By Adam Rolland, Average Adjuster, Independent Average Adjusters Ltd, Bjørn Slaatten, Average Adjuster, Norway and Petros Tasios, Senior Claims Executive, Seascope (Hellas) SA

Published May 2025

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Preface

This study identifies the most significant differences between the American Institute Hull Clauses (2 June 1977) and the Nordic Plan (Version 2023), and highlights the effect of such differences from the standpoint of claims handling and average adjusting.

The Nordic Plan operates in a spirit of compromise and consensus, as it is the outcome of an agreement between the owners (represented by four Nordic Shipowners' Associations) and insurers (Nordic Association of Marine Insurers). It is revised by the parties every four years to keep up with market developments and to adjust for agreed proposed changes. A 583-page commentary gives clarity and certainty, reducing the likelihood of dispute and the possibility that an assured would face an unintended gap in the cover. The claims-handling module enhances active support and cooperation by the leading underwriter who deals with the loss.

The American market hull clauses have been used as the prominent set of insurance conditions in North America, and are very commonly amended in policies to suit the needs of assured and insurer alike. Assureds will add their own special clauses with their favoured wording which can be either tailor made or extracted from other hull forms. Prima facie, this reflects the commercial aspects for meeting the particular needs of insurance of vessels of special types or of vessels engaged in particular trades. At the same time the great majority of owners use special clauses to fill gaps in the cover offered by the basic hull clauses themselves. The extensive case law and practice in the adjustment of claims mostly overcome grey areas, minimising disputes.

All in all, the parties negotiating an insurance contract are at liberty to agree upon the insurance conditions and clause wordings, having the option to modify the listed conditions and clauses in the policy.

With the increased use of the Nordic Plan for risks traditionally insured using the American or London market clauses, and also increased market placement of risks insured under such clauses with Nordic insurers, the authors perceived a need for a comparison of the extent of coverage offered by each wording and their effect as regards to hull and machinery insurance claims.

In addition, the authors thought to share their own experiences in handling claims insured under each set of clauses with a view to generating discussion about common pitfalls peculiar to this process, and developing a more comprehensive market approach to transferring risks between each set of clauses. Doing so, we believe, will foster greater market competition, expertise, and cooperation between London, Nordic and North American marine insurance practitioners to the ultimate benefit of their shipping industry clients worldwide.

I. Introduction

The American Institute Hull Clauses

In the United States and Canada, policy wordings covering physical loss or damage to the structure of a vessel vary from one region to another, with different clauses being preferred on the west versus east coasts, for the insurance of the various "brown water" fleets that operate upon the extensive inland river waterways, and for the bulk carrying and passenger vessels operating on the Great Lakes. Of these various wordings, the American Institute Hull Clauses (6/2/77) (the "AIHC'77") have become the favoured clauses to insure "blue water", ocean-going vessels, and are invariably supplemented by manuscript clauses which tailor the coverage to suit the specific needs of the risk insured.

As a standard hull policy for ocean-going vessels, the AIHC'77 was derived from earlier versions of the same clauses, most recently in 1964 and 1970, and the text of the wording reflects insurance clauses whose meanings are well established through practice and jurisprudence.

A more recent version of the clauses, dated 29 September 2009, has not found favour with the market, due in part to its more stringent conditions as regards claim notification requirements. Accordingly, this clause is not reviewed herein.

Although the use of the AIHC'77 has diminished over time with the corresponding decline of the US blue water fleet and US underwriters' share of the global marine insurance market, the clauses continue to be popular with insurers and shipowners alike due their flexibility and certainty of interpretation. To this day AIHC'77 retains a strong presence in the Americas and also enjoys widespread use in European markets for hull and machinery ("H&M") insurance cover.

It is worth noting that, unlike in the United Kingdom and Canada, there is no national statutory marine insurance law in the United States, and therefore care should be taken to ensure that in the event of dispute between assured and insurer, English or Canadian law and practice will apply.

The Nordic Plan

The roots of the Nordic Marine Insurance Plan 2013 (Version 2023) (the "Nordic Plan"), and its "Commentary", hark back to its first iteration in 1867, and it is unique in its conception as a working document which is reviewed and improved by a standing committee of average adjusters', insurers' and shipowners' representatives every fourth year. The committee is chaired by a professor at the Scandinavian Institute of Maritime Law. The Plan has recently experienced a resurgence in popularity in marine insurance markets, especially in Europe, and is now recognised as one of the leading marine insurance clauses worldwide.

Assureds and brokers appreciate the clarity and extent of coverage provided and that an assured, except for oceangoing P&I insurance, can find all insurances necessary for a vessel in the Plan.

The Plan is divided into four parts: Part One includes rules common to all types of insurances included in the Plan, eg but not limited to jurisdiction, choice of law, arbitration, perils insured against, duties of the person effecting the insurance and of the assured, safety regulations, liability of the insurer, settlement of claims, premium and co-insurance of mortgagees, relationship between the claims leader and co-insurers and others.

Part Two concerns H&M insurance covering physical loss or damage to the insured object and liability of the assured arising from collision and striking.

Part Three concerns other insurances for oceangoing vessels such as a separate total loss insurance (HI and FI), war risks insurance and loss of hire insurance.

In Part Four, "Other insurances", one will find insurance for fishing vessels and offshore mobile units, builder's risks insurance, insurance for vessels with trading certificates and liability insurance.

The Plan text is supported by a comprehensive commentary giving details and explanations of all clauses in the Plan and adjusting practice.

II. Executive summary

Please see the PDF document of this article for a comparative table of wording.

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III. Commentary on selected wording differences

Average adjusting

The assured appoints an average adjusting firm to prepare the claim (AIHC) -- v -- The claim is adjusted in-house by the insurer, subject to the agreement of the assured (NMIP)

The AIHC makes no reference to the way that the assured and insurer must proceed with the technicalities of adjusting a claim. It is customary that when English or North American conditions are applicable, the assured instructs an average adjuster who is normally pre-approved by the insurer to prepare the claim adjustment.

For claims subject to the NMIP (clause 5-2), and similar conditions adopted by Nordic underwriters, the adjustment of claims is dealt with "in-house" by the Lead underwriters' own adjusters whose charges then form part of the claim. However, the insurers are entitled and may elect to outsource the adjusting of a claim under the policy to an independent average adjuster, and the policy may provide for named adjusters to be appointed to adjust or review the claim, especially for General Average claims.

In case of a dispute under the NMIP (clause 5-5), the claim adjustment is submitted to a Nordic average adjuster chosen by the insurer before the case may be referred to court. If the assured fails to appoint an adjuster, the insurer may do so, and the insurer will cover the costs unless the demand to have the insurer's adjustment reviewed is, in the adjuster's opinion, clearly unfounded.

Betterment

1. New For Old

Except where the damage is left unrepaired or where equivalent parts are not available, the assured recovers for the cost of replacing damaged parts on a "like-for-like" basis (AIHC) -- v -- The Plan treats the replacement of New for Old parts similarly to the AIHC

2. Depreciation

Where the damage is repaired, there is no recovery for a depreciation in a vessel's value as a result of its having sustained damage and undergone repairs (AIHC – see also "Unrepaired Damage" below) -- v -- Under the Nordic Plan, the insurer is liable for a depreciation in the market value of the vessel following damage repairs in certain circumstances.

1. New for Old

The "New for Old" policy provisions in the AIHC, and within the NMIP, don't necessarily mean that the assured will receive new parts in replacement of used parts that have been damaged in a loss covered by the policy. The concept of "Betterment", arising for example from the replacement of a no longer available older engine with a newer model, runs contrary to the principle of indemnity (defined as being restored to the condition the subject matter insured was in prior to the occurrence of the loss) and as such doesn't meet the test of "reasonableness" that is applied to all marine insurance claims under the AIHC that are subject to Marine Insurance Act 1906 (section 69). The determination of what is "reasonable" must be established after considering all factors: eg whether a used engine is available or not, and without an unreasonable delay. To meet the "reasonableness test", equivalency is adequate; otherwise, the replacement of new parts for old may potentially create a betterment. In case of doubt, the appointed average adjuster will normally seek the underwriter's surveyor's opinion to determine whether or not the repairs in question have resulted in a betterment to the vessel.

The "reasonable cost of repairs" test does not apply to claims under the NMIP, which defines a betterment as that which "results in a special advantage for the assured because the vessel is strengthened or the equipment improved" (clause 12.1). In such event, the assured would be required to accept a deduction from the cost of repairs in respect of such improvement.

2. Depreciation

As noted above, the principle of indemnity limits the insurance indemnity available to the cost of repairing with equivalent parts and materials, where available, and the insurer may demand that its liability be limited to the costs of the least extensive repairs.

However, doing so inevitably results in a less than perfect indemnity, where although the vessel may meet its technical and operational safety requirements and be fit for its intended use, its market value may be diminished.

A depreciation in the market value of an insured vessel following repairs is an indirect, consequential loss that the AIHC was not designed to cover, presumably on the grounds that loss of market and other consequential losses (eg delay) are excluded from a policy of marine insurance by virtue of the Marine Insurance Act 1906 (section 55 etc), unless a policy otherwise provides. In other words, coverage for losses arising from market depreciation of the vessel following a repair claim is precluded as not being part of the reasonable cost of repairs.

As regards depreciation in value, there is a clear distinction between the AIHC, which does not provide coverage for a vessel's depreciation in value as a result of a repair claim, and the NMIP which does (clause 12-1, sub-clause 4): "If complete repairs of the damage are impossible, but the vessel meets technical and operational safety requirements and may be made fit for its intended use by less extensive repairs, the insurer under the Plan is, in addition to the repair costs, liable for the depreciation in value”. That the vessel, as a result of the damage and the repairs, has a lower market value than it had before the damage, eg because a buyer is afraid that there may be latent damage, is not in itself decisive if the repairs must be regarded as complete from a technical point of view and are approved by the classification society.

An example drawn from the NMIP's commentary may be where damage to the crankshaft is repaired by grinding the crank pin to a size below standard. If the classification society accepts the repairs, the assured will not be entitled to compensation for a new crankshaft; however, if he is able to establish that the repairs will result in a depreciation of the vessel's value, the NMIP will indemnify him for such depreciation.

Bottom Treatment

Bottom treatment costs are allowed in certain circumstances where the bottom plating is damaged by an insured peril (AIHC) -- v -- No standard provision is included (NMIP)

Bottom coating technology has evolved significantly in the past two decades, such that the lifespan of a modern bottom coating can be as much as five years or more, and incurs considerable application costs.

However, not only are the improved modern coatings more expensive, more durable and more effective in their ability to reduce surface friction and eliminate corrosion, they are also critical to maintaining hull efficiency in ways that enable compliance with current and upcoming environmental legislation.

Accordingly, bottom coatings must be seen as a critical and material part of a vessel that requires constant monitoring, maintenance and repair. In view of the cost savings that a modern bottom coating represents in fuel efficiency alone, an owner will now seriously consider drydocking a vessel to repair a damaged area of bottom coating, even if there has been no damage to the vessel's shell plating. In view of the cost of so doing, the question of whether such costs may be claimed against the vessel's policies of insurance becomes relevant.

Where there has been no corresponding damage to the vessel's hull plating, the AIHC'77 provides no coverage for the cost of repairing a vessel's bottom coatings due to a covered peril. The AIHC clauses do not appear to account for the importance of hull coatings, technological developments or loss scenarios, and would need to be modified with an appropriate clause by, for example, deleting line 113 from the wording.

Conversely, the Plan has no provision on this particular area and there is no specific exclusion of bottom treatment. The insurer is liable to restore the vessel to its previous condition (clause 12-1) whilst, according to the commentary of the Plan, the bottom painting of the damaged area shall be treated in the same way as all other paintings (clause 12-5).

The NIMP would treat damages to bottom coatings incurred via mechanical abrasions, soft groundings, etc. as it would treat any other damage arising from an insured peril, which is to say that it would be covered by the Plan subject to the policy conditions (deductible, etc).

Causation

1. Extent of cover

Named perils (AIHC) -- v -- All risks (NMIP)

As noted previously, the AIHC'77 and the NMIP derive from different legal traditions, a fact which can affect how causation is treated in the context of a marine claim.

The AIHC'77 typically forms the basis of policies that are subject to US, Canadian or UK law and practice, which laws share a common tradition formed by jurisprudence and statute that when determining whether a loss is covered by an insured peril one must look to the dominant and efficient cause of a loss, also known as the "proximate cause", which is linked in an unbroken "chain of causation" to the loss.

When claiming under a "named perils" type policy such as the AIHC'77, an assured has the burden of showing that the cause of the loss in question is covered by one of the insurance policy's listed (ie "named") perils (for claims under the Additional Perils Clause see also "Named Perils v All Risks" below). Having done so, the burden then shifts to the insurer to show, if it so believes, that the cause of the loss was due to an uninsured or excluded peril.

A loss may have several, concurrent causes, some more immediate than others, but under the AIHC coverage is only triggered where the loss is proximately caused by a single named peril, and then the loss is covered in full despite the fact that other, more remote causes may have contributed to the loss.

Under the AIHC and English clauses, if the loss is due to several concurrent causes, then the loss will be covered in full by the policy as long as one of the causes was an insured peril, and none of the causes was an excluded peril. If one of the causes is covered and one is excluded, the insurer may escape the claim entirely.

This situation differs dramatically from the NMIP where, even if the policy is subject to UK or US law and practice, the Plan stipulates that where the need for damage repairs is due to more than one cause, the cost of repairs is apportioned between the various causes and only the portion related to an insured peril is covered.

The Plan is based on all risks coverage and in case of a combination of perils it is necessary to resort to the relevant provision (clause 2-13). The NMIP also differs from the AIHC in cases where the loss is caused by both insured and excluded perils. As noted above, under the AIHC in such circumstances the insurer can deny the entire claim; however, under the NMIP the insurer remains liable to pay the portion of the claim attributed to the insured peril.

2. Progressive damage

Progressive damage is apportioned over the policy years concerned when the damage occurred (AIHC) -- v -- Progressive damage is allocated to the policy in force when the peril commenced (NMIP)

Owners and their brokers should be aware that differences exist in the way causation is treated by the AIHC, and also the English clauses, versus the NMIP; differences which may cause a significant coverage issue if the insurance of a vessel with an unobserved progressive damage were to migrate from one wording to the other.

Specifically, in cases where progressive damage is sustained by a vessel, under the AIHC clauses the principle of indemnity would require that the cost of repairing such damage would be apportioned over the policy periods in effect when the damage occurred.

Under the NMIP a claim involving progressive damage would be allocated to the policy in force when the peril initiated. If a vessel were insured under the AIHC and then was switched to the NMIP clauses, the portion of the loss sustained during the NMIP coverage period would not be covered. As progressive damages tend to aggravate in extent and cost as they progress, this situation might result in a significant portion of the loss being uninsured.

To compensate for this gap in coverage, in 2016 the Nordic Association of Marine Insurers ("CEFOR") produced a "Change of Conditions" clause which, when endorsed to the NMIP, modifies the Plan (clause 2-11) to cover any loss or damage which falls in part upon the NMIP policy due to an insured peril having struck before the inception of that policy. The clause is also subject to the provision that the vessel was insured for the same casualty by the vessel's previous insurer(s).

Collision liability

4/4ths collision liability (AIHC) -- v -- 4/4ths collision liability and liability for striking fixed and floating object (NMIP)

AIHC provides cover for 4/4ths of any sum paid by the assured for damages due to collision with any other vessel (lines 158 to 184), leaving liabilities resulting from contact or collision with any other non-vessel object (FFO, or "fixed and floating objects") to be covered by the vessel's P&I insurer.

The Plan insures 4/4ths of both types of liabilities (clause 13-1), arising from both tort and contract, while AIHC is limited to tort claims.

In practice, in both sets of clauses, the assured remains at liberty to insure collision liabilities, in whole or partially, either with their H&M or P&I insurers/Club. It is also not infrequent for an assured to cover liabilities arising out of collision or contact with FFO under the H&M policy.

In the authors' experience, it is good practice to place the 4/4ths collision and FFO Liability with one insurer. From a coverage standpoint the question is moot, coverages are equivalent and most insurers are capable to providing adequate security when called upon.

The advantage of covering such liabilities under a vessel's P&I insurance is that P&I insurers/Clubs are typically more experienced and attuned to liability claims than an H&M insurer might be. Also, P&I Club entries are typically subject to a lower deductible than a H&M policy.

Conversely, in collision cases with no pollution or personal injury liabilities, and since collision liabilities to third parties are usually incurred in conjunction with an H&M claim damage to the vessel itself, it may make sense for the H&M insurer to handle both files, and also pursue the recovery, if any.

Efficiency issues aside, it usually comes down to a question of premium cost differential as to where the collision liability cover is placed.

Single liability settlement can be applicable leaving uncovered losses (AIHC) -- v -- Cross liability principle is applicable in all cases and neither vessel can use limitation of liability (NMIP) (NMIP)

Under AIHC, the principle of cross liability governs the adjustment of a claim on the H&M policy in respect of collision liabilities, where both vessels are to blame and neither of them limits liability (lines 167 to 170). In case one of the vessels limits liability or is not to blame at all, the third-party liability is calculated on a single liability basis where the assured is unable to benefit from the notional recovery of the proportion of his own loss of use claim which corresponds to the degree of blame attributed to the opponent vessel.

On the contrary, the NMIP provides that the cross-liability principle applies in all cases, regardless of any limitation of liability, and provides the mechanism for calculating the claim where one vessel has limited liability (clause 4-14).

A discussion of the implications of treating claims on a single v cross liability basis is beyond the scope of this study; however, a more detailed explanation, with examples provided, is available upon request.

Costs

The amount of legal expenses is payable in addition to the maximum collision liability and is theoretically unlimited in amount. However, as the insurer's agreement is typically required when incurring such costs, their amount would normally be closely circumscribed.

Common dry-dock expenses

Common dry-dock expenses are divided equally between damage repairs and owners' works (AIHC) -- v -- Common expenses are apportioned on the time spent for each class of work as if they have been carried out separately (NMIP)

In case English law and practice has been embodied in the policy, Rules of Practice D5 and D6 of the Association of the Average Adjusters summarise the position for the treatment of the dry-dock expenses. Where average repairs for which the insurer is liable are deferred until a routine dry-docking and executed simultaneously with class works, repairs or maintenance on owners' account, the cost of entering and leaving the dry-dock and the dock dues during the common period are split equally between the insurer and the assured.

Under the terms of the NMIP, dry-dock charges including docking in/out and berthage, are allocated over the time that the recoverable and non-recoverable work would have required if each category of work had been carried out separately. Other common expenses such as removal expenses, gas freeing (if required for both lines of work), superintendence etc are apportioned based on cost of each category of work (clause 12-14).

Crew wages and maintenance costs

Crew wages and maintenance are covered in particular average for the removal voyage and sea trials (AIHC) -- v -- Crew wages and maintenance are recoverable in particular average during the removal voyage, and sea trials. Crew wages may be also recoverable if crew participate in the repairs (NMIP)

AIHC confine the claim for reimbursement of wages and maintenance of the crew, other than in general average, to cases where the vessel is underway from one port to another, with the sole purpose of effecting damage repairs, and during sea trials (lines 107 to 110). This should be read in conjunction with Rule of Practice D1 of the Association of the Average Adjusters.

In the NMIP wages and maintenance are allowed whilst the vessel is removed for particular average repairs (clause 12-13). In this case, the insurers cover such costs even when removal is required both for damage repairs and owners' works subject to the apportionment of common expenses (see above, and clause 12-14).

Payment of crew wages and maintenance during the execution of particular average repairs is in principle not covered under NMIP (clause 12-5). However, the cover can be exceptionally given under special circumstances if the crew participates in the repairs and there is an agreement with the insurer prior to their commencement. With regard to AIHC, wages and maintenance during repairs (other than in general average) may form part of the claim only where there is an express provision in the policy.

Overtime and/or special payments made to crew members for participating in damage repairs are not considered wages and are allowable under both sets of conditions, as a matter of adjusting practice, provided always that they were reasonably incurred, in addition to the contractual remunerations of the crew.

Deductible

The deductible is not applicable for total loss and sighting bottom (AIHC) -- v -- No deductible is applicable for total loss, sue and labour, general average, salvage and sighting bottom (NMIP)

As per the AIHC the deductible applies to all claims, except for total loss and sighting the bottom of the vessel after a grounding, with aggregating provisions for heavy weather and ice damage (lines 29 to 35 and 112).

Policies written on AIHC terms usually incorporate a small general average clause/general average absorption clause, whereby the assured has the option to claim the full general average in the manner and up to the amount agreed in the clause, without enforcing contributions from other parties. It is common for the policy deductible not to apply to this type of loss.

According to the NMIP, general average, salvage and sue and labour are not subject to the agreed deductible (clause 12-18). In the Plan, the assured may also have additional coverage by way of a general average absorption clause (clause 4-8) for all costs in general average up to a sum stipulated in the policy.

Notice of claim

Notification should be given to the underwriter prior to the survey (AIHC) -- v -- The underwriter is required to be informed within six months from the date the assured became aware of the incident (NMIP)

The provisions of AIHC stipulate that a prompt notice of claim is given prior to conducting any survey of the damage (lines 92 to 94). The purpose is to ensure that a reasonable period is given to the insurer for survey arrangements, enabling them to follow the incident from the beginning, without prejudicing owners' rights due to undue delays. At a minimum, an insurer's surveyor should be on board during the execution of damage repairs.

NMIP addresses the duty for the assured to give notice regardless of whether a casualty will materialise into a claim and without undue delay (clause 3-29). An underwriter's surveyor should be involved before any damage is repaired (clause 12-10). In case the assured fails intentionally or through gross negligence to notify a casualty, the insurer shall not be liable for loss which would not have occurred if the obligation had been fulfilled, ie any additional costs that arose due to this failure are not recoverable (clause 3-31).

Under the NMIP, the time-limit for notification is six months from the date that the assured becomes aware of the incident. The assured loses its rights to claim compensation if notification is not given within 24 months of the date of the casualty except where hull damage below the waterline has occurred (clause 5-23).

Perils Insured Against

Named perils (AIHC) -- v -- All risks (NMIP)

The AIHC is a "named peril" policy which covers loss of or damage to the vessel proximately caused by one or more of the enumerated insured perils (contained in lines 70 to 86). In the event of a loss, the assured has the burden of proving that, on the balance of probabilities, the proximate cause of the loss is one of the listed perils.

The policy's enumerated perils section noted above adopts the venerable language of the centuries-old London market's "S&G" wording and includes those perils that the insurers are contented to bear, specifically accidental losses arising from extra-ordinary perils "of the Seas"; and all other similar "Perils, Losses and Misfortunes that have or shall come to the Hurt, Damage or Detriment of the Vessel", except those as may be excluded.

As regards what constitutes a peril of the seas, the courts in the US have adopted a more restrictive interpretation than those of the UK, with the result that most AIHC'77 based policies, even for US based fleets, are written subject to UK law and legal jurisdiction, as is permitted by the policy.

Depending on the circumstances of the risk, it is common practice for underwriters to convert the "named perils" nature of the AIHC'77 wording to an "all risks" policy by means of adding the American Hull Insurance Syndicate ("AHIS") Liner Negligence Clause (5 February 1971) into the policy by endorsement. When subject to the AHIS Liner Negligence Clause, the assured need only demonstrate that the damage was accidental, without having to refer to any specific peril. The onus of proof will then shift to the insurer to prove otherwise or that an exclusion applies.

The Plan covers all risks, except for excluded losses (clause 2-8) and standard exclusions (clause 2-9, clause 12-3 and clause 12-5). The assured does not need to demonstrate exactly how the loss occurred, but only that the loss was accidental in nature. The onus of proof is on the insurer to show that an exclusion applies (clause 2-12).

Recovery

The apportionment of recoverable claim amount is subject to applicable law (AIHC) -- v -- The recovery claim is apportioned pro rata between the insurer and the assured (NMIP)

The relevant provision of AIHC does not stipulate the method of recovery apportionment between the assured and insurer (lines 31 to 32). This depends on the applicable law pertaining to the policy. As per American practice, recoveries are split proportionally between insured and uninsured losses. Under UK law, the assured is entitled to recover any balance only if the insurer has first received the whole amount for which the former has been indemnified.

According to the Nordic model (clause 5-13), the recovery is apportioned proportionally to the uninsured loss (deductible) and insured loss (amount paid by the underwriters).

Removal expenses

There is no standard provision and removal expenses are allowed as per adjusting practice (AIHC) -- v -- Specifies the removal costs which are allowable as part of repairs (NMIP)

If the policy incorporates English law and practice, Rule of Practice D1 of the Association of Average Adjusters deals with the removal expenses in particular average. The Rule stipulates the method of calculating removal expenses in certain cases, as well as the type of those expenses which may form part of the reasonable cost of repairs.

Similarly, the Nordic model considers that the removal of the ship to the repair yard constitutes part of the repairs and the relevant costs must be covered by the insurer (clause 12-13). The removal costs are regarded as accessory costs of repairs to be apportioned amongst recoverable and non-recoverable work (clause 12-14).

Temporary repairs

There is no standard provision (AIHC) -- v -- Temporary repairs become recoverable if permanent repairs can't be performed in situ (NMIP)

Except for cases where the execution of temporary repairs is the only option, as a general rule, temporary repairs in particular average are not allowed without considering first whether the effecting of the repairs resulted in savings to the insurer. However, in general average, any allowance for temporary repairs is considered in the light of York-Antwerp Rules (Rules F and XIV).

The AIHC make no specific provision for this type of repair. The reasonable cost of repairs is the decisive test for policy claim purposes as to what extent the cost of carrying out same becomes recoverable. NMIP elaborates on this, providing that the insurer is liable for the entire cost of repairs when permanent repairs cannot be performed at the place where the ship is situated, whilst in other cases, the cost is covered as per formula calculation for the time saved for the assured (clause 12-7).

Tendering of Repairs

1. Choice of Repair Plan

The insurer has the right to decide to which port the vessel may proceed for repairs, and has a veto regarding the place of repair or repair firm (AIHC) -- v -- Gives the assured the right to choose the repair yard (NMIP)

Under the AIHC, the H&M underwriter is entitled to force the owner to repair a vessel at a particular port or shipyard in the event of casualty, subject to an allowance to the assured for additional voyage expenses incurred in complying with such requirement (lines 95 to 97). This right is rarely exercised as invariably there is agreement between the owners and the underwriters, and where the owners face difficulties in sourcing or negotiating with the shipyard, they can rely upon the assistance of underwriter's surveyor.

Conversely, the NMIP leaves it up to the owners to select where to repair the vessel (clause 12-12); however, the H&M underwriters may still demand that tenders be obtained from a shipyard of their choice (clause 12-11). If the resulting shipyard quotations received are less expensive than the owners' chosen repair option, and if the H&M underwriters consider the chosen repair option to be unreasonable given the particular circumstances of the case, the underwriters may choose to reduce the claim compensation paid for damage repairs and removal costs to the amount corresponding to the less expensive tender received.

Given the provisions of both insurance conditions, the outcome remains similar, ie the assured should choose the most reasonable quotation considering the aspects of the casualty.

2.Loss of time for tenders

Allowance for time lost regarding tenders required by the insurer (AIHC) -- v -- Allowance for loss of time for tenders requested by the assured or insurer (NMIP)

30 per cent per annum of the insured value is allowed by AIHC for the time lost concerning tenders required by the underwriter from the time the tenders are sent until a tender is accepted (lines 98 to 102), in comparison with 20 per cent per annum on the agreed value in excess of 10 days irrespective of whether the tenders have been requested by the assured or insurer under the Nordic Plan (clause 12-11).

The parties normally agree on the place of repairs and the aforementioned clauses have a function to speed up the decision making and find mutually agreed solutions. In practice, the assured is requested to obtain quotations for the cost of the repairs from a number of shipyards, depending on the location and the casualty, without an official tender process and the owners will be expected to elect the most reasonable offer.

Total loss (Actual or Constructive)

The repair costs should exceed the insured value (AIHC) -- v -- The assured can submit a constructive total loss claim once the cost of casualty repairs and removal voyage exceed 80 per cent of the insurable value or the market value of the vessel after repair whichever is the higher (NMIP)

Leaving apart other elements which are also taken into consideration in assessing whether a vessel is a constructive total loss, the above illustrates the main rule, as included in AIHC (lines 136 to 137) and the Plan (clause 11-3). The latter stipulates 80 per cent of the insurable value, or the value of the vessel after repairs if the latter is higher than the insurable value as the appropriate benchmark. AIHC stipulate that the cost of recovery and/or repair of the vessel should exceed the full insured value. Even in the absence of a provision to this extent, it is not unusual in the AIHC context for the assured and the insurers to commence discussions and/or negotiations to treat the vessel as a constructive total loss when the estimated cost of recovery and repair of the vessel reaches the 80 per cent threshold. A settlement within the concept of compromised or arranged total loss, though it is not provided for in AIHC, may be agreed where both the assured and insurer benefit.

Underinsurance (in general average, sue and labour and salvage)

Vessel's proportion of general average and/or salvage and/or sue and labour are reduced in case of under insurance (AIHC) -- v -- Vessel's proportion is paid in full even if the market value exceeds the agreed value (NMIP)

In AIHC general average, salvage and sue and labour are recoverable in full if the insured value is equal to or greater than the market value of the vessel. Conversely, if the market value of the vessel exceeds the insured value under the policy, claims for general average and/or salvage are subject to a reduction in proportion to such underinsurance (lines 128 to 133). Any shortfall resulting from the said underinsurance remains unrecoverable under the policy, unless it contains a "Deemed Fully Insured Clause", under which the insurer accepts that the vessel is insured for her full contributory value at all times. Such underinsurance may also be recoverable under an Increased Value policy if this exists in parallel.

On the contrary, under NMIP there is no underinsurance penalty applied to general average, salvage, and sue and labour claims, even in the circumstances that the sound market value exceeds the agreed value (clause 4-8).

Unrepaired damage

The measure of indemnity is the diminution of the actual market value (AIHC) -- v -- The unrepaired damage is recoverable on the basis of the estimated reduction in the market value of the vessel (NMIP)

AIHC provide that the assured is entitled to be indemnified in respect of claims for unrepaired damage based on the depreciation in the vessel's market value at the time the insurance terminates (lines 117 to 119).

The Plan aligns with the American conditions and the calculation is based on the estimated reduction in the market value of the ship due to the damage at the time of expiry of the policy, but not exceeding the estimated cost of repairs (clause 12-2). Both insurance conditions stipulate that unrepaired damage is not recoverable in the event of subsequent total loss occurring during the currency of the same policy (lines 142 to 143 of AIHC and clause 12-2 of NMIP).

IV. Practical applications

Please see the PDF document of this article for case studies.

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V. In closing

The above commentary does not purport to be an exhaustive analysis and will be subjected to periodic review by the authors to ensure that it keeps pace with policy wording evolution and market practice.

The authors recognize that in a study of this nature, where the complexity of many of the subjects addressed could warrant a paper of their own, inaccuracies are inevitable. In the spirit of continuous improvement, the authors welcome the views and comments of our readers, and will make necessary corrections as warranted.

VI. Further reading

Leslie Buglass, Marine Insurance and General Average in the United States, Third Edition, Cornell Maritime Press, 1991.

Hans Jacob Bull and Trine-Lise Wilhelsmen, Handbook on Hull Insurance, Second Edition, Gyldendal Akademisk, 2017.

Hardy Ivamy, Chalmers' Marine Insurance Act 1906, Tenth edition, Butterworths, 1993.

Robert Brown, Marine Insurance Hull Practice Volume Three: Hull Practice, Second Edition, Witherby, 1993.

J Kenneh Goodacre, Marine Insurance Claims, Third Edition, Witherby, 1996.

Jonathan Gilman, Claire Blanchard, Mark Templeman, Neil Hart, Philippa Hopkins, Arnould's Law of Marine Insurance and Average, 19th Edition, Sweet & Maxwell, 2018.