Anders W. Færden Attorney-at-law / admitted to the Supreme Court 26 and 27 February 2015

Marine insurance law Anders W. Færden Attorney-at-law / admitted to the Supreme Court 26 and 27 February 2015 1

2 Causation

Causation The problem General insurance law Nordic Plan: The main rule Combination of war and marine perils Combination of perils over different insurance periods 3

The problem Combination of perils in different situations Covered and uncovered perils Perils covered under different branches Perils occurring in different insurance period 4

General insurance law The main rule: The dominant cause rule Legal basis: ND 1916.76, cf. ND 1916.209 NSC SKOTFOS 5

Nordic Plan: The main rule Cl. 2-13 Combination of covered and uncovered perils Apportionment principle, not the dominant cause rule Special Norwegian principle Only applied in marine insurance 6

Cl. 2-13 If the loss has been caused by a combination of different perils, and one or more of these perils are not covered by the insurance, the loss shall be apportioned over the individual perils according to the influence each of them must be assumed to have had on the occurrence and extent of the loss, and the insurer shall only be liable for that part of the loss which is attributable to the perils covered by the insurance. 7

Combination of war and marine perils Cl. 2-14 Reinstates the dominant cause rule as a main rule If neither cause is dominant, equal division 8

Cl. 2-14 If the loss has been caused by a combination of marine perils, cf. cl. 2-8, and war perils, cf. cl. 2-9, the whole loss shall be deemed to have been caused by the class of perils which was the dominant cause. If neither of the classes of perils is considered dominant, both shall be deemed to have had equal influence on the occurrence and extent of the loss. 9

Perils strike in different periods Cl. 2-11 Starting point: When the peril strikes Exception for unknown defect or damage 10

Cl. 2-11 sub clause 1 The insurer is liable for loss occurred when the interest insured is struck by an insured peril during the insurance period. 11

Cl. 2-11 sub clause 1 Peril strikes 31.12.2014 Renewal Casualty Time 2014- policy No liability for the 2015 insurer 12

Cl. 2-11 sub clause 2 and 3 If an unknown defect results in damage to the insured vessel, the defect shall be deemed to be a marine peril that strikes the interest insured at the time the damage starts to develop. If unknown damage in one part of the vessel results in damage to another part or parts of the vessel, the original damage shall be deemed to be a marine peril that strikes the interest insured at the time the damage to the other part or parts starts to develop. 13

Cl. 2-11 sub clause 2 2011 2014 Defect Peril strikes 2014 - Policy 14

Cl. 2-11 sub clause 3 2014 Fracture 2015 Development 2014 - policy 2015 - Policy 15

Cl. 2-11 sub clause 2 and 3 2011 2014 2015 Defect Fracture Development Peril strikes 2014 - Policy 2015 - Policy 16

Cl. 2-11 sub clause 4 Where a defect or damage existing at the inception of the insurance which is known to the assured but not to the insurer, gives rise to damage (in the case of defects) or new damage to other parts (in the case of existing damage) the liability of the Insurer shall not exceed the amount the Assured would have been able to recover under the insurance on risk at the time the Assured first acquired knowledge of the relevant defect or damage. 17

18 Identification

Identification The rules on duty of disclosure and duty of care are aimed directly at; "the person effecting the insurance" "the assured" Who are they? To what extent may the insurer invoke against the person effecting the insurance or the assured, errors or negligence committed by someone else? 19

Which errors and negligence may the insurer invoke? The main rules on duty of disclosure / duty of care in: Ch. 3 Cl. 5-1 Other examples Cl. 5-16 (duty to maintain recourse claims) Cl. 6-1 / 6-2 (payment of premium) Cl. 12-5 (f) (contaminated lube oil etc.) 20

Who is the person effecting the insurance and the assured? In companies: Board of Directors Chief Executive Officer Majority shareholder? Chairman of the Board? 21

Problems of identification in marine insurance arise in four different relationships: 1. Identification between the person effecting the insurance and his servants 2. Identification between the assured and his servants 3. Identification between the assured and the person effecting the insurance 4. Identification of assureds inter se 22

Identification between the person effecting the insurance and his servants Not dealt with in the clauses (but in the Commentary) Mainly relevant for the duty to inform in cl. 3-1 and to pay premium, cf. cl. 6-1 and 6-2 Full identification with; employees brokers agents Who are acting on behalf of the person effecting the insurance? What if the servant is in good faith, but the person effecting the insurance is not? 23

Identification of the assured with the person effecting the insurance, cl. 3-38 Full identification Applies also to co-insurance of mortgagees and other third parties, cf. cl. 7-1 and 8-1 Unless extended co-insurance is agreed, cf. cl. 8-4 24

Identification between the assured and his servants Assured Ltd 3-36 3-36 Ship Management Ltd 3-36 25

Cl. 3-36 sub clause 1 The insurer may not invoke against the assured faults or negligence committed by the ship s master or crew in connection with their service as seamen. 26

Cl. 3-36 sub clause 2 The insurer may invoke against the assured faults and negligence committed by any organisation or individual to whom the assured has delegated decision-making authority concerning functions of material significance for the insurance, provided that the fault or negligence occurs in connection with the performance of those functions. with the performance of those functions. 27

Cl. 3-36 sub clause 2 The insurer may invoke against the assured faults and negligence committed by any organisation or individual to whom the assured has delegated decision-making authority concerning functions of material significance for the insurance, provided that the fault or negligence occurs in connection with the performance of those functions. 28

Cl. 3-36 sub clause 2 The insurer may invoke against the assured faults and negligence committed by any organisation or individual to whom the assured has delegated decision-making authority concerning functions of material significance for the insurance, provided that the fault or negligence occurs in connection with the performance of those functions. 29

Evaluation on a case by case basis However, some general guidance on certain organisations and groups of people can be given 30

Technical Management Has normally been delegated decision-making authority concerning functions of material significance for the insurance. 31

Superintendent Decision-making authority? big differences in how operational responsibility is placed internally in a single company small or big land based organization Commentary; presumption that a technical inspector usually don t have sufficient authority to be identified with the assured. 32

Fleet Manager / Technical Director Normally; functions of material significance for the insurance. 33

Identification of assureds inter se Assured Ltd Assured Ltd 3-37 3-37 3-36 34

Identification of assureds with each other or of the assured with co-owner, cl. 3-37 Main rule; The insurer may not invoke against the assured faults or negligence committed by another assured or co-owner, Exemption; The relevant assured or co-owner has overall decisionmaking authority for the operation of the ship, cf. cl. 3-37 35

36 Alteration of risk

Alteration of risk Characteristic features Extension of the duty of disclosure Correspond to "bristende forutsetninger" Two sets of rules General regulation Special regulation 37

General regulation Cl. 3-8 to 3-13 The concept of alteration of risk, cl. 3-8 sub clause 1 Shall be deemed as alteration of risk, cl. 3-8 sub clause 2 change of: State of registration Technical/maritime operator Classification society 38

General regulation (continued) Alteration of risk caused/agreed to by the assured: No liability, cl. 3-9 Cancellation, cl. 3-10 Alteration of risk not caused/agreed to by the assured; Notification, cl. 3-11 If not, cl. 3-9 applies + Cancellation, cl. 3-11 39

The special regulation Classification Change of ownership Illegal activities Trading limits 40

Classification, cl. 3-14 Expressed as a warranty The ship shall be classified when the insurance commences Loss of class = the insurance terminates regardless of causation fault Similar regulation in many other countries 41

Change of ownership Cl. 3-21 The insurance terminates immediately Reason: the importance of ownership Change of ownership # change of shareholder structure 42

Illegal activities Starting point: No liability for losses caused by illegal activities unless the assured in good faith, cl. 3-16 sub clause 1 If the ship is used primarily for illegal activities, the insurance terminates, cl. 3-16 sub clause 3 43

Trading limits Cl. 3-15; Ordinary areas, conditional areas and excluded areas The areas defined in enclosure to the Plan 44

Trading limits, cl. 13-15 Ordinary trading areas, sub clause 1 Conditional areas, sub clause 2; sailing subject to additional premium. Sanction extra deductible Excluded areas, sub clause 3; Insurance ceases to be in effect until the ship leaves the excluded area 45

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47 Costs of preventive measures

Costs of preventive measures Duty to avert or minimise the loss if casualty has occurred or threatens to occur, cl. 3-30 Insurer pays the costs of such measures taken "on account of peril insured", cl. 4-7 Extraordinary nature Reasonable 48

Cl. 4-8 4-11 General average etc. Contribution apportioned on the insured interest Also contribution for common benefit expenses G/A adjustment YAR Contributory value/insured value Breach of contract of affreightment G/A contribution still recoverable Cl. 4-8 sub clause 3: G/A absorption clause Cl. 4-10 assured may always claim damage to the insured object covered as particular average if that gives him better cover. 49

Costs of salvage Recoverable pursuant to cl. 4-7 Alternatively in G/A and cl. 4-8 YAR 1994 and previous versions allowed salvage as part of G/A expenses. YAR 2004 salvage no longer recoverable in G/A. Version 2010 made it clear that the insurer is liable for salvage costs even if they are not recoverable in G/A. 50

Cl. 4-12 Costs of particular measures taken to avert or minimise loss Particular means not recoverable in G/A All kinds of measures are recoverable if covered pursuant to cl. 4-7 Sacrifice of property Liability incurred Costs incurred Apportionment over several interests 51

52 Settlement of claims

Duty of disclosure of information needed for settlement of claims cl. 5-1 Duty to provide the insurer with information/documents required for settling the claim Active - not passive - duty of disclosure 53

Gross negligence intent - fraud Breach of duty of disclosure by way of intent/gross negligence; no liability for losses that would have been averted (causal link) Fraud (conscious incorrect/incomplete information that may lead to unjustified compensation); all claims relating to the same casualty forfeited right to cancel all other insurances with 14 days notice 54

Claims adjustment cl. 5-2 As "promptly as possible" after receipt of necessary information and documents Should endeavour to issue claims adjustment within; 14 days for total losses 3 months for other settlements Insurer (but not the assured) may delegate the adjustment to an average adjuster 55

Interest on the compensation cl. 5-4 Interest rates from one month after notice of casualty or date of disbursement (LIBOR etc. + 2%) See - http://www.cefor.no/clauses/interest-rates/ If breach of duty to provide information/documents, cf. cl. 5-1, no interest during delay Interest on overdue payments, cf. cl. 5-6, LIBOR etc. + 4% (2+2%) 56

Disputes concerning adjustments cl. 5-5 Both parties entitled to refer to Nordic adjuster for an unbinding opinion (second opinion). The assured chooses the adjuster. The insurer may make the appointment if the assured fails to do so. The insurer pays the costs unless clearly unfounded to ask for a second opinion Effective alternative dispute resolution Nordic Plan 2013 new sub clause 4 on contracts subject to Finnish or Swedish law 57

Payment on account cl. 5-7 The assured is entitled to payment on account unless the insurer has "reasonable doubts" regarding liability Always without prejudice with regard to the insurers' liability 58

Payment on account when dispute between insurers cl. 5-8 If dispute between insurers as to who shall pay (and no other objections) The disputed amount shall be divided equally - based on the lowest liability Disputes re; marine or war risk relevant insurance period 59

Subrogation into object insured cl. 5-19 Upon payment insurer entitled to take over; the wreck in case of total loss scrap iron / damaged parts in case of damage (if value not set off in the repair settlement) Insurer may waive his right (if concerned about e.g. wreckremoval and pollution liability), but no later than the time of payment 60

Preservation of the object insured in case of total loss cl. 5-21 The assured has a duty to preserve the wreck for the insurer s account until the insurer can safeguard his own interests Applies also after the insured has taken over the wreck 61

Time limits for notification of a casualty cl. 5-23 Loss of right to compensation if notice given later than 6 months after the casualty Knowledge decisive; negligence not enough to trigger the 6 month time limit Extended identification; knowledge of the master or chief engineer triggers the time limit 24 month absolute time limit except for damage below the waterline 62

Time bar cl. 5-24 Time bar; 3 years from expiry of the calendar year when assured knew about the claim in any event 10 years from expiry of the calendar year in which the casualty occurred However; the insurer must notify the assured if he wants to invoke time bar for a claim that has been notified to the insurer within the 6 month time-limit for notification provided in cl. 5-23 the notification must explain how the limitation period is interrupted Other questions re time bar; solved according to "the limitations act in the state where the insurance contract was entered into" (possible conflict with the choice of law rule in cl. 1-4?) 63

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1. Folgefonn's casualty Jan. 2014 Questions a and b o Are the damaged objects covered by NP? o Is the collision covered by the insurance? o Which insurer will cover the damages? o What is the problem here? o Where is it regulated? o What is the starting point? o How do we solve the problem Marine insurance 65

1. Folgefonn's casualty Jan. 2014 o Are the damaged objects covered by NP? o The axle, NP cl. 10-1 litra (a) o The transmission machinery and the propeller casing, cl. 10-1 litra (a) o Is the collision covered by the insurance? o NP cl. 2-8: The all risk principle o No exception enters into force Marine insurance 66

NP Cl. 2-11, sub clause 1 The insurer is liable for loss occurred when the interest insured is struck by an insured peril during the insurance period. Marine insurance 67

Cl. 2-11 sub clause 2 and 3 o If an unknown defect results in damage to the insured vessel, the defect shall be deemed to be a marine peril that strikes the interest insured at the time the damage starts to develop. o If unknown damage in one part of the vessel results in damage to another part or parts of the vessel, the original damage shall be deemed to be a marine peril that strikes the interest insured at the time the damage to the other part or parts starts to develop. Marine insurance 68

Folgefonn January 2014 casualty Marine insurance 69

1. Folgefonn s casualty Jan. 2014 o Which insurer will cover the damages? o NP cl. 2-11, 1st paragraph: the striking peril = the collision in 2013 o Cl. 2-11, 3rd paragraph: primary damage (broken axle) struck in 2013, and shall be attributed to this insurer o Transmission machinery and propeller casing o = consequential damages: If primary damage unknown, later casualties / developments shall be covered in 2014 o Was primary damage unknown? Marine insurance 70

1. Folgefonn s casualty Jan. 2014 Question c o May the insurer claim that Oddrun has breached the duty of disclosure o Which rules apply o What is the extent of the duty of disclosure o Who has the duty of disclosure? o The sanction? Marine insurance 71

Cl. 3-1. Scope of the duty of disclosure 1. The person effecting the insurance shall, at the time the contract is concluded, make full and correct disclosure of all circumstances that are material to the insurer when deciding whether and on what conditions he is prepared to accept the insurance. Marine insurance 72

1 C Duty of disclosure o Is the duty of disclosure fulfilled? o NP cl. 3-1 o The duty of disclosure is objective o Covers all relevant information o The subject = the person effecting the insurance = West Coast Joint Venture o Can West Coast be identified with Siggy? o The situation for Oddrun as assured, cl. 3-38 o The insurer s reaction, NP cl. 3-3 o Conclusion? Marine insurance 73

2. F s touching the reef o Are the damaged objects covered? o Which peril(s) caused the grounding o Are the peril(s) covered? o Is there a case of combination of causes? o Breach of duty of disclosure? Marine insurance 74

2. F s touching the reef o Are the damaged objects covered? o Damage to hull, NP cl. 10-1 letter (a) o Is the peril covered? o The cause: Lighthouse light out o Marine perils (vandalism), cl. 2-8 or war perils (sabotage), cl. 2-9 Marine insurance 75

2. F s touching the reef o Causation: o The connection to the machinery breakdown: Combination of perils? o The principles of apportionment in cl. 2-14 o The significance of the chain of causation o The significance of a breach of the duty of disclosure Marine insurance 76

Cl.2-14. Combination of marine and war perils o If the loss has been caused by a combination of marine perils, cf. cl. 2-8, and war perils, cf. cl.2-9, the whole loss shall be deemed to have been caused by the class of perils which was the dominant cause. If neither of the classes of perils is considered dominant, both shall be deemed to have had equal influence on the occurrence and extent of the loss. Marine insurance 77

Folgefonn s touching the reef Marine insurance 78

3. Collision Folgefonn and Mauranger o Which perils caused the collision o Are the perils covered o Causation Marine insurance 79

3. Collision Folgefonn and Mauranger o The damages to Folgefonn (hull) o The damages to Mauranger o Objects (propeller and stern), NP cl. 10-1 o Is the peril covered? o Cause: closing net in propeller o Sabotage? Cf. NP cl. 2-9? o Causation Marine insurance 80

4. Breach of the duty of due care o Breach of safety regulation o Towing alteration of risk o Gross negligence o May the insurer invoke the breaches against Oddrun? Marine insurance 81

4. Breach of the duty of due care o Breach of safety regulation, cl. 3-22 o Certificate required o Sanction - cl. 3-25 o Fault o Causation cf. ND 1973.450 Ramfløy o Grutle's experience/knowledge o Liability? Marine insurance 82

4. Breach of the duty of due care o Is the towage an alteration of risk regarding Mauranger? o NP cl. 3-8 o NP cl. 3-12 o Has the assured acted with gross negligence, cl. 3-33 o Has Grutle's choice caused the casualty o Folgefonn yes, Mauranger? o Conclusion Marine insurance 83

4. Duty of due care o Identification between G and owner o Cl. 3-36 second part o The conditions o Organisation or individual o Assured has delegated authority o Significant for the insurance o Negligence committed in connection with performance of authority Marine insurance 84

5. Number of deductibles o One deductible per casualty, NP cl. 12-18 o One deductible for the collision between Folgefonn and Norheimsund in 2013 o Separate deductible for consequential damages? o The starting point o New deductible for independent cause of damage o Is the failure to inspect the ship a new cause? Marine insurance 85

5. Number of deductibles o Is Folgefonn s touching the reef a new casualty? o Extension of the breakage of shaft or new casualty? o The significance of the different perils (war/marine) o New deductible for the collision? Marine insurance 86