Hull insurer's cover of loss of hire elements

As mentioned in 7.2.2 above, hull conditions on the basis of the Plan have traditionally also covered some elements of loss of time, and this tradition has been maintained in the Nordic Plan, see Clauses 12-7, 12-8, 12-11, 12-12 and 12-13.

The basic provision is Cl. 12-12, which deals with the choice of repair yard for hull insurance. Sub-clauses 1 and 2 thereof read as follows:

The tenders received shall, for the purpose of comparison, be adjusted by the costs of removal being added to the tender amount.

The assured decides which yard shall be used, but the insurer's liability for the costs of repairs and the removal is limited to an amount corresponding to the amount that would have been recoverable if the lowest adjusted tender had been accepted, with an addition of 20% p.a. of the agreed insurable hull value for the time the assured saves by not choosing that tender.

Cl. 12-12 is identical to § 183 of the 1964 Plan and is based on the view that the hull insurer shall show a certain consideration for the assured's interest in having the ship repaired at a yard which is more expensive, but works fast, thereby reducing the loss of time.

Cl. 12-12 allows the assured to charge to the hull insurer the extra cost of more expensive but quicker repairs, up to an amount equal to 20% p.a. of the agreed hull insurable value for the time saved by the assured accepting the more expensive tender.  This limit is equivalent to 0.55 per mille per day (24 hours). The 20% p. a. formula may seem rather arbitrarily chosen, but the daily amount or daily rate arrived at by this method was at the time deemed not to be widely off the earning capacity of the various types of vessel in a long term perspective. A vessel with a hull valuation of USD 20 mill. will pursuant to this formula be deemed to have an earning capacity of USD 11,000 per day (24 hours). Whether the 20% p.a. formula has been adequate during the period since 1964 has not to the writer’s knowledge been subject to any research.

Under the rules of Cl. 12-7 concerning temporary repairs and Cl. 12-8 concerning costs incurred to expedite repairs, the hull insurer is liable for the entire cost of temporary repairs when permanent repairs cannot be carried out at the place where the ship is situated, while the cost of temporary repairs in other cases and cost incurred to expedite repair work are covered within the 20% p.a. formula for the time that is saved for the assured. These provisions are based on the assumption that any excess cost incurred to save time will be covered by the loss of hire insurance so that the assured can also recover those costs that are not covered by the hull insurer, see Cl. 16‑11, which has been further addressed under 12 below. [18]

Cl. 12-11 (concerning invitations to tender in relation to hull insurance), sub-clause 2, reads:

If the time taken to obtain tenders exceeds ten days as from the date the invitation to submit tenders is sent out, the insurer is liable to compensate the loss of time at the rate of 20% p.a. of the agreed insurable hull value during the excess period.

This is actually a true loss of hire compensation covered under the hull insurance, as opposed to cover of extra expenses and costs incurred to save time.

Even if an invitation to tender from several yards is primarily in the interest of the insurers, it is a normal and proper procedure to invite tenders in connection with the repair of major damage. The assured must thereby in any event accept a certain delay in connection with the submission of the tenders. For this reason, it has been established that the hull insurer's liability for loss of time due to invitation to tender takes effect only after 10 days as from the date the invitation is sent out. The hull insurer's liability is limited to the 20% p.a. formula during the excess waiting period. The Commentary to Cl. 12-11 emphasises that there must be causation between the fact that tenders are being invited and the loss of time. If all the relevant repair yards are busy so that the vessel will have to wait at any rate, the invitation to tender will not have caused the assured any loss.

Also Cl. 12-13, sub-clause 1, which deals with the costs of removal of the ship to the repair yard, establishes that the hull insurance provides a limited cover of the assured's loss of time.  The removal of the ship to the repair yard constitutes part of the repairs. The hull insurer must therefore cover the costs of removal, including inter alia the cost of bunkers, any necessary towage, and canal and port expenses.  However, the assured has also a limited cover of his loss of time during the removal, in that the hull insurer is liable for the wages and maintenance of the "necessary crew" during the relevant period of removal of the ship.  "Necessary crew" means crew which are required for the removal of the ship and includes the maritime crew, whilst hotel and shop staff on a passenger liner will normally not be covered.   It should also be noted that the wages and maintenance costs which the assured saves through the fact that the removal places an employed ship in a more favourable position, must be deducted, see Cl. 12-13, sub-clause 1, second sentence.

Otherwise reference is made to 7.3 below concerning the loss of hire insurer's cover of the time lost during removal to the repair yard.

[18] It is worth noting that the hull insurer in certain circumstances assumes all cost incurred to save time if the damage cannot be repaired within a reasonable time, so called “unrepairability”. The Commentary to Cl. 12-1 has introduced the concept of “unrepairability” where it is stated:

”Regardless of whether the repairs are carried out with used or new parts, it is a prerequisite that the part is obtainable within a reasonable period of time. The question as to what is “a reasonable period of time” must be decided on a case-to-case basis depending on the type of ship and the place of repairs. If the part cannot be obtained within a reasonable period of time, this means that there is a situation of “unrepairability”, and the insurer must cover new and/or more expensive parts to the extent that this is necessary. If the waiting time is not so long as to entail unrepairability, the use of new parts in order to save time may have to be regarded as a cost in order to expedite the repairs according to Cl.12-8.”

In some cases there have been very long delivery times for required new parts. Delivery times of up to nine months have been experienced in some cases. However, by incurring extra expenses to the yard, manufacturers or other third parties, the delivery time has been shortened considerably. In some cases the manufacturer has, with or without justification, operated with a ”flexible” price system. The earlier the delivery, the higher the price. Another creative solution may have been to take parts from sister vessels under construction or in operation and pay a compensation for this swap. There have also been cases where a competitor has possessed the required parts in storage and has charged a rent or hire for the part until it has been replaced by a new part as soon as this could be delivered. If the concept of ”unrepairability” has been deemed satisfied, then hull insurers have paid such hire as part of the, under the circumstances, ”reasonable costs of repair”. It goes without saying that the borderline here is very difficult to draw, and a wide discretionary power is vested with those who draw up the adjustment or decide in the final instance, whether it be the courts, arbitrators or independent adjusters with whom the parties have left the final decision.