Subject matter insured

The term "loss of hire insurance" suggests that the assured is insured in general for any incident that causes one or more of his vessels to be demobilised so as to be deprived of income. However, loss of hire insurance has never been that comprehensive. It has only covered the assured for loss of income resulting from damage to a particular insured vessel, which damage must be recoverable under the hull insurance of the vessel, see further under 3.4 – 3.6 below.

However, loss of hire and damage to the vessel are not necessarily connected.  An assured may sustain a loss of income through many sources other than damage to the vessel. Natural catastrophes such as typhoons, floods etc., as well as strikes in port, congestion, riots, war and other man-made events may disturb the operation of the vessel. Many such events are equally fortuitous as damage to the vessel, but the assured in some cases may be able to influence to a certain degree the way in which these events will affect his operation of the vessel and consequently the loss of income sustained. In the case of damage to the vessel, the assured may not be able to influence the economic consequences of the damage, although he may be able to avoid the damage itself to a certain degree.

It is therefore natural to ask why loss of hire insurance is linked to the hull insurance of the vessel. The answer is that the insurer offering loss of hire insurance found that the traditional hull insurance of vessels had developed over such a long period that hull insurance had established the "right" balance between what should be covered and what should be excepted from cover. The "right" balance between the assured and the insurer when it comes to cover for loss of income has still not been explored.

The insurance market presently appears unready to embark upon the task, and instead it seems minded to go about the product development of loss of hire insurance on a case by case basis. There has been a trend towards extending the insurance to cover loss of income resulting from a grounding without any damage to the vessel so that there is nothing to recover from the hull insurer. Further extensions of the cover have been made, but they are few and casuistic and not very far-reaching, see under 3.7 below.