4.1 Introduction
As the Nordic Marine Insurance Plan is based on an all-risk principle, the starting point is that faulty material and error in design are covered perils under the contract, unless specifically excluded.(1) T. Wilhelmsen, The Norwegian Marine Insurance Plan and Substandard ships, 2000, p. 212 Neither faulty material nor error in design are excluded perils in the general parts of the Nordic Marine Insurance Plan.(2) See Cl. 2-8 Hence, on a general note, the all-risk principle applies for losses caused by these two perils.
However, there are partial exclusions for losses caused by faulty material and error in design in Part Two of the Nordic Marine Insurance Plan. For hull insurance, the cover for losses caused by error in design or faulty material is regulated in Cl. 12-4.(3) For similar partial exclusions for losses caused by faulty material and error in design, see also Cl. 18-20 and Cl. 19-15 regarding cover under the insurance for mobile offshore units and builder’s risk respectively. The clause states that:
“If the damage is a result of error in design or faulty material, the insurer is not liable for the costs of renewing or repairing the part or parts of the hull, machinery or equipment which were not in proper condition, unless the part or parts in question had been approved by the classification society.”
The exclusion in Cl. 12-4 only applies to damage to the part which was not in proper condition. Hence, it applies to the part which was defective due to faulty material or error in design before the damage occurred. However, the exclusion does not apply if the defective part was approved by a classification society. Another important element is that CL. 12-4 does not exclude cover for consequential damage. Consequently, Cl. 12-4 does not constitute an absolute exclusion of faulty material or error in design as perils. The clause is rather a partial exclusion, as it excludes parts of the losses caused by such perils.
The purpose of this chapter is to go into detail regarding the perils faulty material and error in design. As the terms “faulty material” and “error in design” are used in a consolidated manner throughout the Nordic Marine Insurance Plan, the discussion will be based on the terms as used in Cl. 12-4 and the remarks in the Commentary.
The cover provided in the Nordic Marine Insurance Plan is built on several considerations and principles. This will be discussed in Chapter 4.2, especially in relation to faulty material and error in design. These countervailing considerations and principles are central in order to understand the totality of the cover provided under the Nordic Marine Insurance Plan. Then the concept of the perils faulty material and error in design will be discussed in detail in Chapters 4.3 and 4.4 respectively. The considerations and principles mentioned in Chapter 4.2 will be used actively in Chapter 4.3 and 4.4 as elements to interpret the scope of the perils. Lastly, a comparison between the two perils will be carried out in Chapter 4.5 along with some finishing remarks.