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17 March 2010
The question of whether one or several deductibles apply to an insurance claim usually depends on whether the physical damage or loss can be regarded as one or several insurance events. Insurance contracts are regulated by the Insurance Contract Act 1989. Several provisions of the act are mandatory and for the benefit of the assured only.
However, for marine and offshore insurance and insurance for large companies, the provisions of the act are non-mandatory (Sections 1 to 3). Thus, the act is directly applicable only if the parties to a marine or offshore insurance contract have not agreed otherwise, in which case the provisions of the act will automatically be included in the insurance contract.
Pursuant to general insurance principles, including those relating to the Marine Insurance Plan, the question of whether damage or loss should be regarded as one or several insurance events or occurrences must be decided on a case-by-case basis.
Where the same peril occurs several times causing several incidences of damage (eg, a vessel collides with several fish farms due to negligent navigation), standard practice is to regard this as one occurrence with only one deductible. However, if the assured could have avoided the damage, the assured's negligence may be regarded as a new and independent cause which breaks the chain of causation with the initial peril, thus triggering several deductibles. This corresponds with the objective of deductibles: to motivate the assured to act in a diligent manner and focus on preventing loss or damage.
However, if the same peril occurs several times and the insured could not have avoided the subsequent damage (eg, where a vessel suffers damage caused by a storm), the damage will usually be regarded as a single occurrence with only one deductible.
Despite the fact that different parts of the vessel would suffer damage at different times during a storm, all damage caused by the weather would be regarded as a consequence of the same peril, and thus as a single occurrence or insurance event with only one deductible. This would also be the case where a vessel suffered damage to the hull, propulsion and rudder at different points during a passage in icy conditions.
In NH Sunvictor(1) the vessel's machinery stopped working as the cooling water intake became clogged with ice during a trip from Montreal to Quebec. The vessel grounded and suffered damage. The vessel sustained further damage during the refloating operation, and further ice damage during the remaining part of the trip to Quebec, during which it had to be escorted by two tugs.
The Supreme Court regarded the sequence of damage as having resulted from the same peril and decided that only one deductible applied.
The most important factor in deciding whether to apply one or more deductibles is whether the damage occurred was caused by the same peril. However, if the assured had the opportunity to discover the peril and avoid further damage, its failure to do so would warrant the application of further deductibles.
The commentary to the Marine Insurance Plan 1996 (Version 2007) sets out questions which must be answered when distinguishing between one and several causes of damage:
These are relevant under insurance law when deciding whether one or more insurance events has occurred.
If a fault in the design of underwater equipment causes several incidences of damage to a cable during laying, the number of deductibles is decided according to whether the assured had the opportunity to avoid further damage. If the assured could not have discovered the equipment problems and prevented further damage, it is likely that only one deductible will apply. However, if the underwater equipment had returned to the surface or if a considerable timeframe had elapsed between the occurrence of the different incidences of damage, it is likely that several deductibles will apply as the assured should have discovered the problems.
The question of whether one or more insurance events have occurred is also relevant to the question of whether an insurance claim will be limited by one or more insurance amounts and whether the claim will be limited to one or more limitation amounts.
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