Sum Insured and insurable value

The sum insured under a loss of hire insurance, according to Cl. 16-4, sub-clause 2, is normally simply the product of the daily amount multiplied by the maximum number of days insured. If the daily amount is stated in the insurance contract to be USD 20,000 and the maximum number of days insured are stated to be 180 days, the sum insured is USD 20,000 x 180 days = USD 3,600,000, which constitutes the maximum liability for the insurer, cf. Cl. 4-18.[10] See also under 5.3.2 where Cl. 16-4, sub-clause 2 is discussed in more detail.

The insurable value under a loss of hire insurance based on the Plan is not defined in Chapter 16, but Cl. 2-2 in Part One of the Plan applies also to loss of hire insurance. Cl. 2-2 provides:

The insurable value is the full value of the interest at the inception of the insurance.

According to the Commentary to Cl. 2-2, the full value is the market value of the interest, which means, in loss of hire insurance, the market rate for the vessel in question. For practical purposes, according to Cl. 16-5, the daily amount constitutes the insurable value. See further on Cl. 16-5 under 5.4.

In theory, the daily amount or the insurable value may not be insured in full. Such under-insurance may, of course, be deliberate by the assured but it may also occur by accident, in the sense that the daily amount stated in the insurance contract may, due to market fluctuations, be lower than the current market rate for the vessel. This is mere theory because, if the daily amount is stated in the insurance contract, Cl. 16-6 provides that this is a strong presumption that this amount is an agreed[11] daily amount. Therefore, the daily sum insured by stating the daily amount in the insurance contract will usually also be the agreed daily insurable value, so that the daily sum insured and the insurable value are one and the same amount. Hence Cl. 2-4 on under-insurance will normally not apply unless the assured deliberately under-insures his interest by stating a daily amount of, e.g. USD 20,000, and a daily sum insured of USD 10,000. See further on Cl. 16-6 under 5.4 below.

[10] Cf. also Cl. 4-19 which provides that the insurer is liable for interest on the compensation and certain other expenses even if the sum insured is exceeded.

[11] The terminology was changed in the 2016 version of the Plan both in Cl. 2-3 and 16-6. The previous term “assessed insurable value” and “assessed daily amount” was replaced by “agreed insurable value” and “agreed daily amount”.