A deductible is common in all kinds of insurances. However, while the hull insurance refers to an amount expressly stated in the policy, see, for example, Cl. 12-18, the loss of hire conditions refer to a deductible period counted in days. The principle is that the insurer is only liable for the agreed number of days exceeding the deductible period.
The loss of time applicable to the deductible period will be determined in accordance with the provision in Cl. 16-4. The rule in Cl. 16-7 reads as follows:
Each casualty shall be subject to a deductible period which shall run from the commencement of the loss of time and last until the loss of time, calculated in accordance with the rule in Cl. 16-4, sub-clause 1, second sentence, is equivalent to the deductible period stated in the insurance contract. Loss of time in the deductible period is not recoverable.
Damage caused by heavy weather or navigating in ice which has occurred during the period between departure from one port and arrival at the next one shall be regarded as one casualty.
If a separate deductible period for damage to machinery has been agreed on, Cl. 12-16 shall apply correspondingly.
Sub-clause 2 was shortened and simplified in the 2003 version, and sub-clause 3 was added in the 2007 version.
Sub-clause 1 contains the basic rule - any loss of hire during the deductible period is unrecoverable from the insurer. The assured may recover loss of hire during the deductible period from a tortfeasor, e.g. in case of a collision with another ship. Alternatively, the assured may recover loss of hire during the deductible period from a contracting party subject to the terms of the contract. If no recovery from any third party is available or possible, the assured will have to accept that the loss of hire during the agreed deductible period is for his own account. The same goes, incidentally, for any loss of hire during an excess period, if any, not covered by the loss of hire insurance.
Cl. 16-7, sub-clause 1, refers expressly to Cl. 16-4, sub-clause 1, second sentence. The point in this context is that the agreed deductible period must be adjusted correspondingly, if a vessel is only partially out of service. If a vessel can only operate at half speed after an engine damage, so that it takes 28 days instead of 14 days to remove the vessel to a repair yard, the deductible period of 14 days is only consumed after 28 days unless the vessel is 100% off-hire pursuant to the charterparty. In this example, the assured will therefore only receive compensation under the loss of hire policy from the commencement of the repairs if there was no loss of time other than the sailing period before repairs were commenced.
The number of days constituting the deductible period is agreed in the policy. For practical and economic reasons, the insurer will normally require a deductible period of minimum 14 days in particular to avoid a large number of minor loss of hire claims that would lead to costly and time-consuming claims handling. In order to save premium, the assured will often choose a longer deductible period, e.g. 30 days or, in some cases, even up to 60 days. Even though 14, 30 or 60 days deductible periods are the ones most common in practical use, the parties are, of course, free to agree any deductible period they wish in consideration of a reduction or increase in the premium, as appropriate, in each individual case.