UK: The New International Hulls Clauses

Last Updated: 5 August 2003

New International Hulls Clauses have been in effect since 1 November 2002, for use with marine policies issued in London. The clauses replaced those adopted in November 1995. In many respects the 2002 Clauses are similar to their predecessor, however the opportunity has been taken to modernise wordings, and there are a number of important new provisions. The most significant changes are the following;

COVERAGE

The insuring clause, cl 2, retains the distinction between loss caused by perils for which the insurers are strictly liable and (under the Inchmaree Clause) loss caused by perils for which the insurers are liable only if the loss has not resulted from want of due diligence by the assured, owners or managers. The insured perils are largely unchanged, although a number of points may be noted.

  1. loss caused by contact with satellites, aircraft, helicopters or similar objects becomes a strict liability rather than a due diligence peril.
  2. accidents in loading, discharging or shifting cargo and fuel is extended to stores and parts.
  3. the bursting of boilers and breaking of shafts provisions have been amended significantly. The position under the old wording, established in Promet Engineering (Singapore) Pte Ltd v Sturge, The Nukila [1997] 2 Lloyd’s Rep 146, was that underwriters were liable for the cost of repairing damage caused by a latent defect although not for the cost of putting right the latent defect itself. The new wording caps the underwriters’ liability for such damage at the amount by which the cost of repairing the loss or damage caused by the latent defect exceeds the cost of correcting the latent defect.
  4. the due diligence requirement has been amended to remove the reference to superintendents and onshore management, so that due diligence is now required only of the assured, owners and managers.
  5. cover has been extended to loss of or damage to equipment not owned by the assured but installed for use on the vessel and for which the assured has assumed contractual liability, although cover is capped by reference to the lower of the contractual liability of the assured and the reasonable cost of repairs.
  6. the new wording covers loss of or damage to parts taken off the vessel for up to 60 days as long as the peril is one insured against under the insuring clause, the amount recoverable being the lower of the contractual liability of the assured and the reasonable cost of repairs, subject to a cap of 5% of the insured value of the vessel.
  7. cover for 3/4ths collision liability is subjected to a maximum recovery of 25% of the insured value of the assured’s vessel.

EXTENDED PERILS

Clauses 40, 41, 43 and 44 of the 2002 Clauses extend the liability of insurers, but only if they have expressly agreed to such extensions, doubtless for additional premium. It is now possible to extend the traditional 3/4ths collision liability cover to 4/4ths collision liability cover and to insure against liability for collision with any fixed or floating object. The assured may also buy extended cover in respect of the full amount of any general average, without recourse to other contributing interests. Extended cover is also available for losses falling within the Inchmaree clause: the extensions relate to the cost of replacing any boiler which bursts or shaft which breaks (the basic cover simply relating to the damage caused by bursting or breakages), and to the cost of repairing any latent defect.

THE ASSURED’S OBLIGATIONS

The 2002 wordings strengthen the obligations of the assured in relation to the vessel itself. Clause 13 requires the vessel to be classed and to comply with classification requirements and recommendations relating to the vessel’s seaworthiness, failing which the risk terminates automatically. The definition of seaworthiness is very wide, and can relate to minor matters, eg the condition of the rubber seals on the hatchcovers which prevent leakages of water into the holds and thus protect the vessel’s cargoworthiness. Therefore, the provision is an easy one to breach, and has severe consequences. By contrast, the navigation provisions have been relaxed by cl 11, in that breach of the agreed trading limits now merely suspends cover during the period of breach rather than bringing the risk to an automatic and permanent end. Clause 38 for the first time imposes time limits on the payment of premiums. The premium is to be paid in full within 45 days, although if instalment payments have been agreed then the first instalment must be paid within 45 days. Late payment confers a right to cancel on 15 days’ notice. Future premium will not be payable, but if there has been a loss prior to cancellation taking effect then the premium must be paid in full.

CLAIMS PROVISIONS

A striking feature of the 2002 Clauses is the introduction of detailed claims conditions, in clauses 46 to 52. These expand the wording of the earlier clauses, and confer increased responsibility upon the leading underwriter in accordance with London Market Principles. Notification must be given to the leading underwriter as soon as possible and in any event within 180 days (reduced from 12 months), and the leading underwriter is to determine the port to which the vessel is to proceed for docking or repair. The assured is for the first time required to provide the leading underwriter with all documents and information reasonably required, although there is no stated sanction for breach. Of particular interest is the introduction of a fraudulent claims clause under which the insurers can deny liability if the assured knowingly or recklessly misleads or attempts to mislead them – even in subsequent legal proceedings – by relying on false evidence or concealing material facts relating to consideration of a claim or a defence to such a claim. The English courts are given exclusive jurisdiction over any dispute.

Professor Merkin is a consultant at BLG. He is a Professor of Commercial Law at Southampton University. He is also the author of Butler and Merkin on Reinsurance Law, and numerous other books, as well as editor of Insurance Law Monthly, the Journal of Business Law, Lloyds Law Reports Insurance and Reinsurance, Lloyds Law Reports Alert Service, Commerical Liability Law Review and Lloyds Law Reports Arbitration. His works have been cited in several High Court decisions in England and abroad.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

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