Nordic Plan vs. ITCH – what are the main differences?
The Nordic Marine Insurance Plan of 2013, now in its 2023 version, is the preferred choice of insurance conditions for vessels and mobile offshore units in the Nordic market for all standard non-P&I insurances. The Nordic Plan is also gaining popularity with insurers and owners outside the Nordic countries. Previously those insurers and owners would often turn to the Institute Time Clauses Hulls of 1983 (ITCH) developed by the London market. This article considers some of the key differences between the two sets of conditions.
The Nordic Plan is based on the Norwegian Plan of 1996, which traces its roots back to the Norwegian Plan of 1871. It is an agreed document that has been negotiated between representatives of shipowners and insurers. The Nordic Plan is supported by an institutional framework and is subject to revision every third year. It is a comprehensive, balanced and continuously up to date document. With the Nordic Plan comes an extensive Commentary on the various provisions which clarifies many issues of interpretation. The Nordic Plan and its Commentary is available here.
The ITCH date back to the establishment of the Institute of London Underwriters in 1884. It is the standard insurance conditions for hull and machinery insurance in the London market.
As the ITCH were drafted 40 years ago and is only 11 pages long, a number of additional clauses are often used and many issues are left to the background law, which is English law. The Nordic Plan, in comparison, offers a comprehensive regulation of most issues, minimizing the need for additional clauses or background law supplements. The Nordic Plan is subject to either Norwegian law or to the laws of another Nordic country, depending on the location of the claims leader’s main office, as we will consider further below.
Hull and machinery cover affects, and must be co-ordinated with, cover for loss of hire, total loss only insurances (hull interest and freight interest) and war risks cover. When underwriting insurance on ITCH terms, additional clauses must be used to include and coordinate between these insurances. The Nordic Plan, on the other hand, includes standard terms for such insurances, which avoids gaps in cover and unnecessary overlap.
The Nordic Plan provides for an all risks cover against marine perils, see Cl. 2-8. This means that the scope of cover is defined by the various exceptions, which includes:
- Named war perils as set out in Cl. 2-9, interventions by state power where vessel is flagged or major ownership interests are located and requisition by any state power
- Perils covered by the Race II Clause (radioactive contamination, chemical weapons etc)
- Wear and tear etc (under the hull and machinery cover), see Cl. 12-3
- Damage to defective part, unless approved by class (under the hull and machinery cover), see Cl. 12-4
The burden of proving that the loss has been caused by an excluded peril is on the insurer, whilst the burden of proving that the loss is of a kind covered by the insurance is on the assured, e.g. physical damage in the case of hull insurance, as well as the extent of the loss, see Cl. 2-12.
The ITCH provide named perils cover only. If loss or damage is caused to the subject-matter insured by one of the named perils in ITCH Cl. 6 and 7, then this is covered, unless the loss or damage falls within the exclusions for war, strikes, malicious acts and nuclear risks in ITCH Cl. 23 to 26. It is for the assured to prove that the loss or damage incurred is caused by one of the named perils.
Loss or damage caused by piracy is included amongst the named perils, cf. ITCH Cl. 6.1.5, however, this peril is often transferred to the war risks policy by way of an additional clause. Under the Nordic Plan piracy is part of the standard war risks cover.
Most hull policies incorporating ITCH also include the Additional Perils Clause, which covers accidents and negligence of any person etc. To some extent this clause therefore also provides cover for the cost of repairing a latent defect. Under both the Additional Perils Clause and ITCH Cl. 6.2, cover is however still subject to a due diligence proviso.
Combination of perils
Where the loss has been caused by a combination of perils, the Nordic Plan as a main rule applies the apportionment principle, meaning that if one or more of the perils are not covered by the insurance, the loss is apportioned over the individual perils according to their influence on the occurrence and extent of the loss. Consequently, the insurer is only liable for the part of the loss attributable to the covered perils, see Cl. 2-13. There are also other rules in the Plan, such as the dominant cause principle, which apply if the loss has partly been caused by a combination of war and marine perils, see Cl. 2-14.
Conversely, under ITCH and English law, where there are concurrent causes of loss, both regarded as proximate causes, the assured can recover if one of these causes of approximately equal efficiency is an insured peril and the other operative cause although outside the scope of the policy is not expressly excluded. However, if there are two causes of approximately equal efficiency, one covered and one excluded, the assured cannot recover (see B Atlantic  UKSC 26).
Alteration of risk and safety regulations vs. warranties
The Nordic Plan does not apply the English law concept of warranties found in the ITCH, but has a nuanced set of remedies for alteration of risk and safety regulations.
The only alteration of risk for which the Nordic Plan prescribes automatic termination, is loss or suspension of class or change of ownership, see Nordic Plan Cl. 3-14 and 3-21. In other cases of alteration of risk, such as change of flag or management, the insurer is free from liability only insofar as the assured has intentionally caused or agreed to the alteration, and it must be assumed that the insurer would not have accepted the insurance, if it had known that the alteration would take place. Where the latter criteria is not fulfilled, and it must be assumed that the insurer would have accepted insurance but on other conditions, the insurer is liable to the extent that the loss is proved not to be attributable to the alteration of risk. However, in all instances of an alteration of risk, the insurer is entitled to cancel the insurance by giving 14 days’ notice, see Nordic Plan Cl. 3-10.
ITCH Cl. 4 provides for automatic termination of the insurance contract in case of certain changes of risk, i.e. in the event of loss or change of class, change of ownership, flag, management, requisition or charter on a bareboat basis, subject to certain conditions set out in the provision.
Moreover, for insurance contracts governed by English law, s.3 of the Insurance Act 2015 (“IA”) requires the assured to make a “fair presentation of the risk” which requires the assured to disclose to the insurer “every material circumstance which the insured knows or ought to know”. A “material circumstance” is defined by s. 7 IA as one that “would influence the judgement of a prudent insurer in determining whether to take the risk and, if so, on what terms”. The insurer’s remedies for such a breach of duty are set out in Schedule 1, IA.
The Nordic Plan Chapter 3 Section 3 contains provisions on safety regulations. The duty of the assured is to comply with safety regulations as defined in Cl. 3-22, which includes rules for prevention of loss issued by for example the flag state and class. As a main rule the insurer can avoid liability for breach of safety regulation only where (a) the breach is due to the assured’s negligence and (b) to the extent that the loss is a consequence of the breach, see Cl. 3-25. In certain situations the insurer may also cancel the insurance by giving 14 days’ notice, see Cl. 3-27.
Under English law, the duties of care and safe operation of the vessel are set out in the Marine Insurance Act (“MIA”) s. 39, which contains rules on the warranty of seaworthiness. In a time policy under ITCH, if a vessel is sent to sea in an unseaworthy state due to lack of due diligence by the assured, any loss attributable to the unseaworthiness will not be covered under insurance.
The Nordic Plan covers 4/4 liability for collisions with other ships (RDC – running down clause) and for striking of fixed and floating objects (FFO), subject to a separate sum insured, see Cl. 13-1. All collision liability is placed with the hull and machinery insurer since collisions often result in mutual damage and the hull and machinery insurer's right to become subrogated to the assured's claim against the oncoming vessel means that it is practical that the hull and machinery insurer handles claims both from and against the other vessel. There is a list of exclusions in Cl. 13-2 from the cover provided by the hull and machinery insurer for collision liability which is more appropriately covered by P&I, such as liability for personally injury, cargo damage on the insured vessel, wreck removal of the insured vessel, liability for pollution damage etc.
The ITCH Cl. 8 covers 3/4 liability for collisions with other ships only (3/4 RDC and no FFO cover), subject to a separate sum insured. Cl. 8 also has a list of excluded losses.
Normally, the P&I insurance will cover the collision liability which is excluded from cover and any excess liability above the sum insured under the hull and machinery (and any hull interest) insurance.
The Nordic Plan Cl. 4-14 provides that the principle of cross-liability is to be applied, also where both vessels in a both-to-blame collision are able to limit their liability, whilst the ITCH Cl. 8.2.1 does not apply the cross-liability principle where the liability of one or both vessels becomes limited by law. The English solution is considered by the Commentary to the Nordic Plan to represent a disadvantage to the assured, as an insignificant increase in liability which would make limitation applicable, could result in a substantial reduction of the reimbursement of the shipowner’s loss of time. The approach adopted by the Nordic Plan represents a modified cross-liability settlement in the limitation cases whereby the largest gross amount of liability in the insurance settlement is reduced by the same amount as the liability balance in the external settlement has been reduced as a result of limitation.
Constructive total loss (CTL)
Under the Nordic Plan, the assured may claim for a total loss when the repair cost exceeds 80% of the insured hull value or the market value of the vessel, whichever is the higher, see Cl. 11-3.
Under the ITCH, the vessel is a CTL where the cost of recovery and/or repair would exceed 100% the insured value, see Cl. 19 and MIA s. 60.
The apparent difference between the Nordic Plan and ITCH, is somewhat modified by salvage costs being excluded from the CTL repair cost calculation in the Nordic Plan, whilst these costs are included when calculating repair costs under ITCH, however, excluding SCOPIC, see the UK Supreme Court decision  UKSC 29 Renos.
A further difference is that under the Nordic Plan, costs relating to the repair of all reported unrepaired damage in the last three years shall be included in the repair costs calculation, whereas under the ITCH the repair costs included in the calculation are limited to costs relating to a single accident or sequence of damages arising from the same accident.
Furthermore, the point in time for making the CTL assessment is different under the two sets of conditions. Under the Nordic Plan the assured must present a request for condemnation to the insurer without undue delay after the vessel has been salvaged and it has had an opportunity to survey the damage, see Cl. 11-5. The CTL assessment will then take place after the salvage operation of the vessel has been completed and once the vessel is in a position of being surveyed.
On the other hand, CTL under English conditions requires the assured to elect to abandon the vessel by presenting a notice of abandonment. Traditionally, shipowners were required to make such an election soon after the incident, but UK Courts have since accepted notice of abandonment made as late as five months after the incident, see The Renos. The situation must then be judged as at the time notice of abandonment is given, which, depending on when notice is given, could lead to the inclusion of future salvage costs in the calculation (if notice is given whilst the vessel is in the grip of a casualty and salvage is doubtful or unlikely).
Some other differences
There are also a number of other differences between the Nordic Plan and the ITCH, for instance:
- Claims lead: The Nordic Plan has a comprehensive set of rules for the claims leader’s authority in Chapter 9, whereas there are no such regulations in the ITCH.
- Trading areas: The Nordic Plan Cl. 3-15 has a system of ordinary, conditional and excluded trading areas. The ITHC does not differentiate between conditional and excluded trading areas (often Institute Trading Warranties of 1976 are included in the policy).
- Deductible: Under the Nordic Plan there is no deductible for costs to avert or minimise loss covered under the insurance, see Cl. 12-18. Under the ITCH the standard deductible applies, see Cl. 12.
- Recovery from third parties: Under the Nordic Plan Cl. 5-13 recoveries from third parties are apportioned proportionally between the assured and insurers, whilst ITCH Cl. 12.3 prioritises the insurer before any recovery is apportioned on the assured.
- Choice of repair yard: Under the Nordic Plan the assured may choose the repair yard, but cover is normally limited to the cheapest yard and tender, see Cl. 12-12. Under ITCH Cl. 10.2 the insurer has the ultimate right to decide. This distinction may be practically relevant when estimating repair costs in respect of CTL or compensation for unrepaired damage.
- Co-insurance of mortgagees: The Nordic Plan Chapter 7 provides for automatic co-insurance of mortgagees, whilst under the ITCH and English law, the position of the mortgagees are protected through assignment clauses.
- Interest: Under the Nordic Plan the assured may claim interest as from one month after the date on which notice of the casualty was sent to the insurer, even if payment is not yet due, at the US Prime Rate on 1 January of the year the insurance contract came into effect (7.5% p.a. in 2023), see Cl. 5-4. The ITCH has no similar regulation.
Law and jurisdiction
The Nordic Plan is subject to Norwegian law, unless the leading insurer has its head office in Sweden, Denmark or Finland, in which case the laws of that country applies, see Cl. 1-4 A and B. Any disputes shall, if there is a Nordic claims leader, be referred to the exclusive jurisdiction of the courts where the claims leader’s head office is located. Any co-insurers may be sued there. If there is a non-Nordic claims leader, any disputes shall be referred to arbitration in Oslo under the procedure adopted by the Nordic Offshore and Maritime Arbitration Association.
Although the parties are free to agree on a different law and jurisdiction, we would advise against agreeing non-Nordic law since the Nordic Plan is drafted with Norwegian and Nordic law in mind. If the policy is governed by non-Nordic law and incorporates some of the Nordic Plan conditions, an alternative is to specify that the Nordic Plan shall be interpreted in accordance with Norwegian law.
Under the ITCH, English law applies, including the rules of the IA and MIA, unless otherwise agreed. While the majority of policies written on ITCH elect for the jurisdiction of the High Court in London (to logically follow English law) this choice is not mandated by the ITCH and is a matter for commercial policy.