1 Introduction
The topic of this article(1) The article was written for Festskrift til Lasse Simonsen, being published by Gyldendal during the fall 2023. is the concepts of co-insurance, liability and subrogation according to Norwegian law, in the light of a judgment from the UK Supreme Court 10 May 2017 concerning the vessel Ocean Victory (the Ocean Victory case).(2) (2017) UKSC 35 The concept of co-insurance may refer to insurance contracted with several insurers(3) Insurance Contract Act (ICA) § 1-2 letter d. against the same perils by one person effecting the insurance,(4) ICA § 2-2 letter a. See further Trine-Lise Wilhelmsen and Hans Jacob Bull, Handbook on Hull Insurance (2017) (Wilhelmsen/Bull) pp. 40-43, Nordic Marine Insurance Plan 2013 (NP) Cl. 9-1 sub-clause 2. or that an insurance contract between the person effecting the insurance and the insurer includes the insured interests of a third party.(5) See further ICA ch. 7, Wilhelmsen/Bull ch. 7, Nordic Marine Insurance Plan 2013 ch. 7 and 8. The concept is here used in the latter meaning, i.e. where the interests of several persons or entities are protected under the same insurance contract. Practical examples are in shipping where insurance of the vessel covers both the interest of the owner and the interests of the managers and of the charterer of the vessel and in building projects where insurance covers both the interest of the builder and the contractors.(6) For building projects based on the different Norsk Standard contracts, the mechanism to use the builders insurance may be different from co-insurance, cf. Ivar Alvik, Forsikringsselskapets regressrett ved følgeskader av mangel i entrepriseforhold – særlig om grensen mellom kontrakts- og deliktsansvar, Tidsskrift for erstatningsrett, forsikringsrett og trygderett 2020 no. 1 p. 7-38.
Co-insurance is first and foremost effected to protect the economic interests of the co-insured when the insured vessel, project or enterprise is damaged or lost. If a building project is damaged by fire, the insurance will protect both the builder’s and the contractor’s economic interests in the building. However, co-insurance also includes so called indirect liability insurance. This effect is triggered where a co-insured party B is liable for damage to economic interests belonging to another assured party A. The starting point in this situation is that the insurer, I, will cover damage to A’s interest according to the insurance contract, but that I afterwards may raise a subrogated claim against the liable party B. If B is not co-insured, he may have to cover I’s payment to A. But if B is co-insured, he is protected against such liability claims to the extent he is not in breach of duties according to the insurance contract. This means that co-insurance bars the subrogation claim from the insurer against the liable party B.
A more complicated question is to what extent co-insurance also bars a claim from the injured party A against the liable party B, i.e. if A may either chose to claim B instead of the insurer, or to claim the insurer first and then claim B for any uncovered losses. In the Ocean Victory case, a majority of three judges concluded (obiter) that co-insurance also barred any claim between A and B. The case concerned co-insurance between the bareboat-charterer B and the owner A of the vessel Ocean Victory, which B in turn time-chartered to S, who sub-chartered the vessel to D. The vessel sunk on departure from a port, and the insurer I paid compensation to A for i.a. total loss. All the three charter parties contained a safe port warranty, and the insurer was assigned A’s right to claim B, who then would raise a subrogated or indemnity claim against S, who would claim D as the party directly liable for the breach.
The consequences of the judgment were that as the owner A could not claim B, there was no liability or loss incurred by B to pursue further down the contractual chain.(7) However, the judgment para 94 outlines three possible routes for the insurer to claim S and D and then states «For reasons which it is unnecessary to explore the insurers have confined their case to basis (1)». The insurer may therefore have other remedies available against S and D that is not barred by this decision, cf. para 144. Thus, D was free from liability, even though neither S nor D were co-insured under the insurance. The effect can be compared to a knock for knock agreement(8) See on the knock for knock principle, Hans Jacob Bull, Tredjemannsdekninger i forsikringsforhold, Oslo 1988, Del IV, (Bull) Knut Kaasen, Petroleumskontrakter, 2018, Del VIII (Kaasen), Monika Zak, Ansvarsregulering i borekontrakter –Gyldighetssensur i norsk, engelsk og amerikansk rett, Master Paper 19.05.2012 https://www.duo.uio.no/handle/10 852/35 075 (Zak), Trine-Lise Wilhelmsen, Liability and insurance clauses in contracts for vessel services in the Norwegian offshore sector - the knock for knock principle, MarIus 2013 (419) pp. 81-111 (Wilhelmsen 2013). where the parties agree that damage to each party in a contractual arrangement shall stay with that party and each party shall procure a waiver of subrogation from its insurer. This allows losses to be financed though insurance even if caused by another party in the same contractual arrangement.(9) Cf. for instance Supplytime or HeavyCon charters. However, this principle is in Norwegian contractual practice normally carefully mapped out in the different contracts between the parties and not established merely by implication from co-insurance – hence the question “knock in or knock out” in the title.
The judgment in the Ocean Victory case came as a surprise to the shipping and marine insurance industry, who has or will change the relevant conditions.(10) For instance Barecon 2017, Gard P&I rule 79 (5) and Nordic Marine Insurance Plan 2013 Cl. 8-2. However, the underlying questions are not much discussed in Norwegian theory and it is therefore interesting to see if the result in the Ocean Victory case is consistent with Norwegian law and to what extent the issue needs to be dealt with in the relevant contracts. This is directly relevant for charter-parties, but co-insurance schemes are also used in building projects and other projects involving several contractual partners.
In the following, an overview of the relevant Norwegian regulation is provided in section 2. Thereafter, the Ocean Victory case is presented in section 3 and discussed in light of the Norwegian regulation in section 4.