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03 June 2015
Two of the most commonly used sets of hull and machinery insurance terms are the Nordic Marine Insurance Plan 2013 and the Institute Time Clauses Hulls 1983 (ITC). Both have long traditions dating back to 1871 and 1888, respectively, but with different approaches.
The Nordic Plan provides comprehensive all-risks insurance conditions for hull and machinery insurance, but also for all other standard non-protection and indemnity risks, including war, loss of hire and mobile offshore units. It is a so-called 'agreed document', meaning that it is drafted by a committee including representatives of both shipowners (represented by the four Nordic shipowner associations) and marine insurers (represented by the Nordic Association of Marine Insurers). Independent marine and legal experts are also on the committee. The Nordic Plan is reviewed and revised as necessary by the committee every three years, ensuring that it remains up to date and relevant.
In contrast, the ITC has more specific clauses, such as total loss insurance only, where comprehensive cover is achieved by agreeing a series of wordings that act together with cross-referencing between them. These are not subject to an institutional framework providing regular reviews, but instead are revised from time to time by the London market. The latest revision took place in 2003, but the 1983 version remains the most popular version. The ITC is therefore almost invariably supplemented by brokers' own clauses, creating a more complicated set of conditions.
The Nordic Plan committee has drafted a comprehensive commentary to the Nordic Plan, which is an important source of interpretation. The ITC does not have anything similar.
Hull and machinery insurance on the Nordic Plan covers all risks unless they are specifically excluded (eg, war risks). The insurer has the burden of proving that the loss has been caused by an excluded peril.
On the other hand, the ITC is based on the 'named perils' principle, where only perils that are included in the policy will be covered. Further, the assured has the burden of proving that the loss has been caused by an insured peril.
The most common cause of marine casualties is crew negligence. This is covered both under the ITC and the Nordic Plan. However, when it comes to negligence on the part of the assured – the shipowner itself – there is a difference. The ITC requires that any loss or damage not have resulted from want of due diligence on the part of the owner (ITC Clauses 2.2 and 6.2). Under the Nordic Plan, the assured will, as a starting point, remain fully covered despite ordinary negligence in this regard, except where the negligence results in a breach of safety regulations and there is causation with the loss or damage; and also under certain conditions when there is an alteration of risk.
The ITC places a strict burden on the assured for all warranties given, breach of which may result in loss of cover regardless of causation. Further, Clause 4 provides for automatic termination of the insurance contract in the event of loss or suspension or change (without consent) of class, change of ownership, flag, management, requisition or charter on a bareboat basis. However, a bill is awaiting royal assent which will change English law with regard to warranties and exclusions so that cover can continue if non-compliance with the exclusion has not increased the risk of the actual loss and resumes after a breach of warranty is remedied.
Any such change is not needed for the Nordic Plan, which provides only for automatic loss of cover in case of loss of class or change of ownership without consent. Instead, the Nordic Plan relies on safety regulations – that is, rules concerning measures for the prevention of loss. Breach of safety regulations may result in loss of cover, but only provided that there is a sufficient causal link between the breach and the occurring loss or damage, and that the assured – not the crew – has breached the safety regulation through negligence
Under the ITC, constructive total loss compensation may be claimed only if the costs of recovery and/or repair would exceed the insured value (ITC Clause 19). According to Clause 11-3 of the Nordic Plan, the vessel is a constructive total loss when the costs of repairs exceed 80% of the insured value or market value after repair, whichever is the higher.
A prudent uninsured would take the vessel's freight-earning capabilities into account when considering repair options, the Nordic Plan Clause 12-8 assumes a daily earning of 20% of the hull value divided by 365. The insurer is then liable up to this amount for each day saved for measures to speed up repairs. The ITC contains no equivalent clause.
The insurer and assured will sometimes disagree on insurance payments. The Nordic Plan Clause 5-4 protects the assured by awarding interest (London Interbank Offered Rate plus 2%) on the amount running from one month after the date of notice of casualty (in case of total loss), from the date of the assured's payment (in cases of reimbursement), or from one month after expiry of the period for which the insurer is liable (for loss of time). The ITC contain no equivalent clause.
Although the Nordic Plan contains several clauses that are more favourable to assureds than the ITC, the ITC can be modified through the inclusion of additional clauses. Nevertheless, the Nordic Plan remains the most comprehensive set of hull insurance conditions on the market today, with little need for additional clauses. Although the use of additional clauses together with the ITC can refine the conditions to suit the parties' particular requirements, they can also cause difficulties in the interpretation across the various wordings, if not carefully drafted.
For further information on this topic please contact Robert Joiner or Torgeir Willumsen at Wikborg Rein's Singapore office by telephone (+65 6438 4498), fax (+65 6438 4496) or email (email@example.com or firstname.lastname@example.org). Alternatively, contact Anders W Færden at Wikborg Rein's Oslo office by telephone (+47 22 82 75 00), fax (+47 22 82 75 01) or email (email@example.com). The Wikborg Rein website can be accessed at www.wr.no.
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