Since the determination of the daily amount under an open policy may entail certain difficulties discussed above, an assured who prefers a more predictable assessment of his loss of income in case of a casualty to his vessel, may fix the daily amount in advance, as a so-called agreed daily amount.
Cl. 16-6 reads as follows:
If it is stated in the insurance contract that loss of income shall be compensated by a fixed amount per day, this amount shall be regarded as an agreed daily amount unless the circumstances clearly indicate otherwise.
The agreed daily amount is not decided unilaterally by the insurer. The agreed insurable value is, according to Cl. 2-3, fixed by agreement between the parties. This practice is well known in hull insurance, where it has been considered advantageous to fix the insurable value at the inception of the insurance, see Cl. 2-2, because the market price of ships can vary greatly and make it difficult to assess the actual value of a ship from time to time. The same reasoning lies behind the use of agreed daily amounts in loss of hire insurances as freight rates will also fluctuate.
The agreed daily amount for a time chartered vessel will normally equal the daily hire under the charterparty. If the vessel is not employed under a time charterparty, the agreed daily amount must be based on an estimate of future income for the vessel.
A loss of hire insurance should clearly state that the daily amount is agreed. However, the insurance contract refers normally only to an amount payable by the insurer per day. This may be understood as an agreed daily amount or as the agreed insured value per day. These two alternatives may be different - it is not necessary that the agreed daily amount is insured 100%, although that is the most common practice. Such uncertainties are solved by Cl. 16-6 which provides that unless the circumstances clearly indicate otherwise, the daily amount mentioned in the insurance contract shall be regarded as an agreed daily amount. This means that there is a presumption that the daily amount stated in the insurance contract is an agreed daily amount. If by express agreement or by implication of the facts this presumption does not apply, the daily amount stated in the policy is merely the daily sum insured, but the recoverable amount must be calculated pursuant to Cl. 16-5. The sum insured per day constitutes the maximum amount payable by the insurer but, if the actual loss per day is lower, only the lower amount will be recoverable under the loss of hire insurance in these cases.
The use of an agreed daily amount is a benefit to the assured, as he will not need to substantiate his loss of earnings throughout the relevant period. This enables him to predict his earnings regardless of any major casualty to the vessel. Furthermore, he may then often obtain more favourable conditions for the financing of the vessel. An owner will usually assign the earnings and payments under a loss of hire insurance to the institutions financing the vessel or the financiers may be co-insured pursuant to Chapter 7 and 8 of the Plan. (see also under 10 and 11 below).