The 2023 revision of the Nordic Plan

The new 2023 version of the Nordic Marine Insurance Plan of 2013 (the Nordic Plan) will enter into force on 1 January 2023. The most comprehensive changes in the 2023 revision concern the loss of hire conditions. Other significant amendments have also been made, with regard to the claims leader’s authority, the time limit for notification of casualties, the interest on the compensation, the choice of repair yard, and the conditions for total loss compensation when the vessel is struck by a war peril.

Major amendments of chapter 16 on loss of hire insurance

Chapter 16 on loss of hire insurance has been revised on a number of points, and the Commentary to the chapter has for the most part been rewritten. Whilst some of the amendments aim simply to clarify certain basic concepts, there are also some substantive changes.

Loss of hire insurances cover the assured’s loss of income due to the vessel being out of income-earning activity because of damage to the vessel or a similar event. Where the vessel is prevented from earning income due to other causes, for instance a failed market, this is not covered. Moreover, if a damaged vessel would have been unable to obtain employment even if it had not been damaged, there is no causation between the damage and the loss of employment, and the loss of time is therefore not covered by the loss of hire insurance.

The 2023 revision underlines the concept that the insurance covers the assured’s loss. This means that it is not sufficient in order to trigger loss of hire coverage that the vessel is out of employment; this must in fact result in an income loss for the assured. If the income under the vessel’s contract is maintained even when the vessel is not operating, e.g. in case of hire payment during agreed maintenance days, or in case a substitute vessel is used to maintain earnings, the assured does not sustain a loss and therefore there is no loss of hire cover. The revision of the Nordic Plan on this point entails a departure from the Agder Court of Appeal decision in the 2018 Hamburg Cruise case (LA-2018-35513).

On the other hand, if the assured incurs extraordinary expenses by employing a substitute vessel in order to maintain earnings, such extraordinary expenses may be allowable as extra costs incurred in order to avert or minimise loss, cf. Cl. 16-11. This is also contrary to the Hamburg Cruise judgement.

The Commentary also clarifies, with reference to the 2020 Agder Court of Appeal judgement in the Diana case (LA-2020-48298), that if an assured decides not to repair a vessel after a casualty, any loss of income after this point in time will not be considered a consequence of the damage. It will therefore not be recoverable under the loss of hire insurance.

The basic principle that loss of hire insurance does not provide cover in the event of a total loss is maintained, cf. Cl. 16-2. However, the decisive criterion is now whether the assured is entitled to total loss compensation under the actual hull conditions, compared to the previous wording that referred to a theoretical total loss ­assessment as per chapter 11 of the Nordic Plan or under the applicable hull conditions, subject to the latter ­having been accepted in writing by the loss of hire insurer.

The new Commentary to Cl. 16-4 contains more comprehensive explanations on how to calculate loss of time for vessels contracted on time charterparties, voyage charters and for unchartered vessels. Some examples regarding calculation of partial time lost have also been included.

Amendments have also been made to Cl. 16-9, choice of repair yard, Cl. 16-12, simultaneous repairs, and 16-15, liability of the insurer when the vessel is transferred to a new owner.

The claims leader’s rights and authority to act on behalf of the co-insurers

Amendments to chapter 7 and 9 clarify the claims leader’s rights and authority to act on behalf of the co-insurers. The rationale is to strengthen the practical benefits of the Nordic claims leader system.

Cl. 7-1 and 9-2 have been amended to clarify that mortgagees only need to notify the claims leader about the mortgage in order to obtain the additional mortgagee rights set out in Cl. 7-2 to 7-4. It is also clarified in Cl. 7-1 that the claims leader is authorized to accept on behalf of the co-insurers that special requirements of the mortgagee be included in the insurance contract provided that the special requirements are within customary market practice.

Interest on the compensation set to US Prime Rate

As LIBOR will be discontinued, the interest rate on the compensation shall from 2023 be based on the United States Prime Rate. As before, the Nordic Association of Marine Insurers (Cefor) will publish the applicable rate for each year on its web-site.

Extension of the time-limit for notification of a casualty

The time-limit for the assured’s notification of a casualty in Cl. 5-23 has been extended from 6 to 12 months which is in accordance with the insurance contract acts in the Nordic countries.

Choice of repair yard – focus on sustainability

The assured will from 2023 have the right to demand repairs to be effected at a yard which complies with the Environmental, Social and Governance (ESG) standards reasonably and usually required by the assured for scheduled dockings and repairs for the assured’s own account.

Extension of the time-limit to establish total loss in war risk insurance

In war risk insurance, the time-limit to establish total loss in case of intervention by a foreign State power or capture of the vessel by pirates etc., has been extended from 6 to 12 months, cf. Cl. 15-11.