This Clause is identical to Cl. 75 of the 1964 Plan.
Under Cl. 4-14, first sentence, the Plan maintains the principle of cross-liabilities in connection with liability of the assured to third parties. The principle is in accordance with established customary Norwegian marine insurance law, cf. Brækhus in AfS 4.468-69 with references, and is of the greatest practical importance in connection with collision settlements. This is best illustrated by a somewhat stylised example:
The insured ship A has collided with ship B. The blame fraction is one half. A’s hull damage is 300, the time loss 120, a total of 420. B’s loss totals 350. The settlement between the ships under Section 161, second sub-clause, of the Norwegian Maritime Code can be drawn up in two ways. One could either say that the total loss is 770, that each of the parties shall bear one half, i.e. 385, and that this is achieved by the ship having sustained the smallest loss, B, paying 35 to A. Such a single-liability settlement results in a single claim. Or A could also be held liable to pay half of B’s loss, i.e. 175, and B to pay half of A’s loss, i.e. 210. These two claims are set off against each other, with the result that B must pay the balance of 35 to A. This is the cross-liability settlement.
In the relationship between the parties, the result will be the same regardless of which principle is adhered to. In the ensuing settlement between the individual shipowner and his insurers, the choice between the two methods of settlement will, however, be of great importance. The reason for this is that the compensation obtained from the other ship will often, to a greater or lesser extent, be credited to other persons than those who shall bear the liability of the oncoming ship. The compensation from the oncoming ship shall, as regards the loss of time, fall to the shipowner (if appropriate, the loss-of-hire insurer, cf. Chapter 16), whereas the compensation for hull damage shall normally be divided proportionately between the hull insurer and the owner, cf. Cl. 5-13, sub-clause 2. Liability towards the oncoming ship, however, shall as a rule be covered in its entirety by the hull insurer, cf. Chapter 13 (sometimes the P&I insurer will also come into the picture, see below). If the settlement between the shipowner and the insurer is based on the cross-liability principle, it is the gross liability amounts before the set-off that shall be debited and credited respectively under these rules. If, however, the single-liability principle is adopted, there will be only one amount, the liability balance, to be apportioned. If the balance is in the oncoming ship’s favour, it shall be debited to the hull insurer as liability insurer. If it is in the insured ship’s favour, it shall be divided proportionately between the owner and the hull insurer. In the light of the cross-liability settlement, the single-liability settlement may lead to the result that a claim from the oncoming ship, which shall accrue to a person, e.g., compensation for loss of time payable to the owner, is used as a set-off to cover the liability of the oncoming ship which, under the insurance conditions, should be covered in full by the hull insurer.
If we assume in the numerical example above that A’s hull insurer indemnifies A’s hull damage with 240, and that A has to pay the outstanding 60 himself, plus the loss of time of 120, a cross-liability settlement of the collision liability between A and his hull insurer will be as follows:
| A's hull insurer | A
| B and/or B's insurers |
| Hull damage |
240 |
60 |
|
| - 1/2 refund from B |
-120 |
-30 |
|
| |
=120 |
=30 |
150 |
| |
|
|
|
| Loss of time |
|
120 |
|
| - 1/2 refund from B |
|
-60 |
|
| |
|
=60 |
60 |
| Liability for 1/2 of B's loss |
175 |
|
-175 |
| Final total charge |
295 |
90 |
35 |
In the event of a single-liability settlement, there will only be one amount, viz. the balance of 35 in A’s favour, which shall be divided proportionately between A and his hull insurer. As A’s total loss was 420, this means that the compensation from B gives a refund of 35/420 = 1/12, and we get the following settlement:
| A's hull insurer | A
| B and/or B's insurers |
| Hull damage |
240 |
60 |
|
| - 1/2 refund from B |
-20 |
-5 |
|
| |
=220 |
=55 |
25 |
| |
|
|
|
| Loss of time |
|
120 |
|
| - 1/2 refund from B |
|
-10 |
|
| |
|
=110 |
10 |
| Liability to B |
|
|
0 |
| Final total charge |
220 |
165 |
35 |
There can be no doubt that the cross-liability settlement is preferable; it gives the shipowner exactly the refund from the other ship warranted by the portion of blame. In the case of a single-liability settlement, the refund is reduced, in our example from 1/2 to 1/12, despite the fact that the oncoming ship has been held liable for one half of the loss.
The collision settlement will sometimes also affect the P&I insurer: firstly where the liability of the oncoming ship exceeds the limit of the hull insurer’s liability, cf. Cl. 13-3 and, secondly, in the event of what is termed indirect personal-injury and cargo liability. For personal injury caused by a collision, both ships are jointly and severally liable, cf. Section 161, third sub-clause, of the Norwegian Maritime Code; under US law the same also applies to liability for cargo damage. It is therefore conceivable that the oncoming ship B must pay compensation for personal injury, or for damage to the cargo on board the cargo-carrying ship A and that, in the settlement with A, B attributes half of the compensations paid to A. A for its part may have suffered far more extensive damage from the collision than B, which would mean that a settlement of the hull damage alone would give a substantial profit in A’s favour. However, this is wholly or partly set off by B’s refund claim in connection with the personal injury and cargo damage compensations. In this case as well, the final balance that emerges from the external settlement must be divided into claims and counterclaims according to the cross-liability principle, given that the indirect liability for personal injury and damage to the insured ship’s own cargo shall be attributed to the P&I insurer, cf. Clause 13-1, sub-clause 2 (b), (c), (d) and (j). See also Brækhus 1. c. pp. 482-97.
Special difficulties arise where one or both of the colliding ships limit their liability. In the relationship between the ships, the limitation will, under the laws of most countries, first be applied in respect of the liability balance, in other words, on the basis of the single-liability principle, cf. Article 5 of the Limitation of Liability Convention of 1976 and Section 172, last sub-clause, of the Norwegian Maritime Code. In consequence hereof, the calculated gross liability will not concord with the balance which is in actual fact paid, and the normal cross-liability settlement in the relationship between the shipowner and his insurers will not be correct. In English marine insurance, which is based on cross-liability as the principal rule, this has led to a switch to single liability as soon as one of the involved ships limits its liability, cf. I.T.C., Hulls, no. 8.2.1. However, this solution results in an unfortunate discontinuity. An insignificant increase in liability, making limitation applicable, may result in a very substantial reduction of the reimbursement of the owner’s loss of time. Danish and Norwegian practice has instead adopted a modified cross-liability settlement in the limitation cases by reducing the largest gross amount of liability in the insurance settlement by the same amount by which the liability balance in the external settlement has been reduced as a result of the limitation rule, see further Brækhus, 1. c., pp. 469-82 and 497 et seq. This method of settlement was also approved by the Norwegian Supreme Court in the Fernstream case, ND 1963.175, and it is explicitly adopted as a basis in the Plan, cf. Cl. 4-14, second sentence. For the sake of clarity, the third sentence of the Clause specifies how the settlement shall be effected when the limitation is applied to the liability balance.
Incidents causing mutual damage and liability that affect the insurance settlements do not occur only in connection with collisions between ships, although collision cases are probably predominant. The cross-liability principle must also be applied in a case such as the following: a cargo of slimes which is carried by the insured ship becomes liquid. The ship, which does not have the necessary longitudinal bulkheads, takes a list and ends up turning over and going down. The accident was due partly to negligence of the cargo owner: he had failed to say that the slimes were of a particularly difficult type, and partly to negligence of the ship: even when carrying ordinary slimes, the ship should have had longitudinal bulkheads. In the claims settlement, the cargo owner’s (partial) liability for the loss of the ship will, to some extent, be offset by the owner’s (partial) liability for the loss of the cargo. In the ensuing insurance settlement, the balance must be broken down as follows: the compensation the cargo owner pays for the loss of the ship must be covered by the hull insurer, while the compensation to the cargo owner for the loss of the cargo must be paid by the P&I insurer.
In the above example, it is assumed that both the assured’s own loss and his liability to third parties are covered by insurance. However, the cross-liability principle must be applied, even if it is only the assured’s own loss, or only the liability, which is insured. The individual insurer’s liability shall not depend on how the assured has covered his other interests. For this reason, the application of the cross-liability principle has been authorised specifically with a view to liability insurance in this Clause and with a view to the apportionment of subrogation claims in Cl. 5-13, sub-clause 1, second sentence.
Cefor - The Nordic Association of Marine Insurers