Perils insured and losses covered

  1. Overview

    In daily insurance terminology, it is unusual to distinguish between peril and loss.  The term "risk" is often used to include both peril and loss. Risk is often used synonymously with peril: for example, "war risk insurance" is a more commonly used term than "war peril insurance".  In Norwegian legal terminology it is customary to distinguish between peril (or risk) and loss.  The Plan adopts this terminology and treats risk as synonymous with peril, but distinct from "loss".

    A peril may be described as the cause of a "casualty" which is also referred to as an "insured incident" or the "average".[2]  The Plan does not define these concepts nor is such definition necessary for practical purposes. It suffices to define the insured perils and the losses recoverable under the insurance in question.  Depending on the terms of the insurance contract, the insured perils may be "named perils" i.e. only those perils expressly mentioned are covered under the insurance, or "all perils"/"all risks" meaning that all perils are covered except those expressly excluded in the contract.  The Plan adopts the latter approach.

    However, even all risk insurances are limited to cover only "named losses".  No market has yet developed an "all losses" insurance, which would not be in great demand, since the owners have different needs.  Therefore, different types of insurance have been developed, such as hull and machinery, P & I, loss of hire, etc.  Under the Plan, all these types of insurance are covered as "all risks" insurances, but each type of insurance covers only the loss defined in the relevant chapters of the Plan. The Plan does not contain a chapter on P & I insurance, but Chapter 17 Section 6 contains rules on liability insurance for coastal and fishing vessels not entered with one of the P& I clubs, and Chapter 15 Section 7 contains rules on war risks liability insurance (P &I insurance). Chapter 18 Section 6 and Chapter 19 Section 5 contain provisions for liability insurance for respectively Mobile Offshore Units and conventional vessels construction risks.

    The following example may illustrate the difference between peril and loss:

    A vessel catches fire due to crew negligence - welding without removing combustible cargo on the other side of the bulkhead.  The peril is the negligence of the crew.  At the same time the negligence is the cause of the fire.  The fire results in extensive damage.  The hull and machinery insurer shall pay for the repair costs, or possibly for a total loss if the damage is so extensive that the vessel is deemed a constructive total loss. However, the hull and machinery insurer shall not pay for all possible losses suffered by the assured as a result of the fire, such as loss of market, special market value of this particular vessel etc., as these losses are excluded under this type of insurance.  Loss of or damage to consumables and some special equipment may also be excluded losses, see Cl. 10-1.

    Loss of income is not included in the hull and machinery insurance but may be covered under a separate loss of hire insurance.  However not every conceivable loss of income is covered.  There are limitations and exclusions, or - in keeping with the present terminology - some loss of income is excluded, see above under 1.3.2.

    [2] In Norwegian; forsikringstilfellet and havariet.

  2. Perils insured

    Traditionally, hull insurance has covered both marine and war perils. In principle marine and war hull-insurance are separate insurances provided by different insurers or groups of insurers. The borderline between marine and war perils is clearly defined, see Clauses 2-8 and 2-9 of the Plan.

    Loss of hire insurance may likewise cover both marine and war perils and often the same insurer covers both risks under the same policy. In such a case of dual coverage, the issue of apportionment of responsibility between more than one insurer is eliminated and there is consequently no practical reason to distinguish between marine and war perils.

    War risk cover under Chapter 15 of the Plan also includes war risk loss of hire insurance. Therefore, those assureds who are covered for war risks pursuant to Chapter 15 of the Plan do not need to include any war risks extension to their ordinary loss of hire insurance for marine perils.

  3. Perils not insured

    As per Cl. 2-9, sub-clause 2, insolvency and RACE II exceptions are expressly exempted from war perils coverage, which means that these risks are covered neither by the marine nor war peril insurers.