The co-insurance agreement

Chapter 8 of the Plan governs the co-insurance of third parties (other than mortgagees). This chapter was substantially edited and re-written in the 2016 version. Unlike the automatic protection given to mortgagees pursuant to Cl. 7-1, Cl. 8-1 provides:

If the insurance is explicitly effected for the benefit of a third party, the insurance also covers this party’s interests within the scope and overall limits of the insurance.

The word “named” was deleted from Cl. 8-1 in 2016. This deletion has significant implications. In the previous versions of the Plan, there was no co-insurance of third parties unless they were expressly named. The intention was that each co-assured should be identified by the name of the company (or individual) stated to be a co-assured under the insurance. If not, there was no co-insurance in place. Thereby, the insurer got full control over the extra risks that a co-insurance may entail.

However, in particular in the offshore industry, the practice was to define the co-assured in more generic terms, cf. the waiver of subrogation and co-insurance clause in Cl. 18-1 (i). This practice spread to individual co-insurance clauses in insurance contracts for trading vessels. It was considered too burdensome to name each company that should be co-assured if there were many. Therefore, it is now common with co-insurance clauses to list a number of entities as co-assured in a generic manner by general non-specific reference, e.g. affiliated, associated or subsidiary companies of a named assured. Wordings like “as their interests may appear” are occasionally used. This kind of generic references will, under Cl- 8-1 as amended from 2016, also activate the rules in Chapter 8. Cl. 8-7, on the other hand, will not apply so that independent cover is not provided unless the third party is expressly named.

The legal effect of such generic co-insurance clause was never really considered or debated under the previous versions of the Plan nor tested by any court. The insurer probably would be bound by the clause he had agreed in spite of the previous requirement that the co-assured should be expressly named. Let that be as it may, as the matter is no longer causing any legal issue under the 2016 Plan.

In a similar way to Cl. 7-1, Cl. 8-3, sub-clause 3 provides that the co-assured stands in the shoes of the "owner", that is to say that the co-insurance offered under Chapter 8 is so called “dependent co-insurance”. The co-insurance may, however, be made independent by effecting cover pursuant to Cl. 8-7, see above at and below under 11.2.7.