Cl. 15-16. Extended cover for war risks blocking and trapping

It has been explained in 3.7.2 above that the marine loss of hire conditions, in Cl. 16-1, sub-clause 2, cover loss of time due to blocking and trapping of the vessel by physical obstructions. The corresponding rule under the war risk conditions has been extended in order to include blocking and trapping by non-physical obstructions. This extension has been effected by replacing the marine conditions in Cl. 16-1, sub-clause 2, letter (b), with the following provision set out in Cl. 15-16, sub-clause 2:

The insurer is liable for loss due to the ship being wholly or partly deprived of income because it is prevented from leaving a port or a similar limited area.

The marine loss of hire conditions provide cover only if the vessel is prevented from leaving the port by a physical obstruction other than ice. (It should be noted that a loss of time due to the vessel being prevented from entering the port is not covered under any circumstances.) War risks may of course also create physical obstructions (e.g. bombing of a port wrecking several vessels which wreckage prevents other vessels from leaving the port). There is no doubt that loss of time due to such physical obstruction is also covered by the war risk conditions in Cl. 15-16, sub-clause 2, which is wide enough to include blocking and trapping both by physical obstruction and by other means.

For practical purposes, such other means of blocking and trapping are interventions by a foreign state power, cf. Cl. 2-9, sub-clause 1 (b) and above under 2.3.3. Such intervention may be by way of capture, Cl. 2-9, sub-clause 1 (b), blocking the entrance of the port with mines or threatening to torpedo vessels leaving the port. Such threat must be more specifically directed towards the port in question than the general risk of being torpedoed at sea during a war. If the enemy navy is waiting outside the port ready to fire at the vessel, the vessel must be considered as having been prevented from leaving the port as per Cl. 15-16, sub-clause 2.

It is not crucial to define the term «port» since the further words "similar limited area" clearly suggest that blocking and trapping outside ordinary ports are included in the cover. The Commentary to Cl. 15-16 and Cl. 16-1 gives very little guidance on this point and only refers to Cl. 15-12 which provides for total loss compensation in case the vessel is trapped by a war peril for more than 12 months..

The Commentary to Cl. 15-12 mentions that the cover for blocking and trapping was developed during the various wars in the Middle East. Vessels were trapped in the Suez Canal when this was closed after air attacks; the same was the case for vessels trapped in Shatt-al-Arab. Such areas are deemed similar to ports or harbours.  The Commentary also suggests that the whole Arabic Gulf is to be treated as a limited area similar to a port, since the Norwegian War Risks Association implied that a closing of the Strait of Hormuz due to war perils would constitute blocking and trapping under their insurance conditions. The Commentary goes on to state expressly that the Great Lakes do not constitute such a «limited area» similar to a port even if the only entrance is through the St. Lawrence Seaway.  If vessels are trapped in this area because the locks in the Seaway are destroyed by bombing, there is no loss of hire cover under Cl. 15-16.

Wilhelmsen and Bull: Handbook on Hull insurance, Gyldendal 2007, page 345 adopts without reservation the solution of the Commentary in relation to Cl. 15-12 that the Great Lakes are not “a similar limited area”.

The Commentary to Cl. 15-12, which is also relevant to Cl. 15-16, emphasises that the wording “port or similar limited area” means that the area must not be too large:

The comparison shows that the area must not be too large geographically and, accordingly, must be comparable to a port.

This means that loss of hire cover is not extended to vessels or off-shore units operating on off-shore locations on the high seas even if war perils may wholly or partly deprive them of income. Off-shore units, which are anchored while at work on the location, are therefore not readily moveable. A threat of attack against the unit may temporary require evacuation of the whole crew, which results in down time or off hire under the contract with the operator of the field. But even if, due to the threat, the unit is restricted in its operation, the cover under Cl. 15-16 has never been intended to comprise vessels or units operating stationary on the high seas. The high seas are certainly not comparable with a port and no loss of hire cover is therefore available unless the threat materialises into a physical damage to the vessel or unit.

This view was contested in an arbitration case “Bulford Dolphin”, published in ND 2009 page 202. The arbitrators concluded in accordance with the view expressed above. Due to this arbitration award the Commentary to Cl. 15-16 was amended by adding the following:

Both Cl. 15-16 and Cl. 15-12 apply only to blocking and trapping in ports or similarly limited areas. In an arbitration award rendered on 8 May 2009 between Dolphin Drilling and the Norwegian Shipowners’ Mutual War Risks Insurance Association (Bulford Dolphin), the court found that a rig anchored off the coast is not in a port or similar limited area. The court also stated that Cl. 15-16 only applies to blocking or trapping due to interventions by a State power, cf. in that respect the remark above, and that blocking or trapping due to threats of attack by terrorists or pirates is not recoverable under loss-of-hire insurance. This statement is an obiter dictum and concerns the construction of an issue that is highly controversial. However, as long as piracy was limited under Cl. 2-9 (d) to the “open sea” the statement had little practical significance in relation to piracy because it is unlikely that the geographical area specified in Cl. 15-12 and Cl. 15-16 would at the same time be in the “open sea”[32]. In view of the expansion that has now been made in the geographical aspect of the concept of piracy, however, piracy could conceivably take place within “a similar limited area”, cf. the Commentary on Cl. 2-9 (d). To avoid this expansion of the concept of piracy having an unintended effect on loss-of-hire cover, the Committee agrees that it is natural to limit the scope of Cl. 15-16 to only cover interventions by foreign State powers. With regard to shipowners’ overall need for loss-of-hire insurance in the event of attacks by pirates and terrorists, the cover provided under Cl. 15-16 will in any event be totally marginal. (Footnote and emphasis added)

The clear intention behind the above underlined quote from the Commentary to Cl. 15-16 was also to make it clear that any loss of time due to piracy or terrorism not resulting in any damage to the vessel would not be covered under Cl. 15-16 even if it may be said that the vessel was blocked or trapped by pirates or terrorists in a port or similar limited area. The assured may cover in the market loss of hire insurance for loss of income due to piracy or terrorists attacks such as waiting time while negotiations of ransom are going on etc. but it will depend on the employment of the vessel whether the assured needs such cover. Under certain charterparties the vessel is not off hire due to piracy attacks. Hence, it was agreed in 2010 that such cover should not be part of the standard cover under the Plan. This has not been subject to any further discussions during development of the Nordic Plan, neither for the 2013 version, nor the current 2016 version.

[32] The Commentary to Cl. 2-9, sub-clause 1 (d) was substantially amended in 2010 by defining the geographical area for piracy much wider and more precise than criminal acts on the high seas.