INTRODUCTION

Hull and machinery insurance is used to protect the ship owner’s balance sheet against the total loss of his assets, or his cash flow and profits against the loss of funds necessary to pay for repairs. All policies incorporate a deductible whereby the assured bears the first tranche of any loss. The hardening insurance market of the 1990s saw deductibles increase very significantly and the trend was not reversed as the markets softened; evidently ship owners had become accustomed to retaining a portion of the partial loss risk. The majority of ship owners also retain the loss of earnings risk entirely. Loss of hire insurance remains relatively expensive and even when it is purchased it will usually incorporate a deductible period of 14 days or more. With modern repair techniques, serious hull damage can be repaired in relatively short periods; it is more often machinery damage, requiring the delivery or fabrication of spare parts that will trigger a claim in a loss of hire policy.

In the majority of cases, therefore, the losses arising from the vessel being out of service will fall on the assured. In addition, following a casualty, a variety of costs may be incurred over and above the repair yard account; these all flow from the insured loss but a line has to be drawn in every case to determine whether any such costs fall on the hull and machinery policy. Where a ship is damaged, but is not totally lost, the measure of indemnity, subject to any express provision in the policy is as follows:

• where the ship has been repaired, the assured is entitled to the reasonable cost of repairs, less the customary deductions, but not exceeding the sum insured in respect of any one casualty.

At the time of the MIA 1906 it was still usual to deduct one-third off the cost of new materials used on repairs to allow for