4.5 Finishing Remarks
The perils faulty material and error in design appear to be quite different at a first glance. However, based on the above discussions, there are several similarities between the two perils. These similarities justify that they are handled in the same manner in the Nordic Marine Insurance Plan.
The most prominent similarities are found between faulty material and subjective errors in design. Both categories are defined by the material or design being below an applicable standard. Furthermore, the defect will less often be the result of a business risk taken by the assured, but rather an unfortunate incident. Hence, the degree of unforeseeability will also be relatively similar.
It could, however, be argued that the definitions in the Nordic Marine Insurance Plan are somewhat unfortunate. The definition of the term “error in design” is very broad and it includes both faulty design and erroneous design, represented by subjective and objective errors respectively. Due to the broad definition, the countervailing considerations that justify the rules in the contract will apply with different strength. As an example, the business element will apply to a much higher degree for objective errors than subjective errors. Consequently, it could be better to separate between faulty design and erroneous design.
It could also be argued that the broad definition of the term “error in design” makes the term “faulty material” superfluous. It is clearly stated that the choice of material is included in the definition of design. Hence, material that is inadequate for its intended use should, according to the Commentary, be defined as error in design. Further to this line of reasoning, the term “error” also includes design that is below an applicable standard and thus faulty. As the material is a part of the design, a wide interpretation of “error in design” would thus involve “faulty material”.
The distinction between error in design and faulty material could also be unfortunate in relation to some of the remarks in the Commentary. The considerations and principles mentioned in Chapter 4.4.2 primary apply for the term “error in design”.(1) Commentary, p. 296 with further comments in T. Wilhelmsen and H. Bull, Handbook in Hull Insurance, 2017, pp 301–304 However, due to the inherent similarities of the terms “error in design” and “faulty material”, the same considerations and principles should be considered to apply to the same degree for both terms. Hence, the remarks in the Commentary may give a simplified presentation of faulty material.
An alternative structure could be to separate between faulty material and design, and error in design. By doing so, the considerations would apply to a more similar degree within the categories. Losses caused by faulty material and design would to a higher degree trigger the principle of unforeseeability. Losses caused by error in design would, on the other hand, entail a higher degree of business risk, which justifies that the risk should be for the assured’s account. Hence, the need to balance the countervailing considerations applies to a higher degree for this category. Still, a similarity between the two categories is that the peril represents a defect in the vessel. If the defect results in a damage, the repairs will normally result in a betterment of the vessel, leaving the assured in a better economic position than before the casualty. As this goes against the fundamental principles of insurance, there is still a need to regulate the cover for losses caused by such perils.