LOSS OF HIRE

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LOSS OF HIRE

• Presentation for Master students, UIO
• March 28th , 2007
• Advokat Haakon Stang Lund

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Experience is something you dont get until just
after you need it
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Risk assessment

• Protection of Income. Financial peace of mind.
• How vulnerable to off hire is your organisation?
• Trade and c/p
• Fleet size, vessel type
• Clients, reputation
• Financing
• Damage to the vessel and loss of earnings is
  easily identified. Total costs will be much
  higher.
• LOH helps to minimise your total exposure to an
  accident.

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If only
M/V Sorry Sailor Collision, 75 liability. No
LOH cover Potential recovery with LOH Off
hire 90 days Deductible 14 days Net claim 76
days
76days _at_ USD 20 000 USD 1 520 000
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Choice of cover?

• Basic covers e.g.14/90/90 14/120/120
  14/270/270.
• Minimum deductible is 14 days (21 for passenger
  and cruise vessels).
• Excess covers more catastrophic e.g. 45/90/90,
  104/180/80 etc.
• The risk appetite of the buyer together with
  prevailing market conditions will determine the
  preferred basis of cover.
• Additional deductible days against machinery
  damage are common for older vessels e.g.
  14(21)/90/90.

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Minimising off hire time

• The assured and the insurer have a common
  interest in minimising time off hire. In order
  to reduce off hire time we will work closely
  with the assured and seek workable solutions
  based on
• Experience and knowledge from similar cases.
• Creativity and innovation.

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Use of available resources
Gas carrier Towage by Offshore supply vessel
Towage from Bahamas to El Ferrol 10-29 April
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Grounding in Suez
Crude oil tanker 159.000 dwt, double hull
The Canal cross-sections are trapezoidal in
shape, having side slopes of 3/1.
Width between buoys 222 mts
Abt. 40 mts from port bank
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Repair at Daewoo (Mangalia) Shipyard in Romania,
arr. 31.03.04Steel price USD 2,75 / kg 48
days repair
Web frame
Longitudinals
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The bill..

• HM ( 100 ) USD 3.200.000
• LOH ( 60-14 days _at_ 40 000) USD 1.840.000

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Example

• 2005 built UCC, 91.410grt, Collision
• Difficult to get dry dock.due to draft
  restrictions and stricter yard policy
• Estimated repair days 152
• D.I. 30.000 basis 14/120/120
• Substitute vessel D.I. 40.000

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Example

• 1996 built TCR, 156.852grt, Grounding
• Challenge to find available yards in the FE for
  final repairs.
• Severe damages to bottom hull after the grounding
  incident. 4 months is calculated for completion
  of repairs.
• D.I.50.000 basis 60/120/120

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Example

• LNG Carrier (1973)
• damage to main gear
• vulnerable and vital trade
• the assured urgently needs the ship back in trade

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The challenge

• Old LNG (1973) No new main gear in stock
• One year production time
• LNG urgently required for trade

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NMIP 16-11 The solution provider

• Buy an old tanker, take out the gear and use it
  as a spare part.
• Charter an Antonov transport airplane and bring
  the gear from US West Coast to Europe as quick as
  possible.
• Pay bonuses and overtime to working staff at yard
  in order to further reduce off hire time

• Costs incurred in order to save time

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M/T VLCC Lack of docking facilities (2006/2007)

• July 2006 .
• Grounded Dalian, China
• Fully loaded with crude oil 276.110 t crude
• Repairs completed Singapore 10th December 2006
• Off-hire days 137 days
• Loss of income USD 13.700.000,-
• Repair period Singapore 51 days (USD 5.100.000,-)

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Lack of docking facilities WWFE
June 2006 Explosion / fire in cargo tank South
China Sea
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16-1 Blocking and trapping
The insurance also covers loss due to the ship
being wholly or partially deprived of
income (b) because it is prevented by physical
obstruction (other than ice) from leaving a port
or a similar limited area,
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THE PLAN

• MARINE INSURANCE CONTRACT
• CONTAINS ALL MAJOR MARINE INSURANCE TYPES, EXCEPT
  PI
• AGREED DOCUMENT
• INTERNATIONALLY ACCEPTED
• BUILT ON ALL RISK PRINCIPLE

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THE PLAN - CONTENTS

• PART 1 GENERAL CLAUSES
• PART 2 HULL MACINERY CLAUSES
• PART 3 OTHER MARINE INSURANCES
• LOSS OF HIRE CHAPTER 16
• PART 4 OTHER INSURANCES
• BUILDING RISKS, OFFSHORE ETC.

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INVOLVED PARTIES
SHIPOWNER
LOSS OF HIRE UNDERWRITER
BROKER
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IMPORTANT ISSUES FOR OWNERS

• Duty of disclosure - 3-1
• Alteration of risk - 3-8
• Classification Clause - 3-14
• Trading limits - 3-15
• Safety regulations - 3-22, 3-24 and 3-25
• Measures to avert loss - 3-29 3-31
• Notification of claims - 5-23

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Claims And Claims Leader

• Chapter 5 deals with settlement of claims
• Chapter 9 deals with the claims leaders role and
  power to bind the co-insurers
• In the Norwegian market the claims are dealt with
  directly between the assured and the claims
  leader who normally prepares the adjustment
• The role of the broker

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HULL MACHINERY VS.LOSS OF HIRE

• HULL MACHINERY
• POLICY
• Independent policy
• INSURED PERILS
• SCOPE OF COVER

• LOSS OF HIRE
• POLICY
• Independent policy
• REF. THE PLAN 16-1
• AND THE POLICY WORDING

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HOW IS LOSS OF HIRE TRIGGERED?

• HULL MACHINERY
• POLICY
• Main policy
• SETS OUT THE SCOPE OF COVER

• LOSS OF HIRE
• POLICY
• Subsidiary policy
• FOLLOW ACTUAL
• HM SCOPE
• OF COVER

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16-1 Scope of Insurance

• The insurance covers loss due to the vessel being
  wholly or partially deprived of income as a
  consequence of damage to the vessel which is
  recoverable under the terms of the Plan.
• Reference to Plan chapter 10-12 can be waived by
  way of written agreement by the insurer, and be
  replaced by the provisions of the actual HM
  conditions.

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What Is Covered?

• Time loss as a consequence of damages which are
  recoverable as per the actual HM conditions
• Level of deductible is irrelevant for the
  question of cover
• Exceptions from the condition of damage
• If the vessel has stranded
• Prevented by physical obstructionsother than
  ice
• As a consequence of measures taken to salvage or
  remove damaged cargo

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16-2 Total and Compromised Total Loss

• No loss of hire will be compensated
• In total loss situations
• Constructive total loss situations

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16-3 Main Rule for Calculating Allowable Time

• Loss of time The time the vessel has been
  deprived
• of income
• Daily amount - Net loss of income per day
• Normally assessed
  daily amount
• Calculation - Lost time x daily amount per day
• Time start running earliest at the time of damage
• Ballast voyage before commencement of the laden
  voyage a damage occur is not recoverable

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16-4 Calculation of the Loss of Time

• Days, hours and minutes
• Partially loss of time
• To be converted into corresponding total loss of
  income

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16-5 The daily amount

• So called open policy
• Gross income as per contract of affreightment
• Less saved expences
• If no contract
• Average freight rates for compareable vessels
• Must have suffered a loss, cp. CAPRICORN, see
  page 39 of the Handbook

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16-6 Assesed daily amount

• Express presumption that the daily amount stated
  in the policy is an assessed daily amount
• CAPRICORN applies also if the daily amount is
  assessed

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16-7 Deductible period

• No standard deductible in the Plan
• Most common deductible period is 14 days
• But longer or shorter periods is seen
• 7 days DNK loss of hire cover
• 30 days
• 45 days
• Deductible period commences when the loss of time
  occurs
• Partly deprived of income, 16-4, subpara 1,
  second sentence

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16-8 Survey of damage

• Important for the loss of hire insurer to engage
  his own surveyor
• I.a. to assess the repair time required for the
  damage repair
• 12-10 applies correspondingly

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16-9 Choice of repair yard

• The insured decides which yard is to be used
• Tenders must be collected if the insurer so
  demand
• The potential conflict of interest between the
  insured, the hull insurer and the loss of hire
  insurer
• The main purpose is to encourage the insured to
  elect the repair alternative that overall is the
  cheapest
• Repair costs loss of income during repair
• Special rule if the hull is on other conditions
  than the Plan

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16-9 Example
Yard A B C
Repair/removal cost 1.8 mill 1.2 mill 1.0 mill
Loss of time USD 10,000 per day 0.3 mill 0.45mill. 0.75mill
Total 2.1 mill. 1.65mill 1.75mill
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16-10 Removal to the Repair Yard

• Time lost during removal of the vessel to and
  from repair yard, shall be attributed to the
  class of repairs that necessitated the removal
• Important
• A causa proxima principle apply to the removal
  time
• No apportionment in the deductible period

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Example of removal time

• VLCC sustain main engine damage on laden voyage
  from Sullom Voe to Canada. Towed to Rotterdam
  for repairs.
• Removal time from damage position to yard 8
  days.
• Repair time 28.
• of which Owners work 10 days.
• and damage repair work 28 days.
• Removal time from yard to damage position 4
  __.
• Total time lost 40 days.
• Conclusion The removal time will be paid by LOH
  in full.

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Example of removal time

• 2) VLCC on ballast voyage from Japan to AG
  deviate to Bahrain for maintenance work. At the
  same time deferred damage repairs are being
  carried out.
• Removal time from deviation position to yard
  1 day.
• Repair time 28.
• of which Owners work 10 days.
• and damage repair work 16.
• Removal time from yard to deviation point 1.
• Total time lost 30 days.
• Conclusion The removal time will be paid by
  Owners in full.

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16-11 Costs incurred to save time

• Extra costs or extraordinary measures taken for
  the purpose of preventing loss of time covered by
  the insurance, is paid by LOH if such costs are
  not paid by HM
• Must be extraordinary - and must save time
• Owners must carry pro rata share of costs, if
  time is also save for the Owner
• Example Repair time 16 days reduced to 12 by
  way of overtime
• With a deductible of 14 days do
  Owner / LOH share the overtime cost 50/50
• In this respect is LOH subsidiary to HM

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16-12 Simultaneous Repairs

• What is simultaneous repairs?
• Two or more classes of work are carried out at
  the same time
• Contrary to a main rule principle, this clause
  establish an equal apportionment principle

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16-12 Simultaneous Repairs

• In legal terms a special rule of causation
• As a starting point a rule to split time equal
  between Owners and LOH underwriter
• Owners work are put into three categories
• a) Classification work
• b) Work necessary for the seaworthiness of the
  vessel, or carried out to fulfil contractual
  obligations, or
• c) reconstruction work
• Work under share time 50/50

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Simultaneous repairs 16-12
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Case Study Gas Al Kuwait

• 21.09.99 Rudder damages Repairs at Keppel,
  Singapore
• Damage repairs 30 days
• Deductible 14 _
• Time in excess of deductible 16 days
• Common repairs for Owners class /
• safety related work 8 _
• Recoverable time paid by LOH underwriter 12 days
  

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16-12, 1. Subparagraph
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16-12, 2. Subparagraph

• Two casualties are being carried out
  simultaneously
• If the deductible period run parallel for the two
  cases, then the period thereafter is being
  covered equal 50/50
• If deductible periods do not run parallel, the
  rule of simultaneous repairs should apply when
  only one deductible still run, i.e.. 50/50 Owners
  and LOH

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16-12, 2. Subparagraph
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16-12, 3. SubparagraphTwo Casualties Two
Policies
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16-12, 3. SubparagraphTwo Casualties Two
Policies Plus Class
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16-12, 4. Subparagraph

• When calculating time as if carried out
  separately
• Counts from the day the work started
• All work is consider to start upon the vessels
  arrival at the repair yard except when
• Damage occur in the dock
• Unknown damage is being discovered in dock
• What is the situation when the various classes of
  work interfere with each others? Example.

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16-12, 4. Subparagraph, Last Sentence
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16-13 Loss of time after completion of repairs

• Main rule No recovery
• 3 exception
• Time lost until the vessel can resume engagement
  under freight contract in force at time of
  casualty
• Liner service in fixed schedule
• Removal to first port to take cargo fixed before
  the casualty occurred.
• Passenger vessel resume service max 14 days

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16-14 Repairs Carried Out After Expiry of the
Insurance Period

• Time limit to carry out repairs is 2 years after
  expiry of the policy period
• Actual loss is being recovered if repairs
  commence after expiry of the policy period, ref.
  16-5
• Multi year policies jfr. 1-5, subparagraph 4

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16-16 Rule of Subrogation

• LOH have the right of subrogation
• Against H M insurer for loss of time and
  operating costs paid pursuant 12-11 or 12-13
  or corresponding rules in other hull conditions
• Other insurer or in general average

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Casualty Examples
Vessel Basis D.I. Incident Days Off Hire Claim
1992 TCR 153.000grt 14/60/60 80.000 Main Engine Breakdown 45 2.480.000
1994 BBU 76.000grt 14/60/60 40.000 Grounding 22 320.000
1999 BBU 87.000grt 14/60/60 25.000 Grounding 34 540.000
1999 GGC 13.000grt 14/90/90 28.000 Grounding 57 1.596.000
1996 OSY 3.700grt 14/90/90 NOK125.000 Fire 48 NOK4.250.000
2000 UCC 65.000grt 14/90/90 26.000 Main Engine Breakdown 24 260.000
2001 TCR 136.000grt 14/60/60 50.000 Grounding 24 500.000
2003 LNG 91.000grt 14/300/300 77.000 Cargo Tank Insulation 63 3.773.000
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Thank you for your attention