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.
According to the first sentence, the loss of time is to be calculated in days, hours and minutes. It follows quite clearly from this that the assured may also claim loss of hire for any loss of time less than a full day. This calculation principle mirrors similar rules found in time and voyage charters provisions regarding the calculation of off-hire and demurrage respectively. The level of precision called for in loss of time calculations is justifiable in light of the large daily amounts which are often at stake in connection with vessels insured for loss of hire.
The second sentence similarly reflects customary off-hire and demurrage calculations. The point with the second sentence is to make it clear that, if the vessel’s speed is reduced to half due to an engine damage and the vessel is proceeding at half speed for 40 days, the number of days consumed under the insurance is not 40 days, but 20 days which is the actual delay, see also the discussion under 3.3 above.
The Commentary to Cl. 16-4 is discussing the problem of the assured postponing repairs unduly and states:
However, the provision has given rise to certain problems in practice in cases where the cause of the ship’s being partly deprived of income is not reduced speed, but a fault in the ship’s equipment, holds or tanks. If, in such a situation, the assured allows the ship to continue operating with the defective equipment for a period of time, and subsequently carries out repairs when this is convenient in relation to the ship’s charterparties, the result is first a partial time loss linked to the ship’s reduced operations, followed by a full loss of time during the period of repairs. In principle, however, the insurer should not be liable for a loss of time that is greater than what would have occurred if the ship had been repaired immediately. In connection with the 2003 revision, therefore, the Committee considered limiting the conversion provision to situations where the reason for the ship’s being partly deprived of income was reduced speed, and giving more limited cover if the reduced income was due to other causes. 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 his 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.
The insurer's maximum liability is calculated as the product of the daily amount and the number of days of indemnity per casualty.
The insurer's liability is normally limited to a fixed period per casualty and throughout the insurance period. In the policy, this would be described, for example, as "14-90-180 days"; 14 days being the deductible period, see 6 below; 90 days being the maximum number of days covered in one casualty and the last 180 days being the total number of days covered through the term of the policy, regardless of the number of casualties. In many policies, the number of days covered for one casualty is the same as the number of days covered throughout the term of the policy (e.g. 14-60-60).
Since the number of days per casualty may be consumed early on in the insurance period if there is a major incident, the assured may find himself without further cover during the remaining term of the insurance. In such event, the loss of hire insurer may offer, at additional premium, an extension of the cover, usually referred to as "reinstatement". If an automatic reinstatement clause is incorporated into the insurance contract, the effect is normally that the insurance is automatically reinstated, including the original limits of liability, immediately. If a new casualty occurs, the assured will have full cover within the agreed number of days. The re-instatement premium will be calculated and invoiced after the claim has been calculated (adjusted).
The maximum number of days covered per casualty or in total for the insurance period are, in accordance with Cl. 16-4, sub-clause 1, second sentence, to be understood as days covered in full. It is therefore not the number of days itself which constitutes the maximum liability of the insurer but rather the product of the amount insured per day and the agreed number of days in full. This product must be seen as the sum insured, i.e. a maximum monetary limit on the insurer’s liability (per casualty and altogether during the period of insurance). This interpretation was adopted by the arbitrator, Professor Dr. Juris Sjur Brækhus, in the arbitration award he rendered in the "Ranhav", ND 1967 page 269 deciding the issue on the basis of the conditions applicable at the time. See, on this award, also under 6.3 below.