Survey of damage, Cl. 16-8

  1. Purpose and principles

    Cl. 16-8 of the Plan reads as follows:

    The provisions of Cl. 12-10 shall apply correspondingly to this insurance.

    This section is identical to Cl. 5 of the 1972 conditions and corresponds to Cl. 5, Nos. 3 to 8, of the 1993 conditions and imposes upon the assured an obligation to notify the loss of hire insurer in ample time before repairs commence so that the loss of hire insurer can appoint his own surveyor. Some assureds seem erroneously to believe that notification to the hull insurer is enough, and present a claim under the loss of hire insurance well after completion of repairs. There are several examples in practice where the claim under the loss of hire insurance has been rejected on the ground of time bar due to late notification of the claim, cp. Cl. 5-23 of the Plan.

    During the revision of the Norwegian loss of hire conditions in 1993, it was decided to include provisions concerning the assured's duty to notify the insurer of casualties, the time-limit for notification, the duty to avert or minimise the loss and apportionment of costs in connection with settlements of claims, in spite of the fact that such provisions were already incorporated into the conditions by way of reference to Part One of the Plan. During the 1996-revision of the Plan it was agreed that, to the extent possible, the general terms and conditions of the Plan should also apply to loss of hire insurance. It was thus decided to go back to the approach of the 1972 conditions and to leave out Cl. 5 of the 1993 conditions.

    The reference to Cl. 12-10 means that when the vessel has suffered damage, the assured must notify not only the hull insurer, but also the loss of hire insurer of the casualty in order to enable also the loss of hire insurer to provide for a survey. Cl. 12-10, sub-clause 1, provides that before any damage is repaired, "it shall be surveyed by a representative of the assured and a representative of the insurer." Therefore, the assured is not allowed to commence repairs before the loss of hire insurer’s surveyor has also completed his survey on behalf of the loss of hire insurer.

    The main purpose of the surveys is to establish the cause of the damage to the  vessel, the time of its occurrence and the period the vessel is deprived of income as a consequence of the subject damage, see Cl. 16-1, sub-clause 1.

    The success in accomplishing these objectives depends to a large extent upon the experience and efficiency of the surveyor.  With regard to loss of hire surveys, the appointed surveyor should be familiar with the principles and conditions of this kind of insurance so that the necessary information is given in his survey report. Otherwise the insurer will have to ask for further clarifications from the surveyor before settling the claim, thereby causing delay.  It is also of great importance that the assured's superintendent attending the repairs is sufficiently briefed about the reason why the loss of hire surveyor is coming onboard asking questions and that the respective persons co-operate adequately.

    According to Cl. 12-10, sub-clause 2, the representatives shall submit survey reports, "in which they describe the damage and state their opinions as regards the probable cause of each individual item of damage, the time of its occurrence and the costs of repair." This is a rather brief description of what a survey report should contain and is addressed only to survey reports in connection with hull insurance. A loss of hire insurer would need additional information, see 7.1.2 below.

    The Plan is based on the assumption that the final survey reports may be submitted after the repairs of the vessel have been completed. However, if the assured is in doubt as to whether it will pay to repair the vessel, it may be in his interest to receive a more detailed description of the damage before the repairs commence. Sub-clause 3 of Cl. 12-10 therefore gives both parties the right to demand that preliminary reports be submitted with approximate estimates of the repair costs.  Since each of the parties is free in any event to instruct its own surveyor to submit a preliminary report, the provision can only be understood as giving each of the parties the right to request a preliminary report from the other party's surveyor. 

    Whilst the 1930 Plan required a judicial survey to be conducted unless the parties in each case agreed on a private survey, the 1964 Plan introduced a private survey as the normal procedure, which procedure has been maintained in the previous Norwegian 1996 Plan (all versions) and the current Nordic Plan, 2013 and 2016 versions. A public survey ("judicial or other legal valuation") of the damage may only be conducted where mandatory rules of law of the relevant country make this necessary, see sub-clause 5 of Cl. 12-10.

    The conclusions drawn in the survey reports are not binding on the parties in the claims settlement, but they will obviously be of great significance. The surveyors' opinion as to when and how each item of damage occurred will, therefore, for practical purposes be decisive for the question of compensation unless there are good reasons to contest the conclusions in the survey reports.

    If the two appointed surveyors cannot reach an agreement regarding specific questions, the parties may appoint "an umpire who shall give a reasoned opinion of the questions submitted to him," see sub-clause 4 of Cl. 12-10. Like the parties' surveyors, the umpire shall make no binding decision regarding the matters in question, but his opinion will obviously carry great weight as evidence in the event of subsequent litigation. If the parties fail to reach an agreement as to the appointment of an umpire, he shall be appointed by one of the Nordic average adjusters, compare also Cl. 5-5.

    As opposed to the 1930 Plan, the right to claim compensation is not considered waived if the assured has the damage repaired without a prior survey. Sub-clause 6 of Cl. 12-10 provides that this will only affect the assured's burden of proof.

    If the assured, without compelling reasons, has the ship repaired without any survey being held or without notifying the insurer of such survey, he has (in addition to the burden of proof under Cl. 2-12) the burden of proving that the damage is not attributable to causes excluded from the cover by specific exceptions (e.g. inadequate maintenance etc., see. Cl. 12-3) or that the damage did not arise during an earlier insurance year. The Commentary to Cl. 12-10, sub-clause 6 emphasises that the assured is required to notify the insurer, i.e. also the loss of hire insurer, well in advance of the time and place of the repairs so that he can take appropriate measures to survey and assess the damage and the ensuing period of loss of hire. Late notification must be “equated with making repairs without giving the insurer the opportunity to survey the damage”.

    Far too often, the assured fails to notify the loss of hire insurer of the damage and carries out repairs without complying with his duties according to Cl. 16-8, cf. Cl. 12-10. Apart from the “sanction” of the burden of proof shifting under Cl. 12-10, sub-clause 6, the assured may also risk that his claim under the loss of hire insurance is barred pursuant to Cl. 5-23 if more than six months has elapsed since the damage or casualty occurred before the claim under the loss of hire insurance is made. For one reason or another assureds tend to believe that notification to the hull insurer is sufficient with the result that their claim under the loss of hire insurance may be barred.

    Another potential disadvantage for the assured by failing to notify also the loss of hire insurer about the casualty is that his claim for interest pursuant Cl. 5-4, sub-clause 1, last sentence may be suspended according to Cl. 5-4, sub-clause 2 if the adjustment of the claim under the loss of hire insurance is delayed due to the failure to notify the loss of hire insurer.

  2. Survey reports

    According to Cl. 16-1 of the Plan, see under 3.4 above, it is a basic condition for the loss of hire insurer's liability that the loss of income is a consequence of damage to the vessel which is recoverable under the specified hull conditions or which would have been recoverable if no deductible had been agreed. This means that when the vessel has suffered damage, hull survey reports will normally be submitted. Nevertheless, the loss of hire insurer will normally obtain separate loss of hire survey reports, hence it is essential that he is notified in time.

    Hull survey reports will normally contain: information about the nature of the casualty and the voyage; the time of occurrence; reference to the relevant documents and other information which has been available to the surveyor; a description of the casualty which, in the surveyor's opinion, gave rise to the damage; a description of the damage attributable to the casualty; reference to any disputes with regard to the damage;  a detailed specification of all repairs effected and the actual cost of each item (including information about deferred repairs and temporary repairs);  information about the use of spare parts, overtime, work not concerning the insurer; common expenses; and such other information as the nature of the casualty makes it natural to include.

    Loss of hire survey reports must in addition provide necessary details regarding the time lost due to "the vessel being wholly or partially deprived of income as a consequence of damage to the vessel."

    Time lost at the place of the accident, slow-steaming, removal to/from the repair yard, tank cleaning, waiting time, engine- and sea trials etc. must be specified individually and separately from the repair time. The time required for the damage repair, if carried out separately, must be stated. The time lost must be specified in days, hours and minutes, see Cl. 16-4. If assureds' repairs are carried out simultaneously with damage repairs, it is necessary to state the total time required for all assured's repairs, if carried out separately, and the time required for such assured's repairs which were either carried out to fulfil classification requirements (due or not due), or necessary to meet technical and operational safety requirements for the vessel including cargo carrying ability, or associated with reconstruction, see Cl. 16-12.

    The main concern for the loss of hire insurer is to get a detailed picture of the cause of the casualty, the extent of the repair period and other periods lost due to the casualty, in order to be able to assess whether the loss is covered under the insurance.

    In order to accomplish this, the loss of hire insurer would normally have to require the assured to provide some particulars and documents in addition to the survey reports. The assured is obliged to provide the insurer with such information and documents as are available to him and are required by the insurer for the purpose of settling the claim, see Cl. 5-1, sub-clause 1.

    In most cases the following documents/information will be required in support of the assured's statement of claim:

    1. the Master's and the Chief Engineer's reports on the casualty.

    2. the report of the assured's Superintendent, if any.

    3. extracts of the deck and/or engine log books.

    4. if the ship is on time charter, a copy of the charterparty and the charterer's off-hire statement showing the period off-hire and the corresponding charterer hire deduction.

    5. the Class Surveyor's report.

    In the event of an open policy or if the case is complicated, additional documents and information may be required by the insurer.

    If the assured, intentionally or through gross negligence, fails to fulfil his duties to provide particulars and documents, the insurer is only liable to the extent he would have been liable if the assured had fulfilled his duty, see Cl. 5-1, sub-clause 2. If the assured has acted fraudulently, the insurer is free from all liability and may terminate the insurance contract, see Cl. 5-1, sub-clause 3.

  3. Time lost during survey

    Subject to the rules concerning the sharing of common time with the assured or other damage repairs, the time lost for surveys will be included in the calculation of the total indemnity.

    Sub-clause 3 of Cl.16-10 provides that time lost to carry out surveys is to be treated in accordance with the rules regarding time lost during removal to a repair yard, set out in sub-clauses 1 and 2 of Cl. 16-10, see 7.3 below.  This means that time lost to carry out surveys shall be attributed to the category of work that necessitated the surveys.  It also means that, if surveys were necessary for more than one category of work, the apportionment rule in sub-clause 2 shall be applied.