Ocean Marine Hull Coverage

OCEAN MARINE HULL COVERAGE

(January 2020)

 

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INTRODUCTION

Lloyds of London was once the exclusive underwriter of Ocean Marine Hull Coverage. Now hull insurance is written by a number of insurance companies and underwriters all over the world. While these policies are very similar to one another, there are differences that can be significant in particular claim situations.

All policies cover physical damage to the hull, machinery and equipment of the vessel. A policy is built clause by clause. Unlike current policies in other business lines, hull policies may contain archaic language. Courts understand this language, due to case precedents, even though the casual reader may not. This analysis is based on the 01/11/03 Lloyds International Hull Clauses but will include references to the American Institute Hull Clauses.

Related Article: Glossary Of Basic Nautical Terms

OCEAN MARINE HULL COVERAGE ANALYSIS

This policy is divided into three parts:

Parts 1 and 3 apply to all insureds. Only some of clauses in part 2 apply to all insureds.

One significant change from prior policies is that the perils are provided at the beginning of the policy instead of in the middle.

PART 1–PRINCIPAL INSURING CONDITIONS

1. General

This section explains how the policy works. It states that English law and practice apply and that the English High Court of Justice is the jurisdiction. Part 1, Part 3 and Clauses 32, 33, 34, 35 and 36 of Part 2 apply. In addition, clauses 37, 38, 39, 40 and 41 of Part 2 apply but only if the insurance company/underwriter agrees in writing to do so.

This section also states that if one provision in the policy is invalid, it does not necessarily mean that the others are.

2. Perils

2.1 Loss or damage to covered property caused by the following perils is covered:

2.1.1 Any peril of the sea, rivers, lakes or navigable waters

Note: This is the primary peril because so many unpredictable and unidentifiable events can take place while the vessel is at sea such as hurricanes, icebergs and typhoons.

 

Example: A rented yacht sailed out of the harbor in New Zealand. The first day out, a whale leaped, landed on the deck, sending  the mast and its sail overboard. The whale returned to the water and disappeared, leaving a badly damaged vessel and an astonished crew behind. The loss was covered because whales qualify as a peril of the sea.

 

2.1.2 Fire and explosion

Fires and explosions can occur while the vessel is docked as well as when it is at sea. For this reason, they are not considered perils of the sea so a separate peril is needed.

 

Example: A fire destroys the galley and also damages part of the infrastructure of a vessel. This is not a peril of the sea but is instead the covered peril of fire.

 

2.1.3 Violent theft by someone from outside the vessel

This peril is subject to two conditions. The theft must be violent and the theft must be caused by someone not associated with the vessel. As a result, coverage does not apply to inventory shortages and employee dishonesty.

2.1.4 Jettison

This peril applies to property that must be thrown overboard in an attempt to save the vessel. Coverage applies to the vessel items that must be discarded for the betterment of the vessel and its cargo.

 

Example: The Mermaid was traveling toward Cleveland when it had to navigate through a late fall storm. It’s hull was perched near the waterline by storm debris. To lift the damaged area higher to avoid flooding, the captain jettisons half of its cargo. The cargo loss is eligible for coverage.

 

2.1.5 Piracy

This was a major peril in the past because ships were frequently alone and unaccompanied on large oceans. Due to the proliferation of a variety of forms of communication and protective devices, piracy is not the extensive problem it once was. However, while piracy worldwide is a minor problem there are certain parts of the world where the possibility of piracy is considered quite high. Wherever there is political unrest, economic crisis, and high levels of unemployment and poverty in a coastal area, the potential of piracy must be taken into consideration.

2.1.6 Contact with a land conveyance, dock or harbor equipment or installation

This peril covers the loss or damage to a vessel when a truck or crane strikes it, or when the vessel strikes a dock, an installation, or other equipment in the harbor.

2.1.7 Earthquake, volcanic eruption or lightning

Because these natural disasters could strike the vessel while it is docked or at sea, this coverage applies separately.

2.1.8 Loading, discharging or shifting of cargo or fuel accidents

These losses could be caused by the ship's crew or the longshore or harbor workers because this clause does not state who must be responsible.

2.1.9 Contact with satellites, aircraft, helicopters or similar objects, or any objects that might fall from them

Objects occasionally fall from aircraft or from space. When they do, they can cause considerable damage. Some are programmed to fall into the ocean while others fall unexpectedly due to mechanical failure or metal fatigue. In any event, any damage they cause to the hull is covered.

Note: This was written before the widespread use of unmanned aerial vehicles (UAV) but the way the peril is written would suggest that this peril would include damage resulting from them.

2.2 Loss or damage by the following perils is covered unless the loss is the result of a lack of due diligence by the insured, owner of the vessel, or its managers.

2.2.1 The bursting of boilers or breaking of shafts. The cost to repair or replace the boiler that burst or the shaft that broke is not covered but the damage to other property is. Note: The damage caused by the boiler bursting or the shaft breaking is covered. Replacing the boiler or shaft is a cost that the vessel's owner bears as a maintenance issue. If the boiler or shaft was covered, it might encourage the owner to delay replacing them with the idea that “insurance will handle it.”

2.2.2 Latent defect in machinery or hull. The cost to repair the defect is not covered under this peril but damage to other property that is the result of that defect is covered.

Note: Most insurance coverage forms and policies exclude latent defect but it is a standard peril in this policy. This is one reason classification societies are so important. Their job is to reveal these problems and ensure that they are repaired before the vessel sails.

2.2.3 Negligence of Master Officers, Crew or Pilots

Negligence and neglect are normally excluded under a property coverage form but they are covered under Ocean Marine. It is important to note that the negligence of the insured, owner or manager is NOT covered.

Note: This is another reason why classification societies are so important. The qualifications and abilities of the master and crew directly affect the vessel's seaworthiness.

2.2.4 Negligence of repairers or charterers that are not considered insureds under the policy

This means that coverage applies if a charterer or a person hired causes the damage. The underwriter then has the option to pursue them in a separate course of action.

2.2.5 Barratry of Master Officers or Crew

Barratry is also defined as mutiny. Barratry is when the master, officers or crew decide on their own to take the vessel elsewhere than was intended or to transport cargo without the owners' knowledge, permission or consent. There is no coverage if the vessel owner, insured or managers were aware of these activities and took no action.

Related Court Case: Immediate Rather Than Remote Cause of Loss of Vessel Held Determining

Note: Clauses 2.1.8, 2.1.9., 2.2.1, 2.2.3, and 2.2.4. are similar to the perils provided under the Inchmaree clause. The clause was introduced in 1887 because of an uninsured loss that was disputed in the Thames and Mersey Marine Ins. Co vs. Hamilton in the House of Lords.

2.3 Clause 2.2.1 pays for the damage caused by the bursting of boilers but excludes the cost to repair or replace a burst boiler or broken shaft. This clause adds back one half of the cost to repair or replace that boiler and shaft when other damage is recoverable under 2.2.1.

2.4 Clause 2.2.2 pays for loss caused by latent defect in machinery or hull but excludes the cost to repair latent defect in the hull or its machinery. This clause adds back one half of the cost to repair the latent defect when other damage is recoverable under 2.2.2.

Note: Clauses 2.3 and 2.4 are in response to the Nukila decision, a critical dispute involving latent defects.

2.5 Even if the master, officers or members of the crew own shares in the vessel, they are not considered owners under any of the provisions in 2.2.

 

American Institute of Marine Underwriters Perils

The International Hull Clauses have eliminated reference to many traditional peril terms. This is a list of traditional perils matched with the International Hull Clauses:

Traditional Perils

International Hull Clauses

Perils of the Sea

The same as 2.1.1.

Men-of-War (War)

There is no such peril in the International Hull Clauses.

Fire, Lightning, Earthquake

The same as 2.1.2 and 2.1.7.

Enemies is similar to Men-of-War and likewise excluded

There is no such peril in the International Hull Clauses

Pirates and Rovers

Part of peril 2.1.5 above.

Assailing Thieves

Matches peril 2.1.3 above.

Jettison

The same as 2.1.4 above.

Letters of Mart and Counter-Mart

Letters governments sent to private citizens allowing them to retaliate against other governments in order to be compensated for losses. This practice is obsolete as the practice was disallowed in the Treaty of Paris in 1856.

There is no such peril in the International Hull Clauses

Surprisals

An earlier term for Letters of Mart and Counter-Mart.

There is no such peril in the International Hull Clauses

Takings at Sea

Vessels  taken by government forces. This is similar to the Men-of-War peril and therefore not covered.

There is no such peril in the International Hull Clauses

Arrests

Detainment of a vessel by a governmental body. A vessel may be released after it is searched or it may then  be taken. This is similar to the Men-of-War peril and likely excluded by FC&S or War Exclusion.

There is no such peril in the International Hull Clauses

Restraints And Detainments of All Kings, Princes and Peoples

Refers to embargoes and quarantines put in place by governmental bodies. This is similar to the Men-of-War peril and likely excluded by FC&S or War Exclusion.

There is no such peril in the International Hull Clauses

Additional Perils

Another name for  the Inchmaree perils.

They match the 2.2 perils.

 

3. Leased Equipment

3.1 Recognizing that leases are prevalent in all businesses, this extends coverage to leased equipment and apparatus. However, coverage applies only if the insured is contractually liable for them.

3.2 The most paid for such loss or damage is the lesser of the cost to repair or replace the property or the insured's contractual liability for it. The value of the property must have been included in the vessel's value.

4. Parts Taken Off

4.1 Coverage applies to a part even after it has been removed from a vessel. The perils that apply to the vessel apply to the removed part.

4.2 If the insured does not own the part but is contractually liable for it, coverage applies for the part but the payment will be for no more than the lesser of the insured’s contractual obligation for that part or the cost to repair or replace it.

4.3 Other coverage, such as bailees customer or business personal property, may be available to cover a damaged removed part. If so, this ocean marine coverage is excess over any such other coverage.

4.4 The removed part is covered for no longer than 60 days after it leaves the vessel. The insured can contact the underwriter within those 60 days in order to obtain an extension.

4.5 The most paid under this clause for any loss is 5% of the vessel's insured value.

5. Pollution Hazard

When a vessel is damaged by an insured peril and pollutants are released, coverage applies to any damage any governmental authority might cause to the insured vessel in its attempt to mitigate the pollution loss. However, there is no coverage if the loss was caused by a lack of due diligence on the part of the vessel's owner, insured or manager. The master, officers, pilots and members of the crew are not considered owners even if they own shares in the vessel.

Note: This is covered as Deliberate Damage (Pollution Hazard) In the American Institute Hull Clauses and Clause 5 in the International Hull Clause.

 

Example: An oil tanker strikes a reef, the fuel tank ruptures, and fuel begins to leak. The country whose coastline is most affected orders the tanker crew to stop the flow of oil, even though doing so affects the vessel’s seaworthiness. The hull damage is repaired when the tanker returns to port. This policy covers the repair costs because the damage came about by a governmental authority's order.

 

6. 3/4th Collision Liability

6.1 If the insured vessel collides with another vessel, this clause indemnifies the insured for 75% of the amount the insured is legally obligated to pay. The damage to the other vessel includes the actual physical damage to it and its property, loss of use of the vessel, and general average, salvage or salvage under contract that the other vessel must pay. This does not include damage to cargo.

6.2 This payment is in addition to the coverage that applies to the insured’s vessel. If the insured and the other vessel are both at fault, payment is determined proportionally and cross liabilities are paid. However, payment to the other vessel never exceeds 75% of the insured value of the insured vessel.

6.3 This clause also pays 75% of the legal expenses incurred to establish liability for any collision. This applies only if the insurance company/underwriter agree to the expenditures. The legal expenses paid will be no more than 25% of the insured value of the insured vessel.

6.4 Coverage does not apply to the cost to remove wrecks, cargo or obstructions. There is also no coverage for cargo, other real or personal property, loss of life, personal injury or illness. In addition, there is no coverage for pollution or contamination except as required by the International Convention on Salvage, 1989.

Note: This can be changed to 4/4 Collision using clause 38 with the underwriter’s approval.

The American Institute Hull Clauses contain the Collision Liability Clause but it is on a 4/4 liability.

7. Sistership

If the insured vessel has an accident with a vessel that is under its same management or ownership, the policy responds as though there were separate owners. The only course of action that is slightly different is that the underwriter and the insured use a single arbitrator.

Note: This is part of the Collision Liability Clause in the American Institute Hull Clauses.

8. General Average and Salvage

8.1 General average occurs when all parties on a vessel voluntarily sacrifice property in an attempt to prevent a total loss. Doing so spreads the loss to all parties with an interest in the vessel. This clause states that the policy covers the insured’s portion of the salvage, salvage charges, and the general average. However, in cases of a total loss, the entire loss is paid.

8.2 and 8.3 Any adjustment made follows the York-Antwerp Rules. Having a single primary set of rules is important because many different insurance contracts could come into play with a General Average. The York-Antwerp Rules are used in this section because they are recognized standards.

8.4 This clause applies only if the loss being avoided was caused by a covered peril.

 

Example: Midnight Magic carried cargo between the United States and Europe. Weather-related problems forced it to jettison well over half its cargo before it stabilized and was able to continue the voyage. The owners of the jettisoned cargo presented claims to Midnight Magic and the other cargo owners for general average to compensate for their loss.

 

8.5 There is no coverage under this clause for special compensation to salvors under the Convention of Salvage, 1989, or similar contracts. Environmental or pollution events are also not covered.

8.6 The language exclusion in 8.5 is amended to state that salvors are paid to prevent or minimize pollution or environment damage in accordance with the Convention of Salvage, 1989, and other payments provided by the York-Antwerp Rules of 1994.

Note: This clause is similar to a portion of the Claims (General Provision) clause in the American Institute Hull Clauses.

9. Duty of the Assured (Sue and Labor)

9.1 The insured does not have the luxury of waiting for the insurance company/underwriter to act when a loss occurs. It must take appropriate action or the claim can be denied. In Ocean Marine insurance, the Master is the one on the scene and is expected to take the necessary steps to protect the vessel from further damage and to do everything possible to minimize the loss.

9.2 The insurance company/underwriter contributes to reasonable and necessary charges already made subject to the deductible in clause 15. This item does not apply to changes in clause 8.5 or for collision defense expenses.

9.3 Action taken by the insurance company/underwriter in assisting the insured does not mean that coverage is going to be provided or that property can be abandoned to it.

9.4 The total payment for expenses is in addition to other covered losses. If the expenses exceed the vessel's insurance value, the insured pays its part of the expenses on a proportional basis with the other insurance that is available.

9.5 The expenses the insured pays do not exceed the vessel's insured value. This cap is important.

Note: This is similar to the Sue and Labor clause in the American Institute Hull Clauses.

 

Example: The Laura Lee’s insured value is $1,500,000. She is caught in a storm and major efforts are made to save her, her crew, her passengers and property of others. The passengers and crew are rescued thanks to the coast guard and other services but she is lost. However, she cannot stay where she was lost and must be removed and taken to a salvage location. The expenses to save her were $2,000,000 but the expenses are shared so that Laura Lee underwriters are responsible for only $1,250,000. Additionally, the expense to recover and take the Laura Lee to salvage is $350,000. Because the value of the Laura Lee is $1,500,000 and the most maximum available to pay for expenses is $1,500,000, the insured is responsible for the remaining $100,000.

 

10. Navigation Provisions

Each of these clauses must be followed. The consequences for not doing so are stated in Clause 11.

10.1 The vessel must not breach any provision regarding cargo, trade or locality. Locality is explained in Clause 32 but other references may also apply.

10.2 The vessel this insurance covers is insured at all times and is permitted to travel with or without a pilot. The insured vessel can tow another vessel in distress but may not tow under contract without the insurance company/underwriter's permission. In addition, the insured vessel may not be towed except as customary or to the first port. Customary towing includes loading and unloading.

 

Example: Evan received a distress signal while out on his shrimp boat. He responded to the signal because he was closest to the vessel in distress. Because that vessel couldn’t move under its own power, Evan agreed to tow it. During the tow, the other vessel lurched, struck and damaged Evan’s boat. The damage to Evan's boat was covered because the tow was the result of a distress call.

 

10.3 The insured is prohibited from agreeing to limited liability for pilots or customary towage unless local laws or practices require that it accept such contracts.

10.4 The insured is not permitted to exchange goods with another vessel while at sea. If it does, there is no coverage for damage to either vessel. However, if coverage is desired, a clause doing so must be added and an additional premium charged.

Note: This is part of the Adventure clause in the American Institute Hull Clauses.

11. Breach of Navigation Provisions

If any of the provisions in Clause 10 are breached, coverage ceases the breach. However, coverage can be reinstated by the insured quickly notifying the insurance company/underwriter and the two of them agreeing to appropriate coverage changes and premium charges.

Note: This is part of the Adventure clause in the American Institute Hull Clauses.

12. Continuation

If a vessel is at sea, in distress, or at a port of refuge when the policy expires, coverage continues in effect until the vessel reaches its port of destination but only if the insured notifies the insurance company/underwriter before the expiration date. The extension is subject to an additional premium charge.

Note: This is part of the Duration of Risk clause in the American Institute Hull Clauses.

 

Example: The Majestic was sailing from St. Paul to New Orleans. Due to heavy flooding, it took refuge at a port in Moline. The policy expired during the time period but the owner notified its insurance company and coverage was extended until the flooding subsided, traffic on the river resumed and the Majestic reached New Orleans.

 

Note: Clauses 13 and 14 always apply, even if they are inconsistent with another clause or clauses.

13. Classification and ISM (International Safety Management)

13.1 The vessel must be classed by a classification society as of the policy's inception date and that classification must continue and cannot be changed during the policy period. If the classification society makes any recommendations or imposes any requirements or restrictions, any that relate to seaworthiness must be completed by the date the classification society states. The person responsible for operating the vessel must have a valid Document of Compliance as required by the International Convention for the Safety of Life at Seas. The vessel must also have a Safety Management Certificate as required by the same Convention.

13.2 If any of the agreements in Clause 13.1 are breached, coverage ends at the time the breach takes place. The only exception is when the vessel is at sea. Coverage for that vessel continues until the vessel arrives at a port at which time all coverage ceases.

When the breach is due to a covered peril, termination occurs only if the vessel sails from the port without the classification society's approval. When coverage is terminated, the owner receives a prorated return premium, provided that the vessel did not sustain a total loss during the policy period.

 

Example: My Keel, a shrimp boat, is damaged by a covered fire and is rendered unseaworthy. Its insurance company pays for the needed repairs and the boat's owner waits for the classification society’s approval before setting out. The crew shows up for work but the classification society does not. The owner decides to let the crew take the vessel out. Another fire occurs during the trip and that loss is denied because the owner breached the warranty.

 

14. Management

This policy terminates immediately in the event of any change of ownership, registry, vessel use, bareboat charter, or transfer to new management. As with most clauses, the termination does not take place while the vessel is at sea. Once the vessel reaches its port of destination, the termination is in effect. However, this exception has a limit. Coverage cancels within 15 days of the change even if the vessel remains at sea.

Note: This is an important issue since the insurance company/underwriter must be able to underwrite the management and the activities of the vessel's operators.

Any vessel that is going to an "old ship graveyard" in order to be cut up and sold for scrap is terminated when the vessel sails unless the insured made other arrangements with the insurance company/underwriter.

In cases where coverage is terminated, the vessel's owner receives a prorated return premium as long as the vessel did not sustain a total loss during the policy period.

The insured, owners and managers must comply with all statutory requirement of the vessel’s flag state relating to most seaworthiness issues such as construction, fittings, and manning the vessel, but these are just a few. These parties must also comply with their classification society’s rules for reporting accidents and defects. If a breach occurs in a particular paragraph, any loss attributable to the breach is not paid.

The same basic wording is found in the Change of Ownership Clause in the American Institute Hull Clauses.

15. Deductible

The insured must pay loss amounts sustained in a particular accident until they exceed the deductible. The deductible is a fixed amount and applies on either a per-accident or per-occurrence basis. Application of the deductible is subject to two exceptions. If the vessel is stranded and its bottom must be viewed to determine damage, the deductible does not apply to the expense of looking at the bottom, even if the bottom is not damaged. In addition, the deductible does not apply if the vessel sustains a total or constructive total loss.

Note: A separate deductible may apply to machinery, shaft, electrical equipment or wiring, boiler, condenser, heating coil or associated piping for losses under Clauses 2.2.1, 2.2.2, 2.2.3, 2.2.4 and 2.2.5.

If the vessel encounters heavy weather during a sea passage, all accidents that occur between two ports due to that weather are treated as a single accident and the deductible is applied only once. Heavy weather includes any contact with floating ice.

 

Example: The Princess was crossing the Atlantic Ocean from Africa to South America. Despite a tropical depression that generated a storm that buffeted the vessel and dislodged certain equipment, the Princess continued on. The storm developed into a hurricane and, despite its efforts to avoid it, the Princess wound up directly in its path. The damage the second time was far greater. Because the same storm caused all the damage, the deductible was applied only once.

 

In addition, all damage that occurs while cargo is being moved from one vessel to another at sea is considered one accident.

Note: This is similar to the Deductible Clause in the American Institute Hull Clauses.

16. New For Old

This is known as replacement cost in property insurance. Losses are paid without a deduction for depreciation.

Note: This is the same on all hull policies.

17. Bottom Treatment

This section of the policy is quite specific concerning the types of preparations paid as part of the reasonable costs to repair the bottom plating of a vessel damaged by an insured peril. The insured bears the expenses of any bottom preparations made outside this condition.

Note: This is the same on all hull policies.

18. Wages and Maintenance

This insurance does not pay wages and maintenance to the master, officers, or members of the crew. However, there are two exceptions. The master, officers and members of the crew wages and maintenance are paid after a covered loss when:

The payment is limited to the time period when the vessel is underway.

Note: This is the same on all hull policies.

19. Agency Commission

The insurance company/underwriter does not reimburse the insured or anyone acting on its behalf for time spent and expenses incurred to obtain documents or information the company requires.

Note: This is the same on all hull policies.

20. Unrepaired Damage

If insured damage is not repaired, the insurance company/underwriter pays for the reduced value of the vessel because of the unrepaired damage but such payment will not occur until the policy expires. The amount paid is limited to no more than the actual cost required to repair the damage.

If that damaged insured vessel sustains a total loss during the same policy period in which unrepaired damage occurred, the insurance company/underwriter does not pay for the unrepaired damage, regardless whether the  total loss was, otherwise, eligible for coverage.

Note: This is the same on all hull policies.

 

Example: John’s tug ran up against a bridge foundation. The bridge was not damaged but the tug was badly damaged. John decided not to make repairs because he did not want to pay the deductible. The tug was set on fire during a labor dispute later in the same policy period. The fire damage was not paid because of the Wars and Strikes exclusion. John was also not paid for the unrepaired damage because the tug was totaled.

 

21. Constructive Total Loss

The cost to repair the vessel is the only factor used to determine whether or not it can be considered a constructive total loss. The salvage or breakup value is not used in the calculation. The vessel can be declared a constructive total loss only if the cost of recovery and repair exceeds 80% of the vessel's insured value. The loss determination must be based on a single accident or a sequence of events arising from the same accident.

Note: This is the same on all hull policies except for the 80%. It is 100% in the American Institute Hull Clauses.

22. Freight Waiver

The earned freight remains with the insured once the insurance company/underwriter determines that a loss is a constructive total loss.

Note: This is the same on all hull policies.

23. Assignment

The insured cannot simply decide to assign a hull policy. Doing so changes the insurance to apply for the benefit of another party. Because insurance policies are personal in nature, the insurance company/underwriter must be able to underwrite and accept any new party insured before it commits to continuing coverage. The policy cannot be assigned unless the insurance company/underwriter agrees to the assignment.

Note: This is the Change of Ownership Clause in the American Institute Hull Clauses.

24. Disbursement Warranty

The insured may decide to purchase separate insurance to cover certain property and circumstances included in the hull policy. The insurance company/underwriter writing the hull coverage loses premium when the insured does this. This section permits the insured to purchase certain amounts of insurance under certain circumstances but does not require it to do so. If the insured's purchase exceeds allowable amounts, it breaches the policy to the extent that coverage does not apply to the insured. However, such breaches do not affect a mortgagee.

Note: This is the same on all hull policies.

25. Cancelling Returns

If the insurance company/underwriter and the insured agree to cancel the policy, the insured receives a pro rata net monthly return of premium for the remaining months. However, there is no return of premium if the vessel sustains a total loss, whether the loss is covered or not.

26. Separate Insurances

More than one vessel may be covered under one policy but each vessel is treated as if it is the only vessel covered.

27. Several Liability

Each underwriter or insurance company/underwriter is only responsible to pay its subscribed amount of loss. If one underwriter is unable to meet its obligation, the other underwriters are not obligated to pay the difference.

Note: This is different than joint liability.

28. Affiliated Companies

The insurance company/underwriter agrees not to subrogate against the insured's associated, subsidiary or affiliated companies that may charter its vessel.

Note: Clauses 29, 30 and 31 below override anything inconsistent with them.

29. Wars and Strikes Exclusion

There is no coverage for most types of war, including derelict mines, torpedoes, bombs, and similar weapons of wars. Except for barratry or piracy, any capture, seizure, arrest, restraint or detainment is excluded. In addition, coverage does not apply to damage or expense caused by strikers or others involved in labor disputes, riots, or civil commotion.

Note: This is part of the war exclusion in the American Institute Hull Clauses.

30. Terrorist, Political Motive and Malicious Acts Exclusion

There is no coverage for terrorists or others that operate a vessel with political motives. Coverage also does not apply when a person acting either maliciously or for a political motive causes an explosion or uses a weapon of war, resulting in loss or damage to the vessel.

Note: This is part of the war exclusion in the American Institute Hull Clauses.

31. Radioactive Contamination, Chemical, Biological, Bio-Chemical and Electromagnetic Weapons Exclusion

There is no coverage for loss or damage due to the following under any circumstances:

Note: This is the same on all hull policies. This is part of the war exclusion in the American Institute Hull Clauses.

PART 2–ADDITIONAL CLAUSES

32. Navigating Limits

This clause has a list of places where travel is prohibited unless the insurance company/underwriter gives permission to do so. Some are always off limits, such as the Arctic. Others are off limits only during certain time periods. An example is the St. Lawrence River where travel is prohibited only between December and April.

There are 10 areas with prohibited travel portions: The Arctic, Northern Seas, Baltic, Greenland, North America (east), North America (west), Southern Ocean, Kerguelen/Crozet, East Asia, and the Bering Sea. Each should be reviewed and if exception needed discussed with the underwriter.

33. Permission for Areas Specified in Navigating Limits

There is no breach if the insured receives permission to operate that would be prohibited under Clause 32 if the insurance company/underwriter agrees to its lifting and the insured pays the additional premium.

34. Recommissioning Condition

When a vessel is laid up more than 180 days, either a classification society or a marine surveyor must examine it. Needed repairs to comply with any recommendations made must be completed before the vessel leaves its lay-up berth.

35. Premium Payment

This section explains the standard premium payment terms but allows different terms to be negotiated. One important point is that the insurance company/underwriter must give a 15-day notice of cancellation if the premium is not received as agreed. Any such cancellation is for the benefit of the lead company and all co-subscribing companies.

36. Contracts (Rights of Third Parties) Act 1999

The contract is between the insurance company/underwriter and the insured unless specifically stated to the contrary. These parties may alter the contract without consulting or notifying any third party provided there are no separate agreements.

37. Fixed and Floating Objects

The clause may be substituted for Clauses 6 and 7. It is identical to them except for the addition of the term “fixed or floating objects” as a possible item damaged by collision.

Note: In order to be valid, any substitution of clauses must be done in writing.

38. 4/4th Collision Liability

Underwriters can expressly agree to substitute this clause for Clause 6. 3/4th Collision Liability. This means that the insurance company/underwriter pays 100% of the loss instead of 75%.

39. Returns for Lay-Up and Cancellation

Vessels in lay-up are eligible for a return premium, based on whether the lay-up is for repair or for other than repair.

Return premiums are subject to conditions, an important one of which is that there is no return if a total loss occurs during the policy year. Another is that there is no lay-up return premium for any lay-up in an unapproved port. Unloading cargo is not considered lay-up. If the annual rate was adjusted any time during the policy year, such adjustment must be taken into consideration when determining any return premium.

Related Court Case: Laid Up/Out of Commission Endorsement Held Violated By Movement for Repairs

Note: The insurance company/underwriter must approve this clause in writing. This is the same on all hull policies.

40. General Average Absorption

If a loss that permits general average occurs, the insured can claim the total general average, meaning there is no contribution from any other party. In addition, the insurance company/underwriter agrees to relinquish its subrogation rights in addition to not applying any deductible. Payments made are according to the York-Antwerp Rules, 1994.

Note: This clause applies only if the insurance company/underwriter agrees to it in writing.

41. Additional Perils

Full coverage applies to burst boilers under Clauses 2.2.1 and 2.3 and to latent defect under Clauses 2.2.2 and 2.4 if agreed to in writing. Coverage can also apply to loss or damage to a vessel caused by accident, negligence, incompetence, or errors in judgment by any person. However, none of these perils apply to lack of due diligence on the part of the insurance, owner or manager of the vessel.

PART 3–CLAIMS PROVISIONS

42. Leading Underwriters

Co-subscribers are all of the insurance companies or underwriters who are covering a portion, share or "subscription" of the hull limit. One subscriber is the lead underwriter and bears most of the administrative responsibilities just as the first named insured bears most of the administrative responsibilities for other named insureds. This clause explains how the relationship of the co-subscribers with the lead underwriter operates.

43. Notice of Claims

In case of an accident or occurrence where loss may result, notification must be forwarded to the insurance company/underwriter as soon as the insured, the owner or the manager is aware of the loss. The insurance company/underwriter may then send out a surveyor. There is no coverage for the loss unless the notification is made within 180 days after the insured, owner or manager is aware of the loss unless the insurance company/underwriter has agreed to a different notification period.

 

Example: Craft Lines ship was operating in rough waters. There were loud noises around the hull that could have been damage to the vessel but the Master did not notify the insured. When the vessel ported 20 days later, the maintenance crew noticed some significant damage to the vessel. They notified the owner immediately. The owner has 180 days from the date it was notified, not 180 days from the date the damage was actually incurred.

 

44. Tender Provisions

If the vessel is abroad, the insured must notify a local representative in order for the insurance company/underwriter to decide who it wants to repair the vessel. The right to choose the port where the repairs will be made and the marine surveyor to use belongs to the insurance company/underwriter.

It can request bids for the repairs. If it does, it pays for the costs of the resulting delay up to a designated amount. However, it then deducts the insured's fuel savings and reduced payroll costs.

A 15% penalty is imposed if the insured does not do everything indicated in this clause.

Note: This is similar to a portion of the Claims (General Provisions) clause in the American Institute Hull Clauses and Clauses 46 and 57 of the International Hull Clauses. However, the American Institute Hull Clauses does not have the statement concerning the 15% penalty.

45. Duties of the Assured

This clause lists the insured's duties as they relate to a claim. It requires the insured to cooperate and provide the insurance company/underwriter with any relevant information it requests. However, the insured is not required to provide information considered legal or litigation privilege and protected under English Law.

46. Duties of the Underwriters In Relation To Claims

The lead insurance company/underwriter controls the claim adjustment process, instructs the marine surveyor, and appoints an independent adjustor to work with the insured. It pays the surveyor and adjuster's fees but doing so does not obligate it to admit responsibility to pay the claim. The insurance company/underwriter is required to keep the insured informed as the claims adjustment progresses. Once it receives the adjuster’s report or when an adjuster is not involved other necessary documentation from the insured, the clock starts ticking because there is a 28-day window during which the insured must be told of the decision on coverage. The time may be extended if additional information is required but that extension must be reasonable.

47. Provision of Security

After an accident occurs, the insured may be required to post security in order to obtain release of the vessel or its crew members. While not required, the insurance company/underwriter may consider assisting the insured by providing security on its behalf.

48. Payment of Claims

Claims are paid to the insured or the loss payee. The insurance company/underwriter has no further obligations once it pays the claim.

49. Recoveries

The insured must agree to pursue recovery opportunities against third parties. The insurance company/underwriter will compensate the insured for its reasonable costs in pursuing those opportunities. When recovery is possible, the expenses are proportioned between the insured and the insurance company/underwriter based on their percentage of paid loss. If no recovery is possible, the insurance company/underwriter pays the entire recovery expense.

Any recovery made is proportioned to the insured and the insurance company/underwriter based on the proportion the insured and uninsured amounts of the loss bears to the total loss but only after the expense is paid.

 

Example: Willard’s tug sustained a $100,000 loss. Willard paid the $25,000 deductible and his carrier, Tugboat Underwriters, paid $75,000.

This makes their proportion of the claim as 25% for Willard and 75% for Tugboat.

Willard incurred $10,000 pursing a recovery from Gentry Ship Lines. Tugboat pays $7,500 Tugboat as their part of the expense. Gentry was ordered to pay Willard $95,000.

The $95,000 is split as follows:

$2,500 to Willard for recovery expense

$7,500 to Tugboat for recover expense

$21,250 to Willard for deductible reimbursement

$63,750 to Tugboat for loss payment reimbursement.

50. Dispute Resolution

If the insurance company/underwriter and the insured cannot reach an amicable agreement through negotiation, they agree to use mediation or other methods to resolve their dispute.

The first step is to list the clauses that apply to illustrate the basic coverage provided. Negotiations between the parties can then broaden or narrow the coverage.

CONCLUSION

All hull coverage forms and policies are similar with respect to major areas of coverage and exclusions. Any differences are due to language and practice. Most current forms attempt to upgrade the language used to the 21st century but this can be a two-edged sword. While the value of policy wording established by cases and past precedent is lost, the insured has a policy that is much easier to understand. These changes also allow the insurance companies to address today's exposures and discard those that no longer  exist.

It is also important to remember that ocean marine coverage forms and policies are commonly subject to negotiation that can result in significant changes. Further, many of the clauses used to modify terms are not usually subject to insurance department form or rate approval. For these reasons, using an experienced ocean marine broker is important. Refer to Marine Hull Insurance in The Insurance Marketplace, a publication of The Rough Notes Company, Inc. for a list of specialists that underwrite this coverage.