Chapter 18 of the Plan on Insurance of Mobile Offshore Units (MOUs) was substantially amended in the 2013 Nordic Plan. In the 2016 Version a new Section 6 on construction risks was added, and Section 5 on war risks was expanded by incorporating all clauses from Chapter 15, amended as appropriate to fit war risks insurance for MOUs.
By incorporating Chapters 10–14 on Hull- and Total loss insurances into Section 2 and 3 of Chapter 18 and Chapter 16 on Loss of Hire insurance into Section 4 of Chapter 18 of the Plan in 2013, Chapter 15 into Section 5 of Chapter 18 of the Plan and adding a new Section 6 on construction risks to Chapter 18 of the Plan in 2016, the intention that Chapter 18 contains all clauses relevant to MOUs was completed. There are no longer any cross references to any other parts of the Plan except to Part One, which according to the express provision of Cl. 18-1 also constitutes the “background law” for insurance of MOUs unless specifically amended by Cl. 18-1.
Thus, the applicable Loss of Hire Clauses for MOUs are found in Section 4 of Chapter 18 of the Plan (Clauses 18-43 to 18-56). Many of these Clauses are identical to the corresponding Clauses in Chapter 16 of the Plan. The Commentary to these Clauses are, therefore, limited to saying just that and referring to the Commentary to the equivalent clause in Chapter 16 of the Plan. Those Clauses that are only edited to fit to MOU terminology without any substantive amendment, are not commented on here.
There are two Clauses, Cl. 18-54 Simultaneous works and Cl. 18-55 Loss of time after completion of repairs that were substantively amended. Cl. 18-54 will be dealt with in 18.2 and Cl. 18-55 in 18.3 below.
Clause 18-54, Sub-clause 1 reads:
If repairs covered under this insurance are carried out simultaneous with work which is not covered under any loss of hire insurance, but which:
the insurer shall pay compensation for half of the time common to both categories of works in excess of the deductible period. Works under a - c, which would not have deprived the MOU from income if carried out separately and which have not delayed the casualty repairs, shall not be taken into account. If casualty damage is discovered or occurs during the period the MOU would have been deprived of income if the work under (a)–(c) had been carried out separately, time for repairs carried out simultaneously with scheduled works under a - c shall not be compensated. (Emphasis added)
- is carried out to fulfil classification requirements, or
- is necessary to enable the MOU to meet technical and operational safety requirements or perform its contractual obligations, or
- is related to the reconstruction of the MOU,
This Clause was new in the 2013 Plan and corresponds to Cl. 16-12. In addition to some editorial amendments substantive amendments were made in the 2013 Plan compared to Cl. 16-12 by adding the two new sentences to sub-clause 1 emphasised above. The Commentary to Cl. 16-12 is relevant also to Cl. 18-54 and is therefore referred to, see also 7.4.1 above.
The provision regulates the liability of the loss of hire insurer in cases where repairs that are covered by the insurance and work that is not covered by it are carried out at the same time. The latter may be relevant to a loss of hire insurance for an earlier or later year, or it may be work that is not covered by any insurance, e.g. work relating to classification or modifications.
When repairs relating to one or more casualties (under one or more loss of hire insurance contracts) are carried out at the same time as work for the assured’s account (e.g. work in connection with periodic classification surveys), the loss of time during the stay at the repair yard will in actual fact be due to several concurrent causes of damage. In the absence of other provisions, the loss in such cases must be apportioned between the assured and the various insurers in accordance with the rule of apportionment in Cl. 2-13. However, this type of solution is unsatisfactory from a technical legal standpoint because it will entail numerous decisions that are made largely on a discretionary basis. In order to avoid these problems, therefore, more clear-cut rules of apportionment have traditionally been applied in the loss-of-hire conditions. The rules of apportionment in Cl. 18-54 are based on those principles set out at Cl. 16-12, with the result that the causation rules in Cl. 2-13 are set aside in two respects:
Firstly, by applying relatively simple criteria, Cl. 18-54 (and Cl. 16-12) prescribe when simultaneous repairs are to be regarded as concurrent causes of the loss of time, and when one of the repairs is to be regarded as the only cause. In this way, difficult and, to some extent, subtle questions of causation are avoided. Secondly, Cl. 18-54 (and Cl. 16-12) fix the exact proportions to be used when apportioning the time lost among the various repairs; it is therefore unnecessary to use the discretionary rule of apportionment in Cl. 2-13.
These two departures from the main rule considerably simplify the issue. The fact that the provisions may occasionally give one of the parties an unwarranted advantage is of little significance compared to the substantial advantages achieved for the adjustment of the claim under the loss of hire insurance.
Pursuant to sub-clause 1 (a) to (c), an apportionment is to be made between the assured and the insurer when specified owner’s work is carried out at the same time as casualty work. Owner’s maintenance work which does not fall within the categories of work defined in letters (a) to (c) shall never be subject to any apportionment pursuant to Cl. 18-54.
In accordance with sub-clause 1, first sentence, the apportionment is to be made on the basis of an equal shares principle: the insurer shall pay compensation for half of the common repair time in excess of the deductible period. The said principle presupposes that the common work time is utilized equally effectively by both parties, and that it is therefore equitable to share the loss of time during this period equally; furthermore, this type of 50/50 rule is very easy to apply in practice.
This reasoning is generally relevant also to MOUs, but compared to vessels or MOUs carrying goods and/or passengers, MOUs will to a much larger extent carry out not only ordinary maintenance work, but also letters (a) to (c) work while they are offshore and still earn hire wholly or in part.
Hence, a new second sentence was added to sub-clause 1 providing that works under letters (a) to (c) which would not have deprived the MOU from income if it had been carried out separately shall not be taken into account for apportionment pursuant to the first sentence of sub-clause 1. This means that the assured may carry out e.g. classification work simultaneously with casualty work without any apportionment of the common time, if the classification work could have been carried out separately without loss of income. It will be a question of fact whether the classification work was of such nature that it could have been carried out without loss of income. If not, a 50/50 apportionment shall be applied on the common time. If the owner’s work delays the casualty work, sub-clause 4 of Cl. 18-54 applies also on how the delay shall be apportioned between the casualty- and owner’s work.
It was considered whether the principle adopted in the new second sentence of sub-clause 1 should be applied in the insurers favor in those cases where the casualty work is deferred to a period when the MOU is out of service due to owner’s work. It was, however, agreed that it is in both the insurers, as well as the assured’s, long term interests to encourage the owner to defer the casualty work to a convenient time rather than risk to impose on the insurer an unnecessary loss by repairing casualty work at once. The obligation to mitigate loss according to Cl. 3-30 cf. Cl. 3-31 would, of course, limit the owner’s possibilities to impose an unnecessary loss on the insurer. All the same, it was felt prudent to supplement the potentially contentious Cl. 3-30 with an economic incentive for the owner to defer casualty work whenever prudent to a convenient time and still be compensated for half the common time according to the first sentence of sub-clause 1.
However, the new third sentence of sub-clause 1 provides that if casualty damage is discovered or occurs during a period when the MOU would have been deprived of income if works under letters (a) to (c) had been carried out separately, time for repairs carried out simultaneously with scheduled works under letters a) to c) shall not be compensated. The third sentence of sub-clause 1 only applies if casualty work is repaired simultaneously with the same scheduled works under letter (a) to (c) during which the casualty work was discovered or occurred. If the casualty work so discovered or occurred is deferred to a subsequent period when other scheduled works under letters (a) to (c) are carried out, then what is written above on deferred casualty work shall apply, cf. also, in this regard, Cl. 3-30.
Cl. 18-55 reads:
After repairs have been completed, the insurer shall only be liable for loss of time:
Cl. 18-52 shall apply correspondingly to loss of time after completion of repairs.
- until the MOU can resume the activity that it was engaged in under the contract of employment that was in force at the time of the casualty, or
- while the MOU moves back to an equidistant position to where it without the casualty would have commenced the move to its next location under a contract of employment that was entered into with binding effect prior to the commencement of the move to the repair location.
Cl. 18-55 is corresponding to Cl. 16-13, but letters (b) and (d) are not deemed relevant to MOUs and are therefore not included in Cl. 18-55. Cl. 18-55 (a) is not substantively amended compared with Cl. 16-13 (a), apart from some editorial amendment to adapt it to the modus of operation of MOUs. Letter (b) is amended as compared with Cl. 16-13 letter (c).
This provision limits the insurer’s liability for loss of time that occurs after repairs have been completed. According to the main rule for calculating loss of time set out in Cl. 18-46, the insurer would have been fully liable for time lost after completion of repairs to the extent that this loss of time was a result of the casualty.
The insurer would, therefore, have had to pay compensation for loss of time until the MOU was again back to its previous employment, as well as for any loss of time resulting from the termination of the contract of work. Thus, Cl. 18-55 involves a limitation on the liability that follows from Cl. 18-46 with regard to time lost after completion of repairs. In accordance with sub-clause 1, first sentence, the insurer is only liable for such loss of time in those cases that are specifically mentioned in letters (a) and (b); in all other cases, the liability of the loss of hire insurer ceases when the repairs have been completed.
Letter (a) deals with the situation where the MOU, after completion of repairs, is to continue to operate under the contract of works that was in effect at the time of the casualty; in such case, the insurer is liable for time lost until the MOU has resumed its former employment. The provision applies irrespective of the type of contract of works concerned. Contractual obligations that are not set out in an actual contract of works must be regarded as equivalent to such a contract in this connection. If, on the other hand, the contract of works is cancelled due to the MOU’s stay at a repair location, the insurer is only liable for the time lost up to the completion of repairs, unless cover is provided under letter (b).
Letter (b) regulates loss of time for a MOU that does not return to the location at which the casualty occurred but moves to another location, either to commence new operations that it was scheduled to move to, after the completion of the operations it was engaged in at the time of the casualty, irrespective of whether the MOU actually completed those operations, or to take up work under a new contract of works that was concluded prior to “the commencement of the move to the repair location”. These words are new as compared with Cl. 16-13 letter (c) which only compensates loss of time after completion of repairs if the contract was entered into prior to the occurrence of the casualty. A contract may be legally binding and therefore concluded even if the contract is not formalized in a written agreement duly executed and signed by the parties. A mere letter of intent, however, will not satisfy the requirement of a binding contract pursuant to letter (b).
The next location may be in a different direction from the repair location than the location at which the casualty occurred, but the insurer’s liability will be limited to the time necessary to move in the new direction for a distance equal to the distance, a return to the casualty location.
Loss of time after completion of repairs covers both the situation where the MOU remains in the repair yard for a while after repairs have been completed and while the MOU moves to a location to resume its normal activity. However, loss of time due to the MOU being unable to find employment immediately after repairs have been completed is not covered. Such loss of time may in certain cases be said to be a consequence of the repairs and hence also a consequence of the damage that was repaired. However, the dominant cause of the loss of time will be the market conditions, or possibly decisions made by the assured, and it is therefore natural that the loss should not be covered.
The reference in sub-clause 2 to Cl. 18-52 is made in respect of its sub-clause 2, second sentence, which establishes that removal time occurring during the deductible period is not to be apportioned, cf. the Commentary on Cl. 18-52.
This discussion is in principle also relevant with regard to loss of hire insurance based on Chapter 16, but is more practical for MOUs, hence the discussion here.
There are no provisions in the Plan that suspends the insurance in case the vessel or MOU is laid-up. Cl. 3-26 requires that a lay-up plan shall be drawn up which shall be submitted to the insurer for approval. Cl. 9-3 vests approval of the lay-up plan with the claims leader with binding effect for the co-insurers, if any. If no lay-up plan has been issued by the assured, or he has failed to obtain approval of it by the insurer, or the lay-up plan has not been complied with, this will be deemed to be a violation of a safety regulation sanctioned according to Cl. 3-25, sub-clause 1. Cl. 6-6 gives the assured a right to negotiate a return of premium on certain conditions in case the vessel or MOU is laid-up.
Thus, the assured has the option to keep the vessel or MOU fully insured during lay-up, alternatively to agree with the insurer various other arrangements deemed satisfactory to both parties’ interests under the circumstances. Normally, under a so called cold lay-up, the assured will get a return or reduction of the premium as the risks the vessel or MOU is exposed to during lay-up are less than during trading. But, the risk for damage to or loss of the vessel or MOU is not eliminated altogether during lay-up, so normally the hull insurance and other property insurance is maintained with an adjusted insured value, if the lay-up is due to a falling market lowering the values of vessels or MOUs, cf. Cl. 2-3, sub-clause 2.
However, for loss of hire insurance it may be in the best interests of the assured to have the insurance terminated or suspended during an extended lay-up period. There will be no compensation under the loss of hire insurance if the damage to the vessel or MOU is repaired during lay-up, as the assured is not suffering any loss of income as the vessel or MOU would have been out of service regardless of the damage, see 3.1 above.
On the other hand, the assured may still suffer a loss of income at a later stage, namely when the damage is repaired. In this context it is unimportant whether the damage was discovered immediately when it occurred, or only after the vessel or MOU was recommissioned and started normal operation. The assured ought, therefore, to consider carefully what insurance arrangements are in his best interest. If the loss of hire insurance is terminated or suspended during lay-up, any damage to the vessel or MOU occurring during lay-up will be uncovered. A damage that occurred during lay-up must be referred back to the lay-up period regardless of when the damage was, or should have been, discovered.
Repairs may not be possible or uneconomical to carry out at the location of the lay-up, so the vessel or MOU will have to be removed for repairs. Such removal will normally be done in connection with the vessel or MOU breaking the lay-up, in which case the assured may be suffering a loss of income as the transition period from breaking the lay-up to the vessel or MOU being ready for trading/operating again is prolonged due to the damage repairs. Normally, the deductible period according to Cl. 16-7/Cl. 18-49 start to run from the commencement of the loss of time, which will then be when the lay-up period ends.
An example may illustrate the point:
An offshore unit (MOU) is laid-up between two contracts. The MOU is damaged during the lay-up. The remaining period of lay-up is 45 days. The deductible period is 30 days. If repairs are commenced immediately at lay-up site and last for 75 days, there will be no claim under the loss of hire insurance. The MOU would have been out of service in any event the first 45 days due to the lay-up, and the next 30 days are the deductible period commencing at the end of the lay-up period. Only if repairs continue for more than 75 days will the loss of hire insurance respond by paying the daily amount for the number of days exceeding 75. If the daily amount is reduced during the lay-up, e.g. from USD 150,000 to USD 75,000, the loss of hire insurer will pay only USD 75,000 for each day in excess 75 days.
The result will be the same in cases where the MOU must be removed for repairs. Such removal may entail that the daily running costs are increased as compared with mere lay-up costs. Such increased costs will not be covered under an ordinary loss of hire insurance, if there is no loss of income. So, if the removal occurs while the MOU is out of service, i.e. during the 45 days remaining of the lay-up period in the above example, there will not be any compensation during the removal, even if the daily costs are increased during the removal.
In practice, it is often agreed that the daily amount is set at NIL at the termination or expiry of the charter, and that the daily amount is increased to the new daily charter rate from the moment a new charter is agreed. Alternatively, the increase of the daily amount may take effect when the new charter enters into force.
If the daily amount is set at NIL during the lay-up between two charters, there will not be any compensation under the loss of hire insurance for the number of days of repairs exceeding the deductible period, if the damage occurs while the daily amount is set at NIL even if the repair takes place after the daily amount is increased to the new charter rate. As explained below at footnote 2, the loss of hire cover must be referred back to the cover in place when the damage occurs. If the loss of hire insurance is terminated or suspended during lay-up there will be no cover for incidents occurring during the lay-up. The same goes if the daily amount is set at NIL during lay-up.
Hence, the assured should carefully consider whether it is in his best interest to terminate or suspend the loss of hire cover during lay-up. In the same way he should equally carefully consider whether it is in his best interest to set the daily amount to NIL.
In cold lay-up condition the machinery is taken out of service and the vessel or MOU is kept “electrically dead” with the exception of emergency power. This condition usually implies 3 weeks re-commissioning time or more depending on the level of preservation and maintenance during lay-up, see also XX above.
 Cl. 2-11 entails that under certain circumstances a peril may be deemed to have struck prior to the “occurrence” with the effect that the resulting damage shall be referred back to a previous insurance year or, in this context, before the loss of hire insurance was terminated or suspended. But, in many cases, may be most cases, the peril strikes more or less at the same time as the damage occurs, which is what we have in mind, leaving aside the finer points of Cl. 2-11 for the purposes of this discussion.