Mortgagee Rights Under Nordic Plan: Overview and Co-Insurance Details

RIGHTS OF MORTGAGEES UNDER THE NORDIC PLAN Aleksander Taule and Mads Schj lberg (Doctoral Research Fellows, UiO) 11 November 2024

AN OVERVIEW Three forms of co-insurance relevant to mortagees: 1. Automatic co-insurance of mortgagees 2. Notified co-insurance of mortgagees 3. Independent co-insurance of mortgagees (extended cover)

AUTOMATIC CO-INSURANCE OF MORTGAGEES Cl. 7-1 sub-clause 1: If the interest covered by the insurance is mortgaged, the insurance also covers the mortgagee s interest, but the insurer may invoke the rules relating to identification in Cl. 3-36 to Cl. 3-38. Automatic co-insurance Dependent co-insurance: If the insurance policy ceases or is terminated, the co-insurance follows Insurer may invoke faults and omissions by the assured or person effecting the insurance against the mortgagee

NOTIFIED CO-INSURANCE OF MORTGAGEE Notice of mortgagee to insurer - Cl. 7-1 sub-clause 2: If the insurer has been notified of the mortgage, the rules contained in Cl. 7-2 to Cl. 7-4 shall apply. If the co-insurers are represented by a claims leader, it is sufficient that such notice is submitted to the claims leader, cf. Cl. 9-2, sub-clause 3 (a). The notice takes effect from the time it reaches the insurer or the claims leader. Notice to insurers or claims leader of registered mortgage provides the mortgagee with extended protections: Rights to separate notice (of amendments and cancellation) Rights relating to certain payments of compensation Rights limiting set-off

NOTIFIED CO-INSURANCE OF MORTGAGEE Notice of mortgagee to insurer - Cl. 7-1 sub-clause 2: If the insurer has been notified of the mortgage, the rules contained in Cl. 7-2 to Cl. 7-4 shall apply. If the co-insurers are represented by a claims leader, it is sufficient that such notice is submitted to the claims leader, cf. Cl. 9-2, sub-clause 3 (a). The notice takes effect from the time it reaches the insurer or the claims leader. Still dependent co-insurance The insurer or claims leader to inform mortgagee of received notice (cl. 7-1 sub-clause 3)

NOTIFIED CO-INSURANCE OF MORTGAGEE Special requirements/deviations - Cl. 7-1 sub-clause 4: Any special requirements of the mortgagee to be included in the insurance contract other than the rules contained in Cl. 7-2 to Cl. 7-4 shall not take effect unless and until they are specifically agreed by the insurer. If the co-insurers are represented by a claims leader, the claims leader is authorized to accept such special requirements on behalf of the co-insurers, provided that the special requirements are within customary market practice according to Cl. 9-2, sub-clause 3 (b). Parties free to deviate and add conditions ( as always ) Authorises claims leader to accept such conditions on behalf of insurers E.g. Loss Payable Clause and/or Notice of Assignment Clause

NOTIFIED CO-INSURANCE OF MORTGAGEE Amendments and cancellation of the insurance - Cl. 7-2: If the insurance contract has been amended or cancelled, the rights of the mortgagee shall not be affected unless the insurer has given the mortgagee specific notice of not less than fourteen days. However, this shall not apply to war risks insurance, cf. Cl. 15-8, sub-clause 1, second sentence. Separate notice to mortgagee(s) Automatic cover does not lapse earlier than 14 days Where there is a fleet policy , each vessel is treated separately (Cl. 7-1 sub-clause 5) Cancellation of war risk is 7 days (for both assured and mortgagee(s)) (Cl. 15-8 sub-clause 1)

NOTIFIED CO-INSURANCE OF MORTGAGEE Handling of claims, claims adjustments, etc. - Cl. 7-3 sub-clause 1: Decisions required in respect of casualties, adjustments, claims against third parties or provision of security for loss or liability covered under the insurance may be made without the participation of the mortgagee. Person effecting insurance and/or principal assured handling claims Rationale: efficiency Exceptions may be agreed, ref. Cl. 7-1 sub-clause 4

NOTIFIED CO-INSURANCE OF MORTGAGEE Non-waiver of total loss compensation - Cl. 7-3 sub-clause 2: The right to compensation for a total loss may not be waived, wholly or in part, to the detriment of the mortgagee.

NOTIFIED CO-INSURANCE OF MORTGAGEE (PAYMENTS) Total loss Cl. 7-4 sub-clause 1: In the event of a total loss, the mortgagee's interests take priority If total loss, mortgagee interest covered first, excess to assured If Norwegian law: Important to remember the rules on perfection (No: rettsvern ) Cf. contractual in Cl. 7-1 sub-clause 2 vs. general rules on perfection

NOTIFIED CO-INSURANCE OF MORTGAGEE (PAYMENTS) Losses exceeding 5% of sum insured Cl. 7-4 sub-clause 2: Compensation for loss from a single casualty exceeding 5 % of the sum insured, or as otherwise agreed, shall, in the absence of consent from the mortgagee, only be paid by the insurer upon presentation of a receipted invoice for repairs carried out. If the vessel is insured with two or more insurers against the same perils, this restriction applies to the combined payments from the insurers. Relevant for partial damage Threshold may be amended and exceptions agreed (ref. Cl. 7-1 sub-clause 4)

NOTIFIED CO-INSURANCE OF MORTGAGEE (PAYMENTS) Non-repair of damage Cl. 7-4 sub-clause 3: Compensation under Cl. 12-1, sub-clause 4, and Cl. 12-2, may not be paid without the consent of the mortgagee. Capital value restriction Cash compensation that is not TL Loss of hire Cl. 7-4 sub-clause 4: Compensation for loss of time may not be paid without the consent of the mortgagee who has a mortgage on the vessel's freight income. Mortgagees with mortgage in freight income (LOH)

NOTIFIED CO-INSURANCE OF MORTGAGEE (PAYMENTS) Third party liabilities Cl. 7-4 sub-clause 5: Liability to a third party covered by the insurance may only be settled upon presentation of a receipt from the third party. If the claims leader has provided security as per Cl. 7-3, sub-clause 1, Cl. 9-7, sub-clause 2 applies. Restricts insurers to make payments to third parties

NOTIFIED CO-INSURANCE OF MORTGAGEE (PAYMENTS) Set-off Cl. 7-4 sub-clause 6: In the absence of the mortgagee's consent, the insurer may only set off claims which have arisen out of the insurance contract relating to the vessel in question and which have fallen due in the course of the last two years prior to the settlement of a claim. Insurer may set off claims relating to the vessel, fallen due during the two years prior to the payment For fleet policies : each vessel is treated separately (Cl. 7-1 sub-clause 5)

INDEPENDENT CO-INSURANCE OF MORTGAGEES By separate agreement, the co-insurance can be made independent (Cl. 8-7): If it has been explicitly agreed that the interest of a mortgagee or a named third party shall be independently co-insured, the insurer may not plead that it has no liability due to an act or omission from the person effecting the insurance or another assured under the rules contained in Chapter 3 and Cl. 5-1. The insurer cannot invoke invoke faults and omissions by the assured or person effecting the insurance against the mortgagee Otherwise, same protections as under the notified co-insurance

THANK YOU Contact details: Mads Schj lberg mads.schjolberg@jus.uio.no +47 95 88 20 85 Aleksander F. Taule a.f.taule@jus.uio.no +47 97 60 94 01