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ABS 1/10/83 – Indemnity or Contingency Policy?

Jagan - April 14, 2023 - 0 comments

  1. There is very little literature on this class of business (loss of hire), at least on the English forms, except for perhaps the Chairman of the Association of Average Adjuster’s Addresses in 2012i and the recent presentation of Mr. Rui Haoii in London on 04th April 2023. In contrast, the Norwegian Hull Club has a very well written handbook on Loss of Hire which is under the Nordic Plan, and which can be viewed at their website.
  2. The ABS LOH 1/10/83 expressly provides for the cover to be subject to English Law and practice. Accordingly, the Marine Insurance Act 1906 (“MIA 1906”) would apply. A point which has been ruminating in our minds is whether the ABS LOH is an indemnity or a contingency policy? The difference between the two is that
    1. in an indemnity policy, the insured is only entitled to be put back to the position as they were before the loss with a caveat that in the case of Total losses, the Insured is entitled to recover up to the Insured Valueiii.
    2. in a contingency policy, the insured is entitled to recover up to the sum insured on the occurrence of an insured event.The major difference between the two is that in an indemnity policy, the Insured would have to account for any recoveries from 3rd parties found liable for the loss whereas in the case of a contingency policy, this is not required unless specifically provided in the policy.
  3. The ABS LOH policy
    1. is meant to pay whenever there is a loss, damage or occurrence covered by any of the declared policies. As has been noted by Mr Rui Hao in his talk, the presence of the word “occurrence” after the words “loss, damage” means that there is no specific necessity of physical loss or damage to the vessel.
    2. is a valued policy given that the sums for payment are already agreed at the inception of the policy. However, the policy is not meant to engage for a Total Lossiv but only for partial losses. What the ABS LOH policy is meant to do is to pay the Insured a specified sum of money for the period when the vessel is prevented from earning hire / employment for any of the incidents covered under the policy.
  4. The indemnity provided under the ABS LOH policy does not appear to fall strictly under the provisions provided in the MIA 1906. However, the MIA 1906 does allow for considerable flexibility in that specific provisionsv in the policy would override most of the sections of the act. In any event, the ABS LOH policy specifically provides that should there be a recoveryvi, this should be apportioned between the Insured and the Underwriters and therefore it would make no material difference if the policy were to be considered an indemnity or a contingency policy.
  5. Case law has suggested that to claim under an English LOH policy, not only must there be an insured event but also that there must be a risk of loss of hire or employmentvii. While this is to ensure that the Insured does not have a windfall, this perhaps does result in making the claim process more technical with attendant costs.
  6. Our limited market research reveals that the market prefers the cover under the Nordic Plan and perhaps the time has come for a revision for the English wordings to not only provide an alternative but also to hopefully stimulate interest in this type of cover. Accordingly, as and when the ABS 1/10/83 comes up for revision, the framers should relook at the intention of the policy and perhaps allow for payouts when the policy is triggered (i.e., make it simply a contingency policy). The advantage of this is that policy is simpler to manage and deal with and further it could compete with the other products available in the market.

i.The topic of the address was “Stuck in Doldrums?” – A consideration of whether the ABS Loss of Charter Hire Insurance wording is still fit for purpose.
ii.Mr Rui Hao’s presentation has been reported at The Maritime Advocate and which can be viewed at The Maritime Advocate | The Maritime Advocate–Issue 827
See S 68(1) of the MIA 1906 and which states “Subject to the provisions of this Act and to any express provision in the policy, where there is a total loss of the subject-matter insured, if the policy be a valued policy, the measure of indemnity is the sum fixed by the policy”.
 See Clause 2 of the ABS 1/10/83 wordings and which states “No claim to attach to this insurance if the occurrence in respect of which such claim arises is the cause of the vessel becoming a Total Loss (Actual or Constructive)”.
Most of the Sections of the MIA 1906 provide “… to any express provision in the policy…”and which if available, would override the provisions of the act.
Clause 3 of ABS LOH 1/10/83 states “In all cases where a recovery is obtained from third parties in respect of loss of earnings or demurrage such recovery shall be apportioned between the Assured and the Underwriters as their respective interests may occur”.
See Cepheus Shipping Corporation v. Guardian Royal Exchange Assurance PLC, The Capricorn, [1995] 1 Q.B. 622

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