3.3 The Scope of Cover under the Nordic Marine Insurance Plan
The scope of cover under The Nordic Marine Insurance Plan concerns four main aspects: the perils covered, the casualty, also known as the insured event, the losses covered and the rules concerning causation.
On a general note, a peril is defined as an internal or external risk that has the potential of causing a casualty.(1) H. Stang Lund, Handbook in Loss of Hire Insurance, 2008, Chapter 3-1 This could for example be a fire or heavy weather. The Nordic Marine Insurance Plan is based on an all-risk principle which states that an insurance against marine perils covers “all perils to which the interest may be exposed”, cf. Cl. 2-8. This means that a peril must be explicitly excluded for a loss arising from such a circumstance to be unrecoverable. Hence, the Nordic Marine Insurance Plan provides cover for both fortuitous events as well as inherent and latent defects in the insured object, unless specifically excluded.(2) T. Wilhelmsen, Hull Insurance of “Latent defects”, 2004, p. 259
A prerequisite for cover under the Nordic Marine Insurance Plan is that the peril results in an insured event or a casualty, which again causes a loss for the assured.(3) T. Falkanger, H. Bull, & L. Brautaset, Scandinavian Maritime Law, 2017, p. 628 The term “casualty” is indirectly defined in Cl. 2-11. It follows from the clause that the insurer is liable for losses incurred “when the interest insured is struck by an insured peril”. The wording indicates that the peril must have changed from being dormant to some kind of activity or force,(4) T. Wilhelmsen & H. Bull, Handbook in Hull Insurance, 2017p. 131 and thus have changed from being a risk to the insured object on a general basis, to actually materializing in an adverse influence on the interest insured. This is further supported in the Commentary on page 66, where it is stated that “the general risk that a peril represents must have produced some concrete and specific result”.
Cl. 2-11 separates between the “loss” incurred and the insured event. Thus, even though the casualty is a prerequisite for the insurer’s liability, the assured is only entitled to compensation if the casualty also results in a loss.(5) T. Wilhelmsen & H. Bull, Handbook in Hull Insurance, 2017, p 131 As Cl. 2-11 is a general rule which applies to all types of insurances, the type of “loss” is not further defined.(6) The Nordic Marine Insurance Plan included a definition of the term “loss” up until the 2016 version. A “loss” was defined as a “financial loss of any kind, including total loss, damage, loss of income, costs and liability”, cf. the Nordic Marine Insurance Plan of 2013 Cl. 1-1 letter d.
Under the hull policy, the casualty must result in a “damage”, which represents a loss for the assured. The term “damage” is used throughout Chapter 11 and 12.
The term “damage” implies that there must be an identifiable physical change to the part in question. The term further indicates that the change must be for the worse, in the sense that the part does not function as it is supposed to. The magnitude of the change must also be taken into consideration when interpreting the term “damage”. The term indicates that the change must be of some extent, as a “damage” must be understood to be more comprehensive than a mere flaw or imperfection. Still, as the term “damage” is closely related to the functionality of a part, it must be expected that, as a minimum, a “damage” includes all reductions in functionality, even if the reduction is minor. The Commentary states on page 293 that minor changes are sufficient, such as “development of tiny cracks or fractures only discoverable by the use of specialist techniques, such as fluoroscopy”. This statement indicates that the term could be interpreted more widely, as the decisive question will be whether the qualities of the part has changed, not necessarily impacting the functionality. However, it could be argued that the qualities of the part are central to ensure the functionality. Hence, reduced qualities will in most cases result in a change in functionalities, as the part will be weaker than it is supposed to.
The last part of the scope of cover is related to the rules concerning causation. As a starting point, these rules are the link between the perils covered and the losses covered.(7) T. Wilhelmsen & H. Bull, Handbook in Hull Insurance, 2017, p 116 As a minimum, it must be required that there is a logical causation between the peril and the loss.(8) T. Wilhelmsen & H. Bull, Handbook in Hull Insurance, 2017, p 116 It is, however, not uncommon that several perils can be attributed to the loss. In these cases, the Nordic Marine Insurance Plan apportions the claim based on the rules in Cl. 2-13. The main rule is that the claim shall be apportioned “according to the influence each of them must be assumed to have had on the occurrence and extent of the loss” and that the insurer is only liable for “that part of the loss which is attributable to the perils covered by the insurance”, cf. Cl. 2-13.