Protection of the co-assureds against subrogation claims from the insurer

Clause 8-2 of the Plan is new in the 2016 version and governs the insurer’s right to be subrogated to claims against the co-assureds. The clause expressly provides that “the insurer does not have any right of subrogation against the co-insured third party unless and to the extent that such right is specified in the insurance contract or the co-insured third party has undertaken an express contractual obligation to an assured to remain liable for losses of the kind otherwise covered by the insurance.”

The effect of Cl. 8-2 is that, if the insurer at the time he accepts to co-insure a third party does not expressly reserve the right to seek recourse against the co-assured third party, he will be deemed to have waived any right of subrogation against him, subject, of course, that the co-assured has not forfeited his right to recover or be protected under the insurance, see further below and Cl. 8-3, sub-clause 2 discussed under 11.2.3. The burden is on the insurer to reserve any such right of subrogation against the co-assured unless the co-assured has expressly agreed to remain liable in spite of the fact that he is co-insured.

An example may illustrate the latter point. Very often the charterer under a time charterparty warrants that the ports he order the vessel to go to are safe for the vessel. Thus, if the vessel is damaged or lost due to an unsafe port, the charterer must compensate the owner for the damage and loss. The hull insurer having compensated the owner for e.g. cost of repairs under the hull insurance will normally be subrogated to the owner’s claim against the charterer. However, if the charterer is co-insured under the hull insurance there will be no right of subrogation into any claim against the charterer unless the hull insurer has expressly reserved such right of subrogation according to Cl. 8-2.

Alternatively, it is conceivable that the charterer is prepared to compensate the owner and his hull insurer for damage to or loss of the vessel due to an unsafe port, but that he wishes to remain protected under the co-insurance for any liability, e.g. collision liability, or any other claims covered under the hull insurance. Therefore, the charterer may agree to include in the charterparty a clause to the effect that he shall remain liable according to the unsafe port clause, in spite of the fact that he is co-insured under the hull insurance. Such an express clause will suffice to give the hull insurer a right of recourse against the charterer for damage to or loss of the vessel due to unsafe port, even if the hull insurer has not himself reserved a right of subrogation against the charterer. Cl. 8-2 requires that such clauses are expressly incorporated into the contract (charterparty). The antithesis is clear and intended. Any implied terms to the same effect will not suffice to secure any recourse from the insurer.

If the loss of hire insurer has compensated loss of income due to the damage to the vessel caused by ordering the vessel to an unsafe port, he may also seek recourse against the charterer either according to express clauses in the loss of hire insurance contract or in the relevant charterparty, provided, of course, that the law governing the charterparty allows also indirect losses such as loss of income to be claimed.

Even though Cl. 8-2 is new in 2016, it may be said that it only confirms what would follow from the background law. The background law may of course vary from country to country and may not necessarily be settled law. No comparative study on this point is warranted for the purpose of this handbook but, in so far as Norwegian law is concerned, it may be said that the background law is not settled, as the matter has not been considered by any known published judgement or arbitration award. However, Hans Jacob Bull (Professor Emeritus of the Nordic Institute of Maritime Law at the University of Oslo) wrote his doctor thesis on Insurance Cover of Third Parties, published by Sjørettsfondet 1988. He wrote his monography in Norwegian, but with a rather comprehensive summary in English at the end of the book. In section 4.9 (pages 317-320), he discusses that co-insurance works also as an indirect liability insurance. On page 318, he concludes that in effect a co-insurance implies also a waiver of subrogation against the co-assured and refer to other academic’s supporting this view. On page 530 in the English summary he wrote:

(4.9)    Although none of the provisions examined contain specific rules on the point, it is generally assumed that status as coinsured affords the third party protection against subrogation claims from the insurer. By including the third party as coinsured, the insurer thus waives his right of subrogation. It is argued that the coinsured is also in a position to claim compensation directly from the insurer in a case where the insured has elected to claim compensation for his loss from him instead of from the insurer. It is pointed out that the indirect liability cover provided through the insurer’s waiver of subrogation, is not absolute protection: the ordinary rules as to breach of duties contained in the insurance contract will also apply to this cover. (Emphasis added)