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Hull Values and P&I Cover

News & Insights 15 February 2022

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All shipowners make sure that hull insurance is in place to cover physical damage or loss to their ships arising out of accidents or perils of the sea.

Hull Values and P&I Cover

However, owners may not be aware that making sure that the value declared under the policy is kept up to date is vitally important from the perspective of club cover. A failure to do so could have a significant impact on the extent of recovery where a casualty gives rise to a claim under the club’s rules that cover the ship’s proportion of general average (rule 3.15) or excess collision liabilities (rule 3.6.4).

Under rule 3.15, cover is given for:

Ship’s proportion of general average, special charges or salvage not recoverable under the hull policies by reason of the value of the ship being assessed at a sound value in excess of the insured value under the hull policies.

Under rule 3.6.4, cover is given for:

That part of the member’s collision liability which exceeds the sum recoverable under the hull policies solely by reason of such liability exceeding the valuation of the ship in those policies.

Both rules are subject to provisos that effectively place the member under an obligation to keep the ship properly insured under their hull policies. Under each rule, the board of the club may, for the purposes of assessing any amount recoverable, determine the ‘proper value’ at which the entered ship should have been insured under the hull policies. ‘Proper value’ means the market value of the ship without commitment. 

Where ship’s proportion of general average is concerned, if, after consideration, the board decides that the ship wasn’t insured for its proper value and should have been insured at a higher figure, the club will only pay that proportion of ship’s general average in excess of what would have been recoverable under the hull policy had the ship had been insured under the policy at the higher figure.

So far as the collision rule is concerned, cover under the hull policy is always limited to the insured value of the ship. While the club normally picks up one quarter of the collision liability risk or such other proportion as may be specifically agreed with the managers, the club’s cover also extends to that proportion of collision liability that is not recoverable under the hull policy due to such liability exceeding the insured value of the ship.  However, if the board determines that the ship wasn’t insured for its proper value and should have been insured for a higher figure, the club will only pay that proportion of collision liability that exceeds what would have been recoverable under the hull policy had the ship been insured for that higher figure. 

Members may therefore run the risk of suffering a shortfall in recovery under either rules 3.15 or 3.6.4 if their ships are under-insured by not being insured for their proper value.   

The Board expects members to review the insured values of their ships under their hull policies in the light of market conditions on a regular basis, and therefore, an annual review may not be sufficient where market conditions, and hence values, are volatile.

Members are encouraged to consult their professional advisors on a regular basis to assess the proper amount for which a ship should be insured under the hull policy.

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