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.