Clause 13: Duty of Assured (Sue and Labour)

Comments to ITCH

ITCH sub-clause 13.1 repeats MIA Section 78 (4) and imposes a duty on the assured, their servants and agents to prevent or minimise loss that would otherwise fall on the insurer. The duty only arises if there is a danger of loss that would be covered by the insurance.

The clause does not contain any provision on the legal consequences of a breach of the duty by the assured. Hereof, the consequences of non-compliance with the duty are subject to the relevant case law and jurisdiction.

NMIP Comparison

NMIP Cl. 3-30 is the equivalent provision under the Nordic conditions. The assured’s duty to prevent or minimise loss applies when a casualty has occurred or threatens to occur. The assured has an obligation to do what may reasonable be expected of him in order to prevent and minimise the loss. If the assured does not comply with the duty under Cl. 3-30 the amount of the claim may be reduced to what it would have been if the duty had been complied with. However, the sanction can only be applied if the assured’s violation is deliberate or grossly negligent, see Cl. 3-31.

Comments to ITCH

Insurers will contribute to sue and labour charges, subject to policy deductible, as per ITCH, sub-clause 12.1. The costs must be “properly and reasonably” incurred to be covered by the clause. Further requirements that must be satisfied have been developed in case law and summed up in the Boskalis case (Royal Boskalis Westminster N.V v. Mountain and other (1997) LRLR 523). The danger of loss must be imminent and the costs must be reasonable in relation to the potential benefit and the measures taken. The costs must be extraordinary in the sense that they are not part of normal operations, but a necessary response to the imminent danger.   

The second sentence of the clause illustrates that sue and labour charges are covered only if measures were taken to prevent or minimise loss recoverable under the policy. Costs incurred for the common benefit of the adventure, claims for general average and salvage disbursements are not recoverable; for example the cost of saving a vessel with cargo from common danger is not recoverable under Cl. 13.

NMIP Comparison

Clause 4-7 in the NMIP states general rules that apply to all measures taken to avert or minimise loss, not only sue and labour but also General Average and Salvage. In all cases a casualty must have occurred or threaten to occur due to an insured peril and the measures taken must be of an extraordinary nature and must be regarded as reasonable. These criteria correspond with those developed in the English case law and it is very likely that the two systems would reach the same conclusion on any particular set of facts.

NMIP Cl. 4-12 deals with the insurer’s liability for the costs of measures to avert or minimise loss when the measures taken do not fall within the rules of GA or Salvage, as dealt with in clauses 4-8 to 4-11.

Contrary to ITCH provisions, measures to avert or minimise a loss are, according to NMIP Cl. 12-18, not subject to any deductible.

Under ITCH the assured can recover sue and labour charges only. According to NMIP Cl. 4-7 the assured will be indemnified for all type of loss or expense, as the insurers are liable for damage to or loss of the object insured, or other objects belonging to the assured, for costs incurred and for liability incurred vis-à-vis a third party.

Only measures taken by the assured, their servants or agents to avert or minimise the loss is compensated under ITCH. Under NMIP it is irrelevant whether the measures were implemented by the assured himself, his own people or an outside, third party. The cost of such measures will be covered by the insurers as long as anyone initiating these measures acts with intention of saving the imperilled object.

Comments to ITCH

Sub-clause 13.3 is called the waiver clause and protects the position of both the insurers and the assured, when the assured believes he might have a claim for a constructive total loss and gives notice of abandonment to the insurers, see MIA, Section 62. If the insurers or the assured will take efforts to save the insured object, these efforts will not be regarded as acceptance of a waiver or abandonment by any party.

NMIP Comparison

It has not been found necessary to include an equivalent provision in NMIP as the abandonment mechanism is not used in the Nordic conditions. 

Comments to ITCH

Sub-clause 13.4 is a very technical provision which is seldom of any practical importance. It applies firstly to cases of actual under-insurance where the sum insured is less than the value stated in the policy. Secondly, it applies to cases where the sum insured is less than the sound value at the time of the occurrence giving rise to the expenditure. This is not under-insurance in a technical sense as the sum insured and the insured value in the policy are the same and hereof the vessel is insured for the full amount of the value stated in the policy. However, the vessel is under-insured in the sense that the sound value at the time of the incident is greater than the insured value in the policy. There is certain logic in applying the rules for under-insurance also to these cases, but today this rule is often changed by the policy wording.  

In the case of under-insurance the recoverable sue and labour amount will be reduced in proportion to the under-insurance.

The second part of this sub-clause deals with the problem of under-insurance in case of total loss. In the event of a claim for total loss where the insured vessel is saved, the apportionments of the recoverable sue and labour expenses will only apply to sue and labour costs in excess of the value of the vessel saved. For example, if the value of the wreck will not cover all sue and labour charges the outstanding balance becomes the subject of under insurance.

The deductible is not applicable to sue and labour charges associated with total loss.

NMIP Comparison

Contrary to ITCH, NMIP does not apply provision of under and over-insurance to general average, salvage or sue and labour in cases where the sound or market value is greater than the insured value. As long as the sum insured is equal to the insured value stated in the policy, the liability of the insurer to compensate costs to avert or minimise loss will be for the full amount of the costs and expenses involved up to the separate limit equal to the sum insured for physical damage. This will also be the case where there has been a total loss.

Comments to ITCH

Sub-clause 13.5 expands the cover under the second part of Cl. 13-4. It deals with the situation where there has been a total loss despite the fact that losses, costs and expenses have been incurred to save the vessel. The losses, costs and expenses might as a starting point qualify as general average, salvage or sue and labour, but since the vessel has nonetheless become a total loss there will be no recovery under either general average or under common law or a LOF salvage and hereof there will be no apportionment between the different interests involved. Under this sub-clause the assured can therefore recover losses, costs and expenses that can reasonably be regarded as having been incurred for the benefit of the vessel, irrespective of the fact that the losses etc were originally incurred for the benefit of the common interest of the vessel and other property. For example, if a vessel carrying cargo grounds and the assured employs tugs in order to re-float the vessel and the vessel sinks during the operations with the cargo still on-board, only the vessel’s proportion of tug hire costs are recoverable under this sub-clause. Since the wreck of the vessel may have some value the clause limits the liability of underwriters to the vessel’s share of the amount by which the losses and costs exceed the value of what has been recovered.

The recoverable amount will be proportionately reduced in case of under insurance in both senses mentioned above under Cl. 13-4.

NMIP Comparison

NMIP Chapter 4, Section 2 contains rules applying to all measures taken to avert or minimise loss, not only sue and labour but also general average and salvage. The insurer´s liability for general average is stated in NMIP Cl. 4-8. When measures have been taken to avert or minimize loss for the benefit of several interests the insurer is liable for general average and salvage charges apportioned on the insured interest. If there is no general average, cost to avert or minimise loss will be recoverable according to Cl. 4-12. Where cost are incurred for several interest Cl. 4-12 will limit cover to the proportion attributed to the interest insured, cf. sub-clause 2. However, there is a difference from ITCH as costs to avert and minimize loss would not be reduced in proportion in the case of under-insurance.

Comments to ITCH

Amounts recoverable under Cl. 13 are in addition to the sum insured for physical loss or damage but limited to the sum insured. In theory the assured can recover the sum insured twice: for total loss and sue and labour charges up to an additional sum insured. 

NMIP Comparison

The amount recoverable under NMIP Cl. 4-7 and Cl. 4-12 is also in addition to the insurance cover. The difference between ITCH and NMIP is that under Nordic conditions the insurer’s liability is limited to twice the sum insured apportioned among damage and measures to avert or minimise the loss, as per Cl. 4-18. If the sum insured under hull insurance has not been exhausted by compensation paid for hull damage, it is possible to use the excess of sum insured to cover costs of measures to avert or minimise the loss that exceed the separate sum insured for such costs. For example, if the sum insured for a vessel is USD 500,000, PA damage is USD 400,000 and costs of measures to avert or minimise the loss equal to USD 600,000, under NMIP the assured will be reimbursed for USD 1,000,000 (until the aggregate of two sums insured is exhausted). Contrary, ITCH will reimburse the assured for USD 900,000 – USD 400,000 under PA and USD 500,000 for sue and labour charges.