Insurance Law Implications of Delay in Maritime Transport

Aysegul Bugra

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CHAPTER 8 Loss of charter hire insurance and loss of time

Introduction

8.1 One of the most obvious types of loss that is sought to be excluded by the delay exclusion in s 55(2)(b) is loss of hire (loss of earnings) arising from the loss of use of the vessel which can otherwise be recoverable under loss of hire policies. According to the drafters of the Act, the exclusion rests upon the authority of Shelbourne v Law 1 where loss of earnings due to the detention of an insured vessel during repairs necessitated by a collision was not allowed on the ground that it was remote to the hull policy.2 In this case a ‘river insurance policy’ that was a time policy covered the assured against ‘loss or damage by reason of the collision’ of the barges insured and excluded ‘loss or damage… in respect of the cargo or engagements’ of the barges. There was also a clause whereby the insurer had the option to make good the loss or damage instead of paying for it. Two barges collided with a vessel and the assured suffered loss of earnings during delay arising from detention, as well as physical damage to the barges. The Court accepted the insurer’s argument that the loss was not proximate to the injury by collision but was a fact which existed in consequence of the injury and that it was rather proximate to the repairs. The Court further opined that the clause granting the insurers the option to make good the loss could merely refer to the damage to barges and not to loss occasioned by the loss of time. Accordingly the ‘claim for damage for loss of time while the barges were detained for repairs’, wages and maintenance of the crew were held not to be recoverable under the policy. Kennedy J opined that ‘there can be no question that on an ordinary marine policy there would be no right to claim for loss of time, or for the wages and maintenance of the crew’.3 This judgment emphasises the fact that such losses are caused by delay and are remote to the damage to barges by collision, therefore

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not recoverable under policies covering merely the vessel and not the consequent losses arising from the deprivation of its use.4 8.2 Currently loss of time and the resulting loss of charter hire is covered under standard form policies such as the Loss of Charter Hire Insurance Including War (ABS 1/10/83 Wording)5 and the Loss of Charter Hire Insurance Excluding War (ABS 1/10/83 Wording)6 which are widely used in the market.7 Below is an attempt to analyse the relevant clauses of these two Forms and controversial issues which may give rise to disputes in relation to the recoverability of loss of hire and other losses and expenses incurred during delay.

Events triggering the cover under the ABS forms

8.3 Loss of hire may be occasioned by loss of or damage to hull by the perils insured under the hull policies, by delay in delivery of a new-build vessel8 or by events which do not result in damage to the hull yet merely loss of use of the vessel, such as port congestions. Under the ABS forms, loss of hire is covered where the vessel is prevented from earning hire due to ‘a loss, damage or occurrence covered by’, inter alia,9 Institute Time Clauses-Hulls (1/10/83) and Institute War and Strikes Clauses Hulls-Time 1/10/1983.10 Albeit there is room to argue that the word ‘occurrence’ may allude to wider circumstances than loss or damage to the hull such as a general average act or collision resulting in loss of hire,11 its exact meaning has not yet been tested in court. ‘Occurrence’ in the

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context of the ABS Form other than in cl 1(b) is mainly used along with ‘accident’12 to allude to a cause of the loss or damage rather than the loss or damage itself. It is used in the same context in the Institute Time Clauses-Hulls13 and in the American Institute Hull Clauses 1977.14 Therefore it is submitted that the expression should arguably refer either to general average act15 or to collision resulting in loss of hire which is not otherwise recoverable under the hull clauses.16 8.4 Whether the loss of hire should strictly be resulting from a loss of or damage to the hull was discussed in The Wondrous 17 in respect of a policy which stated that the policy was only to pay if the vessel was prevented from earning hire in consequences of the risks enumerated in the Institute War and Strikes Clauses Hulls-Time 1983.18 Accordingly two possible interpretations were available: either the policy would pay where the risks enumerated under the hull policy would result in loss of hire, or where those risks would cause a loss of or damage to vessel in consequence of which loss of hire would be incurred. On the facts of the case the vessel was detained for a year by reason of the failure of the assured to pay the port dues, therefore the vessel was not lost or damaged. In the first instance, Hobhouse J rejected the argument that the reference in a loss of hire policy to ‘risks enumerated’ in the hull policy did not mean that these risks had to cause ‘loss of or damage to the vessel’.19 This decision was upheld by the Court of Appeal;20 however it is noteworthy that both of the decisions were delivered upon the construction of the policies there at issue and the Court of Appeal decision cannot be authority for a generic suggestion that loss of or damage to vessel is required for triggering claims under loss of hire policies. In this respect, the wording under the ABS Form is clearer in terms of the requirement of a loss of or damage to the vessel for triggering the loss of hire cover compared to the wording discussed in The Wondrous. The approach adopted by the Court of Appeal that loss of or damage to vessel was germane to a loss of hire

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policy was based on the argument that the policy incorporated the Hull Clauses rather than the Freight Clauses21 which was, according to the Court, the expression of their intention to limit the loss of hire cover to the circumstances of loss of or damage to the vessel. Albeit the risks enumerated under both Clauses are fairly similar – if not identical – incorporation of the Freight Clauses would run the risk of the loss of hire claims being excluded by the loss of time clause22 if it could be contended that the incorporation encompassed not only risks enumerated but also the exclusions.23 In The Wondrous, it was submitted that the risks enumerated referred merely to the perils ‘in consequence of which’ the vessel was prevented from earning hire, and loss of time being merely the consequence of those perils could not be included in the ‘risks enumerated’. 8.5 A large number of circumstances may give rise to loss of time without any damage to vessel, such as time lost during surveys following a stranding where the vessel is not damaged, loss of time due to a congestion or strike in port, loss of time as a consequence of removing a damaged cargo, as a consequence of an event that is allowed in general average24 and time lost in consequence of death or illness on board. Therefore restricting the cover for loss of hire merely to incidents resulting in loss of or damage to hull would leave out a considerable number of loss of hire claims unrecoverable.25 Removal of damaged cargo shall be elaborated under the next heading given its relevance to hull insurance and common law origin.

Loss of time in removing cargo and consequent loss of hire

8.6 The ABS Form provides that loss of hire is covered if it is incurred following loss, damage or occurrence covered by Institute Time Clauses-Hulls 1983. This would first of all exclude any loss of hire incurred due to the time lost in discharging cargo damaged where the peril causes no damage to the hull of the vessel.26 However if damage to the vessel is caused both by the operation of one of

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the perils insured under the Institute Time Clauses-Hulls 1983 and of the damage to cargo, loss of hire whilst removing damaged cargo can arguably be recoverable. The most obvious example would be where a cargo of cement which encounters perils of the seas, solidifies and is affixed to hull and machinery.27

‘Expenses arising from delay’

8.7 The ABS Form – Including War 1983 provides that expenses arising from delay except such expenses as would be recoverable in principle in English law and practice under the York-Antwerp Rules 1974 are excluded from the scope of cover.28 It shall accordingly be discussed below firstly the type of expenses which are susceptible of being excluded by this wording and secondly the circumstances giving rise to general average expenses which are recoverable under the ABS Form.

Loss of hire arising during general average repairs – expense arising from delay?

8.8 In the average adjusting practice, where the vessel is on time charter at the time of the average loss, the time charter hire does not contribute to general average.29 The legal equivalent of this rule emanates from a set of common law authorities and has also been expressly regulated under the York-Antwerp Rules. Albeit the common law authorities seem to have established the law quite clearly, the application of some of these authorities to loss of hire policies is controversial given that they were decided with respect to claims arising under hull and machinery policies whereby loss of hire as a consequential loss to the loss of or damage to the vessel is by nature excluded thereunder. It was accordingly not surprising that loss of hire arising during general average repairs was held not recoverable in general average. A further analysis of the authorities and the York-Antwerp Rules 1974 shall shed light to the application of these authorities to loss of hire policies written in the ABS form. 8.9 In The Leitrim 30 the vessel was under a time charter which included a clause stating that the hire should cease in case of damage preventing the working of the vessel for more than 24 hours. The general average act in this case was the pouring of water into the hold where the cargo was stored so as to save the

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ship and cargo from destruction. The vessel had delayed at a port of refuge while undergoing repairs for the water damage and one of the main issues was whether the loss of hire was due to the general average act or due to the off-hire clause in the charterparty. It was decided that recovery of the loss of hire incurred during general average repairs should not be allowed as general average expense on mainly two grounds: that the loss of time is common to all the parties interested so that the damages by delay may be considered proportionate to the interests of the parties and may be disregarded; that were these losses to be calculated, there would have been difficulties in ascertaining the exact amount of loss on each of the interests as losses arising from delay would have been estimated and speculative.31 It is noteworthy that the loss of time incurred by the shipowner was not merely due to repairs, yet also due to the act of extinguishing the fire on board and the removal of the cargo for repairs to the hull, i.e. loss of time or delay was part of the general average act and had occurred during the currency of the common adventure. It may be necessary to draw a distinction between loss of time and loss of hire in this respect on the ground that not every loss of time could amount to loss of hire as the latter would also depend on the wording of the off-hire clause in the time charter. In the example of The Leitrim, the loss of time in extinguishing the fire on board could not have amounted to loss of hire if the off-hire clause in the charterparty had not extended to cover situations of the like. Accordingly the main issue in that case was whether the shipowner was entitled to some compensation in general average for the delay caused by the sacrifice, as opposed to whether he was entitled to recover the particular consequences of delay. This was on the ground that if losses due to delay had to be calculated it would cause inconvenience to the other interested parties because loss of hire is an accidental circumstance peculiar to the shipowner and charterer arising from the terms of their contract.32 8.10 This decision was followed later on in Wetherall v The London Assurance 33 where a claim was made under a hull and machinery policy for loss of use of the vessel damaged by a general average act and repaired after the termination of the adventure. The claim was disallowed by the Court, however in this case the dispute had turned on the recoverability of the loss incurred not during delay ‘on the voyage’ yet during delay subsequent to the termination of the voyage. The ‘voyage’ referred to was the voyage in which all interests were concerned, i.e. the common adventure. The Court opined that if under the common law loss of hire during delay on the voyage was not recoverable in general average, loss of hire during delay subsequent to the termination of the voyage would a fortiori be disallowed.34 This reasoning is tenable given that where the common adventure

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terminates, any loss arising subsequent to the termination cannot be determined as general average loss, yet could be considered as particular average loss. Nevertheless given that the policy at issue in this case was a hull and machinery policy to which loss of hire is a consequential loss, it is submitted that it cannot be authority for loss of hire policies. 8.11 Albeit the common law authorities are clear as to the disallowance of such losses in general average, doubt was cast in one particular occasion in an obiter dictum. It was stated in Anglo-Argentine Live Stock Agency v Temperley Shipping Co:35

‘Everyone concerned in the adventure suffers damage by the delay at the port of refuge. Each cargo-owner is delayed in the use or the sale of his goods. The freight-owner is delayed in getting payment of his freight, and the shipowner is deprived of the use of his ship. Yet none of these cases afford the foundation of any claim in general average according to our common law. Perhaps it is desirable that they should; and when the York-Antwerp Rules are by contract made applicable, some of them do form the subject of contribution. But the common law is clear …’36

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