003) marine insurance covers hull

Hull & Machinery insurance
Large values on one keel

What are the owners insurable interests in his
vessel – in depth……
• The capital (asset) interest
• Potential legal liabilities
• Income interest

Asset capital:
H&M, Hull interest and Builders Risk, Mortgagee
interest insurance
Income Loss:
Loss of Hire, Freight Interest
Third Party Liability:
P&I, H&M

The different marine insurance covers
• In this section, we will look at different marine insurance
covers. Both English and Norwegian covers.
• There are a number of different covers available in the
different markets
• We will, in the course, focus on H&M cover, P&I, Loss of
Hire and Cargo insurance as well as war cover

The H&M Cover
The three sets of Clauses most commonly used today are
1) The Norwegian Marine Insurance Plan 1996, Version 2003 (the
Plan),
2) The English Institute Time Clauses Hulls 1/10/83 (ITCH) and
3) The American Institute Hull Clauses (June 2,1977).

The English clauses
The English Clauses have also been issued in newer
versions that are not widely used, but the newest version
known as the International Hull Clauses 1/11/03 (IHC)
appears to have won some support and may be a substitute
for ITCH in the future. The 1.11.95 version is not often
used

ITCH, the IHC and the American Conditions:
-Provide cover on a named perils basis (the assured must prove
that the loss or damage was caused by one of the insured perils),
but are usually supplemented by an Additional Perils or Liner
Negligence clause.
With this clause added, the ITCH, the IHC and American Conditions
will cover nearly all losses that might arise in practice and which are
covered by the Plan

ITCH
• The ITCH 1.10.83 were the first of the modern
comprehensive forms issued by the UK insurance
market for the insurance of ships, all previous issues
of Institute Time Clauses were designed for
attatchment to the Lloys S.G form
• The insurance is subject to English Law and
jurisdiction

Clause 1 - Navigation
• The clause makes it clear the vessel is covered at all
times, including while sailing or navigating with or
without pilots, undertaking trial trips and rendering
assistance to other vessels or crafts in distress.
• Note that it is warranted it shall not be towed unless to
a safe place
• Customary towage is OK

Clause 2 - continuation
• Self explanatory…..

Clause 3 – Breach of warranty
• This clause provides for the breach of certain
specified warranties to be held covered, subject notice
be given to underwriters immediately after receipt of
advices and any amended terms and additional
premium being agreed.

Clause 4 - Termination
• The cover may be terminated subject the events in
clause 4
• Change of class and ownership represents major
changes and will lead to termination of insurance
policy

Clause 6 – Perils insured against
• Note that the English cover is on a ”named Perils
basis”.
• The loss must be proximately caused by the peril
insured against
• Although attempted over the years, nobody has come
up with a complete definition of the expression ”perils
of the sea”. Must be an element of fortuity.
• Also losses incurred by exinguishing fires are covered

Further on clause 6
• Violent theft – must be somebody outside the vessel.
Violence against a person is not neccessary, it is
sufficient if the thieves have perpetrated violence
towards property during the act.
• Jettison – normally cargo subject to such, but if the
vessel is damaged as a result of such, it is covered by
this provision

Further on clause 6
• Piracy – includes persons plundering indiscriminately
for their own ends and not persons simply operating,
albeit illegally, and criminally, against the property of a
particular state for a particular end. Includes also
passengers who mutiny and rioters who attack the
ship from ashore
• Nuclear – contamination on a vessel by material
escaping from an installation f.inst

Further on clause 6…
• Contact with aircraft etc….this is relatively self
explanatory
• Earthquake etc…..f.inst a vessel covered in dust after
a volcanic eruption
• Loading, discharging etc..Note that it is only loss or
damage caused by the accidents in the operation that
is covered and not damage suffered by the vessel in
consequence of the nature of the cargo loaded

Further on clause 6….
• Bursting of boilers…Only consequential losses
covered and not the cost of repairing or replacing the
latent defect itself
• Negligence of Master, Crew etc..Defined as ”the
omission to to something which a reasonable man,
guided by those considerations which ordinarily
regulate the conduct of human affairs would do, or
doing something which a prudent and reasonable man
would not do.

Further on clause 6
• Barratry – includes not only every type of fraud and
malfaesance deliberately committed by the master and
crew for the reason of benefitting themselves but also
every wilful act on the part of the master and crew of
illegaticity, corruption or criminal negligence, whereby
the shipowner or charterers are prejudiced

The exception for want of due
diligence…
• Whether due diligence has been observed is a
matter of fact
• Note also that the exclusion only applies to the perils
set out in Clause 6.2 and does not apply to claims
that can be brought within the perils enumerated in
6.1

Clause 7 – pollution hazard
• The clause is subject to an important due diligence
proviso. The assured, managers or owners must be
active in attempting to prevent or minimise the
pollution hazard

Clause 8
• This is the ¾ collision liability clause
• Note, under the Norwegian Plan there is a 4/4 cover
• This is known as the RDC Clause
• Limit of liability – sum insured

Collision cover:
The Plan covers 4/4ths collision liability and liability which is a
result of striking fixed and floating objects (RDC - Running
Down Clause and FFO -Fixed and Floating Objects)
The ITCH and IHC covers 3/4ths RDC but not FFO (IHC have
an optional 4/4ths RDC and FFO cover).
The American Conditions cover 4/4ths collision liability but not
FFO.

Clause 9
• Deals with collisions between sisterships. If the two
vessels are under the same management there is no
tortous liability between the two ships due to the fact
that a person cannot bring an action against himself

Clause 11 – General Average and
Salvage
• States that the vessels contribution in such are
covered.
• YAR is stipulated

Clause 12 – Deductible
• The size of the deductible is decided in the Policy
• Note, one deductible per claim

Clause 14
• Note there is no deduction new for old. This even
though there may be an element of betterment

Types of losses covered:
• Damage
• Total loss
• Collision liability

Total loss:
An actual total loss is when the vessel is lost or
beyond repair
According to MIP, there is a
constructive total loss if the repair cost
exceeds 80% of the value of the vessel
ITCH has a 100% rule
Also, abandoned and missing vessels

Particular Average/ Damage
•Main rule – The vessel must be repaired
•(Different under English cover)
•Liability arises as and when the repair costs are incurred
•The ship shall be restored to the same condition as it was
before the damage occurred. Advantages may lead to
reduction in compensation under the Plan
•”New for old”

Payment of claims:
Under the Plan (§ 12-2) the assured cannot claim compensation for
unrepaired damage unless ownership of the vessel has passed from
the assured (normally by sale). The main rule is to have repair costs
covered when repairs occur.
Under ITCH (Cl. 18) and IHC (Cl. 20) the assured may claim for
unrepaired damage at the termination of the policy (but not in the
event of a subsequent total loss sustained during the policy period).

Value adjustments
• Shipping market fluctuations and other elements may induce the
owner to request a change in the agreed value during the course
of the policy period. The insurer must then recalculate or adjust
the rate according to internal guidelines.
• The hull value may also be decreased
• The basic principle behind value ajustment in hull insurance is
that the premium is adjusted only for the portion of total loss. This
is because market fluctuations do not affect the damages.

The insurers maximum exposure:
• The sum insured per ocurrence or event
• The total exposure is important when setting the premium
as well as for reinsurance purposes

The Norwegian Marine Insurance Plan
The current Norwegian Marine Insurance Plan was issued in 1996,
the seventh in the line since 1871. After 1996, the Plan of 1996 has
been issued in several versions, and the 2003 version is the latest
(Norwegian Marine Insurance Plan of 1996, version 2007).
The Plan is drafted by a committee, represented by independent
legal and technical experts and representatives from insurers and
shipowners. It is an ”agreed document”.
Cover is on all-risk basis, with named exclusions.

Main differences between the
conditions
All-risk vs Named Perils:
The extent of cover is more or less the same, whether you are covered by ”included
perils” or everything unless it is excluded. However – there are some differences in
cover and handling of claims:
1. The unthinkable can happen! Not included in a named peril clause, not excluded in
an ”all-risk” cover.
2. Burden of proof. The Assured has to prove it is named, whilst the Insurer must prove
it is excluded.
3. Insurers must be more involved in survey and claims handling under ”all-risk” cover.
l

Warranties
Norwegian law do not recognise the elevation of a contractual term,
however material and causative, to any special status akin to the English
insurance warranty. The Norwegian Marine Insurance Plan does not
therefore make any mention of a “warranty”.
The only provision close to a “warranty” is paragraph § 3-14.Loss of class
or change of classification society, where the insurance terminates in the
event of a loss of class or change of classification society, unless the
insurer explicitly consents to a continuation of the insurance contract.
For other breaches of terms inserted into the contract (whether they be
warranties or not) would only entitle the Insurers to avoid liability in whole
or in part if, or to the extent that the breach were both material and
causative.

Perils covered - NMIP
Particular Average
§ 2-8. Perils covered by an insurance against marine perils
An insurance against marine perils covers all perils to which the interest may be
exposed, with the exception of:
(a) the perils covered by an insurance against war perils in accordance with §2-9,
(b) intervention by a State power. A State power is understood to mean individuals or
organisations exercising public or supranational authority. Measures taken by a
State power for the purpose of averting or limiting damage shall not be regarded as
an intervention, provided that the risk of such damage is caused by a peril covered
by the insurance against marine perils,
(c) insolvency,
(d) release of nuclear energy

The insurance cover: a) vessel,
b) equipment/spares on board
c) bunkers and lubrication oil on board
The insurance does also cover objects temporarily removed from the ship in connection with the
running of the ship or on account of repairs, reconstruction or similar work, provided that the
objects are intended to be put back on board before departure.
In addition to the above, the Hull and Machinery insurance cover the ships contribution in General
Average, Collision Liability and Salvage award (up to the insured amount stipulated in the policy).
HULL AND MACHINERY

§ 2-11 Causation. Incidence of loss
The insurer is liable for loss incurred when the interest insured is struck by an
insured peril during the insurance period.
A defect or damage which is unknown at the inception or on expiry of an
insurance, and which later on results in a casualty or an extension of the
damage to other parts, shall be deemed to be a marine peril which strikes the
ship at the time the casualty or damage to other parts occurs, or at such
earlier time as the defect or the first damage became known.
The insurer has the burden of proving that the loss is caused by a peril that is
not covered by the insurance, unless other provisions of the Plan provide the
contrary
HULL AND MACHINERY

The H&M cover under the Norwegian Marine Insurance Plan is an “All risk” cover. In general
all perils are covered except the exclusions specified in the Plan. The most important
exclusions are losses caused by:
• WAR RISK
• INSOLVENCY
• UNSEAWORTHINESS
• BREACH OF SAFETY REGULATIONS
• DAMAGE CAUSED INTENTIONALLY BY THE ASSURED
• GROSS NEGLIGENCE BY THE ASSURED
• LOSS DUE TO ORDINARY USE
• INADEQUATE MAINTENANCE, WEAR AND TEAR
• ERROR IN DESIGN, FAULTY MATERIALS – With exceptions
HULL AND MACHINERY

OBJECTS NOT COVEREDOBJECTS NOT COVERED
NMIP, § 10-1NMIP, § 10-1
The insurance does not cover:
a) supplies, engine and deck accessories and other articles
intended for consumption,
b) boats and equipment used for fishing or whaling,
c) loose objects intended for securing or protecting the cargo,
d) loose containers intended for carriage of cargo.
HULL AND MACHINERY

LOSSES THAT ARE NOT RECOVERABLELOSSES THAT ARE NOT RECOVERABLE
NMIP, § 12-5NMIP, § 12-5
• Crew wages and maintenance and other ordinary expenses, unless specially
agreed.
• Expenses of shifting, storing and removal of cargo.
• Accommodation of passengers.
• Objects which normally are replaced several times during the life time of
the vessel and which are used for mooring, towing etc.
• Zinc, aluminium and magnesium slabs/anodes and the like.
• Loss due to lubricating oil, cooling water or feed water becoming
contaminated, unless proper measures were taken as soon as possible.
HuLL AND MACHINERY

COSTS THAT ARE NOT RECOVERABLECOSTS THAT ARE NOT RECOVERABLE
• 50% of Electricity / Power50% of Electricity / Power
• Costs to remove ordinary garbage.Costs to remove ordinary garbage.
• Fresh water.Fresh water.
• Gangway watch (fire watch during welding/hot work is covered).Gangway watch (fire watch during welding/hot work is covered).
• Cooling water.Cooling water.
• 2/3rds of wages and maintenance of crew during gas-freeing if no2/3rds of wages and maintenance of crew during gas-freeing if no
detailed time-schedule is shown.detailed time-schedule is shown.
• Maintenance of crew, with the exception of hotel invoice, if crew cannotMaintenance of crew, with the exception of hotel invoice, if crew cannot
stay onboard during repairsstay onboard during repairs
HULL AND MACHINERY

NMIP, § 12-1: Main rule concerning liability of the
insurer
 Insurer is liable of restoring the vessel to the
condition it was prior to the occurrence of
damage.
 Liability arises as and when repair costs are
incurred (“indemnity policy”).
 If repairs results in improvement, deduction to
be made for any additional cost caused
thereby.
INSURER’S LIABILITY

NMIP: (§ 5-23 & §12-11)
Six months’ time limit for notice of known claims. Commences from the time the assured, the
master or the chief engineers got actual knowledge of the casualty.
Two years from date of casualty for unknown claims except underwater damage. (Until next
docking).
The underwriters can demand to take tenders, and will compensate with 20% p.a. of the hull
value for the delay in excess of 10 days. 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 hull valuation for the time the assured saves by
not choosing that tender.
There is no deduction of the ascertained claim if the Assured fails to follow the notification
provisions, but the burden of proof will be on the Assured unless Underwriters are invited to
survey.
NOTIFICATION AND TENDERS

Collision liability
Collision and Third party damage is covered under the Norwegian Hull &
Machinery policy (Chapter 13 in the Plan). However, the Insurers are not liable for:
• Liability arising while the ship is engaged in towing, or caused by towage, unless
this takes place in connection with salvage operation.
• Liability for personal injury or loss of life.
• Damage to or loss of cargo or any other loss suffered by passengers or crew on
the insured ship.
• Liability to charterers or others who have an interest in the insured ship.
• Liability for pollution damage – and damage caused by fire or explosion caused
by oil/liquid etc. However, damage to the other ship with equipment is covered.
• Liability for loss caused by cargo or bunkers after grounding or striking against
ice.
• Liability for damage or loss caused by the use of anchor, mooring and towing
gear, loading and discharging pipes, gangways and the like.
• Wreck removal of the insured ship and for obstruction to traffic

General Average and Salvage
General Average Contribution:
ITCH: Covered, subject to deductible. Possible reduction for under-insurance.
No standard absorption clause.
NMIP: Covered without any deductible. No reduction for under-insurance.Standard
absorption clause in NMIP.
Salvage costs:
ITCH: Covered, subject to deductible. Possible reduction for under-insurance.
NMIP: Covered without any deductible. No reduction for under-insurance.

Other differences
Wages and maintenance
NMIP: (§ 12-5)
Similar to ITCH clause 16, but cover can be agreed:
Crew’s wages and maintenance and other ordinary expenses connected with the running of the ship during the period of repair,
unless this is specially agreed
Agency commission
Excluded under ITCH Clause 17. No exclusion under the Norwegian Plan.

Other differences
Unrepaired damage
NMIP § 12-2. Compensation for unrepaired damage
Even if repairs have not been carried out, the assured may claim compensation for the damage when
the ownership of the ship passes from the assured by sale, enforced auction, seizure or requisition
which does not give rise to compensation under § 15-11.
Compensation is calculated on the basis of the estimated costs of repairs at the time of the change of
ownership, but is limited to the reduction in the proceeds of sale attributable to the damage. Unless
otherwise proved, the damage in the event of a sale for scrapping is assumed not to have reduced the
proceeds, and in other cases to have reduced the proceeds by the estimated costs of repairs.
In the event of a transfer of ownership of the ship, the assured may transfer claims for known damage
to the new owner.

Compensation:
ITCH:
From MIA §69 – Reasonable costs of repairs – customary deductions.
No interest allowed, no allowance given to the Assured for deductible in Third Party
Recoveries.
NMIP:
Plan § 12-1: Main rule concerning liability of the insurer
• Insurer is liable of restoring the vessel to the condition it was prior to the occurrence of damage.
• If repairs results in improvement, deduction to be made for any additional costs caused thereby.
• If complete repairs are impossible/unreasonably expensive, insurer is liable for depreciation in value.
Interest allowed (six month LIBOR + 2%), and Third Party Recoveries are shared between
the Assured and the Insurers (proportion of their losses)

According to the Norwegian Plan – Claims are to be Adjusted by the
Leading Underwriter. However, in General Average situations, the
Adjustment and apportionment of costs must be done in accordance with
the provisions of the Bill of Lading by an Average Adjuster. There are
several qualified independent Adjusters world-wide.
For an Adjustment according to the Norwegian Plan, and if the Assured
does not accept the Insurer’s Adjustment, the claim can be submitted to a
Norwegian Average Adjuster before the case is brought to court. The
Average Adjuster shall be chosen by the Assured.
Unless the demand to have the Adjustment reversed is clearly unfounded,
the costs of the Average Adjuster will be borne by the Insurers.
LOSS / AVERAGE ADJUSTER

Difference. Perils
Norwegian Marine Insurance Plan gives a broader cover in respect of:
• No “warranties”
• Damages caused by a combination of perils, where the excluded peril
contributed most.
• Unknown cause.
• Negligence of Class Surveyor etc.
• Latent Defects –
• Theft (non violent)
• Corrosion / Wear and Tear
• Bacteria, Sand storms, Frost, Radioactivity
• Collisions
• Recovery.
• Interest
• No deductible on General Average and Salvage cost.

ITCH gives broader cover in respect of:
• Piracy
• Proximately caused by – where the covered peril contributed most.
• Allow rental of generators as temporary repairs.
• Unrepaired damage
• Damages caused by contaminated lub oil etc..

For the purpose of insurance, basically one has to distinguish between
two situations;
 Where permanent repairs cannot be carried out at the place…
(dealt with in Plan § 12-7, 1st subpara)
 Where temporary repairs are carried out for any other reason
(dealt with in Plan § 12-7, 2nd subpara)
TEMPORARY REPAIRS

Where permanent repairs cannot be effected..:
§ 12-7. Temporary repairs (1st subpara)
The insurer is liable for the costs of necessary temporary repairs when permanent
repairs cannot be carried out at the place where the ship is at the relevant time.
“...cannot be carried out…”?
• Repairs are physically impossible
• Unreasonably long waiting time
The temporary repairs must be necessary to bring the vessel safely to a repair yard /
facility where permanent repairs can be carried out.
TEMPORARY REPAIRS, cont…

Where temporary repairs are carried out for any other reason:
§ 12-7. Temporary repairs (2nd subpara.)
If temporary repairs of the damaged part are carried out in other cases,
the insurer is liable for costs up to the amount he saves through the
postponement of the permanent repairs, or up to 20% p.a. of the hull
valuation for the time the assured saves, if the latter amount is higher.
I.e., the insurer is liable for temp. rep. (wholly or partly) in case;
• permanent repairs can be effected cheaper at a later stage
• the assured saves time by effecting temp. repairs..

Cost- and/or timesaving?
Alternatives to be compared:
 The real course of action, i.e. the total costs and time for temporary and permanent
repairs
to be considered against;
 the costs and time of the alternative, i.e repairing permanently at the place where
temporary repairs actually are carried out

Vessel insured on Norw. Plan, H&M sum insured USD 8 000 000,-
Following a casualty in port X, necessary temporary repairs only were
carried out there at the cost of USD 50 000,- / 3 days, in order to
accommodate the assured’s commercial obligations.
Later on, permanent repairs were carried out in port Y at the cost of
USD 420 000,-, occupying 18 days.
If permanent repairs had been carried out in X, it was estimated that the
costs would have been USD 500 000,-, and that it would have taken 20 days.
Calculate the claim on the H&M policy.
TEMPORARY REPAIRS, Example 1

Coverage considerations example 1:
Y: Claim (USD 420 000,- + 50 000,-) = USD 470.000
X: Claim USD 500 000,-
The cost of permanent repairs were USD 80.000 cheaper in Y than in X,
therefore it is evident that the cost of temporary repairs in the amount
of USD 50.000 is recoverable in full.
Total claim, including the temporary repairs, were USD 30 000,-
cheaper.

Following a casualty in port R, necessary temporary repairs only were carried out
there at the cost of USD 50 000,- / 5 days, in order to accommodate the assured’s
commercial obligations.
Later on, permanent repairs were carried out in port S at the cost of
USD 720 000,- occupying 23 days.
If permanent repairs had been carried out in R, it was estimated that the costs would
have been USD 750 000,- and that it would have taken 38 days.

Any cost saving?
 Permanent repairs in S were actually effected USD 30 000 cheaper than the alternative
to repair permanently in R.
Consequently, from a cost saving perspective, the insurer is liable for temporary repairs
up to USD 30 000,-
Any time saving?
 The assured spent in total (5 + 23) 28 days on repairs, the alternative would have taken
38 days, thus 10 days saving.
Max allowance: 10/365 * 20% * USD 8M = USD 43 836,-
Claim on policy (USD 720.000 + 43 836) = USD 763 836,- whilst the balance
in the amount of USD (770.000 – 763 836) 6 164 has to be borne by the
assured
(or any other suggestions???)

Following a casualty in port M, necessary temporary repairs only were
carried out there at the cost of USD 50 000,- / 10 days, due to the vessel being
scheduled for ordinary DD a few months later.
Later on, permanent repairs were carried out at the scheduled DD in port O,
at the cost of USD 1 250 000. Total stay was 30 days. Time required for
damage rep. 30 days, for Owners’ work 22 days.
If permanent repairs had been carried out in M, it was estimated that the
costs would have been USD 1 200 000,- and that it would have taken 30 days.

Evidently, there is no cost saving, but what about time saving?
It should be observed that also other work shall be taken into account.
 time spent on average repairs is thus 10 days for temporary repairs + (30 - 22) 8 days
prolonged stay at O for permanent repairs, totalling 18 days.
The alternative was to spend 30 days on permanent repairs at M.
Thus there is a saving of (30-18) 12 days.
Max allowance: 12/365 * 20% * USD 8M = USD 52.602, i.e. in excess of the
cost of temp. repairs.
Claim on policy is thus USD (1.250.000 + 50.000) 1.300.000

 If necessary temporary repairs are carried out where permanent repairs
cannot be effected, there is full cover.
 If temporary repairs are carried out in other circumstances, the assured
may find himself in an unfortunate situation, not knowing for sure what
the cover for temporary repairs will be until the final permanent repairs
actually are carried out.
TEMPORARY REPAIRS Conclusion

Common expenses
If expenses incurred are common to repair work for which the Insurer are
liable and work not covered by the insurance, these expenses shall be
apportioned over the two types of work.
 Common expenses which depend on the length of the repairs will be apportioned on the
basis of how long time the two classes of work would have required if carried out separately.
 Other expenses will be apportioned over the costs of the two classes of work.
SIMULTANEOUS REPAIRS

H&M, § 12-13:
Subject to the limitation in § 12-12 (Choice of repair yard), the
insurer is liable for the costs of moving the ship to the repair
yard
Removal costs include wages and maintenance for necessary
crew, bunkers and other direct expenses in connection with
running of the ship during the removal.
If the removal results in cost savings for the assured, a
corresponding amount shall be deducted.
DEVIATION

Basic “problem”: Conflict of interest
 H&M underwriters would favour a cheap alternative
 LOH Underwriters look for the fastest alternative
The 1996 Plan introduced a co-ordination of the relevant provisions for H&M
and LOH.
 The relevant H&M provisions remained as before
 The relevant LOH provisions were significantly altered to fit the H&M conditions (actually
fitting any H&M conditions!) and to build a bridge between the famous “two stools”
TENDERS & CHOICE OF REPAIR
YARD

H&M:
§ 12-11. Invitations to tender
The insurer may demand that tenders be obtained from the repair yards of his
choice. If the assured does not obtain such tenders, the insurer may do so.
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 hull valuation during the excess period.
YARD

H&M: § 12-12. Choice of repair yard
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 hull valuation for the time the assured saves by not choosing that
tender.
If the assured, because of special circumstances, has justifiable reason to
object to the repairs being carried out at one of the yards that have
submitted tenders, he may demand that the tender from that yard be
disregarded.
YARD

LOH:
§ 16-9. Choice of repair yard
The insurer may require that tenders be obtained from repair yards of his
choice. If the assured does not obtain such tenders the insurer may do so.
If, due to special circumstances, the assured has justifiable objections to
the use of a particular repair yard, he may require that the tender from that
yard be disregarded.
The assured decides which yard is to be used, but the liability of the
insurer shall be limited to the loss of time under the shortest repair
alternative, the costs of which are recoverable in full from the vessel’s hull
insurer. If the assured chooses this alternative, then the claim is to be
settled on the basis of the actual time lost even though this is greater than
specified in the tender.
YARD

Example:
The “St. Ping” touched bottom in Canadian waters and had to put into a port
of refuge to effect temporary repairs of the affected area.
(Permanent repairs could not be effected at the place) The Class required
the vessel to effect permanent repairs before she was allowed to resume
trading with passengers, and a specification was drawn up and sent to
various yards which were capable of dry-docking the vessel and effect
permanent repairs.
 The vessel was insured on the Norwegian Plan.
 Insured H&M value USD 8 000 000,-
YARD

Repair Yard A USD 800.000 11 days
Repair Yard B USD 710.000 12 days
Repair Yard C USD 600.000 20 days
Repair Yard D USD 542.000 25 days
Tenders received:
Removal:
To A: 8.000 1 days
To B: 16.000 2 days
To C: 32.000 4 days
To D: 72.000 9 days
YARD
Repairs:
A: 800.000 11 days
B: 710.000 12 days
C: 600.000 20 days
D: 542.000 25 days
Removal:
8.000 1 days
16.000 2 days
32.000 4 days
72.000 9 days
Total:
808.000 12 days
726.000 14 days
632.000 24 days
614.000 34 days

 Identify cheapest “adjusted” alternative, i.e. alt. D.
 Examine H&M cover if any other alternative is chosen
 Alt A: Max. cover (614.000 + 96.438) 710.438 i.e. not fully covered
 Alt B: Max. cover (614.000 + 87.671) 701.671 i.e. not fully covered
 Alt. C: Max. cover (614.000 + 43 836) 657.836 i.e. fully covered
Position under H&M policy is thus that the assured can go for either alternative C or D, both of
which would be fully covered
YARD
Repairs:
A: 800.000 11 days
B: 710.000 12 days
C: 600.000 20 days
D: 542.000 25 days
Removal:
8.000 1 days
16.000 2 days
32.000 4 days
72.000 9 days
Total:
808.000 12 days
726.000 14 days
632.000 24 days
614.000 34 days

Secondly (but before decision is made!)one has to consider the LOH
provisions;
 Liability can be limited to the shortest repair alternative which is fully recoverable under the
H&M policy
 C would take 24 days whilst D would take 34 days
 Thus the assured should select alternative C to have full cover under H&M as well as LOH!
Summary:
Adjusted tenders H&M cover LOH cover
A: 808.000 12 days 710.438 in full
B: 726.000 14 days 701.671 in full
C: 632.000C: 632.000 24 days24 days In full !In full ! in full !in full !
D: 614.000 34 days In full 24 days
YARD

Conclusion:
The assured is strongly recommended to co-operate with the
insurer in taking / comparing tenders and make decision
where to repair, so that the exact position under the
insurance coverage is clarified beforehand.
YARD

H&M, § 12-8:
If the assured expedites repairs of the damaged part by extraordinary
measures in order to save time, the insurer is liable for the extra costs thereby
incurred up to a maximum of 20% p.a. of the hull valuation for the time saved.
Important to distinguish between what is considered;
 “ordinary” (covered in full)
 “extraordinary” (covered, subject to § 12-8)
 “enhanced voyage expense” (not covered)
COSTS INCURRED TO EXPEDITE
REPAIRS

H&M - § 12-8:
“ordinary” repair costs (covered in full);
e.g. ordinary air freight, travelling repairers, “unavoidable” overtime premium
“extraordinary” repair costs (covered, subject to § 12-8);
e.g. chartered air freight, overtime paid to shipyard
“enhanced voyage expenses” (not recoverable under H&M)
e.g.: extra tug required for port movements, or costs of manning engine room
because of engine damages, DO instead of HFO, renting portable generator...
purchasing new parts instead of repairing the damaged one does not
fall within § 12-8 (i.e. is not “repairs of the damaged parts”)
COSTS INCURRED TO EXPEDITE
REPAIRS

Plan § 4-5: Costs in connection with settlement of claims
If the insurer is liable for the loss, he is also liable for cost of
establishing the loss and calculating the compensation
Furthermore, 2. subpara states that
“If the assured has reasonable grounds for employing his own
surveyor, the insurer is liable for necessary expenses in this
connection”.
In practice;
 Recoverable only when the insurer has been invited to attend
 Cover restricted to the period of repairs, incl. travelling time
 Normally the cover is restricted to one superintendent
 No cover for “internal costs” (e.g. collecting documents & information and drawing up
the general statement of claim)
COVER OF SUPERINTENDENTS
COSTS

003) marine insurance covers hull

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