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.
  1. Loss of hire due to "stranding"

    Letter (a) extends cover in those cases where the vessel has "stranded".  The word "stranded" must be read as synonymous to "grounding".  Thus cover is extended to all cases where the vessel is prevented from moving because it is stuck on the seabed, regardless of whether the vessel drifted ashore or was moving under its own power. The cause of the grounding is immaterial, as long as it is due to a peril covered under the policy, see 2 above, and the exclusions from cover in Chapter 3 do not apply. However, the Commentary to letter (a) underscores the following limitation on the perils covered:

    “To say that the ship “has stranded” means that the stranding must be in the nature of a casualty, even though there is no requirement that the stranding resulted in damage. If, on the other hand, the stranding is a consequence of “ordinary use”, for instance foreseeable stranding during navigation on a shallow river, cf. Cl. 10-3, the insurer is not liable for the loss of time”

    It is difficult to imagine that this extension of cover will result in any significant payments from the insurer because if the grounding is so light that there is no damage to the vessel, the delay will seldom reach beyond the deductible period. If the unlikely should occur, i.e. that the vessel is aground without any damage but the vessel cannot be moved, Cl. 16-2 will prevent the assured from recovering under the loss of hire insurance if the hull insurer pays out total loss compensation, see further under 4.3 below. 

  2. Loss of hire due to vessel being prevented from leaving due to physical obstructions (ice excluded)

    Letter (b) may be described as civil or marine "blocking and trapping" cover. Such cover was developed in war risk policies both to provide total loss compensation if the vessel was blocked or trapped for an extended period (12 months usually) and to compensate loss of income during the period the vessel was delayed, see Cl. 15-12 and Cl. 15-16. On the latter provision, see under 16.1 below.

    The blocking and trapping cover under Cl. 16-1, sub-clause 2 (b), is narrower than the cover under Cl.15-16. Only delays caused by physical obstructions are covered. Such obstructions may be another vessel blocking the entrance to the port after an accident, a collapsed bridge, fallen power lines, etc. The only obstruction excluded is ice. Delay caused by ice preventing the vessel from leaving the port is not covered.  However, if ice was only one contributing cause of the delay, there may be partial cover if the other cause is covered under the loss of hire insurance, see further on causation under 3.2 above.

    After the Deepsea Horizen catastrophe in the Gulf of Mexico, ports were temporarily closed due to extensive oil pollution in the port. Whether extensive pollution on the sea amounts to a “physical obstruction” is debateable. Oil on the sea will not physically prevent vessels from passing through, but if the port authorities in the port affected by the pollution do not prohibit vessels from passing through, port authorities at the next and subsequent destinations may well deny a vessel stained by oil entrance because of fear of pollution. Hence, the vessels that have to wait in port until the pollution is cleaned up are for practical and commercial reasons blocked. Thus, there are good reasons to treat extensive pollution equal to a physical obstruction in relation to Cl. 16-1, sub-clause 2 (b).

    If the vessel is prevented from entering (as opposed to leaving) a port because the entrance is blocked, the ensuing delay, loss of freight or extra costs of discharging or loading the cargo elsewhere, is not covered under the loss of hire insurance.  The market at this point of time is still not prepared to extend cover any further than to vessels blocked in port or  similar limited areas. A vessel prevented from entering a port may, of course, move freely in the physical sense, but from a legal standpoint its movements may be restricted because of its contractual obligations which may oblige the assured to keep the vessel waiting for a certain period to see whether the hindrance disappears and prevents him from taking any action to mitigate the loss until after a considerable time. Thus there is no doubt that if the vessel cannot enter a port because of a physical obstruction, the assured may suffer losses worthy of being covered by loss of hire insurance but which losses are nevertheless uninsurable under the generally available loss of hire insurance conditions.

    The words "similar limited area" are not commented on in the Commentary to Cl. 16-1, sub-clause 2 (b), other than by reference to Cl. 15-12 (war risk blocking and tapping). In 16.1 below, it is explained that the whole Arabian Gulf is deemed a "similar limited area" to a port or harbour for the purpose of Clauses 15-12 and 15-16 and it is suggested, in opposition to the Commentary that the same may apply to other gulfs and bays etc. The same extremely wide interpretation of the words "similar limited area" can not be applied in relation to Cl. 16-1, sub-clause 2. To the contrary Cl. 16-1, sub-clause 2 (b), must be read more in line with the York-Antwerp Rules' concept as a place where the vessel can be safely moored similar to when in port.

    It is probably of no importance to carry this analysis any further as the "physical obstruction" requirement will be the most important one in practice.  If the whole Arabian Gulf should be considered as a "similar limited area" per Cl. 16-1, sub-clause 2 (b), it is hardly conceivable that the entrance to the Gulf, the Hormuz-Strait, could be blocked by a physical obstruction caused by a marine peril. If there is a physical obstruction caused by a marine peril preventing the vessel from leaving an area, that should suffice for the purpose of applying Cl. 16-1, sub-clause 2 (b), and there is no need to restrict the cover further by introducing a narrow interpretation of the words "similar limited area". 

  3. Loss of hire as a consequence of measures taken to salvage or remove damaged cargo

    Letter (c) of Cl. 16-1, sub-clause 2, was new in 1996.  Time lost in removing or salvaging damaged cargo is covered by the loss of hire insurance. It does not matter whether the assured is liable under the contract of affreightment towards the cargo owner for the damaged or lost cargo, or whether he is covered under his P & I policy for such liability. But, if the assured is privy to the cargo damage in such a way that the exclusions from cover under Chapter 3 of the Plan apply, he may also have forfeited his cover under the loss of hire policy. However, this evaluation must be made separately for the loss hire insurance and, in principle, it has nothing to do with the assured's right to limitation of liability, if any, or to recovery under his P & I policy.

  4. Loss of hire as a consequence of an event that is allowed in general average pursuant to the 1994 York-Antwerp rules

    Letter (d) was added in the 2003 version and extends cover to include delay resulting from a general average situation that does not lead to damage to the ship, for instance caused by cargo shifting in bad weather. If the vessel seeks a port of refuge to avoid loss of or damage to the vessel and cargo, the deviation to the port of refuge is a general average act. The time lost due to this deviation and the time in the port of refuge used to reload or restow the cargo or take other measures to enable the vessel to continue the voyage safely will be covered under the loss of hire insurance. This corresponds with the solution under English loss of hire conditions. It may be that measures taken to salvage or remove damaged cargo go further than general average acts covered under letter (d). If so, cover may be sought under letter (c) if the condition for cover under this letter is satisfied.

    In the 2010 Commentary, the piracy example was also discussed as pirates operating from Somalia at the time hijacked a number of vessels in the Gulf of Aden and the Indian Ocean. As piracy is a war peril according to Cl. 2-9, sub-clause 1 letter d, loss of hire cover for such attacks will be discussed in 16 below.