Marine Claims,

Nordic Plan - H&M conditions

15-17th Jan. 2014

By Sveinung Mkestad,
Vice President, Gard AS

The Nordic Association

1 of Marine Insurers
Content

H&M Insurance
General Rules (NMIP Chapter 10)
Total Loss (Chapter 11)
Damage (Chapter 12)
Liability by collission or striking (Chapter 13)

(Measures to avert or minimize loss, Chapter 4)

2
General rules relating to the scope of the
hull insurance

Objects insured ( 10-1)

Objects temporarily removed from the ship ( 10-2)
Loss due to ordinary use ( 10-3)

Standard cover versions ( 10-4 to 10-8)

Variations from full conditions to stranding terms
Misc provisions ( 10-9 to 10-12)
Objects insured ( 10-1)

Objects insured;
The ship incl. machinery
Equipment and spares on board the vessel
But not equipment temporarily on board during stay in a port of call
Irrespective of ownership
New equipment etc insured as from passing the ships railing.
Bunkers and luboil
(Bunkers belonging to timecharterer?)

Not insured;
Supplies and articles intended for consumption
Boats and equipment used for fishing
Loose objects for securing/protecting cargo
Loose containers for carriage of cargo
Objects temporarily removed from the ship ( 10-2)

Insured whilst temporarily removed from ship, provided they

are intended to be put back on board before departure
Parts taken ashore for repairs?
New parts purchased for
renewal on board?
Loss due to ordinary use ( 10-3)

The insurer is not liable for loss that is a normal consequence of

the use of the ship and its equipment.
Stevedore damage (often accumulated over time)
Touching ground in rivers e.g. due to sand-banks continously
moving
Total loss / condemnation and
related issues

7
 Total loss vs. Damage

Total loss, Chapter 11 Damage, Chapter 12

Assessed value, incl. Cost of repairs
Hull/freight interest
Deductions, e.g. 12-3,
No deductions / exclusions 12-4, 12-15, 12-16, 12-18

Quick settlement(?) Time (& trouble) for

repairs, incl. Lost earnings

8
 9

Total loss situations

Actual total loss ( 11-1)

Missing/abandoned ship
(presumed total loss) (
11-7)
Constructive
total loss
(condemnation) ( 11-3)
(Compromized /
arranged total loss)
Condemnation, 11-3

Vessel is condemnable when cost of repairing casualty

damage exceeds 80% of insurable value or value of the ship
after repairs, whichever is the higher
Request to be made without undue delay( 11-6)
Market value at the time when requesting condemnation
Casualty damage reported/surveyed by insurer during 3 years prior
to casualty
Salvage not to be taken into account

10
The Assureds position
Frequently favouring a settlement for total loss, unless e.g;
Underinsurance?
favourable long term freight contract / commercial reasons?
special purpose ship?
The assured has the choice whether or not to repair the vessel,
but;
If the assured decides to repair a vessel that is condemnable,
insurers liability is limited to sum insured, less value of wreck (Plan
12-9)

11
 Considerations to be made by insurer

Starting point to remember insurer is liable for up to 3 times the

sum insured (+ interest/costs), Plan 4-18
Damage/loss of vessel,
Measure to avert/minimise loss
Collision liability

Insurers goal: Reduce the total claim

How much to spend on salvage efforts?
Prospects of successful salvage?

12
 No or minor prospects of salvage?

Insurers should consider Plan 4-21

The insurer may avoid further liability by informing the assured that
he will pay the sum insured.
Misc. costs, salvage etc. and costs of preserving vessel/wreck is
recoverable in excess of the sum insured (see 4-18 and 4-19),
provided that it is attributable to measures implemented before the
assured was notified of the insurers decision.
The insurer has then no right to the object insured under 5-19 -
insurers must beware!
HR 29/06/1998 Lomita judgement (Rt 1998 1032)

Would the considerations and outcome potentially be different

under LOF?

13
HR 29/06/1998 Lomita judgement

19/09/92 Ocean Blessing collided and caught fire in Malacca Strait.

Shipowners entered into a LOF with Semco Salvage, under which the
vessel was to be brought to Singapore for redelivery. Vessel was beached,
fire extinguished and eventually towed to Singapore, where she arrived 5th
Feb 1993.
On the 5th Nov. 1992 the leading insurer (Storebrand) declared the vessel a
total loss under the H&M policy, and the sum insured was paid 5th Dec.
1992 (at a time when the salvage prospects were uncertain) with reference
to 1964 Plan 82 (corresponding to 4-21 in the Nordic Plan)
Salvage award approx. SGD 1,33 M, which was less than proceeds of sale
of wreck
The assured claimed the salvage award from H&M insurer, who in turn
rejected the claim, as sales proceeds exceeded the salvage award

Oslo City court: Favoured the shipowners, - insurers appealed

Appeal Court (Borgarting Appeal Court): reversed the judgement, as they
found that there was no loss as the proceeds of wreck exceeded the
salvage award. The assured appealed.
Supreme Court: reversed the appeal court judgement, and insurers had to
pay salvage in addition to sum insured for Total Loss.

14
 Insurers right to attempt to salvage

Plan 11-2
The insurer is entitled to attempt to salvage the ship at his own
expense and risk
Plan 11-6
If the assured request condemnation, the insurer may without undue
delay after salvage demand removal to a place where the damage
may be properly surveyed.
Insurer bear the removal costs and liability for losses arising during
or as a consequence of the removal which is not covered by other
insurers.

15
 NMIP
Chapter 12
Damage
 12-1: Main rule concerning liability
of the insurer

Damage = Vessel damage without rules relating to total loss

being applicable.
Important principle and starting point: - Insurer is liable for
restoring the vessel to the condition it was prior to the
occurrence
Not necessarily exactly same condition...
Liability arises as and when the repair costs are incurred (an
indemnity policy), 12-1, second subpara
Exception - see 12-2.
Deduction for improvements, 12-1, third subpara
Complete repairs unreasonable/impossible - claim for
depreciation in value, 12-1, fourth subpara
 12-2: Compensation for unrepaired
damage

The assured may claim compensation for unrepaired damage

when the insurance period expires.
Based on estimated reduction in market value, but not
exceeding estimated cost of repairs
No compensation for unrepaired damage if vessel becomes a
total loss before policy expiry
 12-3: Inadequate maintenance, etc.

No cover for parts defective due to wear and tear, corrosion,

rottenness, inadequate maintenance or the like
Damage to other parts - consequential loss - is covered
 12-3: Inadequate maintenance, etc. (contd)

What was the technical condition of the ship at the time of the
casualty?
Which parts should, from an objective point of view, have been
repaired/replaced in any event, irrespective of the casualty?
Identification of part or parts?
Technical and economic consideration
Irrespective of the parts significance and position in the causal
chain
Exclusion for parts itself together with labour costs etc for
access and installation/replacement + ppn of common repair
expenses ( 12-14)
Borderline between lack of maintenance and crew negligence
 12-4: Error in design, etc.

Regulates to which extent there is a claim for damage caused

by error in design or faulty material
normally having been present since newbuilding
Error in design means that the design of a part of the ship
proves to be unfortunate, or that the degree of strength proves
to be inadequate.
Faulty material means that the material in a part of the ship is
of a quality inferior to the presupposed standard.
Parts that are;
not in proper condition due to faulty material or error in design, and
physically damaged,

are covered provided that the parts have been approved by

the Classification Society.
 12-4: Error in design, etc.

Parts must be damaged no cover if parts are defective due

to faulty material or error in design but not damaged.
Sufficient that damage can only be ascertained by advanced
methods, e.g. an initial crack by x-ray or similar
Damage to other parts as a result of error in design or faulty
material - consequential loss - is covered.
Borderline between error in design and faulty workmanship
Borderline between error in design and cheap solutions/
untested new technology/inadequate analysis etc.
You cannot expect a Jaguar

when you pay for a Lada

 12-5: Losses that are not recoverable.

(a) Crews wages and maintenance and other ordinary expenses

connected with the running of the ship, unless specially agreed.

(b) Expenses of shifting, storing and removal of cargo.

(c) Accommodation of passengers.
(d) Objects which normally need to be replaced several times during
vessels lifetime, and which are and have been used for mooring/towing
(ropes etc), except if vessel has sunk, or if damaged due to collision,
fire or theft.
(e) Zinc anodes and other items for protection against corrosion.
 12-5: Losses that are not recoverable. (cont.)

(f) Loss due to contamination of lubricating oil, cooling water and

feed water is only covered :
if proper measures were taken as soon as possible after the
assured became aware or must be deemed to have become aware
of the contamination, and not later than 3 months after they should
have become aware
Proper measures is not satisfied by cleaning only, - identification
and removal of source of contamination is also necessary.
NB - The assured is identified with his master and chief
engineer in this regard.
 12-6: Deferred repairs.

If repairs deferred more than 5 years, insurer is not liable

for any increase in cost.
 12-7: Temporary repairs.

If permanent repairs cannot be carried out where the ship is:

Covered in full.
In other cases, the insurer is liable either:
up to what he saves through postponement of permanent
repairs, or
up to 20% p.a. of the hull valuation for the time saved by the
assured,

whichever is higher.
 12-7: Temporary repairs. (Cont.)

What does it mean that repairs cannot be carried out?

Repairs physically impossible, i.e. there is no yard in the area
than can carry out repairs in a satisfactory manner.
Waiting time is unreasonably long.
No absolute limit, but generally Owners must accept 1-2 weeks
waiting, but not 3-4 months.
Possible cost savings for the insurer due to postponement of
permanent repairs e.g. by moving to a cheaper repair
yard.
Possible savings in time for the assured e.g.
in case the vessel can be removed to a yard where can be
carried out in shorter time, or
repairs can be carried out concurrently with scheduled
Owners work.
To avoid waiting time for necessary spares for perm. rep
 12-8: Costs incurred in expediting repairs.

Insurer covers costs incurred by expediting repairs of the

damaged part by extraordinary measures, limited to 20% p.a.
of the hull valuation for the time saved by the assured.
Expediting repairs of the damaged part:
Does not included measures such as:
Rental of a generator.
Buying a new part instead of repairing the part.
Division between ordinary and extraordinary measures, e.g.;
Sending spare parts by charter plane = Extraordinary.
Overtime payment to repair yard = (Usually) Extraordinary
Use of travelling repairers = Ordinary.
 12-9 Repairs of condemnable ship.

The assured may want to repair the vessel even if he could

claim for Total Loss
Re. rules for condemnation - 11-3.
Insurers liability limited to:
Sum insured (plus costs and interest, 4-19).
Less value of wreck.
What is the rationale behind deducting value of wreck?
 12-10 Survey of damage

Before repairs, damage shall be surveyed by representatives of

the assured and the insurer.
Normally Owners Superintendent and Surveyor nominated
from insurers list of correspondents.
Both shall submit reports,
To include description of damage, cause consideration, time of
damage and costs involved
If any disagreement, an umpire may be appointed.
If survey not held, the assured has the burden of proving that
damage is not attributable to causes not covered by
the insurance.
 12-11/12-12: Tendering & choice of repair yard.

Underwriters may request tenders

Partly coverage for lost time due to tendering:
20% p.a. of hull valuation if time taken to obtain tenders
exceeds 10 days.
Tenders to be adjusted for removal costs (and time) before
comparison
Owners decide where to repair
Insurers liability limited to lowest adjusted tender plus 20% p.a.
of hull valuation for time saved by not choosing that tender.
 12-13 Removal of ship
Cost of removing ship to yard for repairs is covered (subject to
tendering provisions)
Repairs of damage discovered at yard?
Repairs of damage occurring during removal?
If removed both for damage repairs and owners work: Treated as
General Expenses ( 12-14)
Includes e.g. wages and maintenance of crew, bunkers and lube
oil, towage if necessary, canal dues, etc.
Deduction for savings for the assured.
 12-14 Apportionment of Common repair expenses

Common rep. expenses = Expenses that are common to

damage repairs and Owners work.
Starting point: To be apportioned over cost of each class of
work.
Example:
Damage repairs: 300
Owners work: 200
Common rep. expenses: 50
Hull Underwriters will compensate 50x300/(300+200) =
30.
 12-14 Apportionment of Common rep. expenses (cont)

Expenses to be apportioned over cost may include e.g.:

Agents fee in port of repairs.
Removal of ship as per 12-13.
Owners representative (Superintendent).
Fire watchman.
Shifting within port of repairs.
Tank cleaning, gas freeing.
 12-14 Apportionment of Common rep. expenses (cont)

Exception: Drydock expenses and quay hire to be apportioned

over time required for each class of work (in DD and alongside
respectively) if carried out separately.
Example:
Damage repairs: 6 days.
Owners work: 10 days.
Cost of docking/undocking: 20
Dock rental: 10 days @ 10 = 100

Hull Underwriters will compensate (100+20)x6/(6+10) = 45.

 12-14 Apportionment of Common rep. expenses (cont)

Docking expenses (expenses to be apportioned over time)

include e.g. :
Ballast water.
Pilot for shifting to/from dock.
Tugs for shifting to/from dock.
Boatmen/line handlers.
Docking master.
Placing of dock blocks.
Docking in and out, dock hire.
Heating under vessels bottom.
 12-14 Apportionment of Common rep. expenses (cont)

Distinction between repair costs and costs of running the

ship
Expenses connected with the running of the ship during the
period of repair would include e.g. removal of garbage,
cooling water for a/c, black/grey water connection/disposal
Special practice - Electrical current, and phone exp. at yard
50% allowed as common rep expenses to be apportioned
over cost.
50% disallowed as expenses connected with the running of
the ship.
Deductions?
 3-15 Trading limits.

If vessel is damaged while in a conditional trading area with the

consent of the assured and without notice having been given to
the insurer:
Deduction of .
Maximum USD 200.000,-
(NB Additional premium
may also apply!)
 12-15 Ice damage deduction

Applies to damage due to striking against or contact with ice.

Do not apply to collisions with icebergs on the open sea.
Amount to be specified in the Policy otherwise no deduction.
(NB used to be 1/4th in the Norw. Plan!)
 12-16 Machinery damage deduction

Applies to damage to:

Machinery and accessories.
Pipelines and electrical cables outside the machinery.
Comprehensive list of parts subject to machinery deduction in
the commentary.
Amount to be specified in the policy.
No deduction if damage caused by:
Grounding/Collision/striking.
Engine room flooded.
Fire/explosion originating from outside engine room.
 12-17 Compensation without deductions

Deductions as per 12-15 (ice) and 12-16 (machinery) not to

apply to:
Claims for depreciation ( 12-1)
Loss of time while taking tenders ( 12-11 20% rule)
Removal of ship ( 12-13)
Unused spare parts that are damaged or lost
Temporary repairs
Agent
Superintendent
Class expenses
 12-18 Deductible

The amount stated in the policy shall be deducted for each

casualty.
Normally easy to identify
Damage developed over time
Errors during repairs
Foreseeable?
Error in design
See also 4-18
Applicable in addition to other deductions (if any).
Heavy weather damage or ice damage occurred on voyage
from one port to another regarded as one casualty.
Deductible shall not be applied to:
Costs in connection with claims settlement.
Measures to avert or minimise loss, including General Average.
 12-19 Basis for calculation of deductions

Amount subject to deduction:

Full amount of compensation before any deductions made.
Example:
Vessel suffered ice damage.
Damage occurred in conditional area, notice not given to
insurer.
Total damage: USD 400.000,-
Deduction as per 3-15, : USD 100.000,-
Deduction as per 12-15, agreed : USD
100.000,-
Deductible as per 12-18, say: USD 150.000,-
Claim: USD 50.000,-
 Chapter 13
Liability of the assured arising from collision or
striking.
 13-1 Scope of liability of the insurer ( 13-1)

Covers the liability imposed on the assured for damage as a

result of collision or striking.
Collision = Contact with other ship
Striking = Contact with object other than ship
Must as a starting point be caused by vessels movement
E.g. damage to and by tug assisting vessel?
Subject to a number of exclusions, e.g.;
Liability whilst engaged in towing
personal injury and loss of life,
pollution, environmental damage (incl. coral reefs)
damage to cargo on own ship,
wreck removal of own ship,
(Check that there is no gap between H&M and P&I in respect of
liabilities!)
Collision settlement both to blame

Settlement between the parties based on single liability.

I.e. the smaller liability will be deducted from the larger creating
a single liability.
If the person liable has a valid counterclaim, and the claim
and counterclaim have arisen out of the same event,
limitation can only be demanded for that part of the claim
which exceeds the counterclaim
Collision settlement both to blame (cont.)

Insurance settlement to be based on cross liability ( 4-14)

If the assured has incurred liability, and he is entitled to make a
claim against the injured party for a loss which he himself has
suffered on the same occasion, the settlement of the claim between
the assured and the insurer shall be based on the calculated gross
liabilities before any set-off is effected

I.e. it is assumed that each

shipowner pays his liability
to the other party
without set-off.

Mona Lisa smile secrets revealed...:

Secret 1: She was a marine
insurance student.
Secret 2: Smile is captured 30
seconds after a cross-liability
presentation.
 13-4 Deductible

A separate deductible for collision liability to be stated in the

policy.
Deductible shall not be applied to:
Litigation costs.
Costs in connection with claims settlement.
Measures to avert or minimise loss.