Trading area

The provision regarding trading area is set out in Cl. 3-15, and may limit or exclude the assured's right to compensation under his loss of hire insurance. The clause was amended in 2016.

Cl. 3-15 reads:

The ordinary trading area under the insurance comprises all waters, subject to the limitations laid down in the Appendix to the Plan as regards conditional and excluded areas. The person effecting the insurance shall notify the insurer before the ship proceeds beyond the ordinary trading area.

The insurer may consent to trade outside the ordinary trading area and may require an additional premium. The insurer may also stipulate other conditions which shall constitute safety regulations, cf. Cl. 3-22 and Cl. 3-25, sub-clause 1.

The vessel is held covered for trade in the conditional trading areas, but if damage occurs while the ship is in a conditional area with the consent of the assured and without notice having been given, the claim shall be settled subject to a deduction of one fourth, maximum USD 200,000. The provision in Cl. 12-19 shall apply correspondingly. If claims arising out of ice damage are a result of the assured’s failure to exercise due care and diligence, further reduction of the claim may be made based on the degree of the assured’s fault and the circumstances generally.

If the insurer has been duly notified in accordance with sub-clause 1 of trade within the conditional trading areas, the insurance remains in full force and effect, subject to compliance with conditions, if any, stipulated by the insurer. 

If the ship proceeds into an excluded trading area, the insurance ceases to be in effect, unless the insurer has given his consent in advance, or the infringement was not the result of an intentional act by the master of the ship. If the ship, prior to expiry of the insurance period, leaves the excluded area, the insurance shall again come into effect. The provision in Cl. 3-12, sub-clause 2, shall apply correspondingly. 

Reference is made to the Commentary to Cl. 3-15. The trading area is wordwide except the so called conditional and exclusive trading areas defined in the Appendix to the Plan and illustrated by maps.

According to sub-clause 1, the person effecting the insurance is obliged to notify the insurer in advance if the vessel is to trade outside the ordinary trading area and enter one of the conditional or excluded areas. Sub-clause 2 expressly provides what may seem obvious and which was implied in the previous versions of the Plan, that the insurer may consent to trade or voyages outside the ordinary trading area and may make his consent conditional upon payment of higher premium to reflect the potentially higher risk. The insurer may also impose other conditions such as higher deductible, compliance with relevant safety regulations etc. Sub-clause 4 is new in 2016 and emphasises that the assured is fully covered if he has complied with his duty to notify the insurer of trade in the conditional areas and all the conditions for the consent to the trade set by the insurer.

Even if the assured has failed to notify the insurer of trade in one of the conditional trading areas, he is still held covered according to sub-clause 3, but subject to an extra deduction of one fourth of the claim, maximised to USD 200,000. The reason behind this particular deduction is to avoid the assured speculating at the insurer’s expense by not giving notice of trading in the conditional areas until after damage to the vessel has actually occurred. Notice must be given separately to the loss of hire insurer. Notice to the hull insurer is not enough, as these two insurers are completely independent, cp. under 3.5 above. The per-casualty reduction is to be calculated as per Cl. 12-19.  The deduction applies separately to the loss of hire insurance and shall not be apportioned with the hull insurer. The assured is also obliged to pay the extra premium the insurer would have required if he had been duly notified in advance. This applies regardless of whether any damage did occur while sailing in the conditional area, but in practice it may be difficult for the insurer to discover the breach of the trading area if there is no damage. But modern technology has made things easier for the insurers as they may trace the movements of the portfolio of vessels insured, if they so wish.

It should further be noted that the deduction is subject to the assured having expressly consented to the vessel trading in the conditional trading areas. If the vessel proceeds beyond the ordinary trading limit and into the conditional trading areas due to, e.g. navigational error, the insurer cannot request a reduction as per Cl. 3-15, sub-clause 3.

Sub-clause 5 provides that if the vessel proceeds into an excluded trading area, the insurance will be suspended unless the insurer has given his prior approval for the vessel to proceed into such area or unless the vessel proceeded to such area in order to save human life or to salvage ship or goods, Cl. 3-12, sub-clause 2. On the other hand, if sailing into an excluded trading area was not intentionally made by an act of the vessel’s master, the insurance cover will not be suspended. The insurer has the right to make his approval of the vessel sailing into an excluded trading area conditional upon increased premium or other conditions, e.g. longer deductible period etc. As soon as the vessel leaves the excluded trading area, the ordinary insurance comes into effect again.