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Hull Insurance
according
NMIP
Professor Svante O. Johansson
Chapter 10 NMIP
Scope ofH & M
3
Trading
areas NMIP
4
Hydraulic oil
RadiostationArt
MoneyCargo/containers Mooringropes
Lashings
Bottompaint
Anodes
Lub. oil
Dunnage
TarpaulinsBunkers
The vessel
with spare
parts and equipment
and parts borrowed
or hired. Temporarily
removed
ashore
for repairs, to be returned
onboard
prior to departure.
Objects covered
5
Example
on objects
covered
Insured ship A assessed value 10 000 000
Due to hard weather the following losses and damages was claimed from the insurer
Loss of life boats
20 000
Damages to hatches
14 000
Destroyed lashings
4 000
Two barrels of lub.-oil fell and weredestroyed
500
Fork lift came loose and was destroyed 1 000Total claim
39 500
How much shall the insurer pay if the deductible is set at 20 000?
6
Example
on objects
covered
(cont.)
Losses
and Costs
Insurer Owner
Loss of life boats (§
10-1, 1 b)
20 000
Damages to hatches (§
10-1, 1 a)
14 000
Destroyed lashings
(§
10-1,2 c)
4 000
Two barrels of lub.-oil fell and were destroyed (§
10-1, 1 c)
500
Fork lift came loose and destroyed(§
10 -1, 1 b)
1 000
Total
35 500 4 000Deductible
-20 000 20 000
Grand total
15 500
24 000
7
All Risk Insurance
§2-8
All perils
covered
except
a) war
b) intervention by state
power
c) insolvency
d) perils
covered
by the RACE II clause
Cover
provided
-
point
of depature
8
Liability of the insurer
–
an overview
Total loss
Actual § 11-1
Constructive § 11-3
Presumed § 11-7
Compromised
Physical damage
Repair costs (Particular average)
§
12-1
Collision and striking
Third Party –
Collisions (RDC) §
13, 4-14
Fixed and Floating Object (FFO)
§
13
Costs to avert or minimise loss
Cost for security
§
4-3
Litigation § 4-4
Settlement of claims and establishing loss
§
4-5
General Average –
Assumed G.A. §
4-8, 4-11
Salvage § 4-12
Mitigating Loss §
4-12
9
Limit of liability of the insurer1.
Liability up to the sum insured
by any one casualty
2.
Equivalent amount for costs of measures taken to avert or minimise loss
Also if the sum in 1 is not exhausted
3.
Equivalent amount for collision
Cannot use 1 or 2 even if not exhausted
Even if the sum insured is exceeded
Loss for security, litigation and settlement of claims
interest
10
Example
on max liability
Insured
ship
A assessed
value
10 000 000
Collision
with ship
B
Damages
6 500 000
Salvage
4 000 000
Collision
liability
14 000 000
Litigation
500 000
How
much
shall
the insurer
pay?
11
Example
on max liability (cont.)
Costs
Insurer Owner
1.
Damage
(§4-18, 1:1)
6 500 0002.
Salvage
(§4-18, 1:2)
4 000 000
Balance
from 1: 3 500 000Balance
from 2: 6 000 000
3.
Collision
(§4-18,2 13-3)
10 000 000
4 000 0004.
Litigation
(§4-19, 4-4) 500 000
Total
21 000 000
4 000 000Deductible
-100 000
100 000
Grand total
20 900 000
4 100 000
Chapter 11 NMIPTotal LossThe assured
may
claim
compensation
for a total loss if
the ship
is lost
without
there
being
any
prospect
of it being
recovered
or if
the ship
is so badly
damaged
that it cannot
be repaired.
No deductions
shall
be made
in the claims
adjust-
ment
for unrepaired
damage
sustained
by the ship
in connection
with an earlier
casualty.
13
Actual
total loss
Two forms (§11-1)
No prospect of recover
Sinking, not salvageable, ceases to be a thing of the kind insured
Assessed from an economical point of view
Unrepairability
Difference between repair and new building
Assessed from a technical point of view
14
Total loss due
to salvage
attempt
Conflict of interests
Insured value low
Owner wants to salvage
Insurer pay and leave (§4-21)
Insured value high
The insurer has a right to attempt to salvage (§11-2)
Total loss if not salvaged in time
Six months time limit (§
11-2)
From notification
15
Condemnation or Constructive Total Loss
The assured may claim compensation for a total loss if the conditions for condemnation are met (§11-3)
Met when
Cost of repair exceeds 80 % of1.
Insured value or
2.
Value after repair, if higher
16
Example
on condemnation
Cost of repair
8
Assessed value
11
Value of the ship repaired
14
Value of the wreck
7Can the owner claim total loss?
No!
Cost of repair (8)/value of the ship (14) = 57 %
The value of the wreck is left outside
NB!
Value added due to repair is only 7 (14-7) even though the cost of repair was higher (8)
Makes it economic sense to repair?
17
Some
criteria
for condemnation
Casualty damage
Only ”casualty damage”
counts
Only covered damages
Other damages included (§11-3, 4)
Reported and
Surveyed
In the course of three years prior this casualty
Cost of repairing the ship (§11-3, 4:2)
Cost of repair
Actual costs
Cost of removal (but not salvage)
Important factor in some instances
18
Example
on condemnation
Ship A is running heavily aground on a voyage from Oslo to Göteborg. The ship is salvaged and taken to a safe harbour. The salvage award was settled at 1,5 mill. The market value of the ship was 11 mill., while the assessed value was 10 mill. According to an estimation the scrap value of the ship was 2 mill. The cost of repairs was estimated to 9 mill.
Calculate the insurers liability.
19
Example
on condemnation
(cont.)
Calculation if ship is condemned instead of repaired
Cost of repair
9 mill. divided by (not salvage)
Market value
11 mill. give
81 % and the ship can be declared a constructive total loss
Costs
Insurer
Owner1.
Total loss
10 mill.
2.
Salvage
1,5 mill.Total
11,5
Deductible
n/a
0Grand total
11,5
20
Example
on condemnation
when
reparing
(cont.)
Now the owner in the example has chosen to repair the ship, which gives the following figures
Costs
Insurer
Owner1.
Damage
repair
8 mill.
1 mill
(10 mill. less 2 mill. §12-9)1.
Salvage
1,5 mill.
Total
9,5Deductible
-0,05
0,05
Grand total
9,45
1,05
21
Other
total loss situations
Presumed total loss (§11-7—8)
Missing
During three months from expected port entry
Ice bound extends the period to twelve months
Abandoned
During three months from abandonment
Ice bound twelve months
If it is clear that she will not be recovered
Claim at once
May not reject after the period even if recovered
Compromised total loss
22
Other
total loss insurances
Hull interest insurance (§
14-1)
Total loss
Liability for collision in excess the sum insured in the Hull policy
Freight interest insurance (§
14-2)
Against loss of long term freight income
Limitation by the sum insured (§
14-4)
Cannot cover more than 25 % of the assessed insurable value of Hull policy
Owner can claim 100 % from Hull, 25 % from Hull interest and 25 % of Freight interest
Chapter 12 NMIP
Damage.
24
Main rule damage §
12-1
What is a damage?
Vessel damage without rules relating to total loss being applicable.
Right to repair
Insurer liable for restoring the vessel to the condition it was prior to the occurrence, §
12-1, 1
Duty to repair
Liability arises as and when the repair costs are incurred (“indemnity insurance”), §
12-1, 2
Deduction for improvements, §
12-1, 3
Complete repairs unreasonable/impossible
Claim for depreciation in value, §
12-1, 4
25
Unrepaired damage §
12-2
Can claim for unrepaired damage when the insurance period expires
Based on estimated reduction in ship’s market value at the time of expiry, not exceeding estimated cost of repairs.
Total loss absorbs partial loss
No cover for unrepaired damage if vessel becomes an actual or constructive total loss before policy expiry.
The assured may transfer claims for known damage to a new owner
26
Excluding
inadequate
maintenance
The insurer is not liable for costs incurred in renewing or repairing a part or parts
of the
hull, machinery or equipment which were in a defective condition
as a result of wear and tear, corrosion, rottenness, inadequate maintenance
and the
like.
27
If the damage is a result of error in design or faulty material, the insurer is not liable for the costs of renewing or repairing the part or parts of the hull, machinery or equipment which were not in proper condition, unless the part or parts in question had been approved by the classification society.
Excluding error in design
28
Example
maintenance
and error
in design
Stena Carisma ND 2002 s. 31
Built in 199X in aluminium. Shelving and frames were made of a different kind of alloy mixture. Later on it was discovered that
the frames had corroded. It could be ascertained that the alloy was not able to stand salt water in the same way as the shelving
aluminium. Was this excluded from cover?
It was held that the aluminium frames were made in the ordinary way and the alloy was not different from others of the same kind. Ergo: not faulty material and thus not excluded.
However, choosing an alloy that was sensitive to salt water was regarded as error in design and thus excluded (in that particular case).
The damage was also held to amount to corrosion and thus excluded as inadequate maintenance. Obiter said that it might be covered in extreme cases
29
Not recoverable
losses
The insurer is not liable for costs of ordinary operation (§12-5):
(a) crew wages and maintenance and other ordinary expenses connected with the running of the ship during the period of repair, unless this is specially agreed,
(b) expenses of shifting, storing and removal of cargo,
(c) accommodation of passengers,
30
Nor for losses connected to ordinary maintenance or replacement
(d) objects which must normally be replaced several times during
the expected life of the ship and which and have been used for mooring, towing and the like, unless the loss is a consequence of the ship having sunk, or is attributable to collision, fire or theft. The same applies to tarpaulins,
(e) zinc slabs, magnesium slabs and the like fitted for protection against corrosion,
(f) loss due to lubricating oil, cooling water or feed water becoming contaminated, unless proper measures were taken as soon as possible after the assured, the master or the chief engineer became, or must be
deemed to have become, aware of the contamination, and in any event not later than three months after one of them should have become aware of the contamination
31
Time and cost
in repair
The conflicting interests in choice of yard
Prompt repair raises the costs
(not an interest of insurers)
Prolonged repairs leads to loss of hire or freight
(not an interest of owners)
The compromise
The insurer liable for the cheapest alternative
It will cost for the owner if he or she chooses the more expensive yard
32
Survey
of damage
§
12-10
Survey is to take place
Before any damage is repaired
a representative of the assured and a representative of the insurer shall participate
The representatives shall submit survey reports, in which they shall
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.
Remedies if the assured repaired without any survey being held or without notifying the insurer of such survey,
the burden of proving that the damage is not attributable to causes not covered by the insurance
33
Temporary
repairs
§
12-7
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 located.
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.
34
Example
on temporary
repair
Sokna is a small coaster trading on the west coast of Sweden and Norway. Her sum insured under H&M is 1 000 000.
Temporary repairs are carried out on Sokna in Bergen on the rational that the Owner has booked a scheduled docking in Göteborg
within a month. The price of the docking is 10 000
per day and the time calculated in dock was 2 days.
A surveyor estimated that permanent repairs in Bergen would have cost 100 000 during 10 days.
Permanent repairs was later fulfilled in Göteborg
at the amount of 110 000. In total the work continued for 10 days, whereof owners work would have taken 6 days and casualty work 9 days if made separately.
35
Example
on temporary
repair
(cont.)
Costs
Insurer Owner
1.
Temporary repair
2 740 17 260
No savings! Repair more expensive in Göteborg.Actual time saved:2 days in Bergen, add 3 days in Göteborg(9 days average repair less 6 days owners work)compared with 10 days, gives 5 days saved1 000 000
* 20 % * 5 days/360 =
2.
Permanent repair
110 000 17 260
Total
112 740Deductible
-50 000
50 000
Grand total
62 740
67 260
36
Invitation to tender §
12-11
A right of the insurer
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.
37
Removal cost
§
12-13
The insurer is liable for the costs of
moving the ship to the repair yard,
wages and maintenance for necessary crew, and
bunkers and similar direct expenses
all if it has connection with the running of the ship during the period of time involved.
If the removal results in costs savings for the assured, a corresponding amount shall be deducted.
38
Choice of repair yard §
12-12
The assured decides which yard shall be used
Limitation of the insurer’s liability for the costs of repairs and the removal
Limit
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
39
Example
on repair
yard
Assessed
value
1 000
Tender yard 1
Repair
cost
100
Removal cost
5
105
55 days
Tender yard 2
Repair
cost
90
Removal cost
20
110
50 days
The insurer
pays
Repair
yard 1 105 with an additional
of
20 % *1 000 * 5/360 = 2,777Total 107,8
40
Cost
incurred
in expediting
repairs
Limit loss of time of the assured if he
expedites repairs by extraordinary measures
Mobile team
Overtime payment
Spare parts by flight
Another ship taken out from dock
The insurer’s liability for the costs thereby incurred is limited to 20 % p.a. of the hull valuation for the time saved by the assured.
Deciding factors
Total time period of repairs (both casualty and other)
Compared with the actual time the ship lies idle
41
Apportionment
of common
expenses
§ 12-14 NMIP
1.
If expenses have been incurred which are common to repair work for which the insurer is liable and work which is not covered by the insurance, these expenses shall be apportioned on the basis of the cost of each class of work
2.
However, common expenses which depend on the length of the period of repairs shall be apportioned on the basis of the time that the recoverable and the non-recoverable work would have required if the two classes of work had been carried out separately
42
Apportionment
of common
expenses over cost
Expenses
Ca OwTank cleaning
x
RemovalWages/maint. xBunkers
x
Towage
xTowage certificate
x
Pilotage
to repair quay xTuggage
–”-
x
Overtime in and out
x
43
Apportionment
of common
expenses over cost
(cont.)
Expenses
Ca OwPort disbursementsHarbor
dues
x
Customs
xPilotage
in/out
x
Tuggage in/out
xTelephone
agent/sup.in. x
Agency fee
xGas freeing
certifi.
x
Fire watch
xFire line
x
Gangway
xClass society
x
Expenses
Ca OwPort disbursementsAdj
radio directed
x
Crane
rental
xHeaters
in enginge
room
x
Adjusting
compass x
Shifting
boatmen x
Garbage
galley
xCooling
water
x
Watchmen
gangway
xFresh
water
x
Telephone
½
½Electr. connect/heat
½
½
Owners
superint
x
44
Apportionment
of common
expenses to be divided
over repair
time
Ballastwater
Pilotage
to/from dry-dock
Tuggage
to/from dry-dock
Boatmen
Dock master
In and out of dry-dock
Standing in dry-dock
Adjusting of blocks
Lightning conductor
Coke-fires in dry-dock
Etc.
45
Example
on apportionment
of common
expenses
Casualty 50 000 Dry-dock cost 30 000
Owners 35 000
Port disbursement 25 000
Days in dry-dock
Casualty
15Owners
10 Σ
25
Common expenses over timeCasualty 15/25 * 30 000 = 18 000Owners 10/25 * 30 000 = 12 000 Common expenses over costCasualty (50 000 + 18 000) * 25 000 /115 000 = 14 783Owners (35 000 + 12 000) * 25 000/115 000 = 10 217Insurer to pay 82 783 and Owner’s part 57 217
46
Example
on settelment
Vessel Ingo with insurance sum 10 000 000
Ingo encountered shallow waters and received heavy damages to the propeller. Survey showed that it had to be replaced by a new. The costs for this was calculated thus.
New propeller
100 000
Work excl. owner’s part of common expenses
60 000
Owners superintend (casualty) 5 000Total claim
165 000
Scrap value of the old propeller was 20 000
Calculate the insurer liabIlity.
47
Example on settlement (cont.)
Costs
Insurer
Owner
New propeller
100 000
Work 60 000
Owners superintend.
5 000
Total
165 000Deductible
-50 000
50 000
Grand total
115 000
50 000
Return on sale of old propeller20 000. Insurer has paid 110/160of the new one and proportionedInsurer 110/160 * 20 000 or
-13 750
Owner 50/160 * 20 000 or -
6 250Total
101 250
43 750
(§
5-19 cf. §
5-13 para. 2)
Chapter 13 NMIP
Collisionandstriking
49
The insured
event
The insurer is liable for liability imposed on the assured for loss which is a result of collision or striking by the ship, its accessories, equipment or cargo, or by a tug used by the ship.
NB!
Liability
Collision or striking
50
The insurer
is not liable
fora)
liability arising while the ship is engaged in towing, or caused by the towage,
Cover if it takes place in connection with a salvage operation (§3-12, subparagraph 2)
b)
liability for personal injury
or loss of life,c)
other
loss suffered
by passengers
or crew
on the insured
ship,d)
liability for damage
to or loss of cargo, other
effects
on board
the insured
ship, or equipment which
the ship
uses,
e)
liability to charterers
or others
who have
an interest
in the insured
ship
51
The insurer
is not liable
forf)
liability for pollution damage and damage resulting from fire or explosion caused by oil or other liquid or volatile substances, and contamination damage caused by radioactive substances.
However, if the insured ship has collided with another ship, liability for such damage to the other ship with equipment and cargo is covered,
g)
liability for loss caused by cargo or bunkers after grounding or striking against ice,
52
The insurer
is not liable
forh)
liability for loss caused by the ship’s use of anchor, mooring and towing gear, loading and discharging appliances, gangways and the like, and liability for damage to or loss of these objects,
i)
liability for removal of the wreck
of the insured ship and for obstructions to traffic created by the insured ship,
j)
refund of amounts which a third party has paid by way of compensation for loss as mentioned under letters a) to i) above.
53
Single or cross liability
Single or cross liability does not normally matter
Two cases were it matters:
Single Liability when Limitation is calculated (sec. 9:2 SMC)
Cross Liability when the Hull Underwriter’s Liability for collision liability is settled
§ 14-4
54
Example
on Single
and Cross liability
Collision between A and B. Equally to blame.
Sustained damage
A = 100
B = 200
Limitation
A = 20
Adjust the external collision settlement as well as the internal insurance settlement for A.
55
Example
on Single
and Cross liability Collision
settlement (external)
A to bear:
50 % of total losses (100+200)
150
Less A’s own damages
-100Balance
50
Limitation applied
20
Reduction in balance due to limitation
30
A pays to B limitation amount
20
56
Example
on Single
and Cross liability insurance
settlement (internal)
Costs
Insurer Owner
A’s own losses
Damage 100
Less deductible
-5
5Liability
50 % of B’s damage
100
Less reduction in balance due to limitation
-30
Recovers from B
50 % of own damage
-47,5
-2,5
Total 117,5
2,5
Deductibles
58
Particular
average
deductible
§
12-18
For each
casualty
the amount
stated
in the policy
shall
be deducted.
Damage
caused
by heavy
weather
or navigating
in
ice
which
has occurred
during
the period between departure
from one
port and arrival
at the next
one
shall
be regarded
as a single
casualty.
Costs
in connection
with the claims
settlement, cf.
§
4-5, and loss through
measures
to avert
or minimise
the loss, see
§§
4-7 to 4-12, are
recoverable
without
any
deductible.
59
Deduction
for ice
and machinery§ 12-15. Ice damage deductions
Damage
due
to striking
against
or contact
with ice
-
excluding
collision
with icebergs
on the open
sea
-
is recoverable
subject
to a deduction
of one fourth.
§
12-16. Machinery
damage
deductions
Damage
to machinery
and accessories
and to pipelines and electrical
cables outside
the machinery
is recoverable
subject
to deductions
as set out
in the policy.
To this shall
be added
the deductible
referred
to in §
12-18, subparagraph
1 for particular
damage. However, no machinery
damage
deduction
shall
be made
if
the damage
is a consequence
of:
(a) the ship
having
been
involved
in a collision
or striking,
(b) the engine
room
having
been
completely
or partly
flooded,
(c) a fire
or explosion originating
outside
the engine
room.
60
Collision
deductible
§
13-4
For each
casualty
the amount
stated
in the policy
shall
be deducted.
Litigation
costs, cf. §
4-4, costs
in connection
with the
claims
settlement, cf. §
4-5, and loss caused
by measures to avert
or minimise
the loss, cf. §§4-7 to 4-12, are
recoverable
without
any
deductible.
61
Compensation
without
deduction
No deduction is applicable to total loss
Recoverable without deductions in accordance with §12-15 (ice) and §12-16 (machinery) are:
a) loss recoverable under
§12-1, subparagraph 4 (depreciation in value),
§12-11, subparagraph 2 (time exceeding tender), and
§12-13 (removal of ship),
b) unused spare parts that are damaged or lost,
c) temporary repairs
62
Example on engine breakdown and Assumed General Average
On a ballast voyage from Turku to Trondheim in order to loading oil the m/t
Hyvä had a black out in the main engine on the Baltic Sea.
After some prelimary
repair by the crew the ship could return to Turku. It was decided that permanent repairs should be conducted
in Turku due to the safety of the ship on the North sea. After permanent repairs the ship fulfilled the voyage. The owners filed the following claim with the insurers.
Permanent repairs Turku
30 000
Wages and maint. in/out Turku
15 000
Wages and maint. during repair
10 000
Bunkers in/out Turku
8 000
Bunkers during repair
3 000
Port fees in/out Turku
12 000
Port charges Turku
10 000
Class survey perm. Repair
5 000
93 000What shall the insurer pay?
63
Example on engine breakdown and Assumed General Average (cont.)
Costs
AGA PA
OWN
Permanent repairs Turku
30 000
Wages and maint. in/out Turku
15 000
Wages and maint. during repair
10 000
Bunkers in/out Turku
8 000
Bunkers during repair
3 000
Port fees in/out Turku
12 000
Port charges Turku
10 000
Class survey perm. Repair
5 000
48 000
35 000
10 000Deductible
-35 000 35 000
Total
48 000
0 45 000
Insurer pays 48 000 according to §
4-11
