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

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

3. 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.

4. 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
USD = USD

5. 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.

6. 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.

7. Use of available resources
Gas carrier Towage by Offshore supply vessel
Towage from Bahamas to El Ferrol April

8. Crude oil tanker – 159.000 dwt, double hull
Grounding in Suez
Crude oil tanker – 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

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

10. The bill..
H&M: ( 100% ) USD
LOH: ( ) USD

11. 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……

12. 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

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

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

15. 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”

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

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

18. § 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,

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

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

21. 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.

22. INVOLVED PARTIES
SHIPOWNER
LOSS OF HIRE
UNDERWRITER
BROKER

23. 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

24. 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

25. 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

26. 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

27. §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 can be waived by way of written agreement by the insurer, and be replaced by the provisions of the actual H&M conditions.

28. 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

29. §16-2 Total and Compromised Total Loss
No loss of hire will be compensated:
In total loss situations
Constructive total loss situations

30. §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

31. §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

32. 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

33. §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

34. 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 days.
Repair time ”
of which Owners work 10 days.
and damage repair work 28 days.
Removal time from yard to damage position ”__.
Total time lost days.
Conclusion: The removal time will be paid by LOH in full.

35. 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 day.
Repair time ”
of which Owners work 10 days.
and damage repair work ”
Removal time from yard to deviation point 1. ”
Total time lost days.
Conclusion: The removal time will be paid by Owners in full.

36. §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

37. §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

38. §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.

39. Simultaneous repairs § 16-127 14 21 28 35
Compensation
Maintenance
Owners Class
Work
Average work
Deductible

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

41. §16-12, 1. Subparagraph

42. § 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

43. §16-12, 2. Subparagraph

44. §16-12, 3. Subparagraph Two Casualties – Two Policies

45. §16-12, 3. Subparagraph Two Casualties – Two Policies Plus Class

46. §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…….

47. §16-12, 4. Subparagraph, Last Sentence

48. §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.

49. §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

50. §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

51. Casualty Examples Vessel Basis D.I. Incident Days Off Hire Claim
1992 TCR grt
14/60/60
$80.000
Main Engine Breakdown 45 $
1994 BBU grt
$40.000
Grounding 22 $
1999 BBU grt
$25.000 34 $
1999 GGC grt
14/90/90
$28.000 57 $
1996 OSY 3.700grt
NOK
Fire 48
NOK
2000 UCC grt
$26.000 24 $
2001 TCR grt
$50.000 $
2003 LNG grt
14/300/300
€77.000
Cargo Tank Insulation 63 €