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.

  1. Insolvency

    The vessel may be delayed and lost as a result of insolvency (e.g. arrest and subsequent forced sale of the vessel). Such delay and loss is not insurable regardless of whether it is the owner, the assured (if different from the owner) or a third party who faced financial difficulties resulting in damage or loss to the assured. A shipyard in financial difficulties is a third party that may cause the assured damage or loss by delayed or ineffective repairs etc. due to financial strain on the yard.

  2. Nuclear energy – RACE II exceptions

    Commercial insurance markets exclude nuclear incidents and other RACE II perils as insured perils because of the long-term and cumulative consequences which such incidents may have. The accidental release of nuclear energy from a nuclear power plant in central Europe may result in nuclear contamination of extensive areas and a large number of vessels simultaneously. Separate compensation schemes for nuclear perils have been established internationally, see the Paris Convention 1960 with subsequent additions and protocols. See further Brækhus and Rein: Kaskoboken, page 115.

    The use of nuclear arms is also excluded from commercial war risk insurance for the same reason. International compensation schemes have not been established and the owners must turn to the flag state or to the state of registration (if different from the flag state) in order to obtain compensation or to obtain assistance in recovering compensation from a hostile power which has used nuclear arms. The same goes for other RACE II excepted perils.

  3. Intervention by state power

    "State power" is defined as individuals or organisations exercising public or supranational authority see Cl. 2-8 (b) and Cl. 2-9, sub-clause 1.

    The combined effect of Clauses 2-8 and 2-9 is that intervention by the vessel's "own" state is not an insurable peril. This means that intervention by the state of the vessel's registration (normally also the flag state) is not covered by any insurance. The reason is that the intervening state should compensate the owner (e.g. for requisition for title or use). The insurance market was concerned that if the owner was covered by insurance, the flag state might more easily decide not to compensate the owner since his loss would be covered by the insurer.

    However, if the flag state is neither the state of registration, nor the state where the major ownership interests are located (which requirements a flag of convenience state could conceivably meet), it would qualify as a "foreign state" under Cl. 2-9(1) (b) and interventions such as capture at sea, condemnation in prize, confiscation etc. would be covered by war perils insurance.

    It should be noted that requisition for title and use by any state power is not be considered an intervention. Requisition is excluded from coverage regardless of whether the requisition is carried out by the vessel's "own" state or a foreign state power. Thus an important and practical type of government intervention is excluded from cover.

    This exclusion of requisition from cover may lead to some uncertainties. Cl. 2‑9 (1)(b) mentions capture at sea, condemnation in prize and confiscation as interventions by foreign state powers which are covered by war peril insurers. The distinction between confiscation and requisition is that the owner is not compensated by the confiscator, whilst he should be compensated by the state power requisitioning the vessel, see the Commentary to Cl. 2-9.