Scope of the insurance, Clause 16-1

Clause 16-1 reads:

The insurance covers loss due to the ship being wholly or partially deprived of income as a consequence of damage to the ship which is recoverable under the conditions of the Plan, or which would have been recoverable if no deductible had been agreed, see Cl. 12-18. If the hull insurance has been effected on conditions other than those of the Plan, and these conditions have been accepted in writing by the insurer, the rules in Chapters 10-12 of the Plan shall be replaced by the corresponding conditions of the insurance concerned when assessing whether the damage is recoverable.

The insurance also covers loss due to the ship being wholly or partially deprived of income:

  1. because it has stranded,
  2. because it is prevented by physical obstruction (other than ice) from leaving a port or a similar limited area, or
  3. as a consequence of measures taken to salvage or remove damaged cargo, or
  4. as a consequence of an event that is allowed in general averagepursuant to the 1994 York-Antwerp Rules.

Sub-clause1 of this provision contains several fundamental requirements that must be satisfied in order for the assured to recover under his loss of hire insurance:

  1. the word "loss" means that the assured must have suffered a loss of income;
  2. the words "due to" and "as a consequence of" require a causative connection between the damage and the loss;
  3. the words "wholly or partially deprived of income" mean that the vessel could not have been operated as intended;
  4. the words "damage etc." require that the vessel is physically damaged and that this damage is recoverable under the hull insurance.

These four elements are discussed below.

  1. Loss of income

    The words "The insurance covers loss due to the vessel being wholly or partially deprived of income" are a verbatim repetition of § 2, subparagraph 1 of the 1972 and 1993 conditions.

    The 1972 Commentary, page 32 made it clear that the intention of these words was that if, the vessel would have been unable to earn any freight regardless of the damage, there should be no recovery under the loss of hire insurance. The English courts have confirmed and settled the law on this point in "The Capricorn”, Cepheus Shipping Corporation v. Guardian Royal Exchange Assurance plc. [1995] 1Lloyd’s Rep 622. The Commentary to Cl. 16-3 refers to "The Capricorn" and re-emphasised this fundamental principle.

    In the “Capricorn” the plaintiffs claimed 60 days’ loss of time under the loss of hire policy. The policy was subject to the Norwegian "General Conditions for Loss of Charter Hire Insurance (1972)" with 1977 amendments and with the incorporation of a reference to the Institute Time Clauses (Hull) 1.10.83. The plaintiffs argued that it was irrelevant to consider what, if any, use they might have made of the vessel after the end of the peak season but for the damage. They submitted that the policy wording compensated them for loss of earning capacity without proof that such capacity would have been deployed by them in the market. The defendants argued that the policy was not to be read as covering loss which the vessel would have sustained, damage or no damage, because she would in any eveny have been out of the market. They submitted that the vessel was due to be and would have been laid up throughout the low season and thus that the plaintiffs had no insurable interest.

    The judge held that the plaintiff's insurable interest in the subject matter insured (i.e. freight and income from trading) must have existed at the time of loss. The judge found that it was clear that the assured would not have exercised their off-season option to trade the vessel, and that their intention throughout was and would (irrespective of the damage repairs) have been that the vessel should remain in lay-up. In other words, any loss of earnings was not due to the damage, but due to the fact that the vessel would have been out of the market anyway.

    However, assuming that the assured would have reconsidered his intention to continue the lay-up had the market improved substantially, the judge concluded that the market never actually did and any prospect that it might was remote.

    Although the vessel must have been deprived of income, firm evidence of possible employment is not required.  It is not necessary that the vessel has been employed at the time of the casualty. A reasonable possibility of obtaining employment for the vessel during the repair period will be sufficient to show that the vessel had the necessary earning capacity.

    However, the assured must show that, from a commercial point of view, it is both the intent and purpose of the assured to place the vessel in the market and that there exists a possibility of obtaining employment. The assured thus has the burden of proving that although the vessel happened to be unemployed, his loss of income was the result of the insured damage. Such burden of proof follows from Cl. 2-12, sub-clause 1, according to which the assured has the burden of proving that he has suffered a loss of the kind covered by the insurance and the extent of the loss.

    If, for example, the assured places his vessel in the Persian Gulf as one of several vessels waiting for a possible voyage charter and certain fixtures are made for other vessels, he must be deemed to have fulfilled the condition regarding earning capacity. One cannot demand that the vessel actually has been employed during the relevant period. But, if the allegedly available employment is geographically distant, the assured must prove that moving the vessel from where it lay when it was decided to carry out the repairs was both feasible and commercially realistic.

    The borderline between a laid-up and an unemployed but freight seeking vessel may be difficult to draw. There are in general two lay-up conditions to be considered, so called hot lay-up and cold lay-up depending on the extent of the functions that are shut down.  In the author’s opinion guidance can be found in the classification societies’ guidelines on cold and hot lay-up.

    DNV (now DNV/GL) Guidelines of March 2012 has the following definitions for vessels:

    Hot lay-up: In this lay-up condition, the machinery is kept in operation for the sake of fast re-commissioning, but measures may be taken to reduce various operational costs.

    Cold lay-up: In cold lay-up condition the machinery is taken out of service and the vessel 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. The level of preservation is mainly decided based on the age and value of the vessel and the most likely re-commissioning scenario.

    For cold lay-ups as defined above, it is clear that a lay-up plan is to be approved by the insurers and to be followed by the assured, ref the Plan Cl. 3-26, cf. Cl. 3-25. As long as the vessel is in such cold lay-up the assured has not been deprived of income due to any damage to the vessel.

    For hot lay-ups as defined above, it seems equally clear that a lay-up plan pursuant to the Plan Cl. 3-26 is not required. At the outset, therefore, a vessel in hot lay-up must be considered to be freight seeking and thus may be deprived of income due to a damage triggering the loss of hire insurance. However, if the assured elects to reduce the crew on board and/or shut down certain functions, it is difficult to outline exactly when an approval of lay-up plan is a requirement according to the Plan Cl. 3-26. As a general rule, if a unit has a lengthy stay out of operation due to no contract, accompanied by a request of reduction in premium, it must be deemed to be laid-up both according to the Plan Cl. 3-26 and in relation to the test “deprived of income”.

    However, this principle must not be extended to apply in those cases where the assured is entitled to a proportionate recovery pursuant to Cl. 16-12 for simultaneous repairs. From a logical viewpoint, it could be argued that if damage repairs are postponed to be carried out simultaneously with owners repair or reconstruction, the owner has not suffered any loss if damage repairs are carried out simultaneously with owner’s work. But there is no doubt that, in adjusting practice, Cl. 16-12 prevails over Cl. 16-1, so that the owner will be compensated for half the common repair time if at least one of the requirements under Cl. 16-12 for such apportionment is satisfied. Prior to the Nordic Plan, in 2013 it was proposed that Cl. 16-12 should be amended to reflect the principle that the loss of hire insurance would not respond if the owner had not suffered any loss because the vessel had been deprived of income in any event. This proposal was rejected by the insurers and never came before the Standing Revision Committee for discussion.

    If, however, there had been any common repair time in the “Capricorn” case, then the owner would still not have recovered under the loss of hire insurance for any time “lost” while the vessel was in any event in lay-up. One must distinguish between lay-up and taking out a trading vessel from service to carry out required class work or other categories of work as listed in Cl. 16-12 (a) - (c). 

  2. Causation

    Causation is primarily a question of fact. In many instances it is easy to establish the required causation.  If the vessel collides with another vessel and is severely damaged, the vessel must be repaired at the nearest yard capable of carrying out repairs. If no other repairs are carried out at the same time, the assured is entitled to be compensated under his loss of hire insurance for the whole period, from the time of the collision until the completion of the repairs (possibly even longer, subject to Cl. 16-13), less the deductible period.

    However, in real life, once the vessel has to be taken out of service, the assured will more often than not take the opportunity to carry out other repairs and maintenance work simultaneously with the average repairs in order to use the time lost as efficiently as possible.

    On the other hand, the assured does not take the vessel out of service for damage repairs if such repairs can be postponed to a later planned docking period and carried out concurrently with the assured's work.

    Regardless of which category of work triggered the off-hire period it is, in principle, a combination of causes that contribute wholly or in part towards the loss of income for the assured during the common repair period or other common loss of time.

    It is difficult to resolve the causation problem in these cases based on generally applied principles such as the causa proxima doctrine or the apportionment rule. Therefore, the Nordic loss of hire conditions contain specific rules on how to adjust the claims in cases of simultaneous repairs, see further Cl. 16-12 dealt with under 7.4.1 below. The solutions adopted in Cl. 16-12 are premised upon the principle of equal apportionment regardless of the question of causation in each case.  This solution may not always be fair and reasonable,but it provides a clear and practical solution.

    Cl. 16-10 contains another solution on how to apportion time lost during removal to the repair yard, see under 7.3 below.  This period of time lost shall be attributed to the category of repairs that necessitated the removal. The same applies to time lost after completion of repairs, if recoverable pursuant to Cl. 16-13 (see 7.4.2 below) and to time lost during surveys, while obtaining tenders, during tank cleaning, waiting to commence repairs and other similar measures necessary to carry out the repairs.  Cl. 16-10 introduces something very similar to the causa proxima doctrine. 

    In other cases of combined causes, the apportionment rule set out in Cl. 2-13 applies

    The 1972 Commentary illustrates the apportionment principle by the following example on page 16:  a vessel is damaged and has to seek a port of refuge and carry out temporary repairs shortly before the winter season.  Before the repairs are completed, the port is closed by ice.  The 1972 Commentary suggests that all loss of time until completion of the repairs should be attributed to the damage, while additional loss of time thereafter due solely to the ice should be excluded from the adjustment.

    However, this method of apportionment is open to criticism.  The time lost during the period when the vessel was prevented from sailing due to both the repairs and the ice could have been apportioned equally between these two independent but simultaneously contributing causes.  It is conceivable that even the period after the repairs were completed (when only ice prevented the vessel from sailing) should be apportioned, since the vessel would not have found itself in an ice-bound port but for the damage causing it to become delayed into the ice season. 

    As can be seen from the above, the apportionment rule gives little guidance and therefore gives a broad discretion to average adjusters, the courts and/or arbitrators. 

    The Commentary to Cl. 16-1 discusses the application of the apportionment rule in Cl. 2-13 in loss of hire insurance at some length.

    Firstly, the case is discussed where the hull damage is caused by an insured and an uninsured peril. The insured peril may be an error in navigation by the master leading to grounding of the vessel and the uninsured peril may be a breach of safety regulation that can be imposed against the assured such as e.g. failure to provide the vessel with an adequate and/or updated chart for the area. Another example, damage to the hull may have been caused partly by a peril of the sea (heavy weather) which is an insured peril, and partly by corrosion, which is excluded from the hull cover pursuant to Cl. 12-3.  Even if the repair period and other loss of time due to survey etc. are not increased as a result of the uninsured peril, the loss of time must be apportioned.  The Commentary points out that an apportionment made by the hull insurer according to Cl. 2-13, will normally be followed by the loss of hirer insurer unless there are special reasons to apply a different apportionment in relation to the loss of hire insurance. If the damage has been caused by a combination of marine and war perils, the rules in Cl. 2-14 to Cl. 2-16 apply.

    Secondly, in cases of simultaneous repairs the Commentary emphasises that the equal apportionment rule of Cl. 16-12 applies instead of the apportionment rule in Cl. 2-13, cf. above.

    Thirdly, there may be a situation where perils not covered or attributable to another insurance period may result in delays or prolongation of the loss of time or stay at a repair yard. Such perils may be external, for instance, strike at the yard, extreme weather conditions delaying the repair work or detention of the vessel due to arrest or similar measures. There may also be delays related to the vessel itself, such as discovery during repairs of damage previously unknown and not covered by the current loss of hire insurance. Cl. 16-12 on simultaneous repairs may also apply in the latter case. The Commentary to Cl. 16-1 states with regard to this third situation:

    As to the third situation, we must fall back on the general rule of apportionment in Cl. 2-13. In this case, contrary to the first situation, there will be no apportionment settlement for the underlying hull damage, and Cl. 2-13 must thus be applied directly to the loss-of-hire settlement. Consequently, the loss of time shall be apportioned over the individual perils according to the influence each of them must be assumed to have had on the occurrence and extent of the loss. Guidance has to be sought in the Commentary to Cl. 2-13 where criteria for weighing the different causes in different situations are given. One of the criteria will be how foreseeable the event prolonging the loss of time is when the ship is sent to the repair yard. In relation to Loss of Hire insurance, this criterion of foreseeability must be seen in connection with the rules regarding evaluation of tenders in Cl. 16-9, the assured’s duty to reduce the loss and general preventive considerations. (Emphasis added) 

    This paragraph of the Commentary was amended in 2013 in order to underscore that the apportionment principles of Cl. 2-13 should be applied unless otherwise expressly provided so that the guidelines contained in previous versions of the Commentary should no longer apply. 

    The Commentary to Cl. 16-1 goes on to discuss how the apportionment rule  may be applied, if the repair period is prolonged because of a strike. In the 1996 and subsequent versions until version 2003, the Commentary to Cl. 16-1 contained the following passage:

    Questions relating to causation must also be dealt with in accordance with the rules in the general part of the Plan. If time is lost partly because of damage to the ship and partly because of other circumstances not covered by the insurance, then the apportionment rule in § 2-13 will determine the extent of the insurer’s liability. In principle, such an apportionment should be made where the stay at the repair yard is prolonged because of a strike. In practice extra delay arising from a strike by workers at a repair yard has been covered. On the basis that a strike at the repair yard is not unforeseeable, it is assumed that this practice will be continued. The extent of the cover will, however, depend on what was the reason for the vessel’s stay at the repair yard, c.f. § 16-12 and below. [3]

    The Commentary stated that the whole period at the yard should be covered in full, subject to Cl. 16-12, if it is the yard's own workers that go on strike and thereby prolong the loss of time. 

    In 2003, Chapter 16 was reviewed and the above quoted passage was replaced as follows:

    In practice, it is particularly the prolongation of stays in a repair yard due to strikes that has caused problems. The 1996 Commentary states that while, in principle, the apportionment rule in § 2-13 was to be applied, in practice a prolongation of the stay in a repair yard due to a strike among the yard workers had been covered. However, the practice referred to consisted only of accepting local strikes at the yard as “foreseeable”, and in such cases paying “full” compensation, i.e. without proportionate apportionment. In the Committee’s view, prolongation due to a strike must be considered in the customary manner on the basis of § 2-13, and not on the basis of whether or not the strike is local. [4]

    Since 2003 there has been no amendment to the Commentary on this point. The effect of this amendment of the Commentary to Cl. 16-1 is that the previous alleged practice is abolished. Prolongation of the repair period due to local strike at the repair yard must be apportioned in accordance with Cl. 2-13. Such “apportionment” may still be 100-0, depending on the circumstances in each case, see further the Commentary to Cl. 2-13.

    The above quoted passages from the Commentary to Cl. 16-1 put weight on whether a concurrent cause prolonging the loss of time or stay at a repair yard is foreseeable.

    In cases where the insured vessel after an incident triggering the loss of hire insurance is delayed by the local authorities, the foreseeability criterion has been applied in determining whether such delays may be wholly or partly allowed under the loss of hire insurance. If the delay caused by the local authority is a foreseeable consequence of the damage to the vessel, at least a certain part of the delay has been allowed. If, on the other hand, the delay is unforeseeable, the chain of causation is broken. According to adjusting practice the delay must be a foreseeable consequence of the vessel’s own damage. If the vessel causes damage to third parties property and is delayed as a result of arrest by a third party claimant and/or the local authorities held the vessel while the incident is investigated, such delays are not covered under the loss of hire insurance at all. This point was emphasised in the 1972 Commentary in the smaller font on page 15. The current Commentary does not discuss the point, but no amendment was intended by omitting this discussion. 

    In recent years local authorities have become increasingly concerned about damage to coral reefs after groundings on such reefs. In many cases not only the coral reef is damaged, but also the vessel. If the vessel is delayed solely due to the authorities concern for the environmental damage, no part of the delay will be allowed. But if the authorities are also concerned with the damage to the vessel and wishes to ensure that the vessel is capable of continue safely either by its own power or in tow, adjustment practice has allowed a few days delay caused by the local authorities’ investigation and to issue necessary towage permits etc. This practice dates back to the 1972 Conditions. But only two or three days were allowed as this was deemed what was reasonable and necessary for the authorities to complete the investigation and to issue the required permits to continue the voyage or to move to an appropriate repair port. There are examples of authorities delaying the vessel for longer periods, but such extended delay is not compensated under the loss of hire policy.

    Adjustment practice may apply a relative foreseeability test depending on where the incident takes place. In countries where the bureaucracy is known to work slowly, five days delay for example may be deemed foreseeable. Any further delay is unforeseeable and is thus not allowed.

    Other examples from adjustment practice:

    1. The vessel entered the repair dock for class work and other owner’s work. The vessel struck the dock gate so that the bunker tank was punctured causing bunker oil to run out into the dock. The dock gate was closed in time to avoid any oil spill outside the dock. No repairs could be commenced until the bunker oil was removed from the dock. This took 15 days. The repair of the contact damage took another 10 days. Deductible was 14 days. The 15 days it took to clean the dock was deemed a foreseeable consequence of the damage and allowed under the loss of hire insurance, even if it was not the damage to the vessel itself that caused the delay. Thus 10 plus 15 days were allowed, less the deductible of 14 days, giving 11 days compensation under the loss of hire insurance.
    2. A tanker is damaged but the class does not require immediate repair and issues a Condition of Class that the repair is carried out within a certain time or at the next docking etc. Traditionally, under the general mitigation rule in Cl. 3-30 the assured must then postpone repairs and cannot opt to repair immediately at the expense of the loss of hire insurer. This tradition is challenged if the vessel for commercial reasons cannot defer repairs. It may be that the major oil companies will not charter the vessel for trade to US ports as long as there is a Condition of Class pending. If the vessel can nonetheless be employed in other trade, such a commercial restriction is no reason for the assured to repair the vessel before required by the class. But it may be situations where such commercial restriction is inflicting upon the assured loss of income so that it must be deemed reasonable to allow the assured to carry out repairs earlier than required by class.
    3. When it comes to auxiliary engines and multiple failures the typical scenario is as follows: A vessel has one auxiliary engine out of commission due to either maintenance or damage, then there is a damage to a second auxiliary engine, with consequential off-hire for repairs. There is clear practice with regard to a combination of different perils, in accordance with the Plan section 2-13, for this type of incidents. If reasonable measures have been taken to re-commission the first auxiliary engine, then the loss of hire is allocated to the latter auxiliary engine damage only. It is considered that the latter auxiliary engine damage is the triggering cause. Of course, this is provided that the Class would not allow the vessel to sail with two auxiliary engines out of operational condition. In the Nordic marine insurance practice, insurers, and the independent and sworn average adjusters, have frequently referred to and found analogous support in the NMIP 16-10, sub-clause 1.

    [3] See the 1999 Commentary page 367

    [4] This amendment of the Commentary was overlooked in error in the second edition of this book.

  3. Wholly or partially deprived of income

    The vessel is wholly deprived of income when it is unable to operate due to the damage. Normally this will correspond to the period when the vessel is physically unable to operate. If the vessel is able to operate with the damage, the situation might be that it is only partially deprived of income. Typical examples are where the vessel has to operate at reduced speed due to engine damage or the cargo capacity is reduced due to damage to the hull or damage to the cargo handling equipment. However, the terms of the contract of affreightment may put the vessel wholly off-hire even if the vessel is able to perform the services required. This will be the case if the charterparty provides that the vessel will remain off-hire under the charterparty until it is restored to its earlier condition, see 5.2.1 below.

    Where the vessel is partially deprived of income compensation is granted on a pro rata basis, see 5.3.1 below.

  4. Damage to the vessel

    Cl. 16-1 contains another fundamental principle of loss of hire insurance: there is no recovery under the loss of hire insurance unless the vessel has suffered damage recoverable under the Plan. Cl. 16-1 was amended in 2003 so that damage to the vessel covered under the actual hull insurance for the vessel may also trigger cover under the loss of hire insurance, see further under 3.6 below.  Whether the damage is recoverable pursuant to Chapter 12 or in General Average and thus recoverable under the hull insurance via Cl. 4-8, is immaterial.  In both cases, loss of time caused by the damage is recoverable under the loss of hire insurance, see the Commentary to Cl. 16-1. Total loss and constructive total loss are not considered to be damage for this purpose, see Cl. 16-2 and further comments under 4 below.

    Even if the damage was in fact not recoverable under the terms of the Plan, the requirement would nevertheless be satisfied if it would have been recoverable but for any agreed deductible. The amount of the deductible is immaterial, which means that the assured is free to agree any deducible he wants with his hull insurer without affecting his cover under the loss of hire insurance. The assured may even increase the "deductible" to 100%, that is to say the vessel may be kept uninsured without affecting the loss of hire insurance.

  5. Damage excluded from the hull cover

    There are several exceptions from cover under the Plan that may be relevant to the hull cover. The wording of Cl. 16-1 suggests that any and all of these exceptions would be relevant also in relation to the loss of hire insurance, but the Commentary to Cl. 16-1 clearly suggests that it is the objective exceptions from the hull cover contained in Chapters 10 and 12 that are relevant. This means that, if the hull insurer is entitled to refuse cover under the hull insurance on the basis of the exceptions contained in Chapter 3 of the Plan, it is necessary to evaluate separately and independently whether the same exceptions apply also in relation to the loss of hire insurance. In many instances, the exceptions will apply equally to both types of insurance. If the vessel is deemed in a poor condition in violation of applicable safety regulations in relation to the hull insurance so that Cl. 3-22 et. seq. is applicable, this will normally also apply in relation to the loss of hire insurance. 

    In relation to the duty of disclosure, Cl. 3-1, it is possible that the assured may be in breach of his duty in relation to his hull insurer while full disclosure was made to the loss of hire insurer. The fact that the assured may not recover from his hull insurer because of non-disclosure is completely irrelevant for the loss of hire insurer who has been provided with all relevant information. The same goes for change of class, see Cl. 3-8, sub-clause 2. The assured may have remembered to inform his hull insurer about a change of class, while he forgot to inform his loss of hire insurer.  Even if the damage is covered under the hull insurance, the loss of hire insurer is entitled to reject the claim if the condition for denying the claim pursuant Cl. 3-8, cf. Cl. 3-9 is satisfied, for instance if the loss of hire insurer is able to substantiate that he would not have accepted the insurance in the first place, if he had known that the assured would change class.

    Breach of the warranty of class contained in Cl. 3-14 would normally be equally relevant to both groups of insurers but, in the unlikely event that the hull insurer for one reason or another has accepted to continue the hull insurance in spite of the fact that the class is lost or suspended, does not deprive the loss of hire insurer from invoking the class warranty in order to deny any claim under the loss of hire insurance.

    These examples illustrate that these two types of insurances must be treated separately in many respects, even if they are linked together by virtue of Cl. 16-1.

    The loss of hire insurer is not bound to accept or be guided by any settlement which might have been reached between the assured and the hull insurer. The loss of hire insurer will only be responsible to the extent that the loss of hire was caused by a physical damage which would have been recoverable under the Plan, regardless of whether any settlement was reached with the hull insurer.  Any decision with respect to the loss of hire insurance issue, even if it rejects the basis for the hull settlement, will of course not affect the hull settlement per se, since the hull insurer is not party to the dispute between the loss of hire insurer and the assured.

  6. Vessels insured on foreign hull cover conditions

    The assured is free to take out loss of hire insurance on Nordic conditions and simultaneously insure the vessel on non-Nordic hull conditions. Cl. 16-1 was amended in the 2003 version to take care of this combination of insurance conditions. It is expressly provided that the loss of hire insurer must accept the non-Nordic hull conditions in writing. The reasons for this stringent and formal requirement of acceptance of foreign hull conditions in writing are two-fold:

    1. avoidance of any discussion of which hull conditions will trigger cover under the loss of hire insurance;
    2. the loss of hire insurer’s need to carry out a proper risk evaluation and quote adequate premium.

    If the foreign hull conditions have not been accepted in writing by the loss of hire insurer, the loss of hire insurance will be triggered only when any damage sustained by the vessel would have been covered under the Plan, regardless of whether the foreign hull cover on point is more extensive or restricted than the Plan.  The loss of hire insurer may deny cover because the damage to the vessel is not recoverable under the Plan.  If the cover under the Plan is the more extensive, the loss of hire insurer must compensate regardless of the assured's recovery under the actual hull cover. 

    What is written above applies to well-known standard conditions. If the assured has agreed with his hull insurer special clauses deviating from the standard conditions, such special clauses will never trigger the loss of hire insurance unless the special clauses have been expressly agreed in writing by the loss of hire insurer. The same applies, of course, equally to any special clauses agreed in a hull policy based on the Plan.

    In those cases where the loss of hire insurer has accepted the foreign hull conditions in writing, the question arises to what extent the foreign clauses and the foreign background law should be deemed incorporated into the loss of hire insurance contract. Cl. 16-1 expressly provides that only Chapters 10, 11 and 12 are replaced by corresponding provisions in the foreign hull cover. No reference is made to chapter 13 because this chapter is not relevant in this regard, as it deals with the hull insurer’s cover of collision liability.

    Consequently, only the provisions of the foreign hull conditions which are accepted in writing that correspond to chapters 10-12 of the Plan are relevant in relation to the loss-of-hire cover.

    On the one hand, this means that cover must be based on the foreign hull conditions in question insofar as they state which objects are covered by hull insurance and the scope of the hull cover in the event of damage to the ship. Furthermore, the foreign hull conditions must be followed in order to determine whether the vessel is an actual or constructive total loss. If the vessel is deemed an actual or constructive loss under the foreign hull conditions, the assured is not entitled to any compensation under the loss of hire insurance, cf. Cl. 16-2.

    On the other hand, this means that issues that are regulated by chapters 1-9 of the Plan, must always be decided based on the rules in the general part of the Plan. Coordination with foreign hull conditions is only linked to the assessment of the underlying hull damage; issues related to the loss-of-hire insurance itself, such as the rules regarding the duty of disclosure or special trading limits relating to loss of hire cover must always be decided in accordance with the Plan. If the ship is outside the trading area covered by the foreign hull insurance but within the trading area covered by the Plan, the loss of hire insurer will therefore be liable, even if no compensation is payable under the hull insurance.

    The assured may conceivably change his hull insurance in the course of the insurance period under the loss of hire insurance, for instance from Plan conditions to English ITCH conditions. In such case, the hull insurance and the loss of hire insurance must be coordinated on the basis of the hull conditions that applied when the loss of hire insurance was effected, unless the assured has notified the insurer of a change to other standard conditions and received the latter’s written acceptance of these, because the loss of hire insurer calculates the premium in relation to the hull conditions that apply at the time the loss of hire insurance is effected.

    As regards the burden of proof, the Norwegian Supreme Court has stated in obiter dicta that where the hull insurance is governed by foreign conditions, the burden of proof will also be governed by the foreign rules, cf. the "White Sea" Rt. (Law Reports) 1997 page 1459, in particular page 1464. The vessel in question was hull insured on the English ITC 1983 conditions including the Liner Negligence Clause.  The issue was whether damage to the boiler was due to wear and tear, or to crew negligence, or to accident.  In this case, the court did not actually have to apply any burden of proof rules because the facts indicated that the cause of the damage was wear and tear, which was excluded under the ITC conditions. The damage was therefore not recoverable under the actual hull conditions, which by express agreement replaced the reference to the Plan, and there was thus no claim under the loss of hire insurance.

    Unless there is an express agreement with regard to choice of law and/or jurisdiction, Cl. 1-4 of the Plan will apply since this clause is in Chapter 1 of the Plan and therefore prevails over any reference to foreign hull conditions. This means that for a Norwegian based insurer, such as Norwegian Hull Club, Norwegian law and jurisdiction will apply on the loss of hire insurance, even if the foreign hull conditions are subject to foreign law and jurisdiction.

    However, in those cases where the loss of hire policy is expressly made subject to foreign law and/or jurisdiction, the question arises whether the foreign background law should prevail over the provisions of chapters 1 to 9 of the Plan to the extent that the application of foreign law will lead to other results than those following from Chapters 1 to 9 of the Plan.[5]

    Neither the Commentary nor any other Nordic legal sources offer any solutions to this question. If the choice of foreign law is combined with a corresponding foreign jurisdiction clause, the question will be decided by the foreign court which may favour its own legal system to the provisions of the Plan. But disregarding the potential for such preferences, we venture to suggest that the foreign court should apply chapters 1 to 9 of the Plan, rather than its own background law. The reference to governing law in Cl. 1-4 is obviously not meant to set aside the provisions of chapter 1 to 9 of the Plan, but merely to supplement the contract with relevant and applicable background law where there are no solutions to the contrary in the Plan. The Norwegian ICA contains provisions on duty of disclosure, safety regulations etc. at variance with the corresponding Plan provisions, and there is no doubt that Norwegian courts must apply the Plan provisions rather than competing Norwegian law. The same must apply to foreign courts, even if the parties have agreed to apply a foreign background law. The foreign court must apply its own background law chosen by the parties only to the extent that it is not in conflict with but supplementing Chapters 1 to 9 of the Plan.

    [5] Further on the subject, see Casper M. Meland, MarIus Nr. 356, En komparativ analyse av norsk og engelsk kontraktsrett.

  7. Loss of hire in cases where there is no damage to the vessel

    Under 1.3.2, it is briefly mentioned that there has been a development towards extending the loss of hire insurance to include loss of income resulting from a grounding which does not result in damage to the vessel.  Under Cl. 16-1, sub-clause 1, and the earlier loss of hire conditions, there would be no recovery if there were no damage to the vessel.  This result was seen as unsatisfactory in those cases where the vessel was delayed because of a grounding but the assured and hull insurer were lucky enough to refloat the vessel without any physical damage. Delay may also occur because the authorities investigating the cause of the grounding will wish to satisfy themselves that the vessel is not damaged and fit for service, see the discussion under 3.2 above.

    Cl. 16-1, sub-clause 2, included loss of hire insurance coverage, without reference to the hull insurance, in three different cases. Version 2003 added a new cause of loss at letter (d), so that Cl. 16-1, sub-clause 2 now reads:

    The insurance also covers loss due to the vessel being wholly or partially deprived of income:

    1. because it has stranded,
    2. because it is prevented by physical obstructions (other than ice)from leaving a port or a similar limited area,
    3. as a consequence of measures taken to salvage or remove damaged cargo, or
    4. as a consequence of an event that is allowed in general average pursuant to the 1994 York-Antwerp rules.