Presentation for Master students, UIO April 25th , 2007 LOSS OF HIRE Presentation for Master students, UIO April 25th , 2007

”Experience is something you don’t get until just after you need it”

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

If only… M/V “Sorry Sailor” Collision, 75% liability. No LOH cover Potential recovery with LOH: Off hire: 90 days Deductible: 14 days Net claim: 76 days 76days @ USD 20 000 = USD 1 520 000

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

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

Use of available resources Gas carrier Towage by Offshore supply vessel Towage from Bahamas to El Ferrol 10-29 April

Crude oil tanker – 159.000 dwt, double hull 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

Repair at Daewoo (Mangalia) Shipyard in Romania, arr. 31. 03 Repair at Daewoo (Mangalia) Shipyard in Romania, arr. 31.03.04 Steel price USD 2,75 / kg – 48 days repair Web frame Longitudinals

The bill.. H&M: ( 100% ) USD 3.200.000 LOH: ( 60-14 days @ 40 000) USD 1.840.000

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

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

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

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

NMIP §16-11 – The solution provider 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”

M/T VLCC – Lack of docking facilities (2006/2007) July 2006 . Grounded Dalian, China Fully loaded with crude oil 276.110 t crude Repairs completed Singapore 10th December 2006 Off-hire days 137 days Loss of income USD 13.700.000,- Repair period Singapore 51 days (USD 5.100.000,-)

Lack of docking facilities WW&FE June 2006 Explosion / fire in cargo tank South China Sea

§ 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,

LOSS OF HIRE INSURANCE NORWEGIAN MARINE INSURANCE PLAN 1996 ”THE PLAN”

THE PLAN MARINE INSURANCE CONTRACT CONTAINS ALL MAJOR MARINE INSURANCE TYPES, EXCEPT P&I AGREED DOCUMENT INTERNATIONALLY ACCEPTED BUILT ON ”ALL RISK” PRINCIPLE

THE PLAN - CONTENTS PART 1: GENERAL CLAUSES PART 2: HULL & MACINERY CLAUSES PART 3: OTHER MARINE INSURANCES LOSS OF HIRE – CHAPTER 16 PART 4: OTHER INSURANCES BUILDING RISKS, OFFSHORE ETC.

INVOLVED PARTIES SHIPOWNER LOSS OF HIRE UNDERWRITER BROKER

IMPORTANT ISSUES FOR OWNERS Duty of disclosure - §3-1 Alteration of risk - §3-8 Classification Clause - §3-14 Trading limits - §3-15 Safety Regulations - §3-22 Measures to avert loss - §§3-29 – 3-31 Notification of claims - §5-23 Main rule: 6 months time bar

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

HULL & MACHINERY VS.LOSS OF HIRE POLICY Independent policy INSURED PERILS SCOPE OF COVER LOSS OF HIRE POLICY Independent policy REF. THE PLAN §16-1 AND THE POLICY WORDING

HOW IS LOSS OF HIRE TRIGGERED? HULL & MACHINERY POLICY Main policy SETS OUT THE SCOPE OF COVER LOSS OF HIRE POLICY Subsidiary policy FOLLOW ACTUAL H&M SCOPE OF COVER

§16-1 Scope of Insurance The insurance covers loss due to the vessel being wholly or partially deprived of income as a consequence of damage to the vessel which is recoverable under the terms of the Plan.……… Reference to Plan chapter 10-12 can be waived by way of written agreement by the insurer, and be replaced by the provisions of the actual H&M conditions.

What Is Covered? Time loss as a consequence of damages which are recoverable as per the actual H&M conditions Level of deductible is irrelevant for the question of cover Exceptions from the condition of damage: If the vessel has stranded Prevented by physical obstructions……other than ice As a consequence of measures taken to salvage or remove damaged cargo

§16-2 Total and Compromised Total Loss No loss of hire will be compensated: In total loss situations Constructive total loss situations

§16-3 Main Rule for Calculating Allowable Time Loss of time – The time the vessel has been deprived of income Daily amount - Net loss of income per day Normally assessed daily amount Calculation - Lost time x daily amount per day Time start running earliest at the time of damage Ballast voyage before commencement of the laden voyage a damage occur is not recoverable

§16-4 Calculation of the Loss of Time Days, hours and minutes Partially loss of time: To be converted into corresponding total loss of income

Other relevant issues Daily amount - §16-5 Assessed daily amount - §16-6 Deductible period - §16-7 Survey of damage - §16-8 Choice of repair yard - §16-9

§16-10 Removal to the Repair Yard Time lost during removal of the vessel to and from repair yard, shall be attributed to the class of repairs that necessitated the removal Important: A main rule principle apply to the removal time No apportionment in the deductible period

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

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

§16-11 Costs incurred to save time Extraordinary costs or extraordinary measures taken for the purpose of preventing loss of time covered by the insurance, is paid by LOH if such costs are not paid by H&M Must be extraordinary - and must save time Owners must carry pro rata share of costs, if time is also save for the Owner Example: Repair time 16 days reduced to 12 by way of overtime With a deductible of 14 days do Owner / LOH share the overtime cost 50/50 In this respect is LOH subsidiary to H&M

§16-12 Simultaneous Repairs What is simultaneous repairs? Two or more classes of work are carried out at the same time Contrary to a main rule principle, this clause establish an apportionment principle

§16-12 Simultaneous Repairs In legal terms a special rule of causation As a starting point a rule to split time equal between Owners and LOH underwriter Owners work are put into three categories: a) Classification work b) Work necessary for the seaworthiness of the vessel, or carried out to fulfil contractual obligations, or reconstruction work c) Other Owners work that necessitate a separate stay at the yard Work under a) and b) above share time 50/50 with recoverable time, but c) only share days in excess of 30 days.

Simultaneous repairs § 16-12 7 14 21 28 35 Compensation Maintenance Owners Class Work Average work Deductible

Case Study – Gas Al Kuwait 21.09.99: Rudder damages – Repairs at Keppel, Singapore Damage repairs 30 days Deductible 14 ”_ Time in excess of deductible 16 days Common repairs for Owners class / Seaworthiness related work 8 ”_ Recoverable time paid by LOH underwriter 8 days

§16-12, 1. Subparagraph

§ 16-12, 2. Subparagraph Two casualties are being carried out simultaneously If the deductible period run parallel for the two cases, then the period thereafter is being covered equal 50/50 If deductible periods do not run parallel, the rule of simultaneous repairs should apply when only one deductible still run, i.e.. 50/50 Owners and LOH

§16-12, 2. Subparagraph

§16-12, 3. Subparagraph Two Casualties – Two Policies

§16-12, 3. Subparagraph Two Casualties – Two Policies Plus Class

§16-12, 4. Subparagraph When calculating time as if carried out separately Counts from the day the work started All work is consider to start upon the vessels arrival at the repair yard – except when: Damage occur in the dock Unknown damage is being discovered in dock What is the situation when the various classes of work interfere with each others? Example…….

§16-12, 4. Subparagraph, Last Sentence

§16-13 Loss of time after completion of repairs Main rule: No recovery 3 exception: Time lost until the vessel can resume engagement under freight contract in force at time of casualty Liner service in fixed schedule Removal to first port to take cargo fixed before the casualty occurred.

§16-14 Repairs Carried Out After Expiry of the Insurance Period Time limit to carry out repairs is 2 years after expiry of the policy period Actual loss is being recovered if repairs commence after expiry of the policy period, ref. §16-5

§16-16 Rule of Subrogation LOH have the right of subrogation: Against Owners for costs to loss of time and operating costs paid by H&M underwriters Similar costs allowed in general average

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