In commercial shipping and the off-shore industry, time is money or, more precisely, loss of time is loss of income. In order to recover loss of income under the loss of hire insurance, the assured must establish that the vessel has been deprived of income during a certain period - that is the loss of time (cf. also Cl. 16-4), and the loss of income per day - i.e. the daily amount (Cl. 16-5 and Cl. 16-6) and, finally, the assured must accept a reduction in his loss of time as per the agreed deductible period (Cl. 16-7).
The calculation itself does not usually give rise to any dispute. It is normally the determination of the time lost and sometimes the assessment of the daily amount that necessitates the adjuster's skilful navigation.
The main rule for calculation of the compensation is Cl. 16-3:
Compensation shall be determined on the basis of the time during which the vessel has been deprived of income (the loss of time) and the loss of income per day (the daily amount). Loss of time arising before any of the events described in Cl. 16-1 shall not be taken into account.
According to the first sentence, the compensation shall be calculated as the product of the loss of time (i.e. the period during which the vessel has been out of service) and the daily amount.
Clause 16-3 must be read in conjunction with 16-1 which states that “the insurance covers loss due to the ship being wholly or partially deprived of income…..” Even though Cl. 16-3 does not contain the words “wholly or partially”, it is clear that these words must be read into Cl. 16-3 as well. Cl. 16-4, sub-clause 1, second sentence is expressly dealing with the calculation of the loss for vessels which have been “partially deprived of income”, see further below under 5.3.1.
Cl. 16-4 regulates the calculation of loss of time and reads:
Loss of time shall be stipulated in days, hours and minutes. A period of time during which the vessel has only partially been deprived of income shall be converted into a corresponding period of total loss of income.
The insurer's liability for loss of time resulting from any one casualty, and for the total loss of time resulting from all casualties occurring during the insurance period, shall be limited to the sum insured per day multiplied by the number of days of indemnity per casualty and altogether stated in the policy.
The wording does not give extensive guidance for calculation of the loss of time. The provision applies only after the loss of time has been determined according to the principles described in 5.2 above.
The daily amount is the assured's loss of income per day and is an important factor in calculating the insurer's liability. The determination of the daily amount raises several difficulties - to some extent similar to those involved in calculating the loss of time.
The loss of hire conditions operate with two different systems: either establishing the loss of hire as an agreed daily amount at the time of taking out the insurance, see under 5.4.2 or, alternatively, a so-called "open policy", where the daily amount is determined at the time of the loss of income, see under 5.4.1. The former alternative is the most frequently used.