify what is compensation and how the reinstatement premium is calculated and deducted. The reinstatement premium must be specified per claim and separately from the claim compensation. It shall not be deducted until there is a final adjustment of the claim, i.e. not in a payment of account.

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    Clause 16-1. Main rules regarding the liability of the insurer

    The insurance covers the assured’s loss of income due to the vessel being wholly or partially deprived of income -earning activity as a consequence of damage to the vessel which is recoverable under the conditions of the Plan, or which would have been recoverable if no deductible had been agreed,...

  • Clause 16-2. Total loss

    This provision was amended in the 2023 Version.

    The first sentence is amended from “The insurer shall not be liable for loss of time resulting from a casualty which gives the assured the right to compensation for total loss under Chapter 11 of the Plan or under the corresponding hull insurance in effect” to “The insurer shall not be liable for loss of income resulting from a casualty which entitles the assured to compensation for total loss under the hull insurance in effect”. The concept of “time” is replaced with “income” in order to reflect what the loss of hire insurance covers. This is in line with the general amendment of this concept in Cl. 16-1.

    Further, the decisive criteria is now whether the assured is entitled to total loss compensation under the actual hull conditions, compared to the previous wording that referred to a theoretical total loss assessment as per Chapter 11 of the Plan or under the applicable hull conditions, subject to the latter having been accepted in writing by the loss of hire insurer. The new regulation is considered more reasonable. In earlier versions, a situation could arise where the assured in theory could claim total loss if insured on the Plan with a resulting non-payment of loss of hire, whilst the applicable hull conditions gave no right to claim total loss and vice versa. For the unlikely situation that the assured has taken out loss of hire insurance but no hull insurance the new second sentence refers to an assessment based on the Plan.

    It is a fundamental principle that loss of hire insurance does not cover loss of income resulting from a total loss of the vessel. Such loss occurs in two different connections. Firstly, considerable time may elapse from the time of the casualty until it becomes clear that compensation for total loss will be paid. Secondly, income will be lost during the period it takes to procure a new vessel to replace the old one or simply because the assured is not able to utilise the vessel any more to generate income.

    Both these forms of loss are, however, covered by total loss insurances for the vessel, i.e. ordinary hull insurance and interest insurances. Loss resulting from the interruption of operations due to the loss of the vessel will to a certain extent be reflected in the vessel’s hull value; if this business interruption interest is substantial, it can be covered by a freight interest insurance. To some extent, compensation for loss of time in connection with late settlement is also provided by the interest rule: interest is also payable on compensation for a total loss pursuant to Cl. 5-4, i.e. from one month from the day on which notice of the casualty was sent to the insurer.

    By excluding loss of income resulting from total loss from the loss of hire insurance, the very difficult problems posed by the calculation of such losses of time are avoided.

    The basic principle in Cl. 16-2 is that if the assured could have claimed total loss compensation pursuant to the applicable hull insurance, the assured is not entitled to cover under the loss of hire insurance. The fact that the assured is not actually paid such compensation is irrelevant. If the vessel meets the conditions for condemnation but the assured nonetheless prefers to have it repaired, this will therefore not entitle the assured to claim compensation under the loss of hire cover.

    As regards whether there is a total loss under the hull insurance, the loss of hire insurer will usually follow the decisions made in the relationship between the assured and his hull insurers. However, these decisions are naturally not binding on the loss of hire insurer, cf. what is said in the Commentary on Cl. 16-1, sub-clause 1, about a parallel issue.

    The fact that the hull insurer pays the sum insured in accordance with Cl. 4-21 cannot be equated with payment of total loss compensation in accordance with Chapter 11. Should it later prove that the conditions for condemnation would have been fulfilled, Cl. 16-2 will be applicable. The same applies if the further development of the casualty results in the vessel actually becoming a total loss, for instance where it has struck a reef and later sinks while being towed off.

    If the vessel’s hull insurance has been effected on conditions other than those of the Plan, the question of the right to compensation for total loss must nonetheless be decided by the conditions of the insurance concerned. Contrary to Cl. 16-1 there is no requirement in relation to Cl. 16-2 that the insurer has accepted the applicable conditions. However, only the rules in the relevant condition that correspond to Chapter 11 of the Plan shall apply. The general part of the Plan shall therefore apply in the usual way in relation to this rule as well.

    If the assured chooses to repair a vessel which is not condemnable even if it is questionable whether it is worth repairing, the assured may claim compensation under the loss of hire insurance in accordance with the usual principles. As mentioned above under Cl. 16-1, if and when the assured decides not to repair the vessel the assured may not recover under the loss of hire insurance any loss of income after the point in time the assured made such decision. Regardless, pursuant to Cl. 3-30 and Cl. 3-31 the assured has a duty to limit the loss and not cause undue delay.

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    Clause 16-2. Total loss

    The insurer shall not be liable for loss of income resulting from a casualty which entitles the assured to compensation for total loss under the hull insurance in effect. If no hull insurance is in effect the assessment shall be based on Chapter 11 of the Plan.

  • Clause 16-3. Main rule for calculating compensation

    The provision was amended in 2023. Part of the previous Commentary has been moved to Cl. 16-1.

    The first sentence states the main rule for calculating compensation, and provides that compensation is to be determined on the basis of the time during which the vessel has been deprived of income-earning activity (loss of time) and the loss of income per day. The previous term “income” is amended to “income-earning activity” according to the main change in terminology, cf. the comments to Cl. 16-1.

    The method of calculation indicated must be used even when the assured’s loss of income can be established more directly. This is because both the loss of time and the daily amount must be determined on account of the rules regarding days of indemnity (cf. Cl. 16-1, sub-clause 3) and the rules fixing a maximum limit for the insurer’s liability per lost day (cf. Cl. 16-5 and Cl. 16-6).

    “The daily amount” is the insurable value of the assured’s loss of income per day. It must be distinguished from the agreed “sum insured per day”. The daily amount is normally agreed and insured in full, and the agreed daily amount will thus also be the sum insured per day. However, this does not preclude partial cover; for instance, insurance can be effected for USD 5,000 per day of an agreed daily amount of USD 10,000. For further details, see the Commentary on Cl. 16-6.

    According to the second sentence, time lost cannot begin to run before the casualty or the event that gives rise to a claim under the loss of hire cover pursuant to Cl. 16-1 has occurred. This means that no compensation will be paid for loss of income relating to a prior period. Example: a vessel sailing under a voyage charterparty suffers a casualty during the ballast leg. As a result of this casualty, the charterparty is terminated. In actual fact, the freight covers both the ballast leg and the loaded leg, and the assured could argue that the loss of income must be dated back to the start of the ballast leg. However, the provision in Cl. 16-3, second sentence, precludes such a claim.

    The provision in Cl. 16-3 naturally does not prevent the parties from explicitly agreeing that the cover is to include loss of time irrespective of whether the assured can prove that the vessel would have been employed if the damage had not occurred. However, an agreement pursuant to the rules of Cl. 16-6 cannot be perceived as such an agreement.

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    Clause 16-3. Main rule for calculating compensation

    Compensation shall be determined on the basis of the time during which the vessel has been deprived of income -earning activity (loss of time) and the loss of income per day (the daily amount). Loss of time that occurred prior to the events described in Cl. 16-1 shall not be recoverable.

  • Clause 16-4. Calculation of the loss of time

    The Clause was editorially amended in the 2019 Version by moving sub-clause 2 to Cl. 16-1, sub-clause 3, cf. the Commentary to this Clause. The second sentence in the Clause was amended in 2023. The Commentary has been extended by including part of the text that was removed during the 2003 revision. This text gives a brief explanation on how to calculate loss of time for some practical situations as vessels contracted on time charterparties, voyage charters and for unchartered vessels. Further, some examples regarding calculation of partial time lost has been included in the Commentary.

    Cl. 16-4 supplements Cl. 16-3, and lays down further rules for calculating loss of time once the extent of the time lost has been established. Additional supplementary rules are laid down in subsequent sub-clauses.

    The first sentence provides that the loss of time shall be stated in days, hours and minutes. This method of calculation is in conformity with the usual method for calculating loss of time in off-hire and demurrage settlements.

    Ascertaining and calculating the loss of time will primarily raise problems of a factual nature, namely establishing how long the insured vessel has been deprived of income as a result of a damage as per Cl. 16-1, sub-clause 1, or event as per Cl. 16-1, sub-clause 2. However, calculation of loss of time may vary depending on whether the vessel is; a) on a time charterparty, b) on a voyage charterparty or c) is unchartered.

    a) Calculation for vessels under time charter are the most straightforward. Charter hire is here calculated on the basis of the time that the vessel is available to the charterers. Thus, hire ceases to be payable if the vessel, for reasons that are specified in the charterparty, is not able to perform the service required, i.e. the vessel is off-hire. The detailed rules concerning when the vessel is off-hire and how the off-hire period is to be calculated follow from the terms of the charterparty as these are interpreted and, if necessary, supplemented by rules of the legal system that governs the charterparty. The vessel will almost always be off-hire in cases where it is wholly or partially unable to operate. However, the duration of the off-hire period can vary considerably according to the terms of the various types of charterparty, see the Commentary to the 1996 Plan, Version 2002 for certain types of time charterparties.

    b) The calculation of the loss of time becomes more complicated if the insured vessel is employed under a voyage charterparty. Freight is payable for each voyage irrespective of the time taken to complete it. The close connection between the freight income and the time lost in the case of a time charter does not exist in the case of a voyage charter. The claim for freight is usually dependent upon completion of the transport; freight is, as a main rule, only earned if the cargo is delivered at its destination. In practice, however, some or all of the freight risk is often transferred to the charterer by clauses requiring pre-payment of the freight («freight prepaid, not returnable ship and/or cargo lost or not lost» or similar clause). If we assume that the insured vessel is engaged for a number of years for consecutive voyages to carry cargo between A and B and that, after suffering a casualty and after repairs have been completed, it resumes its voyage either in ballast to A or with its cargo intact to B, then the loss of time under the loss of hire insurance will normally be equal to the increase in time needed to complete the voyage the vessel was performing at the time of the casualty. In addition to repair time, time will be lost during deviation to any port of refuge, to the repair yard, during surveys and while waiting for tenders or for availability of a berth, or if the vessel as a result of the casualty must sail at reduced speed. Complications arise if a casualty occurs during a voyage with cargo to B, which results in the charterparty being cancelled. The assured can at the most claim distance freight. In some cases the assured will not even be entitled to this, e.g. the cargo has to be unloaded at the port of loading A. The freight is designed to cover inter alia the costs of the ballast voyage to A, the period spent in A and the time used to sail to the place where the casualty occurred. It can be said, that as a consequence of the casualty, the vessel is deprived of income (wholly or partially) for all of
    this period. This kind of loss, including loss that arises from the freight risk for the individual voyage, is, however, not taken into account when calculating the loss of time. As far as time lost before the casualty is concerned, this follows from Cl. 16-3, second sentence. Loss of time after the completion of repairs is dealt with by Cl. 16-13.

    c) The last group is where the insured vessel is unchartered at the time the casualty damage is repaired. In these cases the vessel might also have been unchartered at the time of the casualty, or the charterparty might have been cancelled as a consequence of the casualty, or repairs might have been postponed until after expiry of the charterparty. The actual loss of time in these cases must be measured in the same way as when a vessel is employed under a voyage charterparty. It is, however, a fundamental requirement for recovery under loss of hire insurance that there is a real loss of time in the sense that the assured is deprived of income, see further the comments on Cl. 16-1.

    The second sentence was amended in 2023 to emphasise that it is the assured’s income before and after a casualty that is decisive for the conversion of a partial off-hire period to a period with total loss of income. The provision states that time during which the assured has only partly been deprived of income shall always “be converted into a corresponding period of total loss of income”. This is in accordance both with established practice in settlements and with the method of calculation used for off-hire and demurrage.

    There can be many different causes for a vessel being partially deprived of income-earning activity, such as reduced speed due to engine damage, or e.g. fault in the vessel’s equipment, holds or tanks. Another example would be where the vessel temporarily engages in an alternative trade e.g. where the damage renders the vessel incapable to fulfil specific requirements under the charterparty. If, in such a situation, the assured allows the vessel to continue operating with the damage for a period of time, and subsequently carries out repairs when this is convenient in relation to the vessel’s charterparties, the result is first a partial time loss linked to the vessel’s reduced operations, followed by a full loss of time during the period of repairs.

    Example 1: Daily hire as per charterparty in force at the time of the casualty is USD 15,000, whilst daily agreed amount under the policy is USD 18,000. Due to recoverable damage to the vessel’s turbocharger, the vessel speed was reduced with 50% for 10 days, and the charterer paid only 50% hire for the period. I.e. the actual loss/reduction in hire was 10 days * USD 15,000 * 50% = USD 75,000. Disregarding any deductible, the claim under the policy would however be based on the agreed daily amount as follows: 50% loss for 10 days is converted into 5 days of 100% loss, as per second sentence of the Clause, and the claim under the policy would consequently be 5 days * USD 18,000 = USD 90,000.

    Example 2: A vessel with dynamic positioning (DP) capabilities suffered damage to a thruster and lost the DP class, and consequently went off-hire under the charterparty, where daily earning was USD 20,000. Whilst awaiting spares, the vessel engaged in an alternative trade where DP class was not required, and for a period of 30 days off-hire under the original contract, the vessel earned only USD 15,000 on average per day in the alternative trade. Daily insured amount was however not more than the earning in the alternative trade, i.e. USD 15,000 per day.

    The question then arises whether there is a claim under the policy when the alternative earning was equally high as the daily insured amount? Again, it is however a question whether there actually was a loss of income. And it is clear that the assured actually lost 25% of income during the 30 days period, which shall be converted into (25% * 30 days) 7.5 days of 100% loss. The claim would consequently be the daily insured amount USD 15,000 * 7.5 days = USD 112,500 (disregarding any deductible).

    In principle, however, the insurer should not be liable for a loss of time that is greater than what would have occurred if the vessel had been repaired immediately. In this respect, however, it suffices to refer to Cl. 3-30 and Cl. 3-31 of the Plan which state that the shipowner has a duty to limit the loss. Under Cl. 3-30, second sentence, the assured has a duty to consult the insurer if there is an opportunity to do so. If, for commercial reasons and without consulting the insurer, the assured chooses to postpone making repairs that could have been carried out immediately, and this inflicts a loss on the loss of hire insurer, the latter must therefore be able to invoke these rules.

    View Clause Go to Plan page

    Clause 16-4. Calculation of the loss of time

    Loss of time shall be stipulated in days, hours and minutes. A period of time during which the assured  has only partially been deprived of income shall be converted into a corresponding period of total loss of income.

  • Clause 16-5. The daily amount

    Sub-clause 1 was amended in 2023.

    The provision lays down rules for calculating the daily amount under open policies. As mentioned in the Commentary to Cl. 16-3, the “daily amount” is the insurable value of the assured’s loss of income per day. In practice, the daily amount is almost invariably agreed as per the presumption in Cl. 16-6. The provision in Cl. 16-5 is therefore primarily applicable in cases where the agreement “is opened” in accordance with Cl. 16-14, sub-clause 2.

    Sub-clause 1 was amended in 2023 by deleting the words “The assured’s loss of income per day”. There is no need to repeat that the daily amount is the same as the loss of income per day as this is already stated in Cl. 16-3. Also, the word “fixed” is amended to “determined”. The provision states that the daily amount shall be determined on the basis of the amount of gross freight income per day less the costs saved per day due to the vessel not being in regular operation. The gross freight per day poses no difficulty when the vessel is under a time charter. In the case of a voyage charter of the whole vessel, the estimated freight must be divided by the number of days that would normally be required for the voyage and any necessary prior or subsequent ballast voyages. In both cases, the freight according to the contract of affreightment in force when the loss of time occurs is decisive.

    Sub-clause 2 prescribes the daily amount in cases where the vessel is not employed under a contract of affreightment when the period of interrupted operations begins. This rule provides for an objective calculation of loss for practical legal purposes: it can be very difficult to decide how the vessel would have been employed if it had not been out of operation. To avoid the difficulties of deciding which course of action the assured would have chosen, the daily amount in such cases is determined on the basis of “the average freight rates for vessels of the type and size concerned” for the period during which the vessel is deprived of income. The term “average freight rates” means a “weighted average”; account must be taken of how long each rate has been in effect. In practice, this can be achieved by dividing the period of interrupted operation into shorter periods during which freight rates were relatively constant and calculating the compensation for each individual period. If rates for long-term charters and voyage charters differ, compensation must be based on an average in these cases, too.

    If the insured vessel is employed in a liner trade, the daily amount must be calculated on the basis of the information available concerning the earnings of other vessels in the same line during the period for which the vessel was out of operation.

    The reference to the vessel being “unchartered” does not cover the situation where a charterparty lapses due to a casualty covered by the insurance. This situation must be evaluated in accordance with sub-clause 1.

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    Clause 16-5. The daily amount

    The daily amount shall be determined on the basis of the amount of freight per day under the current contract of affreightment less such expenses as the assured saves or ought to have saved due to the vessel being out of regular employment. If the vessel is unchartered, the daily amount shall be...

  • Clause 16-6. Agreed daily amount

    The Clause was amended in 2023. The Commentary was amended accordingly, including a more detailed elaboration regarding the agreed daily amount.

    The provision regulates the agreed daily amount and states that “The daily sum insured stated in the insurance contract, cf. Cl. 16-1, sub-clause 3, shall be deemed to constitute an agreed daily amount (insurable value) unless the circumstances clearly indicate otherwise”. The Clause was rewritten in 2023 to be more consistent with Cl. 2-2 and by adding a clear reference to the daily sum insured that is stated in the insurance contract as per Cl. 16-1, sub-clause 3. Although no material amendment is intended the presumption in the wording is made clearer and emphasises the use of the principle of agreed daily amount.

    As mentioned under Cl. 16-5, the daily amount is in practice almost always agreed; the reason for doing so is to avoid difficulties in calculating the daily amount under an open loss of hire insurance contract. Under Cl. 2-2, an agreement of the daily amount means that the insurable value is fixed “by agreement … at a certain amount”.

    If it is clearly stated in the text of the insurance contract that the daily amount is agreed, the matter is straightforward. In practice, however, policies often merely state the amount the insurer is to pay for each day of time lost, the sum insured per day. This may be an agreed daily amount, but it is also conceivable that only the sum insured per day is stated. In this connection, Cl. 16-6 lays down an important rule by presuming that the daily amount shall be an agreed daily amount (insurable value). In other words, the daily amount stated in the insurance contract represents both the sum insured per day and the insurable value per day, meaning that the agreed value is fully insured. However, the presumption does not apply if “circumstances clearly indicate otherwise”.

    Both the assured and the insurer may invoke the presumed agreement of the daily amount. For the insurer, this is primarily relevant in the case of under-assessment, i.e. when the agreed daily amount is lower than the real loss of income per day. In such case, the agreement will limit the assured’s claim for compensation. However, the agreement may also be relevant when the rules of Cl. 16-11 are applied and when there is a question of seeking recourse against a third party who is responsible for the loss of income. Under Cl. 16-11 the agreed daily amount will be decisive when calculating the savings the insurer makes as a result of the extraordinary measures taken to expedite repairs.

    In view of the consequences of under-assessment, not every amount that is mentioned in the insurance contract should automatically be regarded as an agreed daily amount. If the amount is so much lower than the real loss per day that there can be no question of any rounding-off or rough calculation of the loss, the insurance contract should be treated as an open insurance contract. The provision has been worded with this in mind. If, for instance, the gross freight per day is USD 10,000, and the assured has effected a loss of hire insurance contract for USD 3,500 per day, one can safely say that “the circumstances clearly indicate” that the amount is a sum insured per day, not an agreed daily amount: thus there is an open insurance contract with under-insurance. Naturally, there is nothing to preclude combining under-insurance with agreement. In our example, for instance, it may be agreed that the insurance contract is to cover USD 10,000 of an agreed daily amount of USD 15,000. In terms of settlement, it would be an advantage if the apportionment ratio pursuant to Cl. 5-13, sub-clause 2, first sentence, is fixed at the ratio between the insured daily amount and agreed daily amount. It would therefore be expedient to have separate spaces on the first page of the insurance contract for “sum insured per day” and “agreed daily amount”.

    The system of agreed insurable values is well established in hull insurance. Vessel values change constantly, and it can often be difficult to establish what a vessel is really worth at a particular point in time - there is clearly a need to fix the value in advance. In freight insurance, the situation appears to be slightly different; in this case the exact amount of freight income of which the assured is deprived will often be known, and an agreement that exceeds the freight amount is likely to be perceived as excessive compensation for the assured’s actual loss. Nevertheless, the system of agreement has been maintained without exception. If it is evident that a loss of time has occurred, cf. Cl. 16-3, and the daily amount has been agreed, the assured must be paid the amount agreed for the number of (full) days during which the vessel is out of operation. This applies irrespective of freight income rates for the insured vessel having fluctuated since inception of the insurance contract when the daily amount was agreed. In practice there is a fair degree of freedom for the assured to nominate a daily amount which suits the assured's view of and future plans for income-earning activity of the insured vessel, even if the daily amount should exceed the current freight rates in the market at the time of inception of the insurance contract, and irrespective of future fluctuations in freight rates in the market. The agreed insurable value, however, may be set aside if the assured has supplied misleading information about matters that are relevant for the agreement, cf. Cl. 2-3, sub-clause 1. To ensure that the insurer has a proper basis to agree on the agreed daily amount, the assured shall provide sufficient information concerning the vessel’s potential income and the duration of the contract (charterparty/contract of affreightment). Thus, it is important that the assured and the insurer establish a mutual understanding of the basis of how the daily amount is arrived at. It is for the assured to provide all relevant information about the income-earning capacity of the insured vessel in a historical, current and potential future perspective as a basis for the daily amount as nominated by the assured and agreed to by the insurer. It would be preferable if the parties could «formalise» such understanding by expressing it in writing through their correspondence or otherwise. If the vessel is supposed to trade in a fluctuating freight market, the parties ought to act proactively by agreeing specifically mutual consultation at regular intervals in order for the assured to update the income-earning capacity information, with a view to possible future change in the daily amount if the updated information so would require within the parameters of the original understanding.

    It follows from Cl. 16-14, sub-clause 1 that the agreed daily amount shall not apply to loss of time during repairs which commences after the insurance period expires, if the actual loss of income per day calculated pursuant to Cl. 16-5 is less during this period. This provision is at times set aside in individual insurance contracts. It should be noted that departure from Cl. 16-14 requires specific agreement to this effect, for instance by positively stating that the rule in Cl. 16-14, sub-clause 1, shall not apply. Introduction of words like “fixed and agreed”, or e.g. “chartered or unchartered” is not sufficient to depart from Cl. 16-14.

    If the insured vessel is sailing under a charterparty for consecutive voyages, the agreement must be based on the average gross freight per day that the vessel would have earned if all the voyages had been completed in the normal way. It may then be relevant to deduct from the gross freight an amount for costs that will be saved if the vessel must dock for repairs. There are numerous uncertain factors in this calculation. The uncertainty is even greater for vessels in the liner and tramp trades. In general, it can be said that the greater the degree of uncertainty in the calculations, the more important it is that the daily amount be agreed in advance.

    It is conceivable that, after the expiry of the contracts of affreightment on which the agreement was based, the vessel is chartered on even more advantageous conditions. In such case, the agreement still has significance, since it always constitutes the maximum limit for the insurer’s liability.

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    Clause 16-6. Agreed daily amount

    The daily sum insured stated in the insurance contract , cf. Cl. 16-1, sub-clause 3, shall be deemed to constitute an agreed daily amount (insurable value) unless the circumstances clearly indicate otherwise.

  • Clause 16-7. Deductible period

    The Clause was amended in the 2023 Version. The Commentary was amended accordingly and also extended with comments relevant for the interpretation of the Clause.

    Sub-clause 1, first sentence, was rewritten by amending “loss of time” to “time lost” and reorganizing the reference to Cl. 16-4. These amendments are for simplification only and result in no material change. The provision provides that a deductible period, stated in the insurance contract, shall be established for each casualty. In accordance with the solution that follows from Cl. 12-18 the provision merely provides a number of rules for calculating the deductible period. The number of days must therefore be fixed in the insurance contract. This is linked to the fact that the number of deductible days is a key factor when fixing the premium and therefore an important element of the negotiations between the assured and the insurer. Thus, the deductible period is agreed in each individual case.

    A separate deductible period is applied for each casualty; this is in accordance with the other deductible provisions, cf. Cl. 12-18 and Cl. 13-4. However, if one and the same casualty leads to a number of separate delays, e.g. delay at the place where the casualty occurred, delay in connection with temporary repairs and delay during permanent repairs, then only one deductible period shall be applied for the aggregate of all the delays. The term “casualty” in Chapter 16 means an event that gives rise to the right to claim under loss of hire insurance in accordance with Cl. 16-1, i.e. also events mentioned in Cl. 16-1, sub-clause 2, but which do not result in any damage to the vessel. As far as the wording “each casualty” is concerned, reference is made to the Commentary on Cl. 12-18 and Cl. 4-18 with its guidance and examples.

    A key feature of the deductible under loss of hire insurance is that it is agreed as a period of time, and not as a monetary amount (as is the case under hull insurance). This means that in practice a new casualty will not necessarily trigger an additional deductible period for the assured: If two casualties are repaired simultaneously the two deductible periods may run in parallel.

    In practice that would mean that if the deductibles for two casualties happen to coincide 100%, then it does not matter whether there are one or two casualties as far as the deductible is concerned, as the deductibles for both casualties will be exhausted at the same point in time. However, if there has been a certain loss of time for one casualty only, before repairing simultaneously with another casualty at a later stage, then the deductible period for the two casualties will be allocated (wholly or partly) to different periods.

    The question whether there are one or more casualties is also important if the sum insured per casualty may be exhausted. An example will illustrate: After a recoverable main engine breakdown, repairs lasted for 80 days in excess of the deductible. The assured had taken out loss of hire insurance with 14 days deductible and 90 days cover per casualty. Later in the same policy year, major damage re-occurred due to an error by the repairers, and another 70 days were lost for repairs. If this is considered as one casualty, there would be only 10 days left of the 90 days cover, and the assured would have no claim for the last 60 days of repairs. However, if the second breakdown would be considered a separate casualty, then due to the automatic reinstatement clause, a new 90 days limit would be available, and (70 days less deductible) 56 days in respect of the second breakdown could be claimed under the loss of hire insurance.

    According to sub-clause 1, first sentence, the deductible period runs “from the commencement of the loss of time”. This will be the time the assured is without income due to the vessel being deprived of income-earning activity. This might be a later point in time than the occurrence of the “casualty”. If, for instance, the vessel runs aground but continues the voyage immediately at normal speed, there is no loss of time and therefore obviously the deductible period does not run. On the other hand, if bottom damage is later discovered that necessitates a lengthy stay in a repair yard, a loss of time occurs and the deductible period begins to run accordingly.
    Neither will the loss of time commence if the vessel is out of operation in case the assured maintains income under the contract, e.g. in relation to “maintenance days” under the contract, cf. the Commentary to Cl. 16-1.

    The rule that the deductible period begins to run at the commencement of the loss of time also means that the deductible period is to be placed at the beginning of the period of lost time. This also applies where the loss of time runs during several separate periods. The deductible period is therefore not to be apportioned pro rata between the various periods. On this point, the rule in loss of hire insurance differs from the rule applied in hull insurance where the deductible is apportioned pro rata between the expenses to be covered by the insurer. The placement in time of the deductible period can have the following consequences for the settlement:

    Firstly, it is significant in relation to the rule of apportionment in Cl. 16-12 regarding simultaneous repairs. It will be a distinct advantage for the assured to have owner’s work (i.e. repairs that are not covered by insurance) carried out during the deductible period; the assured does not receive any loss of hire compensation for this period in any event. On the other hand, if owner’s work is carried out during a period of time that is covered by the loss of hire insurer, the result is that the assured may only claim 50 % of the compensation that it would have received if only repairs covered by the insurance had been carried out, see Cl. 16-12, sub-clause 1.

    Secondly, the placement in time of the deductible period may become significant where the daily amount pursuant to Cl. 16-5, sub-clause 2, or Cl. 16-14, sub-clause 2, is lower for the last repair period than for the first. In this case, the assured may not demand that the deductible period be placed during the last period so as to enable the assured to receive compensation for correspondingly more days at the highest daily amount.

    Thirdly, the placement in time of the deductible period may become significant when apportioning costs of measures to avert or minimise loss and extra costs incurred to save time, cf. Cl. 4-12, sub-clause 2, and Cl. 16-11, sub-clause 3. Insofar as such costs are incurred in saving time during the deductible period, they must be covered by the assured, cf. further information in the Commentary on Cl. 16-11, sub-clause 3.

    Finally, the placement in time of the deductible period may become significant when apportioning claims for reimbursement pursuant to Cl. 5-13 and Cl. 16-16.

    The first sentence also states that the deductible period is to be calculated in accordance with the rule in Cl. 16-4, sub-clause 1. If the vessel is only partly deprived of income, the deductible period lasts until the loss of time, converted into a period of total loss of income, has reached the agreed number of days. This means that if a machinery casualty causes a vessel to sail at half speed for 40 days and the deductible period has been fixed at 14 days, the deductible period lasts for 28 days, reckoned from the time of the casualty.

    The same applies where the loss of time resulting from a casualty is spread over several periods, separated by periods in which the vessel is in full operation. In such cases, only the days with (full) loss of time are counted. The deductible period does not expire until the fixed number of days is reached.

    Sub-clause 1, second sentence, states that loss of time during the deductible period is not covered by the insurer.

    Sub-clause 2 states that damage caused by heavy weather or navigating in ice which has occurred during the period between departure from one port and arrival at the next one is to be regarded as a single casualty. The provision is identical to Cl. 12-18, sub-clause 2. Prior to 2003 there was also a provision regarding damage caused by grounding or contact with the seabed. This provision was deleted in 2003, but no change in practice as regards this point was intended.

    In the 1996 Version, sub-clause 2, second sentence, stated that if the insurance should attach or expire during the period between two ports, the insurer covered the same proportion of the total loss of time resulting from all heavy weather damage occurring during the period as the number of heavy weather days during the insurance period bore to the total number of heavy weather days occurring throughout the period. This rule has been deleted to bring the provision into line with Cl. 12-18, but no change in practice is intended on this point either.

    The principle of apportionment is most easily illustrated by an example. On a voyage which lasts from 20 December 1995 to 10 January 1996, the vessel sails in heavy weather for six days before and three days after the new year, resulting in a total loss of time of 60 days. The 1995 insurance contract has a 30-day deductible and covers 180 days per casualty, while the 1996 insurance contract has a 15-day deductible and covers 90 days per casualty. The 1995 insurance contract thus covers 6/9 of the 60 days of lost time, i.e. 40 days, subject to a deduction of 2/3 of the deductible period of 30 days, i.e. 20 days; hence 20 days of loss of time is recoverable. The 1996 insurer covers 1/3 of the loss of time, i.e. 20 days, subject to a deduction of 1/3 of the 1996 deductible period, i.e. five days; hence 15 days are recoverable. The maximum number of recoverable days under the 1995 insurance contract is 2/3 of 180 days, i.e. 120 days, and under the 1996 insurance contract 1/3 of 90 days, i.e. 30 days. Thus, in our example limits would have no relevance.

    Sub-clause 3 provides a separate deductible period for machinery damage if this is agreed. The expression “Cl. 12-16 shall apply correspondingly”, means that the term “damage to machinery” has the same meaning in relation to loss of hire insurance as in relation to machinery damage deductions under Cl. 12-16. The provision in Cl. 12-16, sub-clause 2, applies correspondingly, so that the damage referred to in the provision does not trigger a separate deductible period.

    The rules and principles of Cl. 16-7 shall apply regardless of other hull conditions having been agreed under Cl. 16-1, sub-clause 1.

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    Clause 16-7. Deductible period

    Each casualty shall be subject to a deductible period which shall run from the commencement of the loss of time and last until the time lost is equivalent to the deductible period stated in the insurance contract , calculated in accordance with the rule in Cl. 16-4. Loss of time in the deductible...

  • Clause 16-8. Survey of damage

    The provision refers to the rules for survey of damage in Cl. 12-10 of the Plan. The reference also applies even if the hull insurance has been effected on conditions other than those of the Plan with the written consent of the insurer. Consequently, any survey rules in the differing standard conditions shall not be used.

    The statement that the survey rule applies “correspondingly” to loss of hire insurance means that the loss of hire insurer must be notified and given an opportunity to survey the damage before it is repaired, cf. Cl. 12-10, sub-clause 1.

    The primary purpose of the survey and survey reports is to secure proof of the circumstances that are decisive for the liability of the insurer and for the extent of such liability. However, the survey can also provide a necessary basis for evaluating where and when repairs should be carried out, cf. Cl. 12-10, sub-clause 3, regarding preliminary reports.

    A main condition for the loss of hire insurer’s liability is, in most cases, that the loss of time is due to damage that is recoverable under the ordinary hull conditions, cf. Cl. 16-1, sub-clause 1. The necessary information regarding the cause, nature and extent of the damage will normally appear in the hull survey reports. The loss of hire insurer can use these reports, cf. Cl. 5-1, in which case it will not be necessary to include a detailed description of the damage in the loss of hire survey reports. But in exceptional cases the situation may be different: such large deductibles may have been agreed that no compensation can be claimed for the damage under the hull insurance contract and therefore no hull survey is carried out. However, the loss of hire insurer may be liable, in which case the insurer must ensure that the necessary facts concerning the damage are established. There may conceivably also be cases where the loss of hire insurer is not willing to automatically accept the survey that has been conducted for the hull insurance; the insurer is then fully entitled to require that all the relevant facts are included in the loss of hire survey report.

    In survey reports for the loss of hire insurance, it is necessary to include facts that are particularly significant for the loss of hire settlement. It is important to include exact indications of time for when the casualty occurred, any time spent at the site of the casualty, the vessel’s rerouting to the shipyard, times of arrival at and departure from the shipyard in connection with temporary repairs, if any, and in connection with permanent repairs. If repairs arising from different casualties or maintenance or other owner’s work are carried out on the same occasion, the amount of time that each of these would have required if carried out separately must be specified, (cf. Cl. 16-12). If extraordinary measures have been taken to save time (cf. Cl. 16-11), this must be stated and the cost of the measures and the amount of time saved must be specified.

    The provision refers to the rules for survey of damage in Cl. 12-10 of the Plan. The reference also applies even if the hull insurance has been effected on conditions other than those of the Plan with the written consent of the insurer. Consequently, any survey rules in the differing standard conditions shall not be used.

    The statement that the survey rule applies “correspondingly” to loss of hire insurance means that the loss of hire insurer must be notified and given an opportunity to survey the damage before it is repaired, cf. Cl. 12-10, sub-clause 1.

    View Clause Go to Plan page

    Clause 16-8. Survey of damage

    The provisions of Cl. 12-10 shall apply correspondingly.

  • Clause 16-9. Choice of repair yard

    This Clause was amended in the 2023 Version. Sub-clause 1 was only editorially amended with no material changes, and is now identical to Cl. 12-11, sub-clause 1. Sub-clause 2 was new, and describes how tenders shall be adjusted for the purpose of comparison. Sub-clause 3 was amended by providing a revised limitation for insurer’s liability. Sub-clause 4 corresponds with the previous sub-clause 2, but was amended to be identical to Cl. 12-12, sub-clause 3.

    This provision regulates tenders for repairs, the right of the assured to choose repair yard and the consequences the choice has for the extent of the loss of hire insurer’s liability. It is also closely related to the corresponding provisions in hull insurance in Cl. 12-11 and Cl. 12-12.

    Sub-clause 1 is slightly amended to be identical to Cl. 12-11, sub-clause 1. Once the insurer learns of the casualty, it must be made clear to the assured whether or not the insurer will demand that tenders be obtained. If the insurer fails to do so, Cl. 16-9 will not apply, and the loss of hire insurer must then cover the actual loss of time. In practice, tenders will normally be obtained after consultation between the assured, the hull insurer and the loss of hire insurer. If necessary, however, the insurers must be entitled to take independent action, together or individually.

    It is conceivable that the loss of hire insurer enters the claims process at such a late stage that it is impossible to obtain tenders prior to carrying out repairs from the repair yards considered relevant by the insurer for the tendering process. If this is due to the fact that the assured has not notified the insurer of the casualty pursuant to Cl. 3-29, the insurer may invoke Cl. 3-31. The insurer must also have the right to obtain tenders after the repairs have been carried out.

    Sub-clause 2 was new in the 2023 Version. It provides that the tenders received shall be adjusted for comparison purposes and also defines how they shall be adjusted. Under previous versions, there was no similar provision for adjusting tenders under loss of hire insurance. However, there is a corresponding provision applicable to hull insurance, see Cl. 12-12, sub-clause 1, although the actual adjustments of tenders shall be made slightly differently under loss of hire insurance. The essential steps for adjustment of the tenders in loss of hire insurance are as follows:
    1) The repair time according to the tender shall be converted into monetary expense, by multiplying the number of days necessary for the repairs with the applicable daily amount, which can be the daily agreed amount as per Cl. 16-6, or alternatively e.g., a lower amount to the extent Cl. 16-14, sub-clause 1 (cf. Cl. 16-5), is applicable.
    2) Any estimated additionally recoverable time shall be added, such as time for removal to the repair yard etc., cf. Cl. 16-10, and loss of time after completion of repairs, cf. Cl. 16-13 – converted as under 1) above.
    3) Finally, the tender shall be adjusted by adding any repair costs not recoverable under the hull insurance because the repair alternative is more expensive than the cheapest. The point here is that a hull insurance, as a starting point, only covers the cheapest alternative. Consequently, there may customarily be tenders where repair costs are higher than what is covered under the hull insurance, even if a hull insurance under the Plan provides for a certain contribution to a more expensive alternative to the extent that time is saved, see Cl. 12-12, sub-clause 2 (cf. further below).

    By adding any repair costs as per 3) above when adjusting the tender (and not only the value of time lost), the result will be that the adjusted tender hereunder in principle includes all losses uninsured under the H&M insurance.

    Sub-clause 3, first sentence, establishes an important principle; the assured is always entitled to decide at which yard the repairs are to be carried out. However, the assured’s choice may affect the loss of hire cover and the hull cover. If there are several alternative repair yards, the hull insurer will in principle want the cheapest repairs, even if they take longer, while the loss of hire insurer will want the quickest repairs, even if they will cost more. The assured’s choice may also be influenced by the applicable hull conditions, e.g. as a hull insurance based on the Plan also covers part of the loss of hire risk, cf. Cl. 12-7, Cl. 12-8 and Cl. 12-11 to Cl. 12-13. The choice of repair yard is regulated in Cl. 12-12, which in brief entitles the assured to charge the hull insurer for the additional costs of more expensive, quicker repairs up to an amount equal to 20 % per year of the agreed insurable hull value for the time saved by the assured by choosing the more expensive tender. Further, there is also a certain additional contribution to any repair alternative involving a relatively shorter removal voyage than the cheapest repair alternative. The relationship between the other provisions in the hull cover and the loss of hire insurance is further explained in the Commentary on Cl. 16-11. On the other hand, if the hull insurance is based on other conditions than the Plan, such other conditions would normally not have any contribution to costs incurred in order to save time.

    From the assured’s perspective, it is, however, important that there is an alternative available under which there is cover for the whole period out of income-earning activity as well as for the full costs of repairs, i.e. that there is no uninsured losses due to the apparent conflict of interest between the hull and loss of hire insurers. Under previous versions of the Plan, this was the case only when the hull insurance was based on the Plan, when there always was an alternative available providing full cover, cf. sub-clause 3 last part of second sentence in the 2019 Version, which is deleted. However, if the hull insurance was based on other conditions than the Plan (accepted in writing by the insurer), the liability of the insurer was limited to the loss of time under the tender that would have resulted in the least loss of time plus half of any additional loss of time that occurred. In other words, if the assured in such cases chose another alternative than the fastest, there was a certain uninsured proportion of the time lost, cf. sub-clause 3 last sentence in the 2019 Version, which is also deleted.

    Sub-clause 3, second sentence, instead provides for a revised limitation of liability under the loss of hire insurance, which is applicable irrespective of which hull conditions that are in force. Under the Plan prior to the 2023 Version, there was no mechanism for the loss of hire insurer to contribute to repair costs if that was more favorable than paying for a longer period out of operation. Such mechanism is now introduced in the 2023 Version. Given that an “adjusted tender” as per sub-clause 2 also includes repair costs not covered under the actual hull conditions, the allowance under the loss of hire insurance can be limited to the lowest adjusted tender. This solution supports the choice of the alternative which, seen as a whole, is financially most favorable, and it also complements the H&M insurance by providing full cover under such repair alternative for repair costs and/or repair time. However, the internal apportionment between hull and loss of hire insurance may be affected by the applicable hull conditions, and any difference in liability under the loss of hire insurance based on the relevant hull conditions must be part of the loss of hire insurer’s risk assessment and pricing.

    The provision can be illustrated by a further examination of the example referred to in Cl. 12-12, under the presumption that there is also a loss of hire policy in force with daily amount USD 15,000:

    Adjusting tenders for policies where the hull insurance is based on the Plan:

    image849k.png

     

    The loss of hire insurer can now limit liability to alternative A (less deductible), which clearly is the lowest adjusted tender. The versions prior to 2023 would have allowed shipowners to choose alternative B, with full cover from loss of hire even if taking much longer time than A, as B was the shortest alternative which was fully covered under hull insurance. If the shipowner chose A, there would, however, be no cover for the USD 9,223 from loss of hire insurance.

    Adjusting tenders for policies where the hull insurance is based on conditions strictly limiting allowance to the cheapest alternative:

    imagetvani.png

     

    Also here alternative A is the lowest adjusted tender, and the loss of hire insurer can limit liability to USD 376,000 accordingly. Under versions prior to 2023, the insurer could limit liability to the shortest alternative plus 50% of additional time. That means that in case the assured chose alternative A, there was no cover for the extra repair costs of USD 61,000 from any insurer, although the time lost would be covered in full. If alternative B was chosen, full cover would be allowable under the hull insurance for repair costs, but allowance under the loss of hire insurance would have been limited to 21 days plus 50% of 6 days = 24 days (less deductible), and there would be no loss of hire cover for the last 3 days. Under the 2023 Version, however, there is full cover for one repair alternative, irrespective of the conditions for the underlying hull insurance.

    Sub-clause 3, third sentence, makes it clear that if the assured chooses the lowest adjusted tender, it makes no difference if the tender should prove to have been based on an over-optimistic estimation of the time required. The assured would in such case be entitled to settlement based on the actual loss of time. If the repairs e.g., take 23 days rather than 19 days as stated in the tender, the assured would thus be entitled to compensation for 23 days plus removal time and plus the costs not covered under H&M.

    Sub-clause 4 is identical to Cl. 12-12, sub-clause 3, see further the Commentaries on that provision.

    View Clause Go to Plan page

    Clause 16-9. Choice of repair yard

    The insurer may demand that tenders for repairs be obtained from repair yards of the insurer’s choice. If the assured does not obtain such tenders the insurer may do so. For the purpose of comparison, the repair time for tenders received, converted into monetary expense using the applicable daily...

  • Clause 16-10. Removal to the repair yard, etc.

    The wording of this Clause was amended in the 2013 Plan. The terms “class of repairs” and “class of work” has been replaced with “category of repairs” and “category of work” in order to make the Plan´s use of terms consistent. The Commentary was amended in 2023 as a consequence of the amendment made in Cl. 16-12.

    The provision regulates the insurer’s liability for loss of time in connection with the vessel’s removal to a repair yard, carrying out surveys, obtaining tenders, etc., which is in addition to the actual period of repairs after damage has been sustained. Liability for such loss of time is conditional on the insurer being liable for the time lost pursuant to Cl. 16-1. In other words, Cl. 16-10 does not provide any independent legal basis for covering loss of time in connection with removal, etc. This differs to some extent from the principles applicable for repairs, which are dealt with under the special provisions in Cl. 16-12, see e.g. paragraphs 3-5 of the Commentary to Cl. 16-12.

    Sub-clauses 1 and 2 regulate loss of time in connection with the removal itself, while sub-clause 3 regulates time lost in connection with surveys, tenders, tank-cleaning, waiting and the like which are necessary in order to carry out the repairs.

    In accordance with sub-clause 1, loss of time during removal to a repair yard is to be allocated to the category of repairs that has “necessitated the removal”. The assured would not normally send the vessel to a repair yard unless this was necessary for the further operation of the vessel. Therefore, if the damage sustained in a casualty is of such a nature and extent that it must immediately be repaired at a repair yard, it is the repair of this damage that has “necessitated the removal”. If, on the other hand, the vessel must be docked by a certain date in order to carry out a classification survey or similar operations, and the repair of the casualty damage per se could be postponed, the costs of removal must be for the owner’s account, since it is the survey required for classification that makes removal necessary.

    It follows from the above that if a casualty “necessitates” repairs at a repair yard, the assured has the opportunity to have owner’s work carried out during this repair period without having to carry any of the removal time for its own account. On the other hand, if it is the owner’s work that is necessitating the repair yard stay, all of the removal time must be for the assured’s account, even if the casualty damage is repaired at the same time. It is therefore irrelevant for the allocation of removal costs whether owner’s works, carried out simultaneously, might require more extensive repairs or take more time, or which of several simultaneous repairs take the longest time.

    The assessment of which category of works made the removal to a repair yard necessary, must be based on the situation when the removal commenced. If the vessel is on its way to a yard to carry out extensive maintenance repairs but suffers a casualty on the way which requires immediate repairs, it is the maintenance work that has necessitated the removal. Therefore, none of the removal time is to be allocated to the casualty repairs, even though the removal time has in fact also proved to be advantageous for such repairs. The same applies where unknown damage from a previous casualty is discovered while the vessel is at the repair yard; none of the removal time must be allocated to this damage either.

    Sub-clause 1, second sentence, of the 1996 Version made the rule in the first sentence correspondingly applicable in the event of time lost after completion of repairs. This rule has now been moved to Cl. 16-13.

    Sub-clause 2 regulates the situation where removal to a repair yard “was necessitated” by more than one category of repairs. In such cases, the removal time must be apportioned according to the time each category of repairs would have required if carried out separately, cf. first sentence. The Committee considered introducing a rule for a division of the time into two equal parts along the lines of the rule that applies in the case of simultaneous repairs, cf. Cl. 16-12, but decided not to do so. If, for instance, it takes the vessel 20 days to sail to a repair yard, where casualty repairs and owner’s work which separately would have required 90 and 10 days respectively are carried out, it is likely to seem unreasonable to allocate half the removal time or 10 days to the owner’s work. The natural solution is to allocate the removal time on a pro rata basis according to the time each category of work would have required if they had been carried out separately. In our example, consequently, 90/100 of the removal time, i.e. 18 days, must be allocated to the casualty work and 10/100 of the owner’s work, i.e. 2 days, must be attributed to owner’s work.

    Sub-clause 2, second sentence, establishes that removal time occurring during the deductible period is not to be apportioned. The rule only has significance in those cases where removal time is to be apportioned; if the removal time falls in its entirety on the insurer, the deductible period will run during the removal in the normal way. The reason for this provision is that it may seem unreasonable to make the assured bear a portion of the removal time that falls during the deductible period. Apportioning 50 % of the removal time to the insurer would, for instance, mean that half of the removal time would be added to the deductible period. If the removal period is 30 days and the deductible period is 15 days, the entire removal period would be converted into a deductible period, and the owner would receive no compensation for the removal time. The consequence of the provision is that the deductible period runs in the normal way, each day counting in full during the removal period, even in cases where the removal time is to be apportioned. In other words, the principle of apportionment is not to be applied until the deductible period is over. In the above-mentioned example, the assured therefore receives compensation for 1/2 (30-15) = 7 1/2 days, if each category of work would have required the same amount of time if they had been carried out separately. As to the question what a “category” of work is, see Commentary to Cl. 16-12, sub-clause 2, resulting in an amendment also under Cl. 16-10.

    Sub-clause 3 specifies that loss of time in connection with carrying out surveys, obtaining tenders and cleaning tanks is to be dealt with according to the rules in sub-clauses 1 and 2. The provision is not exhaustive, cf. the phrase “or due to other similar measures”. In many cases, loss of time of the kind referred to in sub-clause 3 will have been “necessitated” by one category of work; time lost in obtaining tenders must, for instance, be allocated in its entirety to the work to which the tenders apply.

    It is important to distinguish categories of time falling within this Clause from “repairs” falling under Cl. 16-12, as the basis for allowance and apportionment is different under the two clauses.
    It is also conceivable that repairs of one category of work may be effected simultaneously with e.g. waiting time, survey or the like for another category or work. However, if repairs (dealt with under Cl. 16-12) of one category of work are effected simultaneously with waiting time or the like (dealt with under Cl. 16-10) for another category or work, there is effectively no time lost for waiting or the like, as the time has been usefully spent on repairs of the other category or work. An example may illustrate: A vessel is undergoing a scheduled docking, when certain recoverable damage is discovered. In order to do repairs, it is clear that various spares are required, and it takes a week before spares are supplied and damage repairs can be commenced. During this period waiting for spares for casualty repairs, owner’s work is however effected as originally planned. In these circumstances, no time has actually been lost on waiting for spares, as owner’s work was effected during this period, and the deductible period for the casualty cannot then start to count before spares are delivered and repairs actually commence. However, if the waiting time for spares extends beyond the time required for owner’s work, clearly there would be time lost in waiting for spares, which was “necessitated” by the casualty and thus allowable in full.

    View Clause Go to Plan page

    Clause 16-10. Removal to the repair yard, etc.

    Loss of time during removal to the repair yard shall be attributed to the category of repairs that necessitated the removal. If removal to the repair yard was necessary for more than one category of repairs, the removal time shall be apportioned in accordance with the time that each category of...

  • Clause 16-11. Extra costs incurred in order to avert or minimise loss

    The Commentary was amended in the 2019 Version. In 2023, the provision, including the heading, were amended with a substantial amendment and restructuring of the Commentary.

    The heading was amended from “Extra costs incurred in order to save time” to “Extra costs incurred in order to avert or minimise loss”. Sub-clause 1 was amended accordingly by deleting the reference to time. The result is that the wording is general, and the insurer will as a starting point “be liable for extra costs incurred in connection with temporary repairs and in connection with extraordinary measures taken in order to avert or minimise loss covered by the insurance”. The previous wording gave grounds for arguments that the measures had to be tied to the damaged vessel, so that costs to employ a substitute vessel was not covered under this Clause, cf. the LA-2018-35513 Hamburg Cruise judgement. With the new general wording, it is clear that this is not the case, see below. This also means that Cl. 16-11 includes the regulation in the Plan Chapter 4 Section 2 on Costs of measures to avert or minimise the loss, including salvage awards and general average, see sub-clause 1 new second sentence commented upon below.

    Sub-clause 1, first sentence, establishes that the insurer is liable for “extra costs incurred in connection with temporary repairs and in connection with extraordinary measures taken in order to avert or minimise loss covered by the insurance”. The wording implies that the extra costs of temporary repairs are covered even if temporary repairs are not necessarily regarded as an extraordinary measure. In regard to other measures, the assured must prove that they are of an extraordinary nature in order for the insurer to be liable. Regarding the distinction between ordinary and extraordinary measures, some guidance can be found in the Commentary to Cl. 4-7, see also examples and discussion below.

    Measures to expedite repairs are within the core of the provision, however all extraordinary measures that reduce loss covered by the insurance will as a starting point be recoverable. The cover is broadened compared to the previous wording «loss of time» to emphasise that the provision also covers other measures than saving time. For example, measures that enables the assured to maintain income under the contract for the damaged vessel may be covered, see further below regarding substitute vessels.

    The loss of hire insurer’s liability for costs incurred in order to avert or minimise loss only applies “insofar as such extra costs are not recoverable under the hull insurance in effect”. Prior to 2023 the compensation would be based on the Plan’s hull cover unless the applicable hull conditions were accepted in writing by the loss of hire insurer.

    If the effected hull insurance is based on the Plan, the provisions in Cl. 12-7 regarding temporary repairs and Cl. 12-8 regarding costs incurred to expedite repairs will be relevant. Pursuant to these provisions, the hull insurer is liable for the entire cost of necessary temporary repairs if permanent repairs cannot be carried out at the place where the vessel is currently located. For other temporary repairs of the damaged object and measures to expedite repairs, liability is limited to 20 % per year of the agreed insurable hull value for the time saved by the assured. These provisions are based on the assumption that the rest of the costs related to measures to expedite repairs will be covered by the loss of hire insurer, so that the assured receives compensation for that portion of the costs that are not recoverable from the hull insurer. In this respect, loss of hire insurance becomes a supplement and subsidiary to the hull insurance. On the other hand, the loss of hire insurer’s liability is not extended if the costs are not covered by the hull insurance due to the deductible; the decisive criterion is whether the costs are of such a nature that they are recoverable under the hull insurance.

    Cl. 16-11, sub-clause 1, first sentence includes those measures which in accordance with Cl. 12-7, sub-clause 2, and Cl. 12-8 activate the hull insurer’s limited liability for costs incurred to reduce loss of time. However, Cl. 16-11 also embraces a wider range of measures and encompasses any temporary repair; i.e. all measures taken to enable the vessel to be removed to a repair yard, but which are not intended as permanent repairs. This includes the replacement of parts of the vessel or its equipment, if relevant also the hire of such parts or equipment, e.g. a mobile generator. The fact that the vessel is supplied with parts that will later be replaced is of no significance. Nor is it required, contrary to Cl. 12-7, sub-clause 1, that the temporary repairs are “necessary”.

    The rules in Cl. 16-11 only become significant when temporary repairs are made in order to save time. Occasionally, such repairs are also made in order to reduce the total costs of repair: a vessel that has suffered a major casualty in America may, for instance, only carry out such repairs there as are necessary for the vessel to be allowed to sail to Europe, where permanent repairs can be carried out so much more cheaply that, all in all, money is saved for the hull insurer. In these cases, the costs of the temporary repairs pose no problem; they will be covered by the hull insurer in accordance with Cl. 12-7, sub-clause 2, first alternative, of the Plan. The problem is the increased loss of time resulting from the temporary repairs and the vessel’s removal to Europe. The solution to this problem must be sought in Cl. 16-9. Temporary repairs at A + permanent repairs at B must be regarded as an alternative to permanent repairs at A.

    In all cases where the question of temporary repairs arises, it is important that the assured fulfils its duties pursuant to Cl. 3-29 and Cl. 3-30, i.e. to immediately notify the loss of hire insurer of the casualty and keeps the insurer informed of developments. If the assured fails to do so, the insurer may demand that the insurer’s liability be reduced pursuant to the rules of Cl. 3-31.

    In the event of the hire of generators and boilers, the insurance will cover the costs of hire and shipment, installation and removal on board, connection and disconnection, etc. On the other hand, it will not cover fuel, lube oil and other ordinary operating costs while the object hired is being used on board. If the change leads to higher operating costs, however, the increase in costs will also be covered. The wording “extraordinary measures” will also cover the increase in costs related to the use of overtime in connection with the damage repairs, an agreed bonus to be paid in the event the vessel is returned to service earlier than stipulated in the repair contract, and the higher costs of replacement rather than repairs that entail a lengthy repair period. The extent to which the costs of a charter aircraft are to be regarded as an extraordinary measure must be assessed in each individual case, having particular regard to what is recoverable under the hull insurance according to the doctrine of “impossibility of repair”. Costs of using extra tugboats for port calls and canal transits due to, for instance, reduced engine capacity or damage to thrusters and the like must also be assessed in each individual case particularly related to burden of proof issues. Factors such as weather, wind and sea current may also influence the necessity of employing tugs, and if extra tugs are necessary in any event due to such factors, there is no cover under this Clause. However, in many cases it is clear that such tug costs are indeed extra for the assured due to the damage. If the assured can prove that the costs are extra due to the damage, it is established that allowance can be made also for extra tug costs under the terms of this Clause. Costs that are not deemed to be extraordinary in this connection are primarily those that can be described as increased voyage expenses, i.e. the extra voyage costs incurred in order to keep the vessel gainfully employed. These increased voyage expenses have to be paid by the assured according to the assured’s duty to minimise the loss. If the assured chooses to keep the vessel idle waiting for repair, the insurer shall not be liable for greater loss than that for which the insurer would have been liable if the duty of the assured had been fulfilled.

    The choice of repair yard is exhaustively regulated in Cl. 16-9, and cannot be supplemented by Cl. 16-11. In this context, Cl. 16-11 applies only to costs incurred in connection with extraordinary measures to expedite repairs.

    As stated above, the amended wording now covers all extraordinary measures that reduce loss covered by the insurance. It is the assured’s income interest that is covered by the loss of hire insurance, thus extraordinary measures that enable the assured to maintain income under the particular contract for the damaged vessel will be covered. An example of such a measure is that the assured in some cases might be able to engage a substitute vessel during repairs of a damaged vessel and then maintain income under the damaged vessel’s contract. Whether this is possible will depend on the provisions in the particular contract and/or approval from the charterer. If there are no legal basis or lack of consent from the assured’s contractual partner, there will be no duty to engage a substitute vessel as per Cl. 3-30. If the assured provides a substitute vessel, this will be considered as an extraordinary measure and the extra costs incurred will be recoverable under Cl. 16-11, subject to the other conditions herein being fulfilled. This is contrary to the LA-2018-35513 Hamburg Cruise judgement.

    It might be that the assured’s incentive in engaging a substitute vessel goes beyond saving income under the particular contract, like maintaining commercial or business relationships. To the extent engaging substitute vessel also maintains earning under the contract, Cl. 16-11 will be a basis for covering these costs up to the actual income under the contract, always limited to the compensation the insurer had to pay if no measures were taken. The assured should consult the insurer before contracting a substitute vessel to be advised on the coverage position for the different scenarios.

    Sub-clause 1, second sentence is new and states that “Chapter 4, Section 2, shall not apply”. Thus, the generalization of the provision means that costs of measures to avert or minimise loss in relation to the loss of hire insurance is regulated exhaustively by Cl. 16-11. The rationale for this, and the relationship between Cl. 16-11 and the general rules regarding costs of measures to avert or minimise loss in Chapter 4, Section 2, can be explained as follows:

    Firstly, costs incurred to salvage the vessel or costs recoverable in GA will be covered by the property interests without contribution from the loss of hire insurance. Contribution from freight or charterparty hire is regulated in Cl. 4-8, sub-clause 1, second sentence.

    Secondly, as explained above, there will be no cover or contribution from the loss of hire insurance of costs covered by the hull insurance. This includes all costs covered by the hull insurance that indirectly benefit the loss of hire insurance, i.e. both based on the general provisions in Chapter 4, Section 2, and specific provisions for hull insurance.

    Thirdly, regarding the category of extra costs incurred in order to minimise loss covered by the loss of hire insurance, the wording is now sufficiently wide to include measures that would otherwise be covered by Cl. 4-7 or other provisions in Chapter 4, Section 2. Similar to Cl. 4-7, Cl. 16-11 covers “extraordinary” measures, which is meant to be interpreted in the same way as under Cl. 4-7.

    Fourthly, it should be noted that there is a difference between Cl. 16-11 and Cl. 4-7 in regard to the extent of the liability. According to Cl. 16-11, sub-clause 2, the insurer is not liable for more than the insurer would have been if no measures had been taken. A claim based on Cl. 4-7 will on the other hand cover costs of unsuccessful measures in addition to the unavoidable loss caused by the casualty, cf. Cl. 4-18, sub-clause 1. Under the previous plans it was uncertain to what extent Cl. 16-11 could be supplemented by Cl. 4-7 and Cl. 4-18, sub-clause 1, but in practice these measures were always handled according to Cl. 16-11. This practice is now implemented in Cl. 16-11, sub-clause 1, cf. second sentence in sub-clause 2. Sub-clause 1 second sentence states that Chapter 4, Section 2 shall not apply. Sub-clause 2 limits the insurers liability to the amount the insurer would have had to pay if the measures had not been taken. The result of this is that the principle in Cl. 4-18, sub-clause 1, does not apply to the cover for extraordinary costs according to Cl. 16-11.

    Sub-clause 2 states that “The liability for such costs is limited to the amount the insurer would have had to pay if the measures had not been taken”. This conforms to the previous wording "The insurer shall not, however, be liable for such costs in excess of the amount he would have had to pay if such measures had not been taken", but the sentence is rewritten. The liability of the loss of hire insurer for the costs is therefore determined in the form of an amount. The relevant amount will normally be equal to the number of days saved multiplied by the amount or amounts per day that the insurer would have had to pay. If the days that are saved fall within a period during which other work is also carried out, and where the rules of apportionment in Cl. 16-12 apply, the time saved cannot exceed that which should have been covered by the insurer.

    Because of the limitation in Cl. 16-4, sub-clause 2, the costs which are to be paid by the insurer must be converted into days of indemnity by dividing the total costs by the amount that is to be compensated per day.

    Sub-clause 3 was also amended in the 2023 Version. The previous wording was “If time is saved for the assured, he shall bear a share of the extra costs that is proportionate to the time saved for his account”, whereas the new provision states that in case loss is averted or minimised for several interests, the insurer is only liable for such proportion of the extra costs attributed to the interest insured. Besides the loss of hire insurer, the other «interests» refer to the assured and other loss of hire insurances in case of different layer of loss of hire insurance. Thus, the amended wording is not meant to change the way extra costs are to be shared between the assured and the insurer, but will be more correct in respect of other insurances. The principles applicable to apportionment under a loss of hire insurance must take account of the way in which the cover is normally structured in such insurance: the assured is liable for the agreed deductible period, after which the insurer is liable for the number of days of indemnity stated in the insurance contract, and should the loss of time exceed this maximum, the assured is again liable for the excess number of days. Costs must therefore be apportioned in such a way that the assured and the insurer cover the costs related to a saving of time during the periods of loss of time for which they are respectively liable. This means that the assured (or an excess loss of hire insurer) first bears costs related to any reduction of the number of days in excess of the insurance contract maximum, where after the insurer must cover costs related to any reduction of the number of days covered by the insurance contract, and finally the assured must cover costs related to time saved within the deductible period.

    View Clause Go to Plan page

    Clause 16-11. Extra costs incurred in order to avert or minimise loss

    The insurer shall be liable for extra costs incurred in connection with temporary repairs and in connection with extraordinary measures taken in order to avert or minimise loss covered by the insurance, insofar as such extra costs are not recoverable under the hull insurance in effect. Chapter 4,...

  • Clause 16-12. Simultaneous repairs

    The wording of the provision was substantially amended in the 2023 Version, and previous sub-clauses 1 to 3 are replaced by a new sub-clause 1. Sub-clause 2 corresponds with previous sub-clause 4, and has only a minor amendment necessitated by re-arranging the previous sub-clauses 1 - 3 into the new sub-clause 1. The material changes are however rather limited, see further below.

    The provision regulates the liability of the loss of hire insurer in cases where repairs that are covered by the insurance are carried out simultaneously with work that is covered by another loss of hire insurance and/or not covered by any loss of hire insurance, such as work relating to classification or modifications.

    When repairs relating to one or more casualties (under one or more loss of hire policies) are carried out at the same time as work on board for the assured’s account (e.g. work in connection with periodic classification surveys), the loss of time during the stay at the repair yard will in actual fact be due to several concurrent causes of damage. In the absence of other provisions, the loss in such cases must be apportioned between the assured and the various insurers in accordance with the rule of apportionment in Cl. 2-13. However, this type of solution is unsatisfactory from a technical legal standpoint because it will entail numerous decisions that are made largely on a discretionary basis. In order to avoid these problems, therefore, more clear-cut rules of apportionment have traditionally been applied in the loss of hire conditions. The rules of apportionment in Cl. 16-12 are based on such principles, with the result that the causation rules in Cl. 2-13 are set aside in two respects:

    Firstly, by applying relatively simple criteria, Cl. 16-12 prescribes when simultaneous repairs are to be regarded as concurrent causes of the loss of time, and when one of the repairs is to be regarded as the only cause. In this way, difficult and, to some extent, subtle questions of causation are avoided. Secondly, Cl. 16-12 fixes the exact proportions to be used when apportioning the time lost among the various repairs; it is therefore unnecessary to use the discretionary rule of apportionment in Cl. 2-13.

    These two departures from the main rule considerably simplify the issue. The fact that the provisions may occasionally give one of the parties an unwarranted advantage is of little significance compared to the substantial advantages achieved for the settlement process.

    Sub-clause 1 was substantially amended in the 2023 Version. Previously, sub-clause 1 regulated repair work covered under this insurance simultaneously with work not covered under any loss of hire insurance (commonly described as “owner’s work”), sub-clause 2 regulated simultaneous repairs of two casualties covered under this insurance with unparallel deductible periods, and sub-clause 3 regulated simultaneous repairs of casualties covered under different insurances and also owner’s work, if any. However, some aspects of the wording prior to the 2023 Version have been criticized for being difficult to understand, leading to the amendments introduced in the 2023 Version.

    Sub-clause 1 now regulates all types of simultaneous repairs, i.e. repairs of a casualty covered under this insurance in combination with any of the following shall each be regarded as concurrent causes:
    - repairs of any other casualty covered by this or another loss of hire insurance, cf. item 1, and/or
    - owner’s work of a nature as specified in item 2.
    From the assured’s perspective however, the apportionment of repair time between several casualties will usually not be of a concern, as the time (in excess of the deductible period) in any event will be covered in full under either of them, subject to policy limits. On the other hand, the assured will consider it important to know in which circumstances a proportion of the time will have to be borne by the assured, and pursuant to sub-clause 1, item 2, letters (a) to (c), an apportionment is to be made between the assured and the insurer when specified owner’s work is carried out at the same time as casualty work.

    Letter (a) sets out that owner’s work in order to fulfil a requirement issued by a classification society is subject to apportionment. This applies regardless of whether the classification requirement was issued in connection with a periodic survey, and the time limit for complying with the requirement need not have expired. However, it is a condition that the classification society has issued a requirement; repairs which the classification society has recommended or advised making, without actually imposing a requirement, do not fall within the scope of letter (a), although they might conceivably fall within the scope of one of the other categories of owners work in letters (b) or (c).

    Letter (b) sets out two types of work that is also subject to apportionment, i.e. work

    • “to enable the vessel to meet technical and operational safety requirements”, cf. in that respect the wording in Cl. 3-23, and/or
    • “necessary … to perform its contractual obligations”. This covers both freight contracts and other types of assignment, such as a contract for a research project. Examples of repairs that are necessary in order to perform a contract of affreightment and the like are the replacement of hatch coamings and the application of a new coating in cargo tanks.

    Letter (c) provides that work related to reconstruction of the vessel is also subject to apportionment. Reconstruction of a vessel would typically include major conversion projects such as conversion of a tanker into an FSO, or e.g. extension of a vessel. Other examples which would fall within this provision are projects such as conversion of a main engine from one fuel type to another (e.g. from diesel to gas), battery installations or e.g. a scrubber installation in order to comply with requirements for low sulphur emissions.

    Sub-clause 1, items i) to iii) set out how the apportionment is to be made in the various combinations of simultaneous repairs. Item i) deals with the common time for repairing more than one casualty where the deductible period has expired for all casualties, with no owner’s work being effected. It is now provided that such time shall be apportioned equally between the casualties, which applies irrespective of which policy period they fall under. This is an amendment from versions prior to the 2023 Version, where a 50/50 apportionment was applied between repairs falling under different policy periods. E.g. if there (prior to the 2023 Version) were two casualties covered under the 2021 policy repaired simultaneously with one casualty covered under 2022 policy period, 25% would be allocated to each of the 2021 casualties, and 50% to the 2022 casualty. Under the 2023 Version, 1/3rd of the time shall be allocated to each of the three casualties.

    Item ii) regulates common time falling outside the deductible period of all casualties (if more than one), but is effected simultaneously with owner’s work as per no. 2 above, then “half of such common time shall be apportioned equally between the casualties”, the other half being allocated to owner’s work and disallowed. The most frequent situation is, however, that there is only one casualty repaired simultaneously with owners’ work, and then half of the common time is allocated to that casualty. The apportionment is based on an equal shares principle: the insurer shall pay compensation for half of the common repair time in excess of the deductible period. This is in accordance with the solution in the 1996 Plan. The said principle may be justified by the argument that the common repair time is assumed to be utilised equally effectively by both parties, and that it is therefore reasonable to share liability for the loss of time during this period equally; furthermore, this type of 50/50 rule is very easy to apply in practice. Two numerical examples can illustrate the rule of apportionment in relation to the deductible:

    1. In the case of common repair time totaling 40 days and a deductible period of 14 days, which begins to run when the vessel arrives at the repair yard, the insurer will pay compensation for:
      1/2 (40-14) days = 13 days of common repair time.
    2. In the case of common repair time totaling 40 days and a deductible period of 30 days, 20 of which have been spent in bringing the vessel to the repair yard, the insurer will pay compensation for:
      1/2 (40-10) days = 15 days of common repair time.

    The provision is based on the assumption that work that is fully covered by insurance is carried out simultaneously with work which is not covered at all. However, it is conceivable that damage and the repairs relating to it have been caused by a concurrence of several perils, only some of which are covered by the insurance. In such a case, the rules of apportionment in Cl. 2-13 to Cl. 2-15 will apply in addition to the rules of apportionment in Cl. 16-12. First the loss of hire insurer’s liability must be calculated, assuming that the damage in its entirety has been caused by one of the perils insured against, after which its liability must be reduced in accordance with the rules of apportionment pursuant to Cl. 2-13 to Cl. 2-15. A simple numerical example: casualty work and owner’s work, which if carried out separately would have taken 80 and 60 days, respectively, are carried out simultaneously in a total of 80 days. The casualty was the result of the kind of combination of marine and war perils that makes the rule of equal apportionment in Cl. 2-14 in fine applicable. If the deductible period under the loss of hire insurance against marine perils is 20 days, the insurer’s liability will be as follows:

    Of the common repair time in excess of the deductible, i.e. 40 days, half is recoverable pursuant to this sub-clause = 20 days

    Further time to complete casualty work = 20 days

    Had the damage been caused solely by marine perils, the insurer would have been liable for = 40 days

    Pursuant to the rules of Cl. 2-14 in fine, however, the insurer is only liable for half the loss = 20 days

    No problems arise when repairs relating to two casualties, both of which are covered by the insurance, are carried out simultaneously, provided the deductible periods for both casualties also run in parallel; in such case the assured must only carry one (common) deductible period, but also only receives compensation once for the loss of time in excess of the deductible period. It is conceivable, however, that the deductible period for one casualty expires before that of the other. Apportionment and allowance of common time falling within deductible for one of more casualties, but outside the deductible period for other casualties, are dealt with under item iii) which provides that half of such common time shall be apportioned equally between the casualties where the deductible has expired, whether or not work referred to in sub-clause 1, item 2, has been effected simultaneously. This can be illustrated by the following example: the vessel sustains machinery damage in February and must call at a port of refuge to carry out temporary repairs. The prolongation of the voyage and the stay at the port of refuge total 14 days, which is also the deductible period. In March of the same year, the vessel suffers heavy weather damage, the extent of which is ascertained during a stay at a repair yard in June. During this stay, permanent repairs of both casualties are completed; carried out separately, it would have taken 40 days to repair the machinery damage and 20 days to repair the heavy weather damage. Thus the common repair time is 20 days. In the case of the machinery damage, the deductible period had expired when repairs were commenced; the entire period of repair is therefore recoverable. As far as the heavy weather damage is concerned, on the other hand, the first 14 days of the repair period are the deductible period, and only six days are recoverable. Pursuant to item iii), the 50/50 rule in this case must apply to the first 14 days. The rule can be justified by the need for consistency: like owner’s work, work during the deductible period must normally be carried out in the assured’s own time and, as mentioned above, it is unreasonable to make the insurance more expensive by giving the assured “free time” to carry out owner’s work that just happens to be carried out at the same time as work covered by insurance. In accordance with this solution, the insurer is only liable for half of the time lost as long as the deductible period for the second casualty continues to run.

    The last part of item iii) “…whether or not work referred to in sub-clause 1, item 2, has been effected simultaneously” means that the maximum the assured must cover is half the common repair time, and the assured must not have to bear a further 1/4 in case owner’s work is effected during the period dealt with under item iii).

    For the rare situation that LOH coverage is apportioned over layers, e.g. a bottom layer on 14/90/90 basis, and an excess layer on 104/90/90 basis, then the intention is clearly that the deductible period under the excess layer shall be deemed to be exhausted at the same point in time as when the bottom layer coverage ceases.

    Sub-clause 2 corresponds with the previous sub-clause 4, only slightly amended to refer to application of the rules set out in “sub-clause 1” only, where there previously was reference to sub-clauses 1 – 3. The main rule in the first sentence can most easily be explained by an example: during a stay at a repair yard, both extensive casualty repairs and various work for owner's account are carried out. The total time spent at the yard is 98 days. The casualty repairs continue during the entire stay, while the owner’s work is completed after 50 days. It would appear, therefore, that there are 50 days of common repair time, and if a deductible period of 14 days has been agreed, pursuant to the rules in the first sub-clause the owner should have to carry the loss of time for 14 + 1/2 (50-14) days = 32 days.

    However, the provision requires that an important correction be made. One must ascertain how much time each category of work would have required if it had been carried out separately. In many cases, it will be found that, had this been done, the work would have been completed earlier. In our example, it may be found that the work for owner’s account would only have taken 30 days if carried out separately. There may be various reasons why more time is lost when repairs are made simultaneously: a deliberate reduction of the pace of the owner’s work in order to achieve a better overall utilisation of the time required for casualty repairs, or limited capacity or technical problems may result in simultaneous repairs taking more time than if each category of work had been carried out separately. Owners’ work would be a separate “category”, and each casualty would be a separate “category” of work in this respect, which also applies e.g. under Cl. 16-10. This represents a small material change, as the solution prior to the 2023 Version was that all casualties falling under one policy was deemed to be one category.

    It is not reasonable that delays of this nature should be borne in full by the interest affected. On the contrary, the basic principle must be that each category of work should only be allocated the amount of time that would have been required if they had been carried out separately. The apportionment principles in sub-clause 1, must also be seen as presupposing such a correction. It is only where both parties can make full use of the time without any hindrance from the other party that it can be said that they have had equal benefit and should thus each bear half of the loss of time. If the owner’s work in our example would only have taken 30 days if carried out separately, while the casualty repairs would in any event have taken 98 days, the owner must bear 14 + 1/2 (30-14) days = 22 days of lost time.

    When it has been decided that the lesser number of days that would have been required in a particular case is to be used instead of the actual time used, it is also necessary to decide how dates for this lesser number of days are to be fixed. Fixing the dates of the relevant periods is necessary both in relation to the rules concerning the deductible period and apportionment in the event of simultaneous repairs, and when establishing the daily amount and when pursuing any claim against a third party, cf. here the Commentary above to Cl. 16-7 regarding the equivalent problem of placing the deductible period in time. The natural solution is to assume that the work was performed continuously from the time it was started until the expiry of the number of days that the work would presumably have taken if carried out separately, cf. the first sentence of sub-clause 2.

    However, the second sentence of sub-clause 2 contains an important supplementary rule: it is presumed that all categories of work are commenced at the same time, i.e. on the arrival of the vessel at the repair yard. This presumption must prevail even for work which has been postponed in the overall plan for the progress of the work and which may not have been started at all during the initial period at the yard; this postponement is merely a practical adjustment between the various categories of work. By way of contrast, a clear example of different starting points in time would be where a vessel suffers a casualty while it is in dock to carry out classification surveys; the casualty repairs cannot, of course, be assumed to have begun before the casualty occurred. The reverse situation may also arise: a vessel is in a yard to repair a major casualty; after the work has been in progress for some time, the owner decides to undertake certain rebuilding work during the remaining portion of the vessel’s stay at the yard. Calculations must also be based on different starting points in time if an unknown casualty is discovered some time after work has begun on repairing other casualty damage. In this case, a new deductible period must be calculated from the time when the new casualty is discovered.

    The third sentence regulates the situation where each category of work would have taken less time if carried out separately than the total number of days that the vessel was at the repair yard. The previous example can be adjusted slightly to illustrate this point: it is assumed that the casualty work would also have taken less time if carried out separately, e.g. 90 days instead of the 98 days actually required. Thus, two categories of work which would have required 30 and 90 days, respectively, if carried out separately, take 98 days when carried out in parallel. In other words, the repair time has been prolonged by 8 days as a result of the simultaneous repairs. It would not be fair to allocate all 8 days to a single category of work. They should be apportioned between both categories according to the number of days each would have required if carried out separately. In our example, the 8 days must thus be apportioned in the ratio of 30:90; 3/12, i.e. 2 days, are allocated to owner’s work and 9/12, i.e. 6 days, to the casualty work. These shares must be allocated in their entirety to the category concerned; they are not part of the apportionment in accordance with sub-clauses 1 and 2. Thus the total loss of time to be borne by the assured will in this case be:
    14 + 1/2 (30-14) + 2 days = 24 days,
    while the following would be allocated to casualty repair work:
    1/2 (30-14) + (90-30) + 6 days = 74 days.

    The reason for apportioning a delay caused by several categories of work being effected simultaneously is that the assured as well as the insurer usually will benefit from effecting simultaneous repairs. Cl. 16-12 generally provides for apportionment of the “common advantage” by effecting such simultaneous repairs. However, it should be noted that the assured is free to effect certain types of work without any deduction of claim (see sub-clause 1 above). The assured may e.g. also be able to complete the assured's own work within expiry of the deductible period (when no apportionment is to be made in any event). Therefore, a situation may arise whereby the full period of repairs (less deductible) is claimable even if several categories of work have been effected simultaneously. The fourth sentence was therefore added in the 2016 Version in order to make it clear that the insurer’s liability in any event is limited to what would be claimable in case the category of work for which the insurer is liable had been carried out separately.

    The following may illustrate the problem: In the example above the net claim after apportioning the delay is 74 days. If damage repairs had been carried out separately there would not have been any 8 days delay, and the claim would have been 90 days less 14 days = 76 days. Therefore, the insurer has in fact benefited from the simultaneous repairs even if the insurer covers its share of the delay.

    On the other hand, if we adjust the deductible in the example to be 30 days, the situation would have been different. If applying the apportionment of delay, the claim would have been 90 days less 30 days deductible (owner’s work would have been completed within the deductible period, therefore no apportionment of simultaneous repairs) + share of delay 6 days = 66 days. However, it is clearly unreasonable that the insurer’s liability should increase because of the decision to effect owner’s work simultaneously with damage repairs. Therefore, the fourth sentence makes it clear that insurer can limit its liability to what would have been payable in case damage repairs had been carried out separately, viz. 90 days less deductible 30 days = 60 days.

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    Clause 16-12. Simultaneous repairs

    If repair work resulting from a casualty covered under this loss of hire insurance is carried out simultaneously with : repair work resulting from any other casualty covered under this or another loss of hire insurance, and/or work which is not covered under any loss of hire insurance, but which ...

  • Clause 16-13. Loss of time after completion of repairs

    Sub-clause 1 (b) was amended in the 2013 Plan. Further amendments were made in 2023 to the provision and the Commentary.

    Sub-clause 1, first sentence is amended from “After repairs have been completed, the insurer shall only be liable for loss of time:” to “The insurer is not liable for loss of time after completion of repairs, except for loss of time:”. This is no material amendment, however the wording now explicitly limits the insurer’s liability for loss of time that occurs after repairs have been completed. According to the main rule in Cl. 16-1 and Cl. 16-3 regarding calculation of compensation, the insurer would have been fully liable for loss after completion of repairs to the extent that this loss was a result of the casualty. The insurer therefore would have to pay compensation for loss of time until the vessel was again fully employed, as well as any loss of time resulting from the termination of the contract of affreightment. Thus Cl. 16-13 involves a limitation on the liability that follows from Cl. 16-1 and Cl. 16-3 in respect of time lost after completion of repairs. In accordance with sub-clause 1, first sentence, the insurer is only liable for such loss of time in the cases that are specifically mentioned in letters (a) to (d); in all other cases the liability of the loss of hire insurer ceases when the repairs have been completed.

    Sub-clause (a) is amended from “until the vessel can resume the voyage or activity that it was engaged in under the contract of affreightment that was in force at the time of the casualty” to “until the vessel can resume employment under the contract that was in force at the time of the casualty”. This is only a simplification of the wording with no material amendments. This provision deals with the situation where the vessel, after completion of repairs, is to continue to sail under the contract that was in effect at the time of the casualty; in such case, the insurer is liable for time lost until the vessel has resumed its former employment. The provision applies irrespective of the type of contract concerned. Contractual obligations that are not set out in an actual contract must be regarded as equivalent to such a contract in this connection. If, on the other hand, the contract is cancelled due to the vessel’s stay at a repair yard, the insurer is only liable for the time lost up to the completion of repairs.

    Sub-clause (b) is amended from ”until vessels which are employed in liner trade or in another way follow a fixed route or operate in a defined geographical area can resume their activity” to “until the vessel employed in liner trade, follows a fixed route or operates in a defined geographical area can resume its activity”. This is only a simplification of the wording with no material amendments. This provision regulates loss of time for vessels that are used in a liner trade or in another way follow a fixed route or operate in a defined geographical area. In these cases, too, loss of time is covered until the vessel can resume its activity.

    Sub-clause (c) was amended from “contract of affreightment” to “contract”. This is no material amendment. The provision applies to vessels for which a binding contract has been entered into before the casualty occurs but which have not begun to operate under the contract, and where the contract is not cancelled as a result of the casualty.

    Sub-clause (d) was amended from “until passenger vessels can resume their activity, but for a period not exceeding fourteen days” to “until passenger vessels can resume their activity, limited to fourteen days”. This is a simplification of the wording with no material amendment. This provision applies only to passenger vessels. The reason for this provision is that the other letters in sub-clause 1 are not entirely appropriate for this type of vessel, which sails in a regular line or follows a pattern, for instance departing once a week from the place of departure. However, this type of vessel should also have cover for the time that it is obliged to spend waiting. On the other hand, cover of loss of time after completion of repairs is limited to 14 days. The term “passenger vessel” also includes cruise vessels.

    Loss of time after completion of repairs covers both the situation where the vessel remains in the repair yard for a while after repairs have been completed and while the vessel sails to a place to resume its activity. However, loss of time due to the fact that the vessel is unable to find employment immediately after repairs have been completed is not covered. Such loss of time may in certain cases be said to be a consequence of the repairs and hence also a consequence of the damage that was repaired. However, the most significant cause of the loss of time will be market conditions, or possibly decisions made by the assured, and it is therefore natural that the loss should not be covered.

    To the extent that loss of time after completion of repairs falls within one of the provisions in letters (a) to (d), sub-clause 2 provides that this loss of time shall be subject to the same rules as removal to repair yard in Cl. 16-10, see further the Commentary on this provision.

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    Clause 16-13. Loss of time after completion of repairs

    The insurer  is not  liable for loss of time after completion of repairs, except for loss of time: until the vessel can resume  employment  under the contract that was in force at the time of the casualty, until the vessel  employed in liner trade that follows  a fixed route or operates in a...

  • Clause 16-14. Repairs carried out after expiry of the insurance period

    This provision was amended in 2023. The previous sub-clause 1 became sub-clause 2 and vice versa. In the previous versions both sub-clauses referred to “loss of time resulting from a stay at a repair yard that commences”. This was amended by deleting the reference to the repair yard, now simply stating “loss of time that commences”. The Commentary was also rewritten.

    Sub-clause 1 regulates the calculation of the daily amount when the loss of time commences after expiry of the insurance period. A period of time between the casualty and the occurrence of the loss of income might mean that the basis on which the daily amount was agreed no longer applies. Within the policy period Cl. 2-3 gives the parties a right to amend the daily amount. After expiry of the policy period there is no such right. Sub-clause 1 therefore establishes a limitation for the validity of the agreed daily amount: if the period of loss of time commences after the insurance period expires, the agreed daily amount is only a maximum limit for the insurer’s liability. Within that maximum limit, the assured may only claim compensation pursuant to Cl. 16-5. In line with what is said above, if the vessel has been continuously off-hire from before expiry of the insurance period, compensation will be based on the agreed daily amount. It is only the period commencing after expiry that will be subject to Cl. 16-5. In case the daily amount is reduced under this Clause, the whole sum insured is still intact. E.g. if daily amount is reduced from 10,000 per day to 7,500 per day under a 14/90/90 days policy (sum insured 900,000), then the number of days with cover will be 120 days (as 120 * 7,500 = 900,000).

    Sub-clause 2 limits the loss of hire insurer’s liability for loss of time that commence more than two years after expiry of the insurance period. Thus, periods commencing after this two year time limit will not be covered. As loss of hire is short tail business, such time limitations has been part of the commonly used standard loss of hire conditions in the market. See e.g. the English ABS 1/10/83 Wording no. 1 and 8 that require repairs “to be completed within 12 months of the expiry”, and the US SP-40B clause C.(2) with a similar 24 months limit. If the assured wishes to have a time limit of more than two years, this must be agreed when the insurance is effected.

    Both sub-clauses 1 and 2 count the time from expiry of the insurance period. Rules governing the term “insurance period” are set out in Cl. 1-5. Insurance policies with a term of one year poses no problems. If it has been agreed that the insurance is to attach for a period longer than one year, it follows from Cl. 1-5, sub-clause 4, that the insurance period is to be deemed to be one year in relation to Cl. 16-14. Further details regarding the calculation of the insurance period in these cases are found in the Commentary on Cl. 1-5.

    The incidence of loss is regulated by Cl. 2-11. According to the main rule in Cl. 2-11, sub-clause 1, the “insurer is liable for loss incurred when the interest is struck by an insured peril during the insurance period”. If so, the insurer is also liable for any loss that occurs later. E.g., the insured vessel is subject to a collision or grounding just before the expiry of the insurance year on 31 December 2022, then the 2022 insurer will be liable for the loss of time, even if most of the loss occurs in 2023. Conversely, the 2023 insurer can as a general rule disclaim liability for a loss of time that occurs in 2023, but which can be referred back to a peril that “struck” in an earlier year. For further examples and guidance, see the Commentary to Cl. 2-11.

    Further, both provisions in Cl. 16-14 refers to the point in time when the loss of time “commences”, i.e. the time the vessel is deprived of income-earning activity resulting in loss of income for the assured. After a casualty the vessel might be continuously out of income-earning activity until repairs are completed. Here, it does not matter whether the loss of time extends beyond the expiry of the insurance period subject to the uninterrupted period commencing before the time limit. Alternatively, the loss of time might be divided in several periods without income. In this situation, the provisions in Cl. 16-14 must be applied separately to each period the vessel is deprived of income-earning activity. Thus, periods commencing after the expiry of the policy period will be subject to the regulation in sub-clause 1 or sub-clause 2 respectively. This will typically be the situation where part of the repairs is postponed. Then the loss of time will normally commence at the time the vessel is taken out of income-earning activity. This will often be the time the vessel starts its voyage to the repair facility.

    Cl. 16-14 applies irrespective of the reasons for the loss of time commencing after expiry of the time limits in sub-clauses 1 or 2. It does not matter whether the assured deliberately defer repairs, or e.g. whether the repairs in any event cannot be repaired before expiry of the policy, or e.g. whether the damage is discovered after the expiry of the insurance period.

    Although repairs in the majority of cases will be effected immediately after the casualty, or at least well before expiry of the time limit in sub-clause 2, it is conceivable that the classification society in certain cases will allow the assured to defer repairs beyond this time limit, e.g. to a future 5 years special Class survey which may fall due more than two years after policy expiry. The assured may then attempt to obtain agreement from the loss of hire insurer to accept an extension of the time limit, as an alternative to effect damage repairs before expiry of the time limit in sub-clause 2. Occasionally such extension has been agreed, but usually with a limitation that only the prolongation beyond the time necessary for owner’s special Class survey, etc., is allowed. In any event, it is clear that the claims leader does not have authority to accept such extension with binding effect for the co-insurers and the assured will need to agree such extensions with each individual insurer.

    View Clause Go to Plan page

    Clause 16-14. Repairs carried out after expiry of the insurance period

    Loss of time that commences after expiry of the insurance period shall be recoverable in accordance with the rules of Cl. 16-5, even if the daily amount is an agreed amount pursuant to Cl. 16-6, if this results in lower compensation. The insurer shall not be liable for loss of time that commences...

  • Clause 16-15. Liability of the insurer when the vessel is transferred to a new owner

    This Clause and its Commentary was amended in the 2023 Version.

    Sub-clause 1 was amended from reading: “When damage to the vessel is repaired in connection with a transfer of ownership, the insurer shall not be liable for time that would in any event have been lost in connection with the said transfer. If the transfer has to be postponed due to repairs covered by this insurance, the insurer shall be liable for the assured's loss of interest in accordance with the rules of Cl. 5-4, even though the vessel would not have earned income during the postponement” to “Where a transfer of ownership has to be postponed as a consequence of a damage or an event recoverable under Cl. 16-1, the insurer shall be liable for the assured’s loss of interest on the sales amount based on the interest rate in Cl. 5-4, sub-clause 3, as well as for wages and maintenance of the crew, even though the vessel would not have earned income during the postponement. However, the insurer shall not be liable for time that would in any event have been lost in connection with transfer of ownership”.

    A sale of the vessel will affect the loss of hire insurance. First of all, change in ownership will terminate the insurance, cf. Cl. 3-21. Up to the point of termination the loss of hire insurance will be in effect. However, after the agreed delivery date the vessel will not generate any income for the assured as seller, thus a damage to the vessel will not cause any loss of income for the assured from the agreed delivery date and onwards. In the absence of a casualty, the vessel would have been delivered to the new owners. Thus, if the vessel is damaged and the delivery date is postponed there will be no compensation as per Cl. 16-1 and Cl. 16-3 for this period of time. A sales process can affect the causal relationship between a damage and a loss also prior to the delivery of the vessel. If, for example the seller takes the vessel out of operation for a period prior to delivery in order to perform a survey of the vessel in connection with the sale, there will be no loss of time recoverable under the loss of hire insurance for this survey period, even though the seller uses this period to carry out repairs. This will follow from the basic principles set out in Cl. 16-1 but is also set out in Cl. 16-15, sub-clause 1, last sentence. The different situations that might occur has to be solved in practice by applying rules of causation.

    The main purpose of Cl. 16-15, sub-clause 1, is to allow cover for certain items of loss even though the assured would now have earned income, namely loss of interest on the sales amount and crew wages and maintenance for the period the delivery is postponed. The interest is to be determined pursuant to the rules in Cl. 5-4. The calculation of loss of interest shall be based on the sales amount.

    The deductible period must run in the ordinary manner even if the damage is being repaired in connection with a sale of the vessel, but not for the time that would have been lost in any event in connection with the transfer of ownership. The deductible period therefore begins to run from the commencement of the loss of time, and continues until the entire deductible period is exhausted.

    Sub-clause 2, first sentence, was amended by deleting “period of” and now simply state “time”. Further, letter (b) was deleted. This provision is related to a previous sub-clause 2 that was deleted in 2003. In accordance with sub-clause 2, first sentence, compensation pursuant to sub-clause 1 is limited to the sum insured per day multiplied by the time for which delivery was delayed. The deductible period is calculated in consecutive days even if the interest allowance per day is lower than the sum insured per day. Thus the assured shall not be deemed to be only partially deprived of income according to the principles in Cl. 16-4 as this would have necessitated a conversion into a corresponding period of total loss of income with a prolongation of the deductible period, cf. Cl. 16-7. If for example the handover of a vessel that has been sold is delayed 30 days because the seller has to repair some recoverable damage, the interest on the selling price amounts to USD 5,000 per day. At the time the damage occurred, the vessel was insured with an agreed daily amount of USD 7,500 per day, and a deductible of 14 days. Then the assured is entitled to interest for (30 – 14) = 16 days @ USD 5,000 = USD 80,000.

    Sub-clause 2, third sentence, is amended from “No compensation may be claimed under Cl. 16-13 in these cases” to “No compensation may be claimed for loss of time after completion of repairs, except for loss of time during removal after repairs.” Connected to this provision a new fourth sentence is included which reads “If the removal results in time savings for the assured a corresponding time shall be deducted”. These amendments extend the scope of cover compared to previous versions.

    The starting point is that the insurer is not liable for loss of time after completion of repairs. This is in accordance with the main rule in Cl. 16-13. It may be that the vessel has to be removed to another location to conduct repairs. Thus, there is an exemption from the main rule for time lost during removal. The “removal” covers the entire deviation to and from the repair location. However, the time which the assured saves through the fact that the removal places the vessel in a more favourable position regarding delivery to a new owner must be deducted, cf. second sentence.

    Sub-clause 3 establishes that the claim against the loss of hire insurer may not be transferred in connection with a transfer of the vessel to a new owner. This rule is thus different from the one that applies in hull insurance.

    View Clause Go to Plan page

    Clause 16-15. Liability of the insurer when the vessel is transferred to a new owner

    Where a transfer of ownership has been postponed as a consequence of a damage or an event recoverable under Cl. 16-1 , the insurer shall be liable for the assured’s loss of interest on the sales amount based on the interest rate in Cl. 5-4, sub-clause 3, as well as for wages and maintenance of th...

  • Clause 16-16. Relationship to other insurances and general average

    This provision has not been amended. However, amendments were made on points of substance in the Commentary in the 2010 Version. The Commentary was further amended in 2023.

    It follows directly from Cl. 5-13 that the loss of hire insurer is subrogated to the assured’s claim against any third party who is liable for the loss of time for which the insurer has paid compensation. If the insured vessel has collided with another vessel, the loss of hire insurer will therefore be subrogated to the assured’s claim against the owner of the other vessel for (full or partial) compensation for the time lost due to the collision. A claim for compensation for operating costs (board and crew’s wages) in general average must, in this connection, be regarded as a claim against a third party for (partial) compensation for the loss of time as a result of a casualty. Bunkers are normally not part of the daily amount, unless the circumstances clearly warrant a different approach.

    Pursuant to Cl. 16-16, the loss of hire insurer is also subrogated to claims against the hull insurer in cases where the latter provides cover for loss of time, see sub-clause 1 (a). Here an explicit provision is required, since this is a case of double insurance, which in the absence of such a provision would be subject to the rules of Cl. 2-6. The rule in sub-clause 1 (b) will have significance where the loss is covered by another insurance.

    The provision is a subrogation clause and not one that makes the insurance subsidiary to other insurances. This means that the assured can always choose to claim the full amount from the loss of hire insurer, whereafter the insurer must claim against the third party concerned. In practice, however, the assured will often receive compensation from the hull insurer for loss also being part of the daily amount. In this event, such amounts must naturally be deducted from the loss of hire settlement.

    The recovered amount shall be apportioned between the assured and the insurer according to the general pro rata principle in Cl. 5-13.

    An example will illustrate how the apportionment is to be carried out: the vessel is insured for 90 days per casualty. The daily amount is USD 10,000 and the deductible period is 14 days. After a collision, the vessel suffers a loss of time of 180 days equivalent to USD 1,800,000. The casualty is settled as follows: the assured must carry the first 14 days, after which the insurer covers the next 90 days, paying a total of USD 900,000 in compensation, and finally the assured covers the remaining 76 days. It is assumed that there are no simultaneous repairs. Blame in the collision settlement is apportioned on a 50/50 basis, and the opposite party accepts the loss of time of 180 days as the basis for the settlement. The insured vessel then recovers 50% of USD 1,800,000 = USD 900,000. The recovery must be apportioned on a pro rata basis between the parties according to the time each of them has covered. The assured receives 50 % of (14 + 76) = 90 days of lost time, i.e. USD 450,000, while the insurer receives 50 % of the loss of time that he has covered (90 days), i.e. USD 450,000.

    The net result of this procedure is that the insurer has only paid USD 450,000 after recovery despite the fact that the sum insured is USD 900,000. At the same time, the assured will have an uncovered loss of 50 % of the uninsured time, i.e. USD 450,000. As the insurer’s net payment after recovery do not amount to the full sum insured, it can be questioned whether the insurer has to use its share of the recovery to “continue” to cover the assured’s uncovered loss of time in excess of the deductible period. This would in reality be an amendment of the pro rata principle pursuant to Cl. 5-13. Thus the insurer is not obliged to use the amount it recovers to compensate for further loss of time.

    As an extension of this issue, there has in practice been discussion as to whether the insurer is liable for the unused part of the sum insured – in the example above, USD 450,000 – to cover a subsequent casualty in the same insurance period. This would in practice mean that the recovered amount reinstates the sum insured correspondingly. The answer to that question is no. Allowing the recovery to reinstate the sum insured would create practical challenges. It can take many years from the time of the casualty until the recovered amount is actually paid out. With the automatic reinstatement clause in Cl. 16-1, sub-clause 4, the result is in any event that the sum insured is fully reinstated. If the recovered amount reinstated the sum insured, the calculation of the reinstatement premium could not be done until the time of refund or, if appropriate, adjusted once the refund is received by the insurer. This can take place many years after the insurance contract period has been “closed”. The same approach must therefore be adopted for subsequent casualties as for the casualty to which the refund applies: in no case may the refund be used to cover the assured’s uncovered losses and it does not reinstate the sum insured.

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    Clause 16-16. Relationship to other insurances and general average

    The rules as to subrogation in Cl. 5-13 of the Plan shall apply correspondingly to: the assured's right to claim compensation for loss of time and operating costs during removal to a repair yard under Cl. 12-11 or Cl. 12-13 of the Plan, or equivalent provisions in other conditions applicable to t...