Chapter 2: General rules relating to the scope of the insurance

Section 2: Perils insured against, causation and loss

General

This Section comprises five topics of vital importance in marine insurance:

the question of the extent of the perils covered under marine insurance; i.e. whether there are perils of a general nature which must be excluded in all types of insurances;
definition of war perils and the scope of the liability of the insurers who cover marine and war perils, respectively;
the question of whether to apply the apportionment rule or the dominant-cause rule in cases of concurrent causes;
duration of the insurer’s liability; the question of how to adapt the general maxim of insurance law that the insurer shall only be liable for losses which occur during the insurance period;
the principles for dividing the burden of proof between the insurer and the assured.

Clause 2-8. Perils covered by an insurance against marine perils

The Commentary was amended in the 2027 Version of the Plan.

An insurance against marine perils covers “all perils to which the interest may be exposed”, cf. sub-clause 1, first sentence. There are five positive exceptions from this point of departure, viz.:

perils covered by war risks insurance as listed in Cl. 2-9, sub-clause 1,
“intervention by own State power” as defined in letter (b),
requisition by State power, cf. letter (c),
insolvency/lack of liquidity and operation of ordinary legal process, cf. letter (d), and
perils covered by the RACE II Clause, cf letter (e).

In accordance with the traditional solution in marine insurance, the perils are divided into two groups. A distinction is made between perils covered by the insurers against ordinary marine perils and perils covered by the insurers against war perils. The division is formally made by means of an exclusion of perils in the insurance against marine perils, cf. Cl. 2-8 (a), and a cover of the excluded perils through a special war-risk insurance, cf. Cl. 2-9. However, in reality the marine and war-risk insurances are two equal types of insurances on the same level which – with a few minor exceptions – each cover their part of a total range of perils. The perils covered by the war-risk insurance are specified, while the range of perils covered by the insurance against marine perils is negatively defined, covering any other form of perils to which the interest is exposed.

Because there is a negative definition of the range of marine perils, it is in reality described by reviewing the relevant exceptions. Such a review is given below, along with an overview of certain points where exceptions have been considered. However, initially it is deemed expedient to give a brief overview of the positive content of the range of marine perils, see for further details Brækhus/Rein: Håndbok i kaskoforsikring (Handbook of Hull Insurance), pp. 49-54.

An insurance against marine perils covers, in the first place, perils of the sea and similar external perils. Perils of the sea mean the perils represented by the forces of nature at sea seen in conjunction with the waters where the vessel is sailing. Typical examples of these perils are where the vessel runs aground, collides in fog, suffers heavy-weather damage or is broken down by wind and sea and goes down. Other external perils may be earthquakes, volcanic eruptions, lightning, etc.

Secondly, an insurance against marine perils covers perils in connection with the carriage of goods or other activities in which the vessel is engaged. The cargo carried by the vessel may threaten its safety; similarly, passenger traffic may entail special elements of perils.

Thirdly, weaknesses in the vessel and similar “internal perils” are in principle regarded as perils covered by an insurance against marine perils. However, there are a number of exceptions and modifications here; in hull insurance, Cl. 12-3 and Cl. 12-4 thus constitute a significant curtailment of cover.

Fourthly, injurious acts by third parties will basically be perils that are covered by an insurance against marine perils. These may be collisions, explosions, fire or the like, which arise outside the insured vessel, etc. It is irrelevant whether or not the person causing the damage is blameworthy; damage caused intentionally will also be covered. One important type of injurious act by a third party will nevertheless be excluded from the cover against marine perils, viz. interventions etc. by a State power; such acts will instead to a large extent be covered by the war-risk insurance, see Cl. 2-9, sub-clause 1 (b).

Finally, errors or negligence on the part of the assured or his employees will, as a main rule, be covered by an insurance against marine perils. However, there are important limitations to this cover. Most of the rules of this type are compiled in Chapter 3.

Sub-clause (a) excludes from the range of perils covered by an insurance against marine perils “perils covered by an insurance against war perils under Cl. 2-9”. The perils thus excluded appear from Cl. 2-9 and the relevant part of the Commentary on that provision. It is, however, clear that whether the vessel has war-risk cover in one form or the other under Cl. 2-9 will not affect the insurance against marine perils. The insurance against marine perils will thus not be extended if the vessel does not have the maximum cover against war perils under Cl. 2-9.

It has not been unusual for a vessel to have hull insurance on Plan conditions against marine perils and war risks insurance on different conditions, and vice versa. Such combinations entail a risk that the person effecting the insurance may have double insurance on the one hand and gaps in the cover on the other. Further, additional risk and complexity may be introduced if the marine risks insurance and the war risks insurance are governed by different causation rules. Also, as it appears from Cl. 2-8 and Cl. 2-9, there are admittedly certain gaps in the system of cover, but these are gaps that are normally uninsurable. Furthermore, the entire purpose of Cl. 2-8 and Cl. 2-9 has been to devise a co-ordinated system without double insurance or gaps.

Sub-clause (b) deals with interventions of own State power.

The main points may be summarized as follows:

requisition by any State is not covered either by marine risks or by war risks insurance,
the marine risks insurance excludes certain qualified interventions by own State power provided these have been made for the furtherance of overriding national political goals,
the war risks insurance does cover such interventions by foreign State power or a supranational power,
the marine risks insurance covers interventions by own and foreign State power and supranational powers that are not either excluded in Cl. 2-8 (b) or (c) or covered by Cl. 2-9 (b), but only to the extent that the losses concerned are of the kind covered by the relevant insurance.

Letter (b), first sentence, excludes “capture at sea, confiscation, expropriation and other similar interventions by own State power provided any such intervention is made for the furtherance of an overriding national political objective”. The interventions are the same as defined in Cl. 2-9, sub-clause 1 (b). This means that as far as the description of the interventions are concerned, the two provisions are identical. However, since such interventions most often are made by a foreign State power, it is natural that further definitions and explanations in the Commentary are made under Cl. 2-9 (b) on war risks insurance.

It is important to emphasize that the exclusion in Cl. 2-8 (b) and the cover in Cl. 2-9, sub-clause 1 (b), must be seen in the context of the all risks principle in Cl. 2-8. Interventions by own or foreign State power that are not excluded in Cl. 2-8 (b) or covered by Cl. 2-9, sub-clause 1 (b), are covered by the all risks principle unless the exclusion in Cl. 2-8 (c) applies. Generally, therefore, interventions by State power other than those mentioned will be covered by the marine insurer unless the intervention is either part of the “operation of ordinary legal process …” etc. under Cl. 2-8 (d), or is excluded by other rules in the Plan, for instance Cl. 3-16 on illegal undertakings. The result is that interventions such as capture, arrest or detainment in port or the like – due to for instance suspicion or investigation of breach of regulations concerning fishery, customs, pollution, safety or navigation, will be covered. However, if the breach means that the vessel is being used for “illegal purposes” and the assured knew or should have known about this, the loss will be excluded according to Cl. 3-16. If the assured was in good faith and the breach is the result of a fraudulent or criminal act or omission from a third party, for instance the master or crew, the charterer or the receiver of the goods, cover remains in place.

Further, the exclusion in Cl. 2-8 (d) only applies to “ordinary legal process”. In cases where the intervention is due to abuse of power or corruption, this is as a starting point covered by the all risks principle. In some countries cases which commence as a regular administrative, police or judicial process can easily degenerate in excessive delays or attempts at extortion. If the intervention in such case turns out to be for the purpose of an overriding national political objective, the intervention will be covered by the war risks insurer according to Cl. 2-9, sub-clause 1 (b). However, there may be cases where no such national political motive can be detected, but the interventions are clearly outside the scope of normal due process. Examples would be the Chemical Ruby and Sira arbitration cases referred in Wilhelmsen/Bull, Handbook on hull insurance, 2017, pp. 94-99, where there were excessive delays but no clear overriding political objective. Such cases will then be covered by Cl. 2-8 according to the all-risks principle. Note, however, that interventions by individuals motivated by social, religious or political reasons may fall within Cl. 2-9, sub-clause 1, letter (c) or if economically motivated within Cl. 2-9, sub-clause 1, letter (d), thus being excluded from Cl. 2-8. See the Commentary to Cl. 2-9 on these provisions. If there is doubt as to whether the marine risks insurance or war risks insurance applies, Cl. 2-16 on division between the two perils may be applied. The assured may also require payment on account according to Cl. 5-8.

Sub-clause 1 (b), second sentence, defines the concept of “own State power” to mean the State power in the vessel’s State of registration or in the State where the major ownership interests are located. The term “State of registration” is not without its ambiguities in the event of so-called double registration in connection with bareboat chartering. However, in the event of double registration in both the owner State and the bareboat-charterer State, both States must be regarded as “the State of registration” for the purpose of this provision. As regards the term “controlling ownership interests”, the vital question will normally be in what country the largest proportion of the ownership interests are located. However, the term opens the door to a discretionary assessment, where other elements such as limitations on voting rights, the composition of the ownership interests, co-operation arrangements etc. may lead to the conclusion that the controlling ownership interests are located in another country.

According to sub-clause 1 (b), third sentence, the concept of “own State power “ does not include individuals or organisations exercising supranational authority. This conforms to the previous definition of own State power. Supranational authority is included in the concept of foreign State power in Cl. 2-9, sub-clause 1 (b). This means that interventions by such power will be covered by war risks insurance within the framework of this provision. Interventions outside this cover will be covered under the all risks principle in Cl. 2-8 except for requisition, which are excluded in Cl. 2-8 letter (c), cf. below.

The exclusion for intervention of State power in Cl. 2-8 (b) is limited. Thus, it is not necessary to have specific wording to achieve the purpose of the so called “pollution hazard clause”. It is clear that any measure taken by a State, own or foreign, for the purpose of averting or limiting any loss or damage whether pollution or any other kind of loss or damage will remain covered under an insurance against marine risks by virtue of the all risks principle, except for cover provided by Cl. 2-9, sub-clause 1 (e). The exception in Cl. 2-9, sub-clause 1 (e), is the case of any measure taken by a foreign State power to avert or limit loss or damage where the cause of the original casualty or threat of a casualty is a war peril as defined in Cl. 2-9, sub-clause 1 (a)–(d). In this case it is of course the war risks insurer who is liable for any loss or damage that might arise as a consequence of the measures to prevent loss.

Sub-clause 1 (c) excludes “requisition by State power”. In the previous 2016 Version, this exclusion would follow from the broad exclusion for “intervention by State power” in (b). With the more narrow provision in the new letter (b), it is necessary to make a separate clause for requisition to emphasize that requisition by State power is excluded regardless of the motive for the requisition.An identical exclusion is made in Cl. 2-9, sub-clause 2 (c). This exclusion was previously placed in Cl. 2-9, sub-clause 1 (b), but it was expressly stated that it applied to requisition “for ownership or use”. The expression “for ownership or use” is deleted both in Cl. 2-8 (c) and Cl. 2-9, sub-clause 2 (c) to simplify the wording, but no material change is intended. Requisition is excluded regardless of whether a State takes over the ownership functions of the vessel or the measure is limited to the use of the vessel. Further, the exclusion for requisition applies to both own and foreign State power even if requisition typically is done by own State power, cf. below. The concept of requisition was not defined in the previous 2016 version of the Commentary, but it was stated that “Requisition as an intervention typically occurs in times of war or in times of war-like conditions, or during a political crisis. A general criterion for defining requisition as a war peril is therefore that the intervention is politically motivated. If the State expropriates the vessel for other reasons, for instance pursuant to quarantine provisions to prevent the spread of a virus, this does not constitute “requisition” in accordance with this provision.” This implied that requisition was the same as politically motivated expropriation, but it was not clear how expropriation as an intervention was to be treated. Further, the reason to exclude requisition was that “According to ordinary principles of expropriation law, the requisitioner must pay full compensation for the subject-matter requisitioned or – in the case of requisition for use – cover liability and any damage and reduction in value which the subject-matter of the requisition has suffered during the period of requisition.” This may be true for requisition and also for expropriation by own State power, but it is not always true for expropriation by foreign State power. The Committee means that requisition and expropriation today are not identical concepts, and that expropriation should be treated similar to confiscation, i.e. excluded in Cl. 2-8 (b) and covered in Cl. 2-9 (b). The concept of expropriation is therefore defined under Cl. 2-9, sub-clause 1 (b).

There is no court decision that provides a definition of the concept of requisition, and the concept is not clear either in Nordic or in English marine insurance. “Requisition” in the Plan means that the State “requisite” the vessel for ownership or use according to legislation and in national interest. The relevant legislation will normally provide a formal procedure to be followed. Requisition is typically limited in time and the purpose is that the vessel shall be redelivered to the owner after a certain period. Normally, but not necessarily, the authority to requisite vessels will be limited to vessels under the State’s own flag. The rule is also that the State compensate for the use of the vessel and pay for any damages during the period of use, but this is not a requirement for the exclusion to apply. Expropriation, on the other hand, means that the owner is permanently deprived of the ownership to the vessel. This is thus a different concept from requisition, although the concepts may overlap if the period of requisition is uncertain and/or compensation is paid for the expropriation.

The exclusion for requisition in the sense described above is upheld. If the vessel is registered in one of the Nordic countries it must be expected that the State will pay compensation if they take over the vessel for ownership or use regardless of the motive for the requisition, and it is not natural to cover this under the insurance. Requisition of the vessel for instance to use it as a hospital vessel will according to this exclusion not be covered. An identical provision is found in Cl. 2-9, sub-clause 2, letter (c).

Sub-clause (d) was revised in 2019 and the Commentary was re-written. The exclusion now applies to “insolvency or lack of liquidity of the assured or the operation of ordinary legal process to enforce payment of any fine, penalty, debt or right to security unrelated to a claim or liability covered by the insurance”, whereas the previous exclusion was for insolvency only. The term “insolvency” has been used in the English text of the Plan as a translation of the Norwegian term “manglende betalingsevne” literally “lacking the ability to pay”. Consequently, insolvency in Cl. 2-8 and Cl. 2-9 means inability to pay regardless of the cause of the insolvency or whether it is temporary or permanent. There is no requirement for the insolvency exception to apply that the economic situation for the assured is so grave that the assured has been or may be declared bankrupt, enters into composition agreement with his creditors or seeks protection from creditors, under any applicable legislation such as e.g. Chapter 11 proceedings under U.S. law. In order to avoid any doubt, the phrase “or lack of liquidity” has been added so as to better reflect the original Norwegian text. The term does not apply to cases where a person has the ability to pay but refuses to do so, perhaps because the claim is disputed or for some other reason. Of course, it is possible that a refusal by the assured to pay a third party demand might affect the amount or indeed the validity of an insurance claim, but this would be for reasons unrelated to a lack of liquidity or insolvency.

It can be argued that even without any specific exclusion the assured would be unable to claim for losses that can be attributable to its own insolvency or lack of funds. Lack of funds is no excuse for a failure to perform one’s contractual obligations such as the duty to maintain the vessel in a proper condition. The same applies under a loss of hire insurance policy if repairs are delayed by the assured’s inability to pay for the necessary spare parts. It is even doubtful whether a repossession of the vessel by a mortgagee for non-payment of a loan could ever be claimed even under an all risks policy, but sub-clause (d) removes any possible doubt on this point.

It may at times be difficult to decide whether there is legally relevant causation between the insolvency and the casualty. If the vessel is arrested as security for the shipowner’s debt and subsequently becomes involved in a collision or sustains damage during a storm, one might say that it would have avoided the collision or the heavy weather if it had not been delayed due to the arrest. Yet there is no relevant causation between the arrest and the damage; the insolvency has merely been an external and completely accidental cause of the damage. The situation will be different, however, if the arrest in itself increases the risk that the vessel may suffer a casualty. Thus, if the vessel is arrested in late autumn in a port which will normally freeze over within a short period of time, and the vessel sustains ice damage during departure, there may, in view of the circumstances, be a relevant causation between the arrest and the damage. In that event, the arrest might also be regarded as the only cause of the damage, and the rule relating to causation contained in Cl. 2-13 would not be applied.

Previously the exclusion for insolvency also applied to the insolvency of any party other than the assured. It is difficult to see the need for such an exclusion although there are cases where a specific exclusion avoids the need to use more complex reasoning from basic principles of contract law. On the other hand, it is obvious that there are cases where a simple exclusion for insolvency of a third party is inappropriate. Clearly, insurers must carry the risk of third party insolvency when exercising rights of subrogation against third parties who are responsible for damage that is covered by an insurance. If the owner of a vessel that has collided with the insured vessel or a bunker supplier who has supplied off-spec bunkers is bankrupt, that is the insurers’ problem and not the assured’s. The revised wording of sub-clause (d) discussed below replaces the very unclear exclusion for insolvency of persons other than the assured with more specific wording that makes it clear without further discussion that certain obvious limitations in the scope of the insurance apply.

The scope of the exclusion for intervention by State power in Cl. 2-8 was restricted in 2019, ref. the Commentary to Cl. 2-8 (b). As a consequence, the words “or the operation of ordinary legal process to enforce payment of any fine, penalty, debt or right to security unrelated to any claim or liability covered by the insurance” were added in (d). Since cover under Cl. 2-8 is based on the all risks principle, losses of the kind covered by any Plan insurance arising from interventions by State powers or even the ordinary exercise of a State’s judicial or administrative powers will be covered unless they are excluded. After the changes to Cl. 2-8 (b) and Cl. 2-9, sub-clause 1 (b), the situation is that interventions by a foreign State power that satisfy the criteria in Cl. 2-9, sub-clause 1 (b), are covered by an insurance against war perils and therefore excluded from cover under Cl. 2-8 (a), while interventions by the vessel’s flag state or the State where the major ownership interests are located are now specifically excluded by Cl. 2-8 (b). This would mean that interventions that do not have an overriding political goal will be covered by the all risks principle, hereunder interventions based on ordinary legal process. It is unlikely that the operation of ordinary legal processes will be the direct cause of physical damage to a vessel or lead to the owner being deprived of the vessel without any prospect of recovery, but the possibility cannot be entirely discounted. In addition, it is not natural for any form of insurance to cover the cost of delays or legal costs of ordinary legal process to enforce the payment of debts or other legal rights against the assured or the vessel that are unrelated to a valid claim. It is true that the basis for legal proceedings involving the vessel might be unreasonable or ill founded. However, there is a well-established set of rules in most jurisdictions concerning arrest of vessels and protection against wrongful arrest. In many cases the vessel’s P&I club will provide security to lift the arrest and so called Defence cover will cover the costs of negotiating and providing security in other cases. Where the legal proceedings relate to a valid insurance claim such as a demand for security for salvage services or in connection with a collision, the appropriate insurer will provide security and cover any costs involved. The exclusion will therefore only be relevant in very exceptional cases. It is true that the new exclusion like the exclusion for “insolvency” can apply irrespective of whether the legal proceedings relate to a claim against the assured or a third party such as a charterer but for the reasons explained above the new wording is much less likely to lead to confusion or unintended consequences. It should be noted that the exclusion only applies to legal proceedings to enforce a debt or obtain security for a debt. It does not apply to e.g. proceedings related to public law matters such as the enforcement of customs or trading regulations. Such cases are governed by the rules in Cl. 3-16.

Sub-clause (e) was introduced in 2007 as a result of the attitude of the reinsurance market as regards terrorism risk after the terrorist attack in New York on 11 September 2001. At that time the reinsurance market included the following Clause in all reinsurance contracts (RACE II):

INSTITUTE EXTENDED RADIOACTIVE CONTAMINATION EXCLUSION CLAUSE

This clause shall be paramount and shall override anything contained in this insurance inconsistent herewith.

In no case shall this insurance cover loss damage liability or expense directly or indirectly caused by or contributed to or arising from
1. ionising radiations from or contamination by radioactivity from any nuclear fuel or from any nuclear waste or from the combustion of nuclear fuel,
2. the radioactive, toxic, explosive or other hazardous or contaminating properties of any nuclear installation, reactor or other nuclear assembly or nuclear component thereof,
3. any weapon or device employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter
4. the radioactive, toxic, explosive or other hazardous or contaminating properties of any radioactive matter. The exclusion in this sub-clause does not extend to radioactive isotopes, other than nuclear fuel, when such isotopes are being prepared, carried, stored, or used for commercial, agricultural, medical, scientific or other similar peaceful purposes.
5. any chemical, biological, bio-chemical, or electromagnetic weapon.

The term “release of nuclear energy” will also include radioactive radiation (released from an unstable atom). In a broad sense, the term also includes the toxicity and contamination of substances that are formed during and after such a “release”.

Sub-clause (e) (4), last part, states that the exclusion also applies to radioactive isotopes from nuclear fuel, when such isotopes are being prepared, carried, stored, or used for peaceful purposes. This provision corresponds to no. 1.4, last sentence, of the English Clause. Since the reinsurance market accepts this type of nuclear risk in peaceful activities, there is no reason not to include it in the Plan’s cover against marine perils.

Sub-clause (e) (5) was also taken from the RACE II Clause, which includes “biological, chemical, biochemical and electromagnetic weapons”. According to the English insurance market, the purpose of the wording “biological, chemical, biochemical” is to exclude nerve agents and viruses such as “sarin”, mustard gas, smallpox, etc. The formulation does not include explosives, or methods for detonating or attaching explosives. Nor does it cover use of the vessel or its cargo for harmful purposes, unless the cargo itself constitutes a chemical or biological weapon that is covered by the Clause.

The term “electromagnetic weapon” refers to sophisticated mechanisms designed to destroy computer software, and not to methods for detonating or attaching explosives.

After 11 September 2001, the reinsurance market also introduced an exclusion for the use of computer technology for harmful purposes, the Cyber Attack Clause (CL 380). No such exclusion has been incorporated in the Plan because it is possible at present to reinsure this risk, and many insurers choose to do so. Insurers who do not have such reinsurance must therefore include this exclusion clause in their individual insurance contracts.

The wordings with regard to causation in the first sub-clause of the English clause have been maintained by means of amendments to sub-clause 2 of Cl. 2-13. The wordings as regard burden of proof have been incorporated in Cl. 2-12.

One type of limitation of liability which must obviously be contained in every insurance is the one relating to negligence on the part of the person effecting the insurance or the assured. However, the crucial point here is that the assured’s co-contractor, or someone else who derives a right from the insurance contract has breached its terms in a subjectively blameworthy way. The majority of the rules of this type are compiled in Chapter 3.

There are also a number of other perils which insurers will normally not undertake to cover:

(1) Basically, a marine insurance does not cover recessions, i.e. a general decline in the market value of the interest insured. The assured cannot claim compensation merely on the grounds that due to the price trend, the object insured is not worth as much as the assured assumed it would be at the time the insurance was taken out. This already follows from the fact that the insurer’s liability cannot be triggered without the occurrence of a casualty, i.e. an event which triggers liability under the conditions applicable in the relevant branch of insurance.

However, no general rule can be established to the effect that the assured will never be entitled to compensation for a loss resulting from a recession. The fact is that in many cases when an assured suffers a casualty, the particular insurance conditions will provide the assured with compensation for a recession loss which it would otherwise have suffered. A clear example is the rule in Cl. 2-2 to the effect that the insurable value is the value of the interest at the inception of the insurance. If vessel prices have fallen during the insurance period, the shipowner will, in the event of a total loss, obtain compensation for a value which it could not have obtained by selling the vessel. In this light it would not be expedient to have a separate formal exclusion of perils in the event of a recession.

(2) Certain English conditions contain explicit exceptions for “loss through delay”. However, it is not possible to establish such a general exception without getting into difficulties every time a delay has been the external cause of a recoverable loss.

Another matter is that the insurer does not, without an explicit agreement, cover “loss of time”, i.e. a loss exclusively connected with the delay and increasing proportionally with that delay. Thus, as a general rule, the hull insurer will not be liable for the shipowner’s general operating costs relating to the vessel during repairs. This rule is worded as an exception in Cl. 4-2. However, it should be noted that in certain cases the hull insurance does provide partial cover of loss of time; moreover, separate insurances are often taken out against loss of time (see Chapter 16).

(3) As a general limitation of the range of perils, it is sometimes stipulated that the insurer does not cover losses caused by the assured having entered into a contract with unusual conditions. As a rule, the loss will consist in the assured having undertaken to pay damages to a third party to a greater extent than he might have been held liable to pay under general rules of law or under common conditions in the trade in question. Such liability clauses may be found, for example, in contracts for towage or carriage of goods. The “unusual conditions” may also make it easier for a third party to cancel the contract (termination of a contract of affreightment by reason of force majeure) or to invoke an exceptionally high remuneration or other contractual advantages (e.g., in a contract for the repair of a vessel). The loss may also consist of the assured renouncing a right of recourse which it would otherwise have had against a third party.

Questions of this nature should preferably be subject to special regulation in each individual area where contractual clauses may affect the insurer’s liability. Such limitations of liability are incorporated in Cl. 4-15 (liability clauses) and in Cl. 5-14 (clauses relating to the waiver of rights to claim damages from a third party). With respect to contracts for the repairs of casualty damage to the vessel, the hull insurer will be involved to such a great degree through the rules relating to surveys, invitations to submit tenders, approvals of invoices, etc., that it will thereby be able to exercise the necessary control.

(4) The insurer will normally limit its liability if the interest insured is used to further an illegal undertaking. A similar limitation is implicit in the requirement that it must be a “lawful interest”; as mentioned above in Cl. 2-1, however, it is difficult to specify exactly what this means.

In the Plan, illegal undertakings are regulated in Cl. 3-16. Sub-clause 1 provides that the insurer is not liable for loss resulting from an illegal use of the vessel of which the assured was aware and which it could have prevented. This limitation of liability is very moderate, requiring both causality and subjective blameworthiness of the assured itself or anyone with whom it might be identified (cf. below in Chapter 3, Section 6). However, this rule is supplemented by sub-clause 3 which provides that the entire insurance terminates if the vessel, with the consent of the assured, is essentially used for the furtherance of illegal purposes.

(5) The purpose of insurance is to provide protection against unforeseen losses. The foreseeable loss in the form of maintenance, regular operating expenses, etc. must be covered by the assured himself. The dividing line between which losses are “foreseeable” and which are “unforeseeable” is far from clear and may cause doubt in all branches of marine insurance. This question can hardly be solved by an explicit provision in the general part of the Plan, however.

The conditions of the various types of insurances contain a number of provisions which shed light on the dividing line between ordinary expenses and losses which are covered by the insurance. From hull insurance Cl. 10-3 and Cl. 12-3 should in particular be mentioned. The provision in Cl. 10-3 excludes “loss which is a normal consequence of the use of the vessel, its tackle and apparel”. Cl. 12-3 addresses damage due to wear and tear and similar causes. Costs of repairing a part which is worn or corroded are never paid by the insurer, but wear and tear is not an excluded peril. Casualties caused by wear and tear are therefore in the same category as other casualties. In other contexts as well, the provision goes far in imposing liability on the insurer for costs which, under the conditions in effect in other countries, would be regarded as operating expenses for the shipowner’s account. This will be discussed in further detail in Chapters 10 and 12.

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Clause 2-8. Perils covered by an insurance against marine perils

An insurance against marine perils covers all perils to which the interest may be exposed, with the exception of:

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Clause 2-9. Perils covered by an insurance against war perils

The Commentary was amended in the 2027 Version of the Plan.

As mentioned in Cl. 2-8, the total range of perils in marine insurance is divided into two. Separate insurances must be taken out against perils related to war and against general marine perils. In practice the terms “war perils” and “marine perils”, “war risks insurance” and “marine risks insurance” are used. The Plan has adopted this terminology and therefore uses the term “marine perils” to cover the “civilian” perils which occur in the shipping trade.

The Plan maintains the traditional division of the range of perils into war risks insurance and marine risks insurance. Due to the fact that the exception for war perils in marine risks insurance relates to the range of perils in war risks insurance (cf. Cl. 2-8 (a)), no gaps in cover will occur other than those that follow from explicit provisions.

Technically, war perils constitute an exception in general marine insurance. The insurer against marine perils is liable for “all perils to which the interest insured is exposed”, with the exception of inter alia war perils. In war risks insurance, on the other hand, the range of perils is positively determined, and will (as a rule) comprise most of the perils excluded by the war risks exception. However, this wording does not entail that general principles of insurance law, such as the principle that excluded perils should be subject to strict interpretation and that the insurer has the burden of proving that the loss is caused by a peril which is explicitly excluded from the cover, cf. Cl. 2-12, sub-clause 2, shall apply. War risks and marine risks insurances shall in every respect be regarded as equal types of insurances on the same level. The excluded war peril shall not be subject to a strict interpretation to the disadvantage of the marine risks insurers and, from an evidential point of view, there is no difference.

Sub-clause 1 of Cl. 2-9 states the range of perils in war risks insurance in (a) – (e).

Sub-clause 1 (a) states the “classic” war peril. The crucial element is obviously the perils caused by a war in progress. To give an exhaustive enumeration of the events which may be relevant here is not possible. Primarily there is the use of implements of war by the powers at war (or neutral powers) – bombs, torpedoes and other conventional firearms, chemical or biological implements of war, and the like. If the damage is directly attributable to the use of such an implement of war for the purpose of war, the loss is subject to the special causation rule contained in Cl. 2-13, cf. below. But also otherwise, the use of implements of war may be the cause of a loss such as when the vessel has to pass through dangerous waters in order to avoid a mine field or, in order to stay away from an area where a sea battle or an air raid is taking place, and in the process runs aground.

An implement of war may be the cause of damage also after the war in which the implement was used has ceased, e.g. where a vessel runs into a mine. Such damage shall also be regarded as “a peril attributable to war”, regardless of whether or not the mine explodes. If the impact does not result in an explosion it may, however, be difficult to prove whether the impact is attributable to the implement of war or a common marine peril, e.g. a log. In that event the rule of apportionment in Cl. 2-16 may have to be applied.

Generally, all such measures that are regularly taken by powers at war as well as by neutral powers and which affect shipping, such as the extinguishing of lighthouses, the withdrawal of old navigation marks and the putting out of new ones, the organising of convoys where the freedom to manoeuvre is more or less restricted, orders to sail without navigation lights, etc., will constitute war perils, due to the fact that they are attributable to the war, cf. the wording of the Plan.

As for capture at sea, requisition and the like undertaken for the purpose of war, and sabotage carried out to further the purpose of a power at war, these are perils directly attributable to the war and therefore come under the definition in Cl. 2-9 sub-clause 1 (a). However, these perils are also covered by the special enumeration in sub-clause 1 (b); between (a) and (b) there will thus be an overlapping as far as war-motivated measures are concerned. However, if the measure is taken by the vessel’s own (not “foreign”) State power, the special rule contained in sub-clause 1 (b) must prevail. Such measures will therefore fall outside the cover, regardless of whether or not they are war-motivated. If, in exceptional cases, the war risks insurer has not accepted liability for the perils mentioned in sub-clause 1 (b) and (c), it will be a matter of construction to decide whether it must nevertheless be liable under sub-clause 1 (a) for war-motivated measures by a foreign State power and war-motivated sabotage.

The term “war-like conditions” is used to imply that the decisive point is not whether war has broken out or threatens to break out, but how war-like the measures are which a State has instituted. Whether there are “war-like conditions” may, of course, be difficult to decide, but in practice the term will hardly be of any great significance. As a rule, the loss will have been caused either by military manoeuvres or by measures taken by State power, and in either case it will be covered by the war-risk insurer, even if there are no “war-like conditions”. If a vessel in international waters or within the territorial borders of a foreign State becomes the subject of a simulated or real air raid by the relevant foreign State, this must normally be regarded as a war peril. Exceptions are nevertheless conceivable where the action must be viewed as part of the enforcement of the relevant State’s police or customs legislation, see below under sub-clause 1 (b).

A “civil war” will normally constitute a “war-like condition”, and the addition is therefore more in the nature of a specification than an amendment. An example of losses that are covered under this alternative is where aircraft from rebel forces in a civil war drop bombs that hit neutral vessels, cf. the situation during the Spanish civil war, when bombs dropped in the summer of 1936 struck the Norwegian vessel D/S Frank.

The war risks insurer is also liable for “the use of arms or other implements of war in the course of military manoeuvres in peacetime or in guarding against infringements of neutrality”. The main problem here will be to decide when there is a case of “use of…other implements of war”. If a vessel collides with a naval vessel sailing in an ordinary manner, this will not constitute any use of implements of war. The same applies if, for example, a military plane crashes in a harbour due to engine trouble, or an ammunition depot blows up as a result of an ordinary “civilian” fire. The “use of implements of war” presupposes that the naval vessel (the aircraft, the ammunition) is used in a manner typical of its function as an implement of war, e.g., that during exercises the naval vessel disregards the rules relating to navigation at sea, that the aircraft crashes during dive-bombing exercises, or the ammunition stores blow up as a result of a failure to comply with the relevant safety regulations.

An important question is how to evaluate the mistakes which the crew makes under the influence of the war situation. A war will normally make navigation conditions much more difficult than in times of peace. More concentration and alertness are required of the crew (e.g., while sailing in waters where lighthouses and navigation marks are out of operation), and an insignificant and excusable misjudgement may easily have disastrous consequences. In addition, the physical and mental pressure involved in wartime sailing may easily cause exceptional fatigue or other indisposition among officers and crew.

In the extensive case law during and after World War II it was regarded as clear that any faults or negligence committed by the master or crew relating strictly to their service as seafarers should be regarded as an independent peril which fell within the marine risks insurer’s area of liability. In this respect international tradition was followed. This approach was maintained in the 1996 Plan. Faults or negligence committed by the master or crew shall therefore be regarded as an independent causal factor, a peril which falls within the marine risks insurer’s area of liability. As the chances of faults and negligence being committed will, as a rule, be far greater in times of war than in times of peace because navigation is that much more difficult, this in actual fact means that also the marine risks insurer must accept a general increase in risk owing to the war situation.

However, it is conceivable that faults or negligence on the part of the master or crew must be covered by the war risks insurer, viz.where such fault or negligence is very closely bound up with the war peril or consists in a misjudgement of this peril. It is, for example, conceivable that the officers are exhausted after having been subjected to the pressure of war for a long period of time and, as a result thereof, make a clear navigational error, or that the crew leaves the vessel under the misapprehension that there is an impending risk of war (cf. the “Solglimt case”, Rt. 1921. 424 which is limited to letter (a) type of situations, see the Heroic Idun Arbitration Award of 5 August 2025 on this point). In practice, it is also conceivable that the crew’s conduct in the given circumstances must be regarded as excusable; in other words, that no actual “fault or negligence” has been committed.

Moreover, when applying Cl. 2-9 sub-clause 1 (a), guidance will be found in the abundant case law relating to those vessels that sailed in Norwegian and other German-controlled waters during World War II.

Sub-clause 1 (b) of Cl. 2-9 deals with certain interventions by foreign States. It is closely tied to Cl. 2-8 (b) in relation to interventions by own State power. Similar to Cl. 2-8 (b), Cl. 2-9, sub-clause 1 (b), is divided so that requisition is addressed in a separate sub-clause, cf. sub-clause 2 (c) and below.

The war risks cover is adjusted to the criteria established in the Sira case. The main amendment is to emphasize that the war risks cover only includes the interventions mentioned. If such interventions by a foreign State are not covered under the war risks insurance they will be covered by the marine insurance, cf. the all risks principle in Cl. 2-8. This means that losses arising from measures taken by the police authorities must be covered by the ordinary marine risks insurance to the extent that the losses are of the kind that are recoverable under the insurance in question, cf. the comments above on Cl. 2-8 (b). However, assuming, for example, that the vessel sustains damage during an extensive customs examination, the hull insurers against marine perils must cover the damage, subject only to ordinary exclusions such as e.g. Cl. 3-16.

The interventions mentioned in Cl. 2-9, sub-clause 1 (b), may constitute a strict war measure related to a war in progress or an impending war which as a starting point would also be covered under letter (a) above. However, as a special provision, sub-clause 1 (b) will prevail.

The provision provides cover for “capture at sea, confiscation, expropriation and other similar interventions“.

The term “capture at sea” means that the vessel is intercepted, seized or arrested by a foreign State power at sea. This covers the situation where the insured vessel is stopped at sea by a war vessel or military vessel using power or threatening to do so. It is not capture “at sea” if the vessel is arrested and detained in port without a foregoing capture. On the other hand, when the vessel is captured at sea, it will normally be escorted by power into port for further control. As long as the detainment in port is due to the same cause as the capture, the stay in port must be regarded as part of the capture. If the vessel sails into port without any threats from the foreign State, this is outside the concept of “capture at sea”. This is true even if the State could have forced the vessel to enter the port.

The term “confiscation” means that the vessel is appropriated by State power without compensation. The term comprises “condemnation in prize”, where a warring power will invoke international or domestic condemnation in prize rules.

The term “expropriation” means that the State takes over the vessel for a purpose deemed to be in the public interest. Expropriation is similar to confiscation in that the owner permanently loses ownership to the vessel. Contrary to confiscation, however, the assured may be compensated for its loss. Any such compensation must be deducted from the liability of the insurer. However, if such compensation is not paid, or the compensation is less than the assessed insurable value of the vessel, there is a clear need for cover. It should be noted that expropriation refers to a permanent loss of ownership. In case of a time limited transfer of ownership, this will normally constitute “requisition”, which is excluded, cf. sub-clause 2 (c).

The term “other similar interventions” indicates that the enumeration in sub-clause 1 (b) is not exhaustive, and that other types of interventions by a State power may be included. The term “similar” means that the intervention must have similar consequences for the assured as “capture at sea”, “confiscation” and “expropriation”. Typical for these interventions is that the shipowner is being divested of the right to dispose of the vessel. This is therefore a necessary condition for an intervention to be covered under this group. An intervention satisfying these criteria can of course take place while the vessel is in port. Requisition by State power is however excluded from cover in Cl. 2-9, sub-clause 2 (c). For further comments on the distinction between requisition and expropriation, see the comments to Cl. 2-8 (c).

A common requirement for all four groups of interventions is that they must be carried out for the furtherance of an overriding national or supranational political objective. It is therefore clear that interventions in accordance with applicable law for the purpose of enforcing customs-, police-, safety- or navigation-regulations or any private law rights against the insured vessel are outside the scope of the war risks insurance cover. If the vessel is arrested/captured at sea by the Coast Guard or representations of the police or customs authorities to hinder or investigate illegal fishery, import or export or breach of trade regulations, this will not be covered. The same is true if the vessel is arrested or detained in port because of doubt as to whether the vessel is compliant with the rules regarding technical and operational safety, or because the crew is suspected of smuggling. Obviously, losses arising from the vessel being detained or seized as part of debt-recovery proceedings against the owners are not covered, either; this follows in any event from the exclusion in sub-clause 2 (a).

It does not matter whether such police or customs intervention is caused by illegal acts performed by a third party, for instance the charterer or the master or crew. Further, it is not decisive whether the State intervention is based on the legislation of the country or may be seen as abuse of power or corruption, if the intervention does not have an overriding national or supranational political objective. However, if an overriding national or supranational political objective is detected, it does not matter if the State power formally justifies the interventions with for instance police or customs regulations, or if the intervention has the character of abuse of power or corruption.

The expression “overriding national … political objective” is based on four arbitration cases regarding the war risks cover for interventions by foreign State power in the 1964-Plan and the 2013 Plan Version 2016, namely unpublished award of 11 June 1985 relating to the Germa Lionel, ND 1988.275 NA Chemical Ruby, The Wildrake case, which was settled, and ND 2016.251 NA MT Sira. These cases are discussed in detail in Wilhelmsen/Bull, Handbook on hull insurance, Oslo 2017 pp. 94-99.

The expression was further developed in the Heroic Idun Arbitration Award dated 5 August 2025, setting out the following guidelines to establish whether the intervention was motivated by overriding political motive:

“The general domestic and foreign political situation may explain the detention, with the specific circumstances of the individual vessel playing a lesser role. The intervention is generally politically motivated if the intervention against the vessel is merely instrumental in achieving a broader political objective; for example, where the detention forms part of a boycott or retaliatory action against the vessel’s flag state, or against the state from which the cargo originates;
The intervention is caused by an unfounded suspicion that the vessel has violated regulations intended to protect the security of the state in question, or has otherwise threatened the state’s security interests; for instance, suspicions that the crew on board, or individuals connected to the shipowner, have engaged in espionage or provided assistance to saboteurs or political opponents of the state;
The intervention exceeds what would be considered necessary for the purpose of law enforcement; for example, if its duration is longer than usual by the standards of the legal system in question, or if the authorities resorted to violence against the master or crew in connection with the intervention;
The intervention against the vessel was initiated or involved participation by the government or another overarching authority, and it cannot reasonably be explained as a legitimate act of enforcing customs, police, safety, or navigation regulations, or as the enforcement of any private law rights, having regard to how such decisions are normally made in the state in question;
Circumstances of war and crisis, broadly understood, may generally support a finding that the intervention was carried out in furtherance of an overriding political objective, and ease the evidentiary threshold required to show that it is attributable to such an objective, rather than to an act of law enforcement”.

The term “supranational” is added to emphasize that the concept of “foreign State power” includes both public and supranational power, cf. below.

According to letter (b) second sentence, the term “foreign State power” means “any State power other than own State power as defined in Cl. 2-8 (b), second sentence, as well as organisations and individuals exercising supranational authority or who unlawfully purport to exercise public or supranational authority. The term therefore comprises all persons or organizations exercising public or supranational authority, except for own State power. Hence, if an intervention is implemented by representatives of a league of States (alliance, group, block), it must be regarded as an intervention by a foreign State power. A confiscation or expropriation by NATO or a similar organization will accordingly be covered by letter (b). However, requisition by NATO is not covered, see sub-clause 2 (c) and below.

On the other hand, not only ordinary State powers are brought in under this term, but also organisations and individuals. For organisations and individuals, it may be difficult to establish whether the particular intervention was made purporting to exercise “public or supranational authority”, or for some other reasons. However, if the intervention is motivated by social, religious or political reasons, the intervention may fall under Cl. 2-9 sub-clause 1 (c). If the intervention or act is economically motivated it may be a case of piracy, cf. Cl. 2-9, sub-clause 1 (d).

Sub-clause 1 (b) deals only with restrictions on the owner’s rights in the object insured. Actions leading to an infliction of physical damage fall within the scope of general war perils set forth in sub-clause 1 (a); there is accordingly no limitation applicable to actions by authorities of the State of registration or the State of ownership. If the object is destroyed by entities from these States during acts of war, the insurance against war perils will have to indemnify the loss. This must apply both where the destruction is an unintentional consequence of the acts of war, and where it is a result of military orders for the furtherance of military objectives of the State of registration or the State where the controlling ownership interests are located. In this connection, it makes no difference whether the military authorities have themselves effected the destruction, have ordered it, or have even used a formal requisition. In all of those cases, the assured’s loss will be recoverable. Only interventions aimed at divesting the assured temporarily or definitively of its use of the object are irrecoverable. However, what the authorities are going to use the vessel for is irrelevant.

Sub-clause 2 (c), excludes “requisition by State power”. Requisition was previously regulated in sub-clause 1 (b), last sentence, which stated that such requisition was not regarded as an intervention in relation to Cl. 2-9, sub-clause 1 (b). However, this expression was problematic in relation to Cl. 2-8 (b), which excluded interventions from State power because it could be argued that requisition was not included in this exclusion. This was obviously not the meaning, and the wording is changed to make it clear that requisition is not covered. To further clarify this rule, it is moved from sub-clause 1 (b) to sub-clause 2 (c). As mentioned, a similar division is made in Cl. 2-8 (b) and (c). The concept of requisition is further defined under Cl. 2-8 (c). It follows from these rules that requisition is not covered by any insurance. As mentioned above under Cl. 2-8 (c), it must be expected that a Nordic State will pay compensation if it requisites the vessel for temporary ownership or use. There is no guarantee that a foreign State power will adhere to these principles, but there is limited availability of reinsurance for this kind of purely political risk.

Sub-clause 1 (c) covers riots, sabotage, acts of terrorism and other social, religious or politically motivated use of violence or threat of the use of violence, strikes or lockouts.

By “riots” is meant violence in the form of unlawful actual harm to people or property, caused openly and by a large number of people. The distinction between riots and regular criminal acts, for which the marine risks insurer is liable, must first and foremost be drawn on the basis of whether the background for the riots is political, social or similar circumstances.

By “sabotage” is primarily meant wilful destruction which does not form part of the conduct of war, but which is connected with, for example, labour conflicts. War sabotage is a war peril which will also be covered under sub-clause 1 (a). The sabotage need not be aimed at the actual object insured. A “go slow” action among dock workers or seafarers is aimed at the employers’ interests in general, but if the action involves recoverable damage to the assured’s property, the war risks insurer will be liable for the damage under sub-clause 1 (c). Destruction carried out by a vessel’s crew as an act of vengeance or a protest demonstration against the owner must be regarded as vandalism of property and is covered by the insurance against marine perils. The same applies to wanton destruction of property carried out by someone of unsound mind or under the influence of alcohol. The term “sabotage” presupposes that the action pursues a specific political, social or similar goal, see ND 1990.140 NV PETER WESSEL, where the court based its decision on the assumption that the costs of interrupting the vessel’s voyage etc. in connection with a bomb threat must be covered by the hull insurer against marine perils as costs of measures to avert or minimise the loss. The external circumstances of the threat clearly indicated that this was an act that had no background in political, social or similar circumstances.

The term “acts of terrorism” refers to the situation in which one or more representatives of a resistance group or the like carry out or threaten to carry out acts that are intended to exert influence on a government or another political body or to frighten all or parts of the population in a country.

The purpose is to promote a political, religious or ideological cause. The act of terrorism may directly affect an opponent’s persons and/or interests, such as when bombs are placed in vehicles or on board vessels, when aircrafts are set on fire, when oil pipelines are cut, etc. However, there is nothing to prevent nor, moreover, is it uncommon for a terrorist act to be directed against a third party; in such case the purpose is usually to draw attention to the cause for which the terrorists are fighting.

Acts of terrorism are often characterised by the fact that they endanger the lives of many people or cause extensive material damage. We have seen a number of examples of terrorist groups in recent years. An example is the terrorist attack against the United States of America on 11 September 2001.

As is the case for sabotage, acts of terrorism will under certain circumstances fall within the scope of the term “war or war-like conditions”. This will primarily be the case when acts of terrorism occur in connection with a war between several States. One example may be acts committed by resistance groups in an occupied country with a view to hurting or weakening the enemy, for instance through acts of terrorism against ordinary merchant vessels. “War-related terrorism” will therefore – like war-related sabotage – constitute a war peril that is covered by both sub-clause 1 (a) and (c). It is probably necessary to go one step further: acts of terrorism carried out in peacetime by resistance groups may also be so extensive that a “war-like condition” must be said to exist, see Brækhus/Rein, Håndbok i kaskoforsikring (Handbook of Hull Insurance), p. 78. However, whether the act in question is regarded as an act of terrorism or as part of the conduct of war or a war-like act has no significance in practice for the cover.

As in the case of “sabotage”, however, it is necessary to maintain that an act of terrorism must have or purport to have its basis in a more comprehensive struggle of a political or social nature. Thus a distinction must be drawn between such acts and ordinary criminal acts, including blackmail, using bomb threats, etc., purely for the purpose of gain, cf. for instance ND 1990.140 NV PETER WESSEL.

The wording “other social, religious or politically motivated use of violence or threat of the use of violence” include acts that bear clear similarities to sabotage and acts of terrorism in that they entail the use of violence or threat of the use of violence that is not for the purpose of personal gain. The criteria as regards to motivation are the same as those that apply to riots, sabotage and acts of terrorism and will normally involve several persons. However, the addition will also cover individuals who use violence or threat of the use of violence for the aforementioned motives without this qualifying for description as sabotage. “Use of violence or threat of use of violence” includes individuals misusing state power for its own social, religious or political motives, i.e. misuse of power is not in itself sufficient to be covered by this provision. Further, whether there has been a misuse of power or whether it is ordinary law enforcement is not to be assessed by applying an objective rule of law yardstick but based on what could be expected in the relevant legal system, cf. the Heroic Idun award (1262).

“Strikes” occur where employees in one or more enterprises cease work according to a joint plan and with a joint motive.

“Lockout” entails that one or more employers shut the employees out from the work place, normally as part of an ongoing wage conflict.

Sub-clause 1 (d) covers piracy and mutiny. The text of the Plan is unchanged, but the Commentary to the term “piracy” was amended in the 2010 Version.

In earlier versions of the Plan, the term “piracy” was defined as illegal use of force by private individuals in open sea against a vessel with crew, passengers and cargo. The wording “open sea” was the English translation of the Norwegian wording “det åpne hav”, which corresponds to the wording used in the Norwegian translation of the wording “high seas” in Article 101 of the United Nations Convention on the Law of the Sea, where piracy consists only of acts committed on the high seas, and not within the territorial limit of any coastal state. The provision must be seen in conjunction with Article 105, which allows States to prosecute this type of crime outside the States’ normal jurisdiction. It has therefore been asserted that the term “piracy” in the Plan only covers illegal use of force outside the jurisdiction of the coastal state, and in any event outside the territorial limit of 12 nautical miles. However, the wording “det åpne hav” or “open sea” (in the Norwegian text) was taken from the construction of the corresponding provision in the 1964 Plan in Brækhus/Rein: Håndbok i kaskoforsikring (Handbook of Hull Insurance), and in 1964 there were no corresponding clear international rules on the jurisdiction of coastal states. It was therefore uncertain whether the geographical delimitation should be linked to the issue of jurisdiction. However, there was also doubt as to how the term “det åpne hav” or “open sea” should be construed if it is not linked to international rules of jurisdiction. The state of the law on this point was therefore very uncertain.

In the current situation where piracy has again become a significant risk factor, it is unsatisfactory that there is an unclear geographical line between ordinary crime, which is a marine peril, and piracy, which is a war peril. The parties have pointed out that as a result of the increase in the illegal use of force, there is a need for war risk insurers to assume cover against this peril closer to land than the limit of the territorial waters or “the high seas”, as the case may be. The purpose of regulating piracy in the Law of the Sea Convention is, as mentioned above, to give States the possibility of prosecuting such crime outside their ordinary jurisdiction, and it is not necessarily the case that this delimitation is suitable for regulating piracy in the context of insurance law. The illegal use of force does not change in nature depending on whether the attack is outside or inside the economic zone or territorial limit. War risk insurers may change the trading area with immediate effect as the war peril changes, pursuant to the insurance conditions and according to practice, cf. Cl. 15-9. War risk insurers may also charge an additional premium as a condition for sailing in conditional trading areas. Marine risk insurers have neither a tradition nor the legal authority for making such changes.

The Committee therefore agrees that the geographical limitation linking piracy to “the high seas” is inappropriate, and that the term “piracy” in the Plan must be uncoupled from both the term “open sea” and the international legal definition in Article 101 of the Law of the Sea Convention.

This means that in relation to war risks insurance, “piracy” may also take place within the territorial limit of a coastal state. How close to land the limit lies and which other delimitation criteria apply have been topics of discussion. The consideration of what it is natural to consider a war risk as opposed to “ordinary crime” which naturally belongs in the range of marine perils must be weighed against the consideration of establishing a simple, practicable limit. Moreover, when establishing a more specific delimitation, a distinction must be made between merchant vessels that derive their freight revenues from transporting goods and/or passengers from one port to another, and offshore installations that generate earnings by means of stationary operations in a field.

In the case of merchant vessels, the Committee agrees that illegal use of force constitutes “piracy” as long as the vessel is en route between two ports. Insofar as the vessel is on its way from one port to another, therefore, it makes no difference whether the vessel is inside or outside the territorial limit, or in “the high seas”. Under this approach, even illegal use of force on lakes with a waterway connection to a sea and rivers constitutes “piracy”. The Committee has discussed whether the limit for piracy should be drawn as far in as the vessel’s anchorage in the port, but concluded that the limit must be drawn at the port limit. Therefore, the illegal use of force within the port limit is not “piracy”. This applies regardless of whether the vessel is sailing in the port area or is anchored or moored, and regardless of whether the vessel is lying at anchor at an ordinary anchorage for this port. The same applies to attacks while the vessel is loading or discharging at a terminal. A key element in the concept of “piracy” in relation to merchant vessels is that the use of force takes place at sea, making it difficult for the port State authorities to provide assistance. If the use of force takes place while the vessel is within the port area, it is more natural to compare this with ordinary crime that is dealt with by the port State authorities.

The basic principle above is that the vessel must be underway for an act to be piracy. However, there may be a need for war risk insurance even when the vessel is temporarily anchored. Based on the considerations relating to the port limit above, the Committee has concluded that the illegal use of force against a vessel that is temporarily anchored outside the port limit also constitutes piracy, even if the vessel is anchored at an ordinary anchorage for the port in question. It is also piracy if the vessel is attacked while it is at rest in the process of dynamic positioning or is loading from or discharging to a loading buoy outside the port area. When the vessel is outside the port limit, it is more difficult for the port authorities to intervene in the event of an attack. Such an approach also concords with English law.

If the port limit has not been defined, the limit must be drawn on a discretionary basis depending on whether the use of force is in the nature of a civil peril risk or a war peril. On the one hand, the war risk insurance must obviously not cover anything that must be considered an ordinary crime of gain that is naturally dealt with by the port State authorities. On the other hand, it is important to cover the use of force by private individuals in an organised manner and the use of weapons that is more in the nature of a war peril. In countries with limited infrastructure where ports are poorly organised, there may, depending on the circumstances, be reason to let “piracy” cover attacks on vessels that are temporarily anchored relatively close to land. The decisive factor must be that the way in which the use of force is organised and the use of weapons are in the nature of a war peril and not that of ordinary crime that can be dealt with by the port State authorities.

The shipowners have pointed out that the criterion “underway” is not suitable either for offshore units, dynamically positioned vessels and other types of vessels designed for stationary operation in a field, and which therefore are not “underway”. Consequently, in the case of such units, the Committee has decided that “piracy” is to include illegal attacks on the unit while it is operating in the field, regardless of whether the field is located in “open sea” or the high seas. This kind of situation is in the nature of a war risk in the sense that the use of force necessitates a certain amount of organisation, in addition to which it takes place at some distance from land and the control of the authorities. Since the Committee has now decided that the illegal use of force against merchant vessels will constitute piracy all the way to the port limit, it makes no difference how far from land the unit is operating. Since it has been decided that “the high seas” is no longer to apply as a criterion, piracy may also comprise e.g. the illegal use of force in a river delta.

The rule that attacks on units while they are laid up or under repair at or near a shipyard are to be regarded as a marine peril also applies to offshore units. Ordinarily, offshore units will not lie at or near a shipyard in the same way as a merchant vessel. If the unit has been taken out of operation and moved from the field in order to make repairs, the stay at the place where the repairs are made must be regarded as a repair period. Attacks while the unit is being moved from the field to or from the place in which it is to be laid up or repaired shall be covered by the war risk insurance provided the moving process takes place outside the port limit.

The use of force may take place by means of another vessel, but the pirates may also have come aboard as members of the crew or passengers on the vessel which they subsequently plunder. The purpose will normally be economic profit, but an action that merely results in property damage or personal injury may also constitute piracy. Piracy will often be organized by people who purport to exercise government authority (e.g., an exile government that captures vessels to call global attention to their cause or in order to finance their revolt). The practical difficulties that would arise if a distinction had to be made between “piracy” and “measures by a foreign State power” are avoided by piracy being covered by the war-risks insurance, cf. sub-clause 1 (d).

“Mutiny” means insurrection by the crew against the officers. This alternative will hardly be of any major practical significance. It has been placed within the range of war risks inter alia because it may be difficult to distinguish between mutiny and piracy, typically where bandits who have signed on as ordinary crew members incite mutiny.

Sub-clause 1 (e) sets out war risks cover for “measures taken by a State power to avert or limit damage, provided that the risk of such damage is caused by a peril referred to in sub-clause 1 (a) – (d)”. This so-called “pollution hazard clause” was introduced in Norwegian and English conditions after British authorities in 1967 considered bombing the “Torrey Canyon” following a casualty, for the purpose of limiting the threatening oil spill. The way the rule is now worded, it is aimed not only at the pollution situation, but at any potential damage that the vessel might cause, as long as the risk of the relevant damage can be traced back to a peril covered by the insurance against war perils. Frequently, the costs of such measures will in any event be covered by the relevant insurer as costs of measures to avert or minimise the loss. See the Commentary to Cl. 2-8, sub-clause (b) regarding cover for marine perils.

Sub-clause 2 (a) is identical to Cl. 2-8 (d) and reference is made to the comments above.

The exceptions in Cl. 2-9, sub-clause 2 (b), are identical to the exceptions in Cl. 2-8 (e), except for cover of the use of radioactive isotopes for peaceful purposes, which is not relevant in a war-risks insurance. Reference is otherwise made to the Commentary on Cl. 2-8 (e) (1)–(5).

Sub-clause 2 (c) excludes requisition by State power, cf. above. The provision is identical to Cl. 2-8 (c) and reference is made to the comments to this provision.

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Clause 2-9. Perils covered by an insurance against war perils

An insurance against war perils covers:

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Clause 2-10. Perils insured against when no agreement has been made as to what perils are covered by the insurance

This Clause is identical to Cl. 17 of the 1964 Plan.

In practice, it will almost always be clear between the parties whether it is an insurance against war perils or an insurance against marine perils which is effected. Even though the provision is thus rendered less significant, the clarification was considered appropriate.

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Clause 2-10. Perils insured against when no agreement has been made as to what perils are covered by the insurance

Unless otherwise agreed, the insurance covers only marine perils.

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Clause 2-11. Causation. Incidence of loss

The Commentary was amended in the 2027 Version.

Introduction
Cl. 2-11 regulates the issues of causation and incidence of loss. The provision firstly states the general requirement that there should be a causal connection between the insured peril and the loss suffered by the assured, the insured interest. It does not specify the nature of the causal connection that is required. Secondly, it contains rules for deciding incidence of loss issues. Since marine insurance contracts only provide cover for a defined period of time it is necessary to have rules that determine when a loss must be deemed to have occurred so that it can be allocated to the appropriate insurance period. This issue is often referred to as one of determining the “incidence of loss” – “periodisering” in Norwegian.

The main rule in Cl. 2-11 sub-clause 1 has remained unchanged since 1930. The so-called “anti-Hektor” rule now contained in Cl. 2-11 sub-clause 2 and sub-clause 3 has been simplified in an attempt to achieve greater clarity. However, the special rule applicable to losses arising from known defects or damage which was unique to the Plan has been changed.

In explaining the effect of the various provisions in Cl. 2-11 it is important to make three points at the outset. Firstly, other major systems do not contain specific written rules on this subject, which is normally dealt with by case law and practice. Since Cl. 2-11 is in the general part of the Plan, it applies to all Plan insurances including the various liability insurances contained in Chapters 13, 14, 15, 17 and 19. This helps to explain why the main rule in Cl. 2-11 sub-clause 1 is so general in scope. Secondly, the factual situations that can arise are extremely varied and complex, especially in relation to hidden processes, and there are a number of often conflicting considerations that must be taken into account, see below in the Commentary to Cl. 2-11 sub-clause 2 and sub-clause 3. It is not possible or even desirable to formulate rules that regulate every imaginable situation. What is needed are clear principles that are determinative of the most common cases at the same time as they provide a consistent framework for evaluating how to decide the more complex cases.

Thirdly, it is also important to keep in mind that these issues arise in respect of recoverable claims. The right of the assured to claim is not at issue. It is true that the assured’s claim can be affected by differences in deductibles, insurance contract limits or specific exclusions that can vary in different insurance contract periods but the sole purpose of the rules in Cl. 2-11 is to clarify which insurer is liable.

Cl. 2-11 sub-clause 1 The main rule
The wording of the main rule in Cl. 2-11 sub-clause 1 refers to the insured interest being struck by an insured peril. It does not refer to the insured object, which is usually a vessel, being struck. In the case of hull and hull related insurances, this means that actual damage to the vessel need not occur during the insurance period. It is sufficient that the operation of the peril has advanced to a stage which makes future loss of the kind covered by the relevant insurance contract almost inevitable unless extraordinary preventive measures are taken. There are many practical examples where this can occur. A vessel may run aground or be stuck in ice without being damaged in one insurance period, but may suffer damage as a consequence in the next. If a vessel is captured by pirates, it might not suffer actual physical damage until long after the date of capture during a new insurance period. Or a vessel might be blocked in a harbour by war perils and become a total loss as provided for in Cl. 15-12 after 12 months has elapsed by which time the insurance contract on risk at the time the blocking commenced will have expired. In all of these cases it is obvious that the peril has struck at the time the insured peril has materialized to the extent of creating the critical situation, and all losses flowing from that situation must be covered by the insurance contract on risk at that time.

The examples illustrate that the word “strike” presumes some kind of activity from the peril. This means that the general risk that a peril represents must have produced some concrete and specific result. A natural point of reference and the earliest point at which a peril can be said to have struck in the kind of open cases that fall within the main rule, is provided by the rules in Cl. 3-30 and Cl. 4-7. The assured’s duty to do what is reasonably possible to minimise or prevent loss arises when “….a casualty threatens to occur or has occurred”, Cl. 3-30. Similarly, Cl. 4-7, which imposes upon the insurer an obligation to pay the costs of extraordinary measures taken to minimise or prevent loss in accordance with Clauses 4-8 to 4-12, applies when “a casualty has occurred or threatens to occur”. The extent of the threat, that is the degree of danger required, is similar to that necessary to justify a general average act or salvage operation. There must be an imminent danger that loss covered by the insurance in question will arise, and the situation must be so acute that loss can only be avoided by extraordinary measures.

Once such a situation has arisen, then clearly an insured peril per definition must have struck since the insurer on risk at the time is obliged to pay for the costs of the reasonable measures taken even though no actual physical damage occurs. Any subsequent loss which can be regarded as part of the same casualty will also of course be referred back to the same point in time. The rule in Cl. 4-7 is consistent with what has already been said about the need for the peril to have had specific and concrete consequences. A general increase in the level of risk is not enough. If for instance a vessel leaves port without adequate navigation equipment and as a result runs aground at a later stage of the voyage one cannot say that the risk or peril of sailing without proper equipment has struck at the time the vessel leaves port. It is only when the vessel comes out of course and runs aground or is in imminent danger of running aground that the risk becomes so concrete and specific that the peril can be said to have struck. The very large range of possible outcomes that existed at the time the vessel left port has been narrowed down to a very few specific possibilities of which the most likely is that the vessel will suffer loss of the kind covered by the insurance contract.

Damage to a vessel can of course occur without there being an opportunity to take preventive measures. Events may move very rapidly as in the case of fire or explosion or a collision or a part of the vessel may be damaged because of some unknown defect. Clearly in the case of hull and hull related insurances, if a peril has not struck by creating a critical situation that would fall within
Cl. 3-30 and Cl. 4-7 it must at the very latest have struck once damage commences.

The peril struck rule also functions satisfactorily in the case of liability insurance. The assured’s liability arises from some tortious act, and the “liability interest” is therefore struck at the time the act was committed. Examples would be negligent navigation leading up to a collision or the negligent act of wrongly operating a valve so that bunkers are leaked into a harbour. In the second case the actual pollution damage and consequent economic loss to third party interests will arise some time after the tortious act, but the peril clearly struck at the time of the negligent operation of the valve.

All systems of marine insurance have rules equivalent to Cl. 3-30 and Cl. 4-7. All the examples mentioned so far would lead to the same result in other systems in those cases where the actual damage occurs in a later insurance period, although the result might sometimes be explained or justified in a different way. It can be concluded that the results are necessary and natural for the following reasons:

The assured would be put in an impossible position if losses occurring after the expiry of the insurance period arising from e.g. grounding or seizure by pirates during the insurance period were not covered. Arranging new insurance for a vessel that is already aground or which has been seized by pirates, is not a practical proposition.
The peril struck rule allocates losses as between successive insurers in a way that seems intuitively fair and reasonable. The allocation will be consistent from year to year so that in the long run all insurers are likely to end up being equally affected.
The peril struck rule is consistent with rules concerning the duty of the assured to prevent loss and the liability of the insurer to cover the reasonable costs involved.
It is in accordance with the way incidence of loss issues are handled in liability insurance, and is in harmony with the way causation and one casualty issues are dealt with.

Alternatives to the peril struck principle allocate losses to the time that damage occurs or to the time at which damage manifests itself or is discovered. Under the Plan, a version of the damage occurs principle is used in the cases regulated by Cl. 2-11 sub-clause 2 and sub-clause 3, and the burden of proof rules as explained in the Commentary to Cl. 2-12 operate with a presumption in favour of the time of discovery. In this way each principle is used in its most appropriate context.

Cl. 2-11 sub-clause 2 and sub-clause 3 Loss arising from an unknown defect or damage
In all the cases mentioned in connection with the main rule in Cl. 2-11 sub-clause 1, the chain of events is open and transparent. Events unfold continuously, usually over a relatively limited period of time and it is assumed that all the relevant facts and their timing are known. Difficulties in relation to incidence of loss arise for one of two reasons or a combination of them. A pre-existing unknown defect or damage which has its origin in one insurance period gives rise to new damage during a later insurance period. The progress of events remains hidden until either damage is discovered or there is a sudden breakdown of part of the vessel often resulting in new damage to other parts. In extreme cases the vessel may become a total loss or be put in imminent danger and require salvage services. Secondly, because of the hidden nature of the original defect or damage and the time that elapses prior to discovery or breakdown, it is often difficult to establish a clear picture of all the relevant facts and their exact timing. The first type of situation is regulated by Cl. 2-11 sub-clause 2 and sub-clause 3, and the second by the rules as to burden of proof, see the Commentary to Cl. 2-12.

The problems that arise in the first type of case came into focus by the Hektor case, ND 1950 458 NH, which in turn led to the introduction into the 1964 Plan of the rule known as the “anti-Hektor” Clause, now found in Cl. 2-11 sub-clause 2 of the 1996 Plan in a modified version.

In the original Hektor case, the vessel suffered damage as a result of a bomb attack in 1945 while it was in dock. The damage was repaired, but later in a new insurance period the rudder fell off during a bout of severe heavy weather. It was assumed that the rudder heel must have been weakened or damaged by the bomb blast, that it was not possible to discover this, and that the effect of normal use culminating in the bout of severe heavy weather caused the rudder heel to break and the rudder to fall off.

In the case itself it was decided that the cost of repairing the rudder heel must be covered by the original war insurer as part of the bomb damage. The cost of replacing the rudder was apportioned 60/40 between the 1945 war insurer and the marine insurer on risk at the time it was lost, 1946. Although the result is not entirely illogical it was regarded as unsatisfactory from a practical point of view. Firstly, applying the rules as they were then understood required considerable expenditure on technical investigations. Secondly, the conclusion could only be reached on the basis of a difficult evaluation of contributing causes, and thirdly, the conclusion made it necessary to carry part of the loss back to an earlier insurance contract. A clarifying rule was therefore introduced into the 1964 Plan to the effect that unknown damage or weakness should always be regarded as a marine peril that strikes at the time the new damage and any associated losses occur.

The rules now contained in Cl. 2-11 sub-clause 2 and sub-clause 3 maintain this solution, making it clear that any unknown defect or damage, irrespective of its origins, must be regarded as creating a marine risk. Consistent with what has been said about the main rule in the Commentary to Cl. 2-11 sub-clause 1, this risk or peril accompanies the vessel until such time as it materializes in some specific further consequence. It cannot be said to have struck until it either causes (further) damage or creates a situation of imminent danger of damage as required by Cl. 4-7. Today the result of the Hektor case would be that the loss of the rudder would be allocated to the marine insurance on risk at the time of its loss. The costs of repairing the weakened or damaged rudder heel would still be covered by the war insurance on risk when the bomb blast occurred. Under other international systems loss would also be allocated to an insurance contract on risk at the time of the loss, but it is quite possible that it would be allocated to the war insurance on the basis that the original war damage was the dominant cause. The Plan rule has the practical advantage of removing the need for any evaluation as to the cause of the defect or weakness.

Cl. 2-11 sub-clause 2 of the 1996 Plan has been simplified by disentangling its three interwoven strands. Reference to known damage has been removed and dealt with separately in Cl. 2-11 sub-clause 4 and although the damage occurred principle is applicable in both cases, the rule in respect of unknown damage has been separated from the rule for unknown defects.

There are three main variants of the “damage occurred” rule. It can mean that damage should be allocated:

only to the insurance contract on risk at the time the damage first commenced, or
over all insurance contracts on risk at the time that damage in fact occurs so that where damage occurs progressively over time in different insurance periods, liability must be apportioned over all the insurance contracts concerned, or
to the insurance contract on risk at the time the damage manifests itself or is discovered.
This alternative is closely related to the second alternative.

There are advantages and disadvantages to each of these three variants and in some cases they could all give the same result. The key design considerations in establishing a set of functional rules for incidence of loss cases are of particular relevance in this area and can be formulated as follows:

Insurers should not be liable for damage existing at the time the risk commenced, but they do accept the risks of new losses that arise from unknown defects assuming of course that there has not been any breach of the duty of disclosure.
While a “fair” allocation as between successive insurance contracts has a value this does not have to be done down to the last dollar and cent. A fairly rough but consistent approach is sufficient.
The rules as to incidence of loss must operate independently of rules that determine the validity and quantum of the assured’s claim.
It is practically inconvenient for both insurers and assureds to have liability allocated backwards in time. The further into the past liability is placed the greater the inconvenience and the greater the chance that an underwriter of the insurance contract in question might no longer be in business.
There should not be opportunities to manipulate the decision as to which insurance contract is liable.
The rules should be as simple as possible to facilitate their application in everyday practical claims handling.

As already mentioned, the unknown defects or damage are always regarded as a marine peril irrespective of their origin. They are assumed to have struck the interest insured (this expression is used for the sake of consistency with the wording of Cl. 2-11 sub-clause 1) at a single point in time – when the damage to the defective part itself or the extension of damage to other parts starts to develop. This means that the first of the three possible variants mentioned above has been chosen, considerably reducing the scope for apportionment over several insurance contracts. It is obviously simpler to claim against one insurance contract than to apportion over a series of contracts. It is true that the chosen solution places all the loss on the earliest insurance contract, but if apportionment is adopted then that insurance contract will have to be involved in the settlement in any event. For the insurers involved, the end result over time for any portfolio of claims will almost certainly be the same.

The third possible variant is obviously impractical if it is understood in the broad sense that all damage is to be allocated to the insurance contract on risk at the time it is discovered, even if it is quite clear that the damage must already have been present prior to the inception of the insurance contract. The opportunities for manipulation and fraud create a moral hazard unacceptable to insurers. No other system contains a general rule to this effect.

The term defect in Cl. 2-11 sub-clause 2 refers to some aspect of the vessel as such that needs to be rectified once it has been discovered. It can have arisen during construction or repair and be the result of error in design, the use of faulty or inappropriate material, faulty workmanship or mis-assembly. However, the original Norwegian text uses the word “svakhet”, literally “weakness” and a vessel may have sub-optimal features which it would be impracticable to remedy. These are usually known both to owners and insurers, but should a hitherto unknown weakness give rise to damage then it must be regarded as a defect and the case would fall within Cl. 2-11 sub-clause 2 if the claim is not excluded by Cl. 12-3.

Contaminated bunkers, lube oil or boiler feed water sometimes referred to as “system faults” are not defects within the meaning of 2-11.2. Loss arising from these causes is regulated by the main peril struck rule. In practice loss would be allocated to the time when the contaminated bunkers etc. are taken in use this also being the time when damage would normally commence.

Cl. 2-11 sub-clause 3 refers to “damage in one part of the vessel” resulting in “damage to other parts of the vessel”. As already mentioned, liability for the original damage must be allocated to the appropriate point in time when the relevant peril struck, usually in a previous insurance period. It is only the incidence of consequential damage that is regulated in Cl. 2-11 sub-clause 3. The provision raises the issue of what is meant by “part”. This question also arises in connection with Cl. 12-3 and Cl. 12-4. The main practical application of this paragraph is in respect of machinery damage, a context in which it is reasonably easy to identify the various parts and components, see further the Commentary to Cl. 12-4. Practical common sense is especially necessary in some cases of hull damage. This is illustrated by example 2 below.

As example 3 shows it is quite possible to have a situation governed by Cl. 2-11 sub-clause 2 followed by one that falls within Cl. 2-11 sub-clause 3. A defective part starts to develop damage and then subsequently breaks down causing damage to other parts. If the damage to the defective part occurs in one insurance period and the damage to other parts in a later period then both the relevant insurance contracts will be involved, the first by operation of Cl. 2-11 sub-clause 2 and the second by virtue of Cl. 2-11 sub-clause 3.

Loss of Hire insurance is triggered by damage to the vessel which is recoverable under a hull insurance as specified in Cl. 16-1, sub-clause 1. This is the main peril or risk insured against under such an insurance contract. The events listed in Cl. 16-1 sub-clause 2 are unlikely to give rise to incidence of loss problems. The logical starting point is that a loss of hire insurance claim based on Cl. 16-1 sub-clause 1 should be allocated to the same point in time that has been identified for the purposes of determining which hull insurance is liable for the relevant damage. However, in case the hull insurance is subject to non-Plan conditions, there is a potential for divergence as to incidence of loss. Cl. 2-11 will obviously not be applicable for a hull insurance based on non-Plan conditions, whilst Part One of the Plan which includes Cl 2-11 is applicable for the loss of hire insurance.

Example 1
A natural starting point in a review of examples of how Cl. 2-11 sub-clauses 2 and 3 function is the case where the pre-existing defect or damage is discovered and creates a critical situation before any consequential damage occurs. We assume that the vessel is at sea and it becomes apparent that previously unknown cracks in the main engine bedplate have developed to a point where there is an acute danger of damage to the main engine if it continues to operate. It is therefore necessary to stop the main engine and seek assistance. The costs involved must be covered by the insurer benefitted, namely the insurer on risk at the time the critical Cl. 4-7 situation arose. This is the insurer who in accordance with Cl. 2-11 sub-clause 3 would have been liable if consequential loss or damage had not been mitigated or prevented. If despite the efforts made the vessel should e.g. run aground, then the losses incurred will as is normal all fall upon the insurer on risk at the time the critical situation occurred. This solution gives effect to the words “has occurred or threatens to occur” in Cl. 4-7 and assumes that these words must be read into Cl. 2-11 sub-clause 2 and sub-clause 3. The cost of repairing or replacing the bed plate will fall upon the insurer on risk at the time the cracks first began to develop since the bedplate is a single part. We are assuming that recovery is possible under
Cl. 12-4. There may well be uncertainty about when damage commenced but this issue is taken care of by the burden of proof rules.

Example 2
A vessel runs aground but the Master takes the view after a divers’ inspection that the damage is not serious and decides that further inspection and repairs can be postponed until the next dry docking. At the dry docking two years later it becomes clear that the grounding damage was more serious than had been realized, and that the failure to repair had led to further damage in the surrounding areas of the hull bottom. The natural solution here is to allow all damage to be covered by the insurance contract on risk at the time of the grounding under the main peril struck rule. It could be argued that the various shell plates and internal structures should be regarded as different parts so that the case could come within Cl. 2-11, sub-clause 3. Consistent with the practice used in applying Cl. 12-3 one could regard at least the major components in the hull structure as separate parts. One might therefore conclude that as a starting point one should apply Cl. 2-12, sub-clause 3, and try and place damage to separate parts on separate insurance contracts. Common sense would however dictate otherwise. It will be difficult to distinguish the cost of repairing the original from the later damage and therefore it would make sense for the claims leader to allocate all damage to the original grounding.

On the other hand if the unrepaired grounding damage had at a later stage caused the vessel to take in water, perhaps entering the machine room, creating a salvage situation or even ultimately causing a total loss, then clearly Cl. 2-11 sub-clause 3 must be applied to achieve the obviously necessary result that damage to the machinery and any salvage costs or a total loss would be allocated to the insurance contract on risk at the time damage to other parts started to develop as the vessel started to take in water.

Example 3
A slightly modified version of a recent case is as follows: A vessel is delivered in Y1 (year 1) with an unknown defect in the form of a casting defect in the main engine crankshaft. At some stage this defect leads to small fractures. The evidence is clear that this must have occurred at the latest by Y5. The fractures continue to develop and towards the end of Y8 there is a main engine breakdown while the vessel is close to shore. The vessel runs aground, suffers grounding damage and is finally salvaged and repaired early in Y9. Cl. 2-11, sub-clause 2, requires that the entire cost of replacing the crankshaft should be allocated to Y5. There does not seem to be any compelling reason to apportion over the years Y5 to Y8 since one has to go back to the Y5 insurance contract anyway and in all probability the crankshaft would have had to be replaced or undergo a very expensive repair if the damage had been discovered in Y5. In accordance with Cl. 2-11, sub-clause 3, all consequential losses to other parts of the main engine and all other losses associated with the grounding and salvage would have to be covered by the Y8 insurance contract. In Y8 the crankshaft had unknown damage that resulted in damage to other parts. The pre-existing damage is therefore to be seen as a marine peril that struck at the time the consequential damaged commenced. This embraces all losses arising as a consequence of the breakdown i.e. not only the damage to other parts of the main engine but also the grounding damage and the cost of salvage. All the losses starting with the damage to the crankshaft would be regarded as belonging to the same casualty for the purpose of applying the agreed deductibles under the hull insurance contracts for Y5 and Y8. Any difference in these deductibles would be resolved by applying them proportionately relative to the amounts recoverable under each of the two insurance contracts.

Example 4
Norwegian practice has not favoured apportionment over successive insurance contracts where a part has been damaged by a slow process of fatigue and the rule in Cl. 2-11 sub-clause 2 and sub-clause 3 deliberately continues this tradition by allocating all liability for the damaged part to the first insurance contract. However, it is possible to think of cases where damage spreads from one part to the next in one year and then to other parts the year after. We assume the following facts: A crack in a main engine bed plate develops in a position that affects a main bearing so that it wears excessively. After a period stretching into a new insurance period the bearing fails damaging the crankshaft which has to be replaced. If we assume that the timing of the damage can be clearly established so that there are no burden of proof issues, then the effect of Cl. 2-11 sub-clause 3 will be to allocate liability for each part to each of three appropriate insurance contracts that is the insurance contract on risk at the time the damage to each part started to develop. This is not strictly an apportionment since it is the cost of repairing or replacing each part that falls on the respective insurance contracts and obviously the costs can vary considerably. The costs are not spread evenly over the three insurance contracts. Very often in such cases the exact timing of the damage to each part cannot be established with certainty. Where the exact timing is unclear, the burden of proof rules makes it possible to find a pragmatic solution which could conceivably involve a form of apportionment over two or more insurance contracts of some of the losses. In the above example the cost of replacing the crankshaft will probably be the major item and there will be no doubt that this must be allocated to the insurance contract on risk at the time of the bearing failure. However, it might be a sensible compromise to use some form of apportionment in respect of the other losses if there is no clear evidence as to their timing, but this is something that must be left to the skill and experience of the claims leader and adjuster in dialogue with the parties concerned.

Example 5
Damage to coating and paint systems raises difficult questions of interpretation as to when the peril shall be deemed to have struck. It is also relevant to consider what constitutes a “part, inter alia when assessing whether coating damage that has developed over a period of time must be apportioned between several policy years. Reference is therefore made to the discussion in relation to coating damage in the Commentary to Cl. 12‑3 where a “part” is described as the “natural area of repair”.

The following example may serve as guidance:
It is assumed in this example that recoverable coating damage caused by an unknown defect (e.g. an error in workmanship during newbuilding) is ascertained during survey carried out at a scheduled docking in Y5. The technical evidence shows that coating damage in tanks 1 and 2 started to develop already in Y4, whereas damage to tanks 3 and 4 is shown to have commenced in Y5.

In these circumstances, damage to the coating in tanks 1 and 2 shall as a starting point be allocated to Y4. By contrast, the coating in tanks 3 and 4 does not constitute the same “part” or “natural area of repairs”, and damage to the coating in those tanks must therefore be allocated to Y5, as this is when these damages started to develop.

However, coating damage can sometimes be appropriately dealt with by repairing/recoating certain areas of a tank to which the damage is confined (see Commentary to Cl. 12-3) and if the coating in tanks 1 and 2 could have been dealt with by repairing only certain areas of the tanks at the expiry of Y4, whereas subsequent deterioration of the coating in the same tank in Y5 necessitates full recoating, the question arises whether all, or only part, of the coating repairs in tanks 1 and 2 should be allocated to Y4.

The most reasonable solution is to assess the condition of tanks 1 and 2 at the expiry of the Y4 policy. If the natural area of repairs was limited to certain areas of the tank by end of Y4, only the estimated cost of repairs required at that time shall be allocated to the Y4 policy. If full recoating became required during Y5, as additional areas were damaged, the additional repair costs shall be allocated to the Y5 policy.

By this approach, a fair and technically grounded allocation between policy years is achieved, and it also supports the objective of limiting allocation of claims backwards in time.

Known defects or damage
It is not uncommon to postpone repairs or replacement of parts of the vessel that are known to be damaged or suffer from some form of defect. There will often be sound practical and operational reasons for the decision which is usually taken in consultation with class. Where repairs are postponed or partial or temporary repairs are carried out, the development of further damage to the damaged part or parts unrelated to any new event must obviously be covered by the original insurer. However, incidence of loss issues can arise if the decision to postpone remedial action turns out to be a misjudgement and damage or new damage to other parts arises as a consequence of the original defect or damage. In other words, essentially the same issues arise as dealt with by Cl. 2-11 sub-clause 2 and sub-clause 3 except that the defect or existing damage is known. The starting point is that the decision to continue operating the vessel and postpone remedial action despite the existence of the defect or damage, however justified, represents a risk or peril. Any subsequent damage or casualty will be governed by the main rule in Cl. 2-11 sub-clause 1 and the resulting losses must be covered by the insurance contract on risk at the time damage commences or when the need for extraordinary measures to prevent loss arises. As explained, it is at this point that the risk or peril strikes the interest insured.

Three types of situation can be distinguished.

The existence of the defect or damage is reported to the insurer at the time it is discovered and to subsequent insurers at each renewal. Equivalent to this situation is also that where the insurer on risk at the time (new) damage occurs has been informed at the time of renewal.
The defect or damage is reported to the insurer when it is discovered but is not disclosed to new insurers at some subsequent renewal.
The existence of the defect or damage is not disclosed to any insurer.

The first situation will normally be the most common and since the matter in question will often fall within the scope of the duty of disclosure the assured would run the risk of losing cover in the second and third situations if insurers are not kept informed. It is however possible that the matter falls outside the scope of the duty of disclosure because available expertise believes that there is no danger of any future damage or that the assured’s failure cannot be regarded either as wilful or negligent so that the insurer’s only remedy is to cancel the insurance by giving 14 days notice, see Cl. 3-4, liability for losses that have already occurred remaining unaffected.

The assured has a duty to take action if it knows or has reasonable grounds for suspecting that the insured vessel suffers from some type of defect, e.g. if an error in design or construction is discovered in a series of sister vessels. The cost of remedying the defect is not covered by insurance and there can be a real temptation to wait until the defect leads to damage in order to be able to have the cost of repairs covered by insurance. This issue of moral hazard was strongly in focus during the drafting of the 1964 Plan and led to the introduction of the “known defect or damage” rule in the then paragraph 18 which was maintained in Cl. 2-11 sub-clause 2 of the 1996 Plan which states that where unknown defects or damage results in a new casualty, the defect or damage shall be regarded as a marine peril that strikes the vessel at the time the casualty or damage occurs “or at such earlier time as the defect or the first damage became known.” Taken literally this wording applies to all three of the situations listed above, including the first where insurers have been kept fully informed so that there can be no question of any manipulation by the assured. While it is easy to see the potential for manipulation in situations two and three above, it is difficult to see why the insurer on risk at the time the damage or defect became known should remain liable for events occurring after the expiry of its insurance period. Difficult questions can also arise as to the degree of knowledge required and as to whose knowledge is relevant.

In cases where insurers have been kept informed, each insurer is able to negotiate the terms and price that they think appropriate on the basis of the information available to them. The decision to continue operating the vessel and postpone remedial action despite the existence of the defect or damage however justified, means that the inherent risk created by the defect or damage retains whatever potential it might have to create new losses. Each insurer must then live with the terms and conditions they have agreed and must cover the losses that might occur during the insurance period. This is also in conformity with the general principle that while each successive insurer should not be liable for damage that has occurred prior to the commencement of the risk, each successive insurer does, subject to proper disclosure, accept the risk of any future losses that arise from the known or unknown state of the vessel at that time.

After discussion and review it was decided that the special rule in the 1996 Plan was also inappropriate for the second and third cases mentioned above. This means that assuming that there has not been any breach of the duty of disclosure that would allow the insurer to avoid liability, one returns to the normal starting point in Cl. 2-11 sub-clause 1. This also gives results that fully conform with those that would follow in other systems.

Cl. 2-11 sub-clause 4 Limitation of the insurer’s liability in respect of losses arising from defects or damage that were known by the assured but not by the insurer
The special rule in respect of “known” defects or damage introduced in 1964 has been deleted. The new rule in Cl. 2-11 sub-clause 4 now addresses the issue of moral hazard in situations where the assured knows of a defect or damage but the insurer does not. It is very difficult for the insurer to avoid liability on the basis of Cl. 3-2 or Cl. 3-3 or possibly Cl. 3-33 so that there is a need for a more clear cut rule unrelated to the assured’s state of mind. The key difference between the old and the new rule is that, consistent with the main rule in Cl. 2-11 sub-clause 1 the new rule does not transfer liability back to an earlier insurance contract but places liability for consequential damage on the insurer on risk at the time the risk created by the known defect or damage materializes in the form of damage or the creation of a critical situation. The question of whether and when the assured acquired the degree of knowledge required to trigger Cl. 2-11 sub-clause 4 must be decided in accordance with the normal rules as to identification in Clauses 3-36 to 3-38.

The rule in Cl. 2-11 sub-clause 4 comes in addition to any rights the insurer might have under the disclosure rules.

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Clause 2-11. Causation. Incidence of loss

The insurer is liable for loss incurred when the interest insured is struck by an insured peril during the insurance period.

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Clause 2-12. Main rule relating to the burden of proof

The wording of Cl. 2-12 has not been amended, but the Commentary has been rewritten for the 2013 Plan.

Burden of proof rules identify which party in a legal dispute carries the risk that doubt exists in relation to facts that are essential for a party’s case. In insurance cases as in other private law areas the general rule is that facts need only be established on a balance of probabilities. It must be more likely than not that an essential fact has occurred or is true. As a starting point this is the standard of proof to be applied under the Plan.

Reflecting general insurance law, sub-clause 1 states the matters that must be established in order to make a claim under a Plan insurance; namely that the assured has suffered a loss of the kind covered by the insurance and its extent. Properly understood, this requirement in fact involves four specific items namely proof that:

the assured has an insurable interest in the sense that it has suffered actual economic loss of the kind that is covered by the insurance in question,
the assured’s economic loss has arisen from events (perils) of the kind specified in the relevant insurance,
that the loss occurred during the insurance period, and
the extent or quantum of the loss.

In relation to the second point above, this means that once the assured has proved that an insured event has occurred, e.g. in the case of hull insurance damage to the vessel, then as sub-clause 2 provides the burden of proving that the damage was caused by an excluded peril falls upon the insurer unless other provisions of the Plan provide otherwise. This means that subject to any specific contrary rule, the assured must establish the three other bullet points listed above.

There are a number of specific exceptions to the rule in sub-clause 2 in addition to those in sub-clause 3. These issues are dealt with in greater detail below and thereafter the special case of the burden of proof in relation to Cl. 2-11, incidence of loss is discussed.

Further comments on Cl. 2-12, sub-clause 2, and various exceptions including those in sub-clause 3.

In practice the most frequently occurring critical issues arise when the insurer alleges that a loss has been caused by a breach of one of the assured’s duties so that recovery is excluded in whole or in part. The most important exceptions to the rule in sub-clause 2 relate to this kind of case. Cases where the burden of proof rules can determine whether the assured has a valid claim or not can be distinguished from those where it is clear that the assured has a valid claim but the facts in issue will determine which insurance contract is liable, e.g. cases of damage to a vessel which must have been caused by either marine or war perils. This is specifically regulated in Cl. 2-16 which has its own Commentary. Another example would be cases where there is doubt as to when damage occurred so that the question is which of several successive insurance contracts should respond, as discussed below. These cases are less critical for both assured and insurers, and the rule in Cl. 5-8 requiring insurers to make a payment on account is designed to prevent practical inconvenience to the assured during the time needed to achieve a final decision.

Obviously, the burden of proving that the assured has committed a breach of duty rests upon the insurer, but depending on the circumstances it may be reasonable to transfer the burden of proof back to the assured once the insurer has done enough to establish a prima facie case.

Cl. 3-3, sub-clause 2, and Cl. 3-9, sub-clause 2, apply to a negligent breach of the duty of disclosure and alteration of risk respectively, and provide that if the insurer has first established that it would only have accepted the insurance but subject to different conditions, then the assured has the burden of proving that the loss was not caused by matters that should have been disclosed or which amount to an alteration of risk.

In Cl. 3-25 the insurer has the burden of proving that the assured has committed a breach of a safety regulation. Once this has been done the burden of proving that the loss was not caused by the breach or that the breach cannot be attributed to the fault of the assured falls upon the assured.

Similar examples of cases where the burden of proof is returned to the assured once the insurer has established certain facts can be found in Cl. 3-18, sub-clause 3, and Cl. 3-23.

Cl. 2-12, sub-clause 3, places upon the assured the burden of proving that loss has not been caused by any of the perils listed in the so called RACE Clause – Radioactive Contamination Exclusion Clause, see Cl. 2-8 (e) and Cl. 2-9, sub-clause 2 (b). This Clause, which is universal both in direct and re-insurance marine insurance contracts, has its obvious justification in the danger of a massive accumulation of losses. Clearly the assured’s burden of proof will in practice not be activated in every case but only in those rare cases where there is at least some evidence that one of the perils named might be involved.

Burden of proof in relation to Cl. 2-11, incidence of loss
In principle, the assured’s burden of proof includes the need to prove the time at which the peril struck Cl. 2-11, sub-clause 1, or in the case of Cl. 2-11, sub-clauses 2 and 3, the time at which the damage started to develop. In practice, difficulties most commonly arise in connection with the application of sub-clauses 2 and 3. Obviously once it has been established that a loss covered by the insurance in question has occurred, the assured cannot be deprived of cover simply because it is not possible to prove that the loss probably occurred in one or another particular insurance period. If a loss is covered and it is equally likely that it occurred in one of several possible insurance periods, then it is necessary to have a mechanism for deciding which of the possible insurance contractsshould respond. In some systems the solution is to apportion over the most relevant insurance contracts. As noted in the Commentary to Cl. 2-11 Norwegian practice does not favour apportionment over several insurance contracts, and this also applies to cases where it is unclear when loss actually occurred. In Norwegian practice one has sought to place the loss on one insurance contract using a presumption in favour of the insurance contract on risk at the time of discovery.

This approach can be described as follows:

Assume a series of insurance contracts starting with insurance period 0, the contract on risk at the time the damage is discovered. Number the successive previous contract periods as -1, -2, -3 etc. The party alleging that the loss occurred in -1 rather than 0 must produce evidence that the loss occurred in that period rather than in the current insurance period 0. Very often because of e.g. marine growth or rust or because period 0 has been on risk for only a short time, it will be quite clear that the loss could not have occurred in period 0. The next step is to look at period -1 and repeat the process. If it can be established that on the evidence the damage occurred in period -1, then the loss falls in that period for its entirety. If not, one proceeds to consider period -2. It can, of course easily happen that the facts make it clear that the loss must have occurred in a period spanning more than one contractual periods but it is impossible to narrow down the time of loss within that overall period. In such a case, the loss will fall upon the most recent of the contractual periods concerned. Thus, if it is clear to the required degree of certainty that the loss did not occur in period 0 and that it must have occurred after the expiry of period -3 but it is equally likely to have occurred in -1 or -2, then the loss will fall on -1 as being the most recent of the two possible contractual periods. Effectively this means that the burden of proving that the damage occurred in an earlier period rests on the party making the allegation. In some cases this may be the assured, the earlier insurance contract may have lower deductibles or higher limits. In others it might be an insurer who subscribes to the latest contractual period but not to the older one.

The crucial question that remains is the degree of proof required. What is required to rebut the presumption that loss occurred in the same period in which it was discovered? In principle, the general rule requiring proof on the balance of probabilities should apply, but in practice there has often seemed to be tendency to require something more. This also seems implicit to the rule in the Swedish Plan. As mentioned above, there will be many cases where it will be obvious from the technical evidence that damage could not have occurred in period 0. It is important for the long term credibility of the system that parties are not forced to allocate losses to a point in time that is clearly contrary to the available evidence. As pointed out in the Commentary to Cl. 2-11 an important design consideration is that insurers should not be made liable for damage that existed prior to the inception of the insurance contract. On the other hand, administrative efficiency favours a rule that allocates losses to period 0. The crucial issue boils down to how heavy the burden of proof should be on the party that wishes to place loss in an earlier contractual period. The natural conclusion from the practice referred to above is that something more than the balance of probabilities is required. At the same time it would be wrong to require the same degree of certainty that is required in criminal cases; namely beyond all reasonable doubt. The best way of expressing this burden is to say that the party wishing to establish that loss occurred in an earlier contractual period must do so on a clear preponderance of probabilities. Any statement as to the degree of certainty required in respect of the burden of proof will inevitably be prone to discussions and different evaluations of any given set of facts. However, requiring proof to a clear preponderance of probabilities – “klar overvekt av sannsynlighet” in Norwegian – should not be any more difficult than the alternatives and has the benefit of favouring practical solutions.

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Clause 2-12. Main rule relating to the burden of proof

The assured has the burden of proving that it has suffered a loss of the kind covered by the insurance and of proving the extent of the loss.

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Clause 2-13. Combination of perils

Sub-clause 2 was amended in the 2007 Version. The Clause is otherwise identical to earlier versions of the 1996 Plan.

The provision maintains the rule of apportionment as the causation principle when a loss is caused by a combination of perils, i.e. when a loss is caused partly by a peril covered by the insurance and partly by a peril which is not covered by the insurance.

The question of the insurer’s liability in the event of a combination of causes is a general problem. General Norwegian insurance law is based on what is known as the “dominant-cause doctrine”. The dominant-cause doctrine is established through case law from the early 1900s and onwards, partly in connection with cases where an assured who has an accident insurance has died as a result of an accident as well as an illness (see in particular Rt. 1901.706, 1904.600 and the overview in Rt. 1933.931) and partly in cases concerning a combination of war perils and marine perils in marine insurance, cf. below. The causation principle entails establishing which peril constitutes “the dominant-cause factor” or “the dominant peril”. The entire loss shall be allocated to the peril which is thus designated as the dominant cause. This means that the assured will either receive full cover or none at all, depending on which peril insured against is regarded as dominant.

Amongst scholars it has been assumed that the content of the dominant-cause doctrine varies, depending on the relevant stage in the course of events leading up to the damage. If it is a question of a combination of two or more perils leading up to a loss or damage, it is alleged that the traditional basis for the dominant-cause doctrine is followed and the relationship between the various perils is evaluated in order to find the “strongest” or “most significant” cause. However, if it is a situation where an insurance event has occurred in combination with a new peril, resulting in an increase in the loss or damage compared with a situation where the insurance event was the sole cause, the accepted view is that the insurance event is the dominant cause if it has been a necessary triggering factor and has contributed to the loss to such an extent that it would seem reasonable to let the assured benefit from the protection which the insurance was intended to provide. Only in a situation where the loss or damage could have occurred in the same way regardless of the insurance event will the new peril be characterised as the dominant cause.

In marine insurance the problem of the combination of causes arises in three situations, viz.:

(1) if the loss is attributable partly to perils covered by the insurance and partly to perils excluded from cover by an objective exclusion. The most common situation in practice is a combination of marine and war perils, but one might also mention the case (from hull insurance) where a part is damaged partly because of inadequate maintenance and partly because of the impact caused by a casualty;

(2) if the loss is partly attributable to perils covered by the insurance and partly to factors for which the assured, because of its subjective position, must bear the risk itself (undisclosed risk factors, breaches of safety regulations of which the assured was aware, gross negligence on the part of the assured during the rescue operation);

(3) if the loss is attributable to the materialization of perils insured against during several insurance years. For example, the vessel sustains latent damage due to a casualty in 1994, and this damage, combined with heavy weather or some other peril in 1995, causes a new casualty.

In marine insurance the problem of a combination of perils was first noticed in cases involving a combination of marine and war perils. During World War I (1914-18), a large number of casualties of this nature took place. In a judgment of fundamental importance (ND 1916.209 Skotfos) the Admiralty Court, with the support of the Supreme Court, established that the entire loss was attributable to “the factor which is regarded as the dominant cause of the accident”. During the subsequent years a series of judgments were given in disputes between insurers against marine perils and insurers against war perils. A feature common to these decisions was that it required a very strong war peril for the court to regard that peril as the dominant cause. If errors of any significance had been committed by the crew, such errors were practically always regarded as the dominant cause, with the result that the casualty in its entirety fell upon the marine risks insurer.

The marine risks insurers objected to the fact that this led to a significant part of the increase of the marine risk attributable to a war situation (darkened lighthouses, removal of navigation marks, sailing in convoys etc.) being imposed on them. In connection with the revision of the Plan in 1930 it was therefore decided to adopt a rule of apportionment. In the event of a combination of causes, the relative strengths of the various perils were to be evaluated and the loss apportioned, taking into consideration the significance of the individual causal factors. Instead of a choice between two extreme solutions (either A or B being liable for the entire loss), this method offered a whole range of in-between solutions, making it possible to choose in each individual case the apportionment which would seem to best fit in the specific circumstances of the case.

The background for the introduction of the rule of apportionment in 1930 was the conflict between the insurers against marine and war perils, respectively. However, the rule of apportionment contained in the 1930 Plan was worded in very general terms, and was to be applied to all cases where there was a combination of perils insured against and uninsured perils, unless otherwise provided by other provisions of the Plan. However, the 1930 Plan also contained a number of rules which excluded the application of the rule of apportionment. They concerned first and foremost the limitations of liability relating to neglect or negligence on the part of the person effecting the insurance or the assured.

During World War II (1940-45), the rule of apportionment was applied in a very large number of cases concerning casualties which were partly attributable to war perils and partly to general marine perils. These questions are discussed thoroughly by Bugge in AfS 1.1 et seq. As regards vessels sailing in German-controlled waters, the question of apportionment had to be decided by litigation in some 100 cases.

On account of this high incidence of litigation, the decision was made in the revision of the Plan in 1964 to revert to a dominant-cause rule in respect of the combination between war and marine perils, although in a modified version, cf. below in Cl. 2-14. The discretionary rule of apportionment was retained, however, for other combinations of causes and also made applicable in the event of a combination of perils insured against and perils which had arisen due to neglect or negligence on the part of the person effecting the insurance or the assured. The reason was that the rule of apportionment had gradually become part of the general conception of justice, and that it was applied fairly often in practical settlements. It was rarely used in case law, however.

During the revision, the issue of whether to revert to a dominant-cause rule for combinations of causation other than a combination of war and marine perils was considered as well. The advantage of such a solution would be to have a causation rule that concorded with general Norwegian insurance law as well as with international marine insurance. Technical considerations of law also point in favour of the dominant-cause rule: with a dominant-cause rule it is possible to build up a judicial precedent doctrine for typical cases, while it is necessary when using a rule of apportionment to make a discretionary apportionment, depending on the specific circumstances of each individual case. The high incidence of litigation during World War II in connection with a combination of war and marine perils illustrates this point. It may also be submitted that the rule of apportionment will probably give the assured a less favourable solution than the dominant-cause rule as regards a combination of a casualty that has taken place and subsequent perils. As mentioned above, the general tendency, in practice and theory, has been to go to great lengths to characterize the earlier casualty as the dominant cause. However, in the event of an apportionment, the assured will have to accept that the risk for the proportion of the loss or damage that corresponds to the significance of the uncovered peril falls upon the assured.

The conclusion was nevertheless that the most expedient approach would be to keep the rule of apportionment. The advantage of this solution is that the premium is in “correct” proportion to coverage in that the insurer is not held liable for the effect of causal factors that fall outside the scope of cover of the insurance. Considerations of fairness also favour such a solution: the assured has paid a premium to be covered against certain risk factors and has no reasonable claim to be covered against other perils.

A third advantage is in the relationship to the rules relating to the duties of disclosure and care: under relevant Nordic Insurance Contracts Acts (Nordic ICAs), a reduction system as regards the assured’s breach of the duty system contained in Nordic ICAs has been established, which entails that the indemnity may be reduced if the assured’s breach of duty has contributed to the damage. Such a system is less expedient in marine insurance: it is regarded as unfortunate for the insurer to be allowed to make a discretionary reduction based on inter alia considerations of degree of fault. By retaining the rule of apportionment, a more or less equivalent possibility of reduction is, however, achieved by virtue of the fact that a breach of the duty of disclosure or care in the event of a combination of causes can be allocated such a proportion of the loss as is indicated by the significance of the breach. A flexibility in the claims settlement is thereby achieved which may put less of a strain on the relationship between the insurer and the assured than a strict reduction based on an evaluation of fault.

The rule of apportionment shall apply in all cases where “the loss has been caused by a combination of different perils”. It shall therefore apply to both a combination of two or more objective causal factors and to a combination of objective causal factors and subjective fault. It shall also apply regardless of whether it is a combination of two independently acting causal factors which result in a casualty, or a combination of causes where a casualty is combined with a subsequent event and results in new damage, cf. ND 1977.38 NH Vestfold I. In this light, all the rules in the Plan aimed at negligence on the part of the person effecting the insurance or the assured are designed as strict causal rules and must be supplemented by the rule of apportionment contained in Cl. 2-13.

The most important situation from a practical point of view – a combination of marine and war perils – is, however, subject to separate regulation in Cl. 2-14.

The last area where it may be relevant to apply the rule of apportionment is when the casualty is caused by a combination of perils that have struck the interest during different insurance periods. This problem has been subject to in-depth discussions, and the solution follows from the special rules explained in the Commentary on Cl. 2-11.

On the basis of case-law concerning the rule of apportionment from 1930 up until today, legal theory has deduced a number of criteria for the application of this rule, see Brækhus/Rein: Håndbok i kaskoforsikring (Handbook of Hull Insurance), pp. 262 et seq.These criteria are still relevant. This means, in the first place, that it is necessary to distinguish between relevant and non-relevant causes. The prerequisite for applying the rule of apportionment is that the loss has been “caused” by a combination of several perils. The fact that an effect of a peril has been a necessary condition for the loss is not sufficient to justify apportionment. If the effect of a peril has been rather insignificant, it should be assigned a weight of 0; in other words, Cl. 2-13 also opens the door for an apportionment where one effect of a peril is assigned a weight of 0 and the other a weight of 100. This applies both when there is a combination of two perils which cause a casualty, cf. for example ND 1942.360 VKS KARMØY II, and where there is a combination of the casualty and a new peril which results in further losses, cf. ND 1977.38 NH Vestfold I. The lower limit required for an effect of a peril having a bearing on the apportionment may on a discretionary basis be set at 10-15%.

If it is clear that several perils must carry weight for the apportionment, it is more difficult to deduce criteria from current practice. In the event of two objective concurrent causes having led up to the casualty, it would presumably be correct to say that where there has been a combination of an earlier acting cause and a later direct cause of a loss, the most weight shall be attached to the latter cause.
If the former cause shall carry any weight, it must have increased the probability of a subsequent loss. The greater the risk, the greater the importance to be attributed to the earlier cause.

If the loss is a result of a combination of two objective causes in a causal chain in the sense that a new cause interferes in the course of events after a casualty has occurred and results in a further loss, the first cause – i.e. the casualty – shall carry the most weight, cf. ND 1941.378 NV Veslekari and ND 1977.38 NH Vestfold I. Here the loss should be apportioned according to the degree of probability of the first casualty triggering the subsequent peril and consequently the new damage. The higher the degree of probability, the greater the weight to be attributed to the first peril.

In both of the combination situations referred to above, the loss may also have occurred through a combination of objective perils covered by the insurance and subjective negligence. As mentioned, the rule of apportionment may, in such cases, have a function similar to that of the reduction system in the event of subjective negligence under ICA. The objective of deterrence will be better served if it is possible to make some deduction from the compensation instead of having more rigid rules according to which the assured loses the entire cover in the event of any negligence on its part. In connection with minor acts of negligence, it would otherwise be tempting for the judge to reach the conclusion that “it has not been proved to his satisfaction” that the assured has shown negligence if the alternative is a loss of the entire cover. Here it would also be natural to base the apportionment on an evaluation of probability, and attach weight to the subjective negligence depending on the degree of probability that it would result in a loss. This will normally be concordant with an evaluation of the degree of fault: the higher the probability of a given action leading to a loss, the more serious the fault will normally be deemed to be. ND 1981.347 NV Vall Sun gives an example of a combination of dereliction of duty and other causal factors.

Sub-clause 2 was amended in the 2007 Version, and must be seen in the context of the new exclusions in Cl. 2-8 (e) and Cl. 2-9, sub-clause 2 (b), cf. also the amendment to Cl. 2-12, sub-clause 3. The provision is concordant with the rules that formerly applied to the exclusion for nuclear perils, and prescribes that if an excluded peril related to nuclear risk and biological, etc. weapons has contributed to the loss, the entire loss shall be attributed to this peril. Thus, there is no question of partial cover in accordance with the basic principle in sub-clause 1. This solution is in accordance with the introduction to the RACE II Clause, which provides that any contribution by the excluded perils shall have the effect of exempting the insurer from liability.

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Clause 2-13. Combination of perils

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…

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Clause 2-14. Combination of marine and war perils

This Clause is identical to Cl. 21 of the 1964 Plan.

The provision maintains the solution from the 1964 Plan with a modified dominant-cause rule for a combination of war and marine perils. The rule was introduced in connection with the revision in 1964 because the “free” rule of apportionment had resulted in a very high frequency of litigation between the war risk and marine insurers during World War II. As each case had to be assessed on its own merits, it was difficult to develop guiding rules through case law. Unlike during World War I, no typical cases crystallised which were attributable to the area of liability of either one insurer or the other. Instead, the outcome of each case became more or less uncertain because it was never possible to predict exactly the percentage of the loss that the court would allocate to war and marine perils, respectively. At the same time, the total losses, which amounted to approximately NOK 36.6 million, showed an almost equal distribution between the two groups of insurers. It was assumed that a more schematic rule of apportionment would, to a large extent, lead to the same economic result in a simpler and less expensive manner. During the revision, there was general agreement about this assessment, and the solution from 1964 has therefore been maintained.

The provision establishes that, in the event of a combination of war and marine perils, the dominant-cause rule shall in principle apply. This is expressed by the term that the whole loss shall be deemed to have been caused by the class of perils which was the “dominant cause”. If the application of this rule gives rise to doubt, in other words, if it is difficult to say that one of the classes of perils is “dominant”, the loss shall be divided equally.

As mentioned above under Cl. 2-13, when applying the dominant-cause rules, a distinction must normally be made between the situation where a casualty is the result of two independent concurrent causes and the situation where a casualty in combination with a new causal factor results in further loss or damage. While there will, in cases of two concurrent causes leading up to the time of the casualty, presumably be a weighing of the impact of the individual causes, where there has been a combination of a casualty and a subsequent cause in a causal chain, it will be deemed that the casualty is the dominant cause, provided that it has contributed to the subsequent damage. A corresponding distinction must be relied on when the “dominant cause” is to be identified under Cl. 2-14. However, in practice, the most frequent situation of combinations of war and marine perils is concurrent causes leading up to a loss. In such cases, a strictly objective evaluation must be made of which cause has had the greatest impact on the course of events. As regards a combination of the casualty and a subsequent cause, an exception is furthermore made from the rule as regards an increase in costs of repairs,
cf. below.

In the evaluation of the relationship between war perils and marine perils, due regard must be had to the fact that the insurances against marine and war perils are two equal types of insurance which every shipowner has, or will at any rate have the opportunity and reason to effect. There is therefore no reason to use the regard for the shipowner’s need for security as an argument for considering the marine peril to be the “dominant cause” in a situation where the owner has not taken out any war-risk insurance and therefore has to cover damage resulting from war perils himself. The decision must, in other words, be made irrespective of the owner’s actual insurance coverage.

Case law concerning tanker casualties in the Persian Gulf during the Iran-Iraq war shows that the dividing line between the first and second sentence of Cl. 2-14 may cause considerable problems, cf. arbitration award of 30 June 1987 and ND 1989.263 NV Scan Partner. There is nevertheless reason to assume that in practice it is easier to draw this line than to apply a free discretionary rule of apportionment.

It is difficult to give general guidelines as to when to apply the first and second sentences respectively. The use of the term “dominant cause” shows, however, that a relatively considerable predominance is required in order to characterize a peril as the “dominant cause”. It is not sufficient to reach the conclusion – perhaps under doubt – that one peril is slightly more dominant than the other; it is precisely the arbitrary choice between two causes which carry approximately the same weight that should be avoided. On the other hand, a 60/40 apportionment should probably constitute the upper limit for an equal distribution. If we get close to 66%, one of the groups of perils is after all considered twice as “heavy” as the other, cf. Brækhus/Rein: Håndbok i kaskoforsikring(Handbook of Hull Insurance), pp. 269 et seq., which also reviews a number of judgments from World War II in relation to these guidelines.

As mentioned above, an exception must, like the solution under the 1964 Plan, be made as regards the situation where there is a combination of several causes in a causal chain: as regards repair costs, only the perils that materialized before the casualty in question, and which have had a bearing on the physical damage sustained by the vessel, shall be taken into consideration. By contrast, the increase in the cost of repairs caused by the war situation shall not be taken into consideration, regardless of whether the price increase was a fact at the time of the casualty or did not occur until later (cf. ND 1943.417 NV Haarfagre). Otherwise the war-risk insurer might be held liable to pay 50% of the repairs of a strictly marine casualty, provided that the increase in prices of repairs has been sufficient.

The rule of apportionment is also subject to another limitation in the relationship between war risks and marine risks insurance. As under the 1964 Plan, certain types of losses are allocated to the scope of liability of the war risks insurer, regardless of whether marine peril has been a contributory cause, cf. Cl. 2-15. In such cases, the marine peril will never be regarded as the dominant cause, nor will there ever be any question of an equal distribution. For further details, see below under Cl. 2-15.

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Clause 2-14. Combination of marine and war perils

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…

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Clause 2-15. Losses deemed to be caused entirely by war perils

This Clause is identical to Cl. 22 of the 1964 Plan.

As mentioned above, the application of the modified dominant-cause rule in Cl. 2-14 will entail that the war peril must be deemed to be the dominant cause in all cases where the war peril must be accorded 60% weight or more in the course of events. In other cases, an equal distribution shall be made, unless the war peril has been so limited as to not carry any weight at all.

However, certain loss situations reflect war perils so strongly that they should be ascribed to the war-risk insurance, even if there was also a reasonably strong element of marine perils in the course of events. These situations are described in sub-clauses (a) – (c).

Sub-clause (a) establishes that the war peril shall be deemed to be the dominant cause when “the vessel is damaged through the use of arms or other implements of war”, and this use is either motivated by war or takes place during military manoeuvres in peacetime. In most cases the perils mentioned here will be deemed to be the dominant cause already pursuant to Cl. 2-14. Nevertheless, the possibility cannot be ruled out that the marine peril may in such situations interfere in a manner that entails that it would be accorded more than 40% weight: for example, the vessel suffers an engine breakdown and is carried by current and wind into a mine-field, the existence of which the crew is fully aware. The loss caused by the vessel hitting a mine would, pursuant to Cl. 2-14, second sentence, have been divided on a 50/50 basis between the marine insurer and the war-risk insurer. However, under the current special rule, the war-risk insurer has to bear the entire loss.

The provision shall only apply if the use of the implement of war is the direct and immediate cause of the damage to the vessel. In situations where the use of the implement of war takes place at an earlier stage of the course of events, while the direct cause is a marine peril, the question of liability must be resolved under Cl. 2-14. Another matter is that the use of implements of war may be deemed to be the dominant cause, even if it does not constitute the direct cause of the damage, for example, where the implement of war, an aircraft bomb, damages a dock gate so that the lock is emptied, something that in turn results in the assured vessel running into another vessel in the dock.

There may sometimes be some doubt as to what constitutes an “implement of war”, see, for example, ND 1946.225 NV Annfin(damage by collision with a submarine in action deemed to be “war damage” pursuant to the corresponding provision in Cl. 42 (2) of the 1930 Plan), ND 1944.33 NV Vestra (damage caused by the paravane on the warship with which the vessel collided, not deemed to be “war damage”) and ND 1947.465 NV Rogaland (damage resulting from the blowing up of explosives which another vessel was carrying to German fortifications, not deemed to be “war damage”). However, this question is of less significance today than under the 1930 Plan, because the dominant-cause rule is now the point of departure in case of a combination of marine and war perils.

If the implement of war leaves latent damage that is not discovered until a later insurance year, the actual damage must obviously be covered by the war-risk insurer during the year it occurred. However, in relation to the further losses to which the latent damage gives rise, it must, under Cl. 2-11, be deemed to be an ordinary marine peril that strikes the vessel in connection with the casualty.

Under sub-clause (b), the war peril shall also be deemed to be the dominant cause when the loss is “attributable to the vessel, in consequence of war or war-like conditions, having a foreign crew placed on board which, wholly or partly, deprives the master of free command of the vessel”. The rule entails that the war-risk insurer bears full liability, provided that it is an established fact that the acts of the foreign crew have been a contributory cause to the damage. However, if the casualty is due entirely to marine causes, for example, heavy weather on a stretch of open sea which the vessel would under any circumstances have had to pass through, the marine insurer will be liable.

The term “foreign crew” has been thoroughly reviewed in case law from World War II (see in particular ND 1943.452 NV Ringar). In principle, the decision as to whether the foreign crew’s instructions and conduct may be deemed to “wholly or partly deprive the master of the free command” must be based on a case-by-case evaluation. If the vessel, following orders from the relevant authorities, receives on board a mandatory pilot or a mine pilot in waters where the war peril manifests itself, the provision will not apply merely because the pilot is authorized to indicate the course of navigation.

If the pilot makes a mistake with the result that the vessel runs aground, the normal causation rules shall apply. The “foreign crew” must have been placed on board for the purpose of exercising control that goes beyond securing the navigation of the vessel. The purpose may for example be to ensure that the vessel puts into a control port, or prevent it from escaping to the enemy.

The application of sub-clause (b) is not subject to the condition that the foreign crew takes over the command of the navigation or manoeuvring of the vessel. Other situations where the foreign crew interferes with the master’s activities and takes decisions in the master’s place will also be covered by the provision, for example, where a foreign control officer issues orders concerning handling of the cargo and this leads to an explosion which causes damage to the vessel.

Sub-clause (c) covers “loss of or damage to a life-boat caused by it having been swung out due to war perils”. Under the 1964 Plan, loss of or damage to life-boats while swung out was not compensated, unless this was caused by a war peril, cf. Clause 176 (j). This exception has been deleted because it is not very practical for vessels to sail with life-boats swung out in cases other than during a war situation. However, in such cases the marine peril will also normally contribute to the loss of the life-boat (it will be torn loose or damaged in heavy weather), and the situation might easily arise that the loss would have to be divided under Cl. 2-14. However, it would be reasonable to attribute these losses in their entirety to the war-risk insurer, in accordance with practice during World War II.

The provision in sub-clause (c) does not merely comprise loss of or damage to the life-boat itself, but also damage which the life-boat causes to the vessel in general, for example, to davits and deck house. However, the rule does not apply to other losses which are more indirectly caused by the fact that the boat has been swung out, e.g., liability for damages in connection with a collision which, wholly or in part, is due to a life-boat having been swung out and reduced visibility from the bridge. However, in view of the circumstances, such loss may become the subject of an equal distribution pursuant to the rule in the preceding sub-clause.

If a life-boat which is swung out damages a crane or a warehouse when the vessel is putting alongside a quay, liability to a third party will normally be borne by the marine insurer; the failure to have the life-boat brought back in again before putting alongside will constitute an error by the master or the crew in the performance of their duties as seafarers.

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Clause 2-15. Losses deemed to be caused entirely by war perils

War perils shall always be deemed to be the dominant cause of:

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Clause 2-16. Loss attributable either to marine or war perils

This Clause is identical to Cl. 23 of the 1964 Plan.

Special problems arise when the casualty has occurred under such circumstances that it is uncertain whether it is attributable to marine or war perils. The 1964 Plan introduced a rule of apportionment which is maintained in the new Plan. If it is impossible to decide whether the casualty is attributable to war or marine perils, liability shall be divided equally between the two insurers.

As regards the term “the more probable cause”, this must be interpreted in the same way as the criterion “dominant cause” in Cl. 2-14. This means that a 0-100 distribution shall only take place in the event of a distinctly greater probability that one of the two categories of perils has been the cause of the loss. If there is more than 60% probability that one of the categories has caused the loss, this category shall be deemed to be the “more probable cause”, and there will be no division of liability, see in this respect ND 1989.263 NV Scan Partner, where it was found that the marine peril (a gas explosion) was “the more probable cause”.

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Clause 2-16. Loss attributable either to marine or war perils

If it is evident that a loss has been caused either by marine perils, cf. Cl. 2-8, or by war perils, cf. Cl. 2-9, without it being possible to identify one or the other class as the more probable cause, the rule contained in Cl. 2-14, second sentence, shall apply…

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Clause 2-17. Sanctions limitation and termination

The Clause was new in Version 2016. Sub-clause 1 was amended in Version 2023 by deleting the reference to France, the Russian Federation and the People’s Republic of China, aligning the Clause with other market clauses. Further amendments were made to the Clause and Commentary in Version 2027.

The obligation to ascertain the legality of the trade lies with the assured. The effect of the Clause is that the assured is responsible for ensuring that the trade does not expose any insurer and/or reinsurer to breaching the named sanctions regimes. This includes a general expectation that the assured implements and carries out appropriate sanctions due diligence procedures prior to engaging in any trade or with any counterparty, also taking into account the exposure to sanctions posed on insurers and reinsurers.

Sub-clause 1 states that “no insurer shall be deemed to provide cover and no insurer shall be liable to pay any claim or provide any benefit hereunder to the extent that the provision of such cover, payment of such claim or provision of such benefit may expose that insurer and/or its reinsurers to the risk of any sanction (whether primary or secondary), prohibition or restriction”. This ensures that the insurer is not contractually required to provide insurance cover or perform activities in circumstances where this may expose the insurer and/or reinsurer to a risk of sanctions, giving the insurer a right to reject cover, reject payment or withhold any other benefits that may lead to exposure to sanctions. Providing “benefit” may include return of premium, provision of a guarantee or assistance on a claim.

The insurer is not required to prove that there has been an actual breach of sanctions. It is sufficient that providing cover, payment of claim or providing benefits “may expose” the insurer and/or its reinsurers “to the risk of any sanctions”. The term “risk of” was introduced in Version 2027. It is not a material amendment but a clarification of already established practice aligning the wording with that used by most of the International Group Protection & Indemnity Clubs.

The Clause applies where there is a “risk” that the underlying voyage or other aspects of the trade, or the provision of insurance itself, could constitute a breach of relevant sanctions or in other ways “may expose” the insurer or reinsurers to relevant sanctions. It is also meant to cover circumstances where the insurer may be exposed to sanctions pursuant to provisions concerning circumvention.

Insurers and assureds are expected to undertake appropriate sanctions due diligence and risk assessments in relation to all contracts and transactions. Where such assessments, in the opinion of the insurers, reveal “red flags” or potential exposure to sanctions, the Clause allows the insurer to take pre-emptive action by invoking the Clause to mitigate legal risk, without having to wait for an actual breach to materialise. The liability of the insurer will remain limited until the exposure is no longer present.

The wording is not designed to withdraw cover arbitrarily. The Clause does not permit insurers to base termination on hypothetical or remote concern of sanctions exposure. Invocation is subject to an objective and reasonable assessment, based on applicable law and guidance, enforcement practice and credible indicators of exposure.

The expression “any sanction” is to be construed widely.

First of all, it covers primary and secondary sanctions, prohibitions or restrictions. “Primary” sanctions are restrictions imposed within a given jurisdiction that require compliance from entities and individuals within that jurisdiction. “Secondary” sanctions target entities and individuals that are not subject to the laws or regulations of the issuing jurisdiction, often due to engagement in activities that contradict the primary sanctions of that jurisdiction.

Further, it encompasses both sanctions in effect at the time of the risk assessment and those imposed at a later stage which may prohibit the insurer from effecting transactions or by other means making cover available for the assured.

The Clause is, however, limited to sanctions imposed by the United Nations, European Union, the United Kingdom and the United States of America or any State where the insurer and/or its reinsurers have their registered office or permanent place of business.

The insurers rights pursuant to sub-clause 1 applies in circumstances that expose either the insurer or its reinsurers to any sanctions. Where it is solely the reinsurer that is exposed to sanctions, the insurer may still be obliged to cover the insurer’s own risk related to a claim but is entitled to deny cover for any part of the claim exceeding the insurer’s retention under the relevant reinsurance agreement.

Sub-clause 2 gives the insurer a discretionary right to terminate the insurance with “immediate effect” if the provision of the insurance cover may expose the insurer and/or its reinsurers to the risk of any sanctions. Previous versions had a 14-day notification period which provided insufficient protection for the insurer.

The substantive conditions for invoking sub-clause 2 are identical to those of sub-clause 1 described above. The Clause is not meant to serve as a blanket exemption but must be applied in good faith, consistently with the purpose and intent of applicable sanctions regimes and with prevailing supervisory expectations. In exercising any right to terminate, insurers should be mindful that withdrawal of cover may have far reaching consequences beyond the contractual relationship itself, including potential implications for vessel safety, compliance with port state control and flag state requirements, financing arrangements, and the position of third parties who rely on the continued existence of insurance cover.

It should also be noted that the insurer’s right to terminate is discretionary and is effected by giving notice in writing, meaning that there is no automatic termination. In practice, the insurers would normally (unless there is a clear breach of applicable sanctions) communicate with the assureds on the perceived findings and exposure to sanctions and engage in dialogue before a decision is made on whether a termination is necessary. Some scenarios are more clear cut than others, for instance in a case where the assured itself, or a vessel, gets designated by a relevant sanctions authority, whilst others necessitate a more holistic assessment including the involvement of the assured in the breach of sanctions, the due diligence process of the assured, whether similar breaches by the assured(s) have previously occurred and suggested risk mitigating measures going forward.

If the insurer invokes the right to terminate, a notice of termination must be given in writing. The Clause does not specify the means by which the written notice is to be provided. However, based on market practice, a notice of termination can be sent via email or by any other written means of communication.

The termination shall be effective from the time written notice is received by the assured, unless otherwise specified in the notice of termination. Where the insurer deems it appropriate, the insurer can set additional conditions for the termination. This may include giving the assured a longer termination period.

The insurer will remain liable for any obligations incurred prior to the effective date of the termination. However, dependent on the circumstances of the matter, the insurer may have a right to limit such liabilities in accordance with sub-clause 1.

Termination will only apply to the insurer’s insurance contract. Other co-insurers need to terminate its respective contracts individually.

Sub-clause 2, second and third sentences, make it clear that the termination of insurance cover will be effective also in relation to the rights of any mortgagees. The insurer is obliged to notify all mortgagees immediately following termination. The expression “immediate notice” shall mean that mortgagees are notified as soon as possible, and without unreasonable delay.

Sub-clause 3 was new in the 2027 Version of the Plan and gives also the assured right to terminate the insurance contract. Sub-clause 3 arises out of concerns that if an insurer is “designated, listed or otherwise made subject to asset freeze or similar restrictive measures”, the assured may default on its other contractual agreements even if the insurer’s performance of the insurance contract is not prohibited.

While the insurers right to cancel in sub-clause 2 primarily is based on legal and regulatory consequences of insuring either a sanctioned voyage or a sanctioned entity or vessel, the assured’s right to cancel in sub-clause 3 is based on the effect a sanctioned insurer may have on the assured’s contract with other third parties, e.g. financing agreements.

The assured’s right of termination is therefore limited to where an insurer is “designated, listed or otherwise made subject to asset freeze or similar restrictive measures” under applicable sanctions regimes. Termination will only apply to the insurance contract with the sanctioned insurer and will not affect the insurance contract with other co-insurers.

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Clause 2-17. Sanctions limitation and termination

This Clause shall be paramount and shall override any other clauses inconsistent therewith.

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Clause 2-18. Know Your Customer (KYC)

The Clause was new in the 2027 Version.

The insurer may be subject to laws and regulations that require the insurer to conduct customer due diligence measures prior to entering into the insurance contract, as well as during the insurance period. The overall purpose of the Clause is to ensure that the insurer is able to meet its legal obligations, irrespective of where the insurer is based or which office/branch concludes and/or fulfils the insurance contract.

If the insurance contract is subject to a different law than the regulatory law applying to the insurer, the Clause ensures that the customer/assured(s) has a contractual obligation to provide information to the insurer as required by the laws applicable based on the insurer’s location.

Sub-clause 1 provides that the insurance cover is “subject to satisfactory identification and assessment of the customer and/or assured(s) as per the insurer’s customer due diligence measures”. It is the insurer that determines the level of identification and assessment that is required for the assessment to be “satisfactory”. The term “customer” is used as the relevant laws and regulations normally uses this term. In the context of marine insurance this will normally be the party who has entered into the insurance contract with, i.e. the person effecting the insurance. The “assured” means the party who is entitled under the insurance contract or the party whose liability for damages is covered. See the Nordic Marine Insurance Plan Cl. 1-1, letters (b) and (c).

“Customer due diligence measures” refer to requirements that follow from applicable laws and regulations such as anti-money laundering, counter-financing of terrorism and sanctions law and regulation, but these are only examples and are not meant to be an exhaustive list of laws and regulations that might apply. Further, it refers to the “insurer’s” own customer due diligence measures as the measures may vary from one insurer to another.

Sub-clause 2 relates to the information that the customer and/or assured(s) is to provide before the insurance contract is concluded (i.e. pre-contract). Such information may contain information that is subject to various data protection laws. To the extent that the insurer receives such personal data, the insurer is required to comply with all applicable data protection laws for the protection of personal data.

Sub-clause 3 relates to the period during which the insurance contract is effective and in operation. It stipulates that the assured(s) is under a continuous obligation to provide the insurer with all information relevant to the insurer’s customer due diligence measures. The assured(s) is to provide the information to the insurer “promptly”. “Promptly” is to be interpreted restrictively – such that the customer/assured(s) has a short time period from becoming aware of the information until it notifies the insurer. The obligation to disclose any changes to information previously provided is a natural extension of the continuous duty to provide the insurer with relevant information.

Sub-clause 4 sets out that if the insurer determines that the information received is not satisfactory or the requested information is not provided, the insurer shall notify the customer and/or assured and request additional information. If the customer and/or assured does not provide such additional information within fourteen days, the insurer may at any time thereafter terminate the insurance contract by giving fourteen days’ notice, or by a shorter notice period if required by law.

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Clause 2-18. Know Your Customer (KYC)

The insurance cover is subject to satisfactory identification and assessment of the customer and/or assured(s) as per the insurer’s customer due diligence measures relating to anti-money laundering, counter-financing of terrorism, and sanctions laws and regulations applicable to the insurer and/or its reinsurers and/or the law governing the insurance contract.

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