New version of the Nordic Marine Insurance Plan

The Nordic Marine Insurance Plan of 2013, version 2023, was recently approved by the Revision Committee. The new version will enter into force on 1 January 2023.

In the Nordic Marine Insurance Plan of 2013, version 2023, noteworthy changes include increased attention to ethical, social and environmental considerations, overhauled loss of hire insurance conditions, a clarification of the claim leader’s rights and authority, and an extended time limit for notification of casualties.

The significance of ethical, social and environmental considerations in the shipping community is growing. In marine insurance this has for some time been reflected in initiatives such as the Poseidon Principles for Marine Insurance. In the new version of the Plan the rules governing the assured’s choice of repair yard in chapter 12 have been amended on the basis of such considerations.

After a casualty has occurred, tenders from various repair yards are often obtained. According to clause 12-12, sub-clause 3, the assured can demand certain yards to be disregarded if warranted by special circumstances. In the new version of the Plan, it is clarified that a repair yard’s poor performance in environmental and social governance may amount to circumstances that warrant disqualification.

After assessing all relevant tenders, the assured can chose which yard to use. The insurer’s liability is, according to clause 12-12, sub-clause 2, as a point of departure limited to the most cost-efficient alternative for the insurer. In the new version of the Plan, this sub-clause has been amended to allow the assured to recover some of the increased costs if his choice implies reduced CO₂ emissions compared to the most cost-efficient alternative.

Finally, in this context it is also worth mentioning that the new version of the Plan uses gender neutral language.

Overhauled loss of hire insurance conditions

The most significant change in the new version of the Plan is the overhaul of the loss of hire insurance conditions in the Plan’s 16^th chapter. The last time these provisions were revised to a comparable extent was in 2003.

As we will elaborate below, the new version of the Plan and its commentary clarify that the loss of hire insurance provides cover against the assured’s loss of income rather than the vessel’s loss of income. We will also examine several noteworthy amendments:

Clause 16-11 regarding the insurer’s liability for mitigation expenses has undergone several changes, most importantly that the clause’s scope of application is now more general than previously.
Clause 16-2 regarding the loss of hire insurer’s liability in loss of hire situations has been amended to avoid a gap in the interface between the loss of hire and hull insurances.
Clause 16-9 regarding repair yard tenders now simplifies the rules in respect of the limits to the insurer’s liability when the assured decides to repair the vessel in a yard that implies increased costs to the loss of hire insurer.
Clause 16-15 regarding the insurer’s liability where a transfer of ownership is delayed due to an event covered under the insurance now provides wider cover to the assured.
Despite certain adjustments, the rules regarding calculation of compensation under the loss of hire insurance are broadly speaking maintained as before.

The nature of the Plan’s loss of hire insurance

The new commentary to the loss of hire conditions emphasises on explaining the nature of the Plan’s loss of hire cover. In essence it states that the loss of hire insurance aims at providing cover against the assured’s loss of income due to the vessel becoming damaged and prevented from earning hire. This is reflected in a terminological adjustment throughout the loss of hire chapter, see for example clause 16-1 where the term “loss” is replaced with “the Assured’s loss of income”. The backdrop is clearly Agder Court of Appeal’s judgement in the “Hamburg Cruise” case (available in Norwegian) in which the court concluded that the assured could claim loss of hire for a period during which the assured had obtained a replacement vessel to perform the charter party and earn hire. The court’s view was that the insurance covered the vessel’s ability to generate income. In other words, the new version of the plan rejects the court’s position.

Clause 16-11: Mitigation expenses

The “Hamburg Cruise” case also contributed to the amendments in clause 16-11, sub-clause 1. Previously the insurer, as a starting point, covered extra costs due to extraordinary measures to minimise “loss of time”. In the court of appeal’s view, this referred to extraordinary measures that sought to reduce the time the insured vessel was unable to earn hire, and thus not to other types of measures, such as obtaining a replacement vessel to perform the charter party. In the new version of the Plan, the wording is more general. It is sufficient that the measures are aimed at reducing “loss”. The insurer is, however, only liable if the costs cannot be recovered under the assured’s hull insurance. Thus, also in relation to clause 16-11, sub-clause 1, the amendment implies a rejection of the court’s view in the “Hamburg Cruise” case.

Another novelty is that the general rules in the Plan’s 4^th chapter, 2^nd section, no longer supplement clause 16-11. Previously clause 16-11, sub-clause 3, gave rules regarding the apportionment of the extra costs where both the insurer and the assured benefited from the extraordinary measures. In the new version of the clause, the benefit of other interests, e.g. other loss of hire insurers, will also be taken into consideration during the apportionment.

Clause 16-12: The loss of hire insurer’s liability in total loss situations

The Plan’s loss of hire insurance is not intended to cover loss of income resulting from total loss of the vessel. The rationale is that there is a loss of hire element in total loss compensation. Previously the main rule according to clause 16-2 was that the loss of hire insurance did not provide cover if the assured could have claimed total loss compensation according to the Plan’s 11^th chapter, regardless of whether the assured actually had insured the vessel according to the Plan’s conditions. The actual insurance conditions were only decisive if expressly accepted by the insurers. The previous solution could lead to a coverage gap in cases where the assured was not entitled to total loss compensation according to the actual hull insurance, but could have claimed total loss compensation according to the Plan. This situation is now avoided. The main rule in the new version of the Plan is that loss of hire compensation is not available if the assured could have claimed total loss payment according to the hull insurance actually in effect. Only in the rare cases where no hull insurance is in effect will the conditions in the Plan’s 11^th chapter be decisive. In our view, the amendment is sensible, as it eliminates the risk of a seemingly unintended insurance gap.

Clause 16-9: Repair yard tenders

As mentioned above, after a casualty has occurred, tenders from various repair yards are often obtained, see clause 16-9, sub-clause 1. The new version of the Plan’s clause 16-9, sub-clause 2, provides rules on how the tenders should be adjusted and compared in order to determine which of them is lowest for the purposes of the loss of hire insurance. Furthermore, according to the revised sub-clause 3, the insurer’s liability is limited to the lowest tender. The latter change implies a simplification compared to earlier versions, where the limit to the insurer’s liability depended, among other things, on whether the assured’s hull insurance was based on other conditions than the Plan.

Clause 16-15: Delays in transfer of ownership

Clause 16-15 deals with the insurer’s liability where a transfer of ownership is delayed due to an event covered under the loss of hire insurance. In the new version of the Plan, the assured is afforded a wider cover in such cases. For example, according to sub-clause 1, the assured may not only claim compensation for loss of interest, but also for costs wages and maintenance of the crew.

Rules regarding calculation of compensation

The main rules concerning the calculation of compensation under the loss of hire insurance are found in clauses 16-3 to 16-7. The wording in the clauses has been altered, and the commentary to the clauses has been expanded. Overall the changes are not substantial, but rather seek to simplify and explain the provisions. Clause 16-12, regarding apportionment of time when repair work in respect of a casualty covered under the loss of hire insurance is carried out simultaneously with certain other types of repair work, has been extensively revised, although only minor material changes are intended.

Clarification and adjustment of the claim leader’s rights and authority

The new version of the Plan clarifies and adjusts the claims leader’s rights and authority to act on behalf of the co-insurers through amendments in chapter 7 and 9. The rationale is to enhance the administrative benefits of having a claims leader.

Notably, clauses 7-1 and 9-2 have been amended to clarify the claims leader’s right to act on behalf of the co-insurers in relation to the vessel’s mortgagees. As in previous versions, mortgagees are automatically co-insured. The amended version of clause 7-1, sub-clause 2, makes it clear that mortgagees only need to notify the claims leader about the mortgage in order to obtain the additional mortgagee rights set out in clauses 7-2 to 7-4.

Another example of adjustments to the claim leader’s position is clause 9-7. In the new version of the Plan, the scope of the claim leader’s right to compensation after providing security on behalf of the co-insurers has been expanded.

Extended time limit for notification of casualties

The new version of the Plan extends the time limit for the assured’s notification of the casualty in clause 5-23 from six to twelve months. In our view, the amendment is well-founded. The six months’ time limit was short considering that failure to observe the time limit results in loss of the insurance claim, and that the corresponding time limit according to the Norwegian Insurance Contracts Act is twelve months.

Other noteworthy amendments

Clause 5-4 deals with the assured’s right to claim interest on the compensation. The new version of the Plan simplifies sub-clause 3 concerning the interest rate. Going forward, the annual rate of interest will be set to the United States Prime Rate applicable on the 1^st of January of the year the individual insurance contract takes effect.
Clause 8-2, sub-clause 1, protects a co-insured third party against claims from the insurer which the insurer obtained through subrogation. The new version of the Plan includes a new sub-clause that makes it clear that the co-insurance arrangement should not prevent the insurer from claiming recourse from third parties that are not co-insured. Thus, the outcome in the UK Supreme Court’s decision in the “Ocean Victory” case is sought avoided.
Clause 12-16 regarding special deductions for machinery damage has been altered in the new version of the Plan. Firstly, sub-clause 1 no longer mentions damage to “pipelines and electrical cables outside the machinery” as within scope of the clause’s scope of application, but rather damage to “accessories concerning the propulsion or operations of the vessel”. Second, the exceptions to the special deductions in sub-clause 2 no longer use the term “engine room”, to reflect the technological development whereby vessels don’t necessarily have one single engine room.
Clause 15-11 in the Plan’s war risk insurance chapter states that the assured may submit a claim for total loss if the assured has been deprived of the vessel due to foreign State Power interventions within the ambit of the insurance for a prolonged period. Previously, the intervention had to last six months before the assured could submit the claim. The new version of the Plan extends this period to twelve months. This amendment is thus to the benefit of the war risks insurers.