Subrogation in claim against other insurers or general average

As explained under 9.1, Cl. 16-16 sets aside Cl. 2-7 and introduces the principle of Cl. 5-13 instead. Cl. 16-16 reads:

The rules as to subrogation in Cl. 5-13 of the Plan shall apply correspondingly to:

  1. the assured's right to claim compensation for loss of time and operating costs during removal to a repair yard under Cl. 12-11 or Cl. 12-13 of the Plan, or equivalent provisions in other conditions applicable to the ship’s hull insurance, and

  2. any right the assured might otherwise have to claim compensation for his loss from any other insurer or in general average.


This provision corresponds to Cl. 13 of the 1972/1993 conditions.

Under 7.2.3 above, it was explained that the hull insurance offers a true loss of hire cover for time lost in obtaining tenders.  The hull insurance covers time so lost in excess of ten days. The same period of loss of time compensated by the hull insurer may also be covered by the loss of hire insurer. Letter (a) of Cl. 16-16 provides that the loss of hire insurer shall be entitled to full recourse against the hull insurer for loss of time which is payable by the hull insurer pursuant to Cl. 12-11, sub-clause 2. While the hull insurer's liability during the excess period is fixed at 20% per annum of the agreed insurable value, the loss of hire insurer may be liable to pay any loss of hire exceeding such amount, if recoverable pursuant to Clauses 16-5 or 16‑6.

The same goes for the partial cover of operating costs compensated by the hull insurance pursuant to Cl. 12-13, sub-clause 1. The reason that the loss of hire insurer has full recourse against the hull insurer for these costs is that the assured will be compensated twice if he recovers both loss of hire and operating costs. The lost income compensated by the loss of hire insurer is not the net profit of the assured, but the gross income. It would be a windfall profit for the assured if the loss of hire insurer were not entitled to recover the operating costs compensated by the hull insurer.

However, it must be evaluated on a case by case basis whether there would in fact be any such windfall profit for the assured. If not, there is no reason for any recourse or deduction by the loss of hire insurer. In the most common cases where the daily amount is agreed at an amount without any specification as to which items are covered, the daily amount is normally intended to compensate the gross income less saved variable costs. If so, there will be a windfall profit for the assured, if he should both get the agreed daily amount and the compensation from the hull insurer according to Cl. 12-13, sub-clause 1 for costs of removal of the damaged vessel to the repair yard.

In some cases, the hull insurer compensates wholly or partly crew wages if they participate in the damage repairs. This is so, for example, under German hull conditions. According to Cl. 12-5 (a) of the Nordic Plan, ordinary crew wages are not covered during repairs unless otherwise specially agreed. Such special agreement is rather common these days as the insurer acknowledge that it may also be beneficial for the hull insurer to let the crew carry out repairs that do not need to be carried out at a yard or by expert repairers.  Overtime paid to the crew participating in damage repairs is normally covered by the hull insurer. In many cases it may be difficult to distinguish between ordinary crew wages and overtime, which cause the hull insurer to agree to pay all the crew wages (ordinary as well as overtime) for those participating in the damage repairs. Also in these cases the loss of hire insurer will have recourse against the hull insurer according to Cl. 16-16 (a), if there will, otherwise, be a windfall profit for the assured. However, the hull insurer’s compensation of mere overtime to the crew participating in damage repairs, will normally not entitle the loss of hire insurer to any recourse against the hull insurer, as overtime is not comprised within the daily amount unless expressly agreed.

Cl. 16-16 deals with recourse, not with priority[25]. The assured may thus always claim the total time lost from the loss of hire insurer and leave it to the loss of hire insurer to seek recourse from the hull insurer.  However, to the extent that any loss of time has already been compensated by the hull insurer, such amount should be set off against the assured's right to compensation from the loss of hire insurer, see the Commentary to Cl. 16-16. The same follows from Cl. 2-6.

Letter (b) of Cl. 16-16 is probably superfluous insofar as the assured's claim in general average is concerned. Cl. 5-13 would have been applied on such claims at any rate, cp. the 1972 Commentary, page 71.

Operating costs such as victualling, crew wages may be allowable in general average and, if so, the loss of hire insurer should be subrogated to these claims for the same reason as explained above with regard to Cl. 12-13 claims on the hull insurer.

For all practical purposes, a loss of time claimable from insurers other than the hull insurer is a claim against a liability insurer. This may be the liability insurer of another vessel or another tortfeasor. Such claims would at any rate be subject to Cl. 5-13, se under 9.2 above, if there is a right of direct action.

However, in addition to a loss of hire insurance, the assured may have taken out separate, freight risk insurance covering a voyage freight. If so, there is a double insurance, and the loss of hire insurer will have full recourse pursuant to letter (b).



[25] Cl. 16-11, on the other hand, expressly provides in effect that for any overlap between the hull insurance and the loss of hire insurance with regard to costs of preventive measures covered by the loss of hire insurance, the loss of hire insurance is subsidiary to the hull insurance.