Separate deductible period for machinery damage

The new sub-clause 3 to Cl. 16-7, which was added in the 2007 version, deals with a matter that previously had not been dealt with. This is because it is only in recent years that a practice has developed to agree a separate deductible period for machinery damage different from the deductible period for other damages, such as damage to the hull and equipment other than machinery. It complicates matters considerably to introduce different deductible periods for different parts of the insured object, but the market has developed this practice for commercial reasons. By, for instance, agreeing longer deductible periods for damage to older machinery for which spare parts are no longer readily available and, in many instances, have to be produced individually, the premium can be reduced as the exposure for the insurers is reduced. However, the individually drafted clauses providing for a separate deductible period for machinery very often leaves two important questions unanswered, and the revision committee thought the time was ripe for dealing with the problem by an express provision in Cl. 16-7.

The two most important questions that arise are:

  1. What is machinery damage? That is to say, what is the borderline between the two, separate, deductible periods provided for in the individual insurance contract?
  2. Should the deductible period for machinery damage apply regardless of the cause of the machinery damage?

These two questions are answered in Cl. 16-7, sub-clause 3 simply by providing that Cl. 12-16 shall apply correspondingly. Cl. 12-16 deals with a similar problem related to hull insurance, namely when a separate machinery deduction is agreed.

The effect of the reference to Cl. 12-16 is that, for the purpose of the separate deductible period, machinery is not only the propulsion engine with propellershaft, bearings and propeller, but also all auxiliary engines and accessories, pipelines and electrical cables outside the machinery, see further the Commentary to Cl. 12-16.

In the modern type propulsion system, known as diesel/electric propulsion, propulsion engines are really electric motors located near the propellers or rather more often in the azimuth units each containing one propeller. These electric motors with all cabling must be deemed part of the machinery and subject to a separate deductible period. The same goes for the diesel engines running the generators providing the electric power to run the electric propulsion motors. The same diesel engines and generators may also produce electric power converted for other consumers on board, such as electrical driven pumps, electronic navigational equipment on the bridge, various appliances in the galley, lights etc. and thus serve the same functions as mere auxiliary engines on conventional vessels. All the diesel engines, generators, converters etc. must be deemed part of the machinery subject to a separate deductible period, regardless of whether one may define them as auxiliary engines or part of the propulsion system or both.

Whether the reference in Cl. 16-7, sub-clause 3 to Cl. 12-16 is intended to comprise also Cl. 12-16, sub-clause 1, second sentence, is not expressly commented on in the Commentary to Cl. 16-7, sub-clause 3. Since there is no exception made for application of this part of Cl. 12-16, the effect must be that this provision shall apply correspondingly to any separate deductible period for machinery. If so, the separate deductible period for machinery shall be cumulative with the generally agreed deductible period in the loss of hire policy, unless the wording of the policy suggests that the general deductible period shall not be applied in addition to the separate deductible period for machinery.

However, the Commentary expressly states that Cl. 12-16, sub-clause 2 shall apply correspondingly to any separate deductible period for machinery, which means that, if any machinery damage is caused by any of the causes listed in Cl. 12-16, sub-clause 2, any separate deductible period for machinery damage shall not apply. The thinking behind Cl. 12-16, sub-clause 2 is that machinery damage caused by external causes outside the machinery itself shall be subject to the general deductible. The three most practical external causes that may also result in machinery damage are expressly listed in Cl. 12-16, sub-clause 2 letters (a) to (c). In the event of these three causes, a separate deductible period for machinery shall not apply, if the machinery damage is a consequence of;

  1. the ship having been involved in a collision or striking
  2. the engine room having been completely or parted flooded
  3. a fire or explosion originating outside the engine room

Cause (a) should not normally cause any difficulties, but the Commentary to Cl. 12-16 points out that it shall be deemed to be a striking if the propeller strikes drifting timber, drifting ice[15] or other floating objects. The same applies if a plastic bag or ice sludge is blocking the cooling water intake, or a fishing line or other similar lines or ropes entangle the propeller shaft, resulting in damage due to overheating or leakages etc. These are all external causes and the damage to the machinery is not due to any defect or inherent vice within the machinery itself.

However, striking pre-supposes that the vessel or any of its parts or equipment is struck by a foreign object, as distinct from an object which originates from the vessel itself. The Commentary to Cl. 12-16 mentions, as an example that the rudder is falling off or brought out of position without any external impact, so that the propeller is “striking” the rudder and becomes damaged. Such damage will be subject to any separate deductible period for machinery. Not so if the vessel is striking its own fishing lines or nets or other equipment outside the vessel such as e.g. a streamer towed after a seismic vessel.

Cause (b) may overlap with cause (a) in the sense that, as a result of a collision or striking, the hull may be punctured or damaged so that seawater has flooded the engine room. Because the previous versions of the Commentary categorised Cl. 12-16, sub-clause 2 as nautical exceptions, a discussion arose whether flooding of the engine room caused by error of the engine crew in, for example, closing a valve would come within cause (b). This is because such error can hardly be deemed nautical, in the sense that it has nothing to do with the navigation of the vessel. Nevertheless, since such error is an external cause outside the machinery, the revision committee concluded that such flooding should come within cause (b) as the wording clearly is wide enough to comprise flooding caused by errors of the engine crew. This is also expressly pointed out in the Commentary.[16]

Cause (c) also clearly comprises external causes unrelated to any defects or inherent vice within the machinery To be on the absolute safe side, it is even expressly provided that the fire or explosion must have originated outside the engine room. The Commentary to Cl. 12-16 seems to define the engine room as the room where the propulsion engine is located. Pump rooms and other rooms forward of the engine room bulkhead are then outside the engine room. This definition presupposes that the engine room is located aft, which is most common on modern vessels. Any further partition of the engine room aft of the engine room bulkhead is of no importance to the application of cause (c) unless the rooms are separated by similar safety bulkheads as the engine room bulkhead.

This definition of the engine room in relation to cause (c) may cause some difficulties in modern diesel/electric driven vessels as the discussion above shows. The room where the diesel engines are located must, in this context, be deemed as the engine room for the purpose of application of cause (c). However, should rooms or spaces where electric propulsion motors are located, if separate from where the diesel engines are located, be deemed to be an engine room within the meaning of cause (c)? Loss of time due to damage caused by a fire occurring in or originating from the electro motor should really be subject to a separate deductible period for machinery, as such fire is not external but is directly connected to the machinery.[17]

[15] If the vessel is operated in the excluded or conditional trading areas or any other actually ice infested areas in violation of § 3-15, any and all damage resulting therefrom may be wholly or in part excepted from cover.

[16] Even though the third paragraph of the Commentary to § 12-16, touches on this discussion by pointing out that the previous versions erroneously list cause (b) as a nautical exception, the corresponding correction is not made in the sixth paragraph. This slip will not have any bearing on the fact that the revision committee made a conscious choice as explained above.

[17] This discussion shows that the criteria “outside the engine room” is not particularly adequate in this context. The distinction should be whether the fire or explosion occurred or originated from the machinery. If so, a separate machinery deductible period should apply. If the fire is unrelated to the machinery, but spreads so that machinery is damaged, only the generally applicable deductible period shall be applied. The whole discussion also shows that it should be carefully considered whether it is worthwhile to introduce a separate deductible period for different parts of the vessel or different types of damages or losses.