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LOSS OF HIREPresentation for Master students, UIO
April 25th , 2007
”Experience is something you don’t get until just after you need it”
Risk assessment
• Protection of Income. Financial peace of mind.
• How vulnerable to off hire is your organisation? • Trade and c/p
• Fleet size, vessel type
• Clients, reputation
• Financing
• Damage to the vessel and loss of earnings is easily identified. Total costs will be much higher.
• LOH helps to minimise your total exposure to an accident.
If only…
M/V “Sorry Sailor”
Collision, 75% liability.
No LOH cover
Potential recovery with LOH:
Off hire: 90 days
Deductible: 14 days
Net claim: 76 days
76days @ USD 20 000 = USD 1 520 000
Choice of cover?
• Basic covers e.g.14/90/90; 14/120/120; 14/270/270.
• Minimum deductible is 14 days (21 for passenger and cruise vessels).
• Excess covers – more catastrophic e.g. 45/90/90, 104/180/80 etc.
• The risk appetite of the buyer together with prevailing market conditions will determine the preferred basis of cover.
• Additional deductible days against machinery damage are common for older vessels e.g. 14(21)/90/90.
Minimising “off hire time”
• The assured and the insurer have a common interest in minimising time “off hire”. In order to reduce “off hire time” we will work closely with the assured and seek workable solutions based on:
• Experience and knowledge from similar cases.
• Creativity and innovation.
Use of available resources
Towage from Bahamas to El Ferrol 10-29 April
Gas carrier Towage by Offshore supply vessel
Grounding in Suez
Abt. 40 mts from port bank
Width between buoys: 222 mts
The Canal cross-sections are trapezoidal in shape, having side slopes of 3/1.
Crude oil tanker – 159.000 dwt, double hull
Repair at Daewoo (Mangalia) Shipyard in Romania, arr. 31.03.04
Steel price USD 2,75 / kg – 48 days repair
Web frame
Longitudinals
The bill..
H&M: ( 100% ) USD 3.200.000
LOH: ( 60-14 days @ 40 000) USD 1.840.000
Example
• 2005 built UCC, 91.410grt, Collision• ”Difficult to get dry dock…….due to draft restrictions and
stricter yard policy”• Estimated repair days 152• D.I. $30.000; basis 14/120/120• Substitute vessel D.I. $40.000……
Example
• 1996 built TCR, 156.852grt, Grounding• Challenge to find available yards in the FE for final
repairs.• Severe damages to bottom hull after the grounding
incident. 4 months is calculated for completion of repairs.• D.I.$50.000; basis 60/120/120
Example
• LNG Carrier (1973)• damage to main gear• vulnerable and vital trade
• the assured urgently needs the ship back in trade
The challenge
• Old LNG (1973) – No new main gear in stock
• One year production time
• LNG urgently required for trade
NMIP §16-11 – The solution provider
“Costs incurred in order to save time”
• Buy an old tanker, take out the gear and use it as a spare part.
• Charter an Antonov transport airplane and bring the gear from US West Coast to Europe as quick as possible.
• Pay bonuses and overtime to working staff at yard in order to further reduce “off hire” time
M/T VLCC – Lack of docking facilities (2006/2007)
• July 2006 .• Grounded Dalian, China • Fully loaded with crude oil
276.110 t crude• Repairs completed Singapore
10th December 2006• Off-hire days 137 days• Loss of income USD
13.700.000,-• Repair period Singapore 51
days (USD 5.100.000,-)
Lack of docking facilities WW&FE
June 2006Explosion / fire in cargo tank
South China Sea
§ 16-1 Blocking and trappingThe insurance also covers loss due to the ship being wholly or partially deprived of income:…(b) because it is prevented by physical obstruction (other than ice) from leaving a port or a similar limited area, …
LOSS OF HIRE INSURANCE
NORWEGIAN MARINE
INSURANCE PLAN 1996
”THE PLAN”
THE PLAN
• MARINE INSURANCE CONTRACT
• CONTAINS ALL MAJOR MARINE INSURANCE
TYPES, EXCEPT P&I
• AGREED DOCUMENT
• INTERNATIONALLY ACCEPTED
• BUILT ON ”ALL RISK” PRINCIPLE
THE PLAN - CONTENTS
• PART 1: GENERAL CLAUSES
• PART 2: HULL & MACINERY CLAUSES
• PART 3: OTHER MARINE INSURANCES
• LOSS OF HIRE – CHAPTER 16
• PART 4: OTHER INSURANCES
BUILDING RISKS, OFFSHORE ETC.
INVOLVED PARTIES
SHIPOWNERLOSS OF HIRE UNDERWRITER
BROKER
IMPORTANT ISSUES FOR OWNERS
• Duty of disclosure - §3-1
• Alteration of risk - §3-8
• Classification Clause - §3-14
• Trading limits - §3-15
• Safety Regulations - §3-22
• Measures to avert loss - §§3-29 – 3-31
• Notification of claims - §5-23• Main rule: 6 months time bar
Claims And Claims Leader
• Chapter 5 deals with settlement of claims
• Chapter 9 deals with the claims leader’s role and power to bind the co-insurers
• In the Norwegian market the claims are dealt with directly between the assured and the claims leader who normally prepares the adjustment
• The role of the broker
HULL & MACHINERY VS.LOSS OF HIRE
HULL & MACHINERY
POLICY
Independent policy
INSURED PERILS
SCOPE OF COVER
LOSS OF HIRE
POLICY
Independent policy
REF. THE PLAN §16-1
AND THE POLICY WORDING
HOW IS LOSS OF HIRE TRIGGERED?
HULL & MACHINERY
POLICY
Main policy
SETS OUT THE SCOPE OF COVER
LOSS OF HIRE
POLICY
Subsidiary policy
FOLLOW ACTUAL
H&M SCOPE
OF COVER
§16-1 Scope of Insurance
The insurance covers loss due to the vessel being wholly or partially deprived of income as a consequence of damage to the vessel which is recoverable under the terms of the Plan.………
• Reference to Plan chapter 10-12 can be waived by way of written agreement by the insurer, and be replaced by the provisions of the actual H&M conditions.
What Is Covered?
• Time loss as a consequence of damages which are recoverable as per the actual H&M conditions
• Level of deductible is irrelevant for the question of cover
• Exceptions from the condition of damage:• If the vessel has stranded• Prevented by physical obstructions……other than
ice• As a consequence of measures taken to salvage or
remove damaged cargo
§16-2 Total and Compromised Total Loss
• No loss of hire will be compensated:
• In total loss situations• Constructive total loss situations
§16-3 Main Rule for Calculating Allowable Time
• Loss of time – The time the vessel has been deprived of income• Daily amount - Net loss of income per day Normally assessed daily amount• Calculation - Lost time x daily amount per day
• Time start running earliest at the time of damage• Ballast voyage before commencement of the laden
voyage a damage occur is not recoverable
§16-4 Calculation of the Loss of Time
• Days, hours and minutes
• Partially loss of time:• To be converted into corresponding total
loss of income
Other relevant issues
• Daily amount - §16-5
• Assessed daily amount - §16-6
• Deductible period - §16-7
• Survey of damage - §16-8
• Choice of repair yard - §16-9
§16-10 Removal to the Repair Yard
• Time lost during removal of the vessel to and from repair yard, shall be attributed to the class of repairs that necessitated the removal
Important:• A main rule principle apply to the removal
time• No apportionment in the deductible period
Example of removal time
1) VLCC sustain main engine damage on laden voyage from Sullom Voe to Canada. Towed to Rotterdam for repairs.
Removal time from damage position to yard 8 days.Repair time 28. ”
of which Owners work 10 days.and damage repair work 28 days.
Removal time from yard to damage position 4 ”__.Total time lost 40 days.
Conclusion: The removal time will be paid by LOH in full.
Example of removal time
2) VLCC on ballast voyage from Japan to AG deviate to Bahrain for maintenance work. At the same time deferred damage repairs are being carried out.
Removal time from deviation position to yard 1 day.
Repair time 28. ”
of which Owners work 10 days.
and damage repair work 16. ”
Removal time from yard to deviation point 1. ”
Total time lost 30 days.
Conclusion: The removal time will be paid by Owners in full.
§16-11 Costs incurred to save time
• Extraordinary costs or extraordinary measures taken for the purpose of preventing loss of time covered by the insurance, is paid by LOH if such costs are not paid by H&M• Must be extraordinary - and must save time
• Owners must carry pro rata share of costs, if time is also save for the Owner
• Example: Repair time 16 days reduced to 12 by way of overtime
With a deductible of 14 days do Owner / LOH share the overtime cost 50/50
• In this respect is LOH subsidiary to H&M
§16-12 Simultaneous Repairs
What is simultaneous repairs?
• Two or more classes of work are carried out at the same time
• Contrary to a main rule principle, this clause establish an apportionment principle
§16-12 Simultaneous Repairs
• In legal terms a special rule of causation• As a starting point a rule to split time equal between Owners
and LOH underwriter• Owners work are put into three categories:
• a) Classification work• b) Work necessary for the seaworthiness of the vessel, or
carried out to fulfil contractual obligations, or reconstruction work
• c) Other Owners work that necessitate a separate stay at the yard
• Work under a) and b) above share time 50/50 with recoverable time, but c) only share days in excess of 30 days.
Simultaneous repairs § 16-12
0 7 14 21 28 35
Compensation
Maintenance
Owners ClassWork
Average work
Deductible
Case Study – Gas Al Kuwait
21.09.99: Rudder damages – Repairs at Keppel, Singapore
Damage repairs 30 days
Deductible 14 ”_
Time in excess of deductible 16 days
Common repairs for Owners class /
Seaworthiness related work 8 ”_
Recoverable time paid by LOH underwriter 8 days
§16-12, 1. Subparagraph
Damage work
Owners Class work
Deductible 14
Repair time if carried out separately
30 30
Settlement 8 8
§ 16-12, 2. Subparagraph
Two casualties are being carried out simultaneously
• If the deductible period run parallel for the two cases, then the period thereafter is being covered equal 50/50
• If deductible periods do not run parallel, the rule of simultaneous repairs should apply when only one deductible still run, i.e.. 50/50 Owners and LOH
§16-12, 2. Subparagraph
Engine Heavy weather damage
Remaining deductible 0 14
Repair time if carried out separately
40 20
Settlement 30 3
§16-12, 3. SubparagraphTwo Casualties – Two Policies
Engine 1998
H.w.d 1999
Remaining deductible 14 14
Repair time if carried our separately
40 20
Settlement 23 3
§16-12, 3. SubparagraphTwo Casualties – Two Policies Plus
Class Damage
98 Damage
99 Class
Deductible 0 20
Repair time if carried our separately
60 80 60
Settlement 20 30 30
§16-12, 4. Subparagraph
• When calculating time as if carried out separately• Counts from the day the work started
• All work is consider to start upon the vessels arrival at the repair yard – except when:• Damage occur in the dock• Unknown damage is being discovered in dock
• What is the situation when the various classes of work interfere with each others? Example…….
§16-12, 4. Subparagraph, Last Sentence
Damage Class
Actual time 99 30
Repairs if carried out separately
90 30
Deductible 14
Settlement 75 25
§16-13 Loss of time after completion of repairs
• Main rule: No recovery• 3 exception:
• Time lost until the vessel can resume engagement under freight contract in force at time of casualty
• Liner service in fixed schedule• Removal to first port to take cargo fixed before the
casualty occurred.
§16-14 Repairs Carried Out After Expiry of the Insurance Period
• Time limit to carry out repairs is 2 years after expiry of the policy period
• Actual loss is being recovered if repairs commence after expiry of the policy period, ref. §16-5
§16-16 Rule of Subrogation
LOH have the right of subrogation:
• Against Owners for costs to loss of time and operating costs paid by H&M underwriters
• Similar costs allowed in general average
Casualty Examples
Vessel Basis D.I. Incident Days Off Hire Claim
1992 TCR 153.000grt
14/60/60 $80.000 Main Engine Breakdown
45 $2.480.000
1994 BBU 76.000grt
14/60/60 $40.000 Grounding 22 $320.000
1999 BBU 87.000grt
14/60/60 $25.000 Grounding 34 $540.000
1999 GGC 13.000grt
14/90/90 $28.000 Grounding 57 $1.596.000
1996 OSY 3.700grt
14/90/90 NOK125.000 Fire 48 NOK4.250.000
2000 UCC 65.000grt
14/90/90 $26.000 Main Engine Breakdown
24 $260.000
2001 TCR 136.000grt
14/60/60 $50.000 Grounding 24 $500.000
2003 LNG 91.000grt
14/300/300 €77.000 Cargo Tank Insulation
63 €3.773.000