LOSS OF HIRE

Presentation for Master students, UIO

April 25th , 2007
Experience is something you dont 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

 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. 31.03.04
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

Costs incurred in order to save
gear and use it as a spare part.
time
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
 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

LOSS OF HIRE
SHIPOWNER
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 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
HULL & MACHINERY VS.LOSS OF HIRE

HULL & MACHINERY LOSS OF HIRE

POLICY POLICY

Independent policy Independent policy

INSURED PERILS REF. THE PLAN 16-1

SCOPE OF COVER AND THE POLICY
WORDING
HOW IS LOSS OF HIRE TRIGGERED?

HULL & MACHINERY LOSS OF HIRE

POLICY POLICY

Main policy Subsidiary policy

SETS OUT THE SCOPE FOLLOW ACTUAL

OF COVER 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 obstructionsother 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

1) 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

Deductible

Average work

Owners Class
Work

Maintenance

Compensation

0 7 14 21 28 35
 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

Damage Owners
work Class
work
Deductible 14

Repair time if carried 30 30

out separately
Settlement 8 8
 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
Engine Heavy
weather
damage
Remaining deductible 0 14

Repair time if carried 40 20

out separately
Settlement 30 3
 16-12, 3. Subparagraph
Two Casualties Two Policies

Engine H.w.d
1998 1999

Remaining deductible 14 14

Repair time if carried our 40 20

separately

Settlement 23 3
 16-12, 3. Subparagraph
Two Casualties Two Policies Plus
Class Damage Class
Damage
98 99

Deductible 0 20

Repair time if 60 80 60
carried our
separately
Settlement 20 30 30
 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
Damage Class
Actual time 99 30
Repairs if carried out 90 30
separately
Deductible 14
Settlement 75 25
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 14/60/60 $80.000 Main Engine 45 $2.480.000

153.000grt Breakdown
1994 BBU 14/60/60 $40.000 Grounding 22 $320.000
76.000grt
1999 BBU 14/60/60 $25.000 Grounding 34 $540.000
87.000grt
1999 GGC 14/90/90 $28.000 Grounding 57 $1.596.000
13.000grt
1996 OSY 14/90/90 NOK125.000 Fire 48 NOK4.250.000
3.700grt
2000 UCC 14/90/90 $26.000 Main Engine 24 $260.000
65.000grt Breakdown
2001 TCR 14/60/60 $50.000 Grounding 24 $500.000
136.000grt
2003 LNG 14/300/300 77.000 Cargo Tank 63 3.773.000
91.000grt Insulation