Clause 20: Freight Waiver

Comments to ITCH

In English law the insurer has a right to take over the subject matter insured where there has been a valid notice of abandonment. MIA Section 63 (2) provides that “[u]pon the abandonment of a ship, the insurer thereof is entitled to any freight in course of being earned, and which is earned by her subsequent to the casualty”. This result was seen as a logical consequence of abandonment although not necessarily of the rules relating to subrogation. The rule would only apply to destination freight earned by the vessel itself as opposed to freight earned after delivery by a substitute means and is therefore now of much less practical importance.

Under ITCH Cl. 20 underwriters give up their rights under MIA Section 63 (2) to any freight being earned when the vessel is a total or constructive total loss, so that it remains the property of the shipowner. This is a sensible practical and commercially fair solution.

NMIP Comparison

In accordance with NMIP Cl. 5-19 the insurer is “subrogated to the assureds rights in the object insured” upon payment of compensation. The commentary specifies that “rights in the object insured” means title to the wreck with all appurtenances that were covered under the insurance at the time the total loss occurred, hence a right of ownership of the object insured. The right to freight arises under a contract entered into before the casualty and freight is payment for the performance of that contract rather than a right founded in the ownership of the vessel.

The clause further specifies that the insurer is subrogated to the Assured`s rights “upon payment of compensation” in contrast to the situation in English law were the insurer acquires a right to take over the subject matter insured where there has been a valid notice of abandonment. Payment by the insurer will normally take place after any freight has been earned  so that there would be no doubt that the Assured is entitled to retain the freight. There is no recorded instance of an insurer claiming freight earned after a total loss.