Hull Grounding: Sue and Labour Versus Particular Average
A 12,000 DWT general cargo vessel grounds on a sandbank outside a port approach. The master refloats using engine power and the ship proceeds to the nearest port for inspection. The hull policy is on Institute Time Clauses (Hulls) with a deductible of USD 150,000. The assured incurs: tug attendance to refloat USD 220,000; engine damage from the refloating attempt USD 480,000; dry-docking and inspection USD 90,000; and repairs to bottom plating USD 310,000. The classification society requires the bottom plating repairs before the vessel can sail. The assured also paid USD 60,000 to a salvage association under a Lloyd's Open Form, later settled at USD 400,000 by the hull and cargo interests jointly. The assured claims all amounts against the hull policy and argues the deductible should be applied once to the aggregate.
1. Classify each head of claim under the hull policy and explain which are subject to the deductible.
Read the worked answer
- Tug attendance to refloat (USD 220,000): this is a sue-and-labour/expense incurred to avert or minimise a loss covered by the policy (peril of the seas - grounding). Sue-and-labour charges are generally payable in addition to the sum insured and are not subject to the deductible under ITC(H).
- Engine damage from refloating (USD 480,000): damage caused by the assured's own attempt to save the ship. This is a direct consequence of the insured peril and is recoverable as particular average - but it is subject to the deductible as part of the hull damage claim, unless it can be brought within sue-and-labour as an expense (it is physical damage, so it is damage, not expense).
- Dry-docking and inspection (USD 90,000): survey/inspection costs reasonably incurred to ascertain the extent of damage are recoverable as part of the particular average claim and share the deductible.
- Bottom plating repairs (USD 310,000): particular average, subject to the deductible.
- Salvage under LOF (USD 400,000, hull share): salvage is recoverable under the sue-and-labour/salvage provision and is not subject to the deductible; the hull's share is apportioned between hull and cargo by the salvage arbitrator.
So the deductible applies to the damage items (engine, dry-dock, plating) but not to the tug or salvage.
2. The assured argues the deductible applies once to the aggregate. Assess that argument and compute the practical effect on the damage items.
Read the worked answer
The argument is wrong in principle. Under ITC(H) the deductible is applied to the aggregate of all claims arising from the same event (each accident or occurrence), not to each item separately - but sue-and-labour and salvage are outside that aggregate and are not reduced by the deductible. So the correct approach is:
- Aggregate the damage items: engine 480,000 + dry-dock 90,000 + plating 310,000 = USD 880,000.
- Apply the deductible once to that aggregate: 880,000 − 150,000 = USD 730,000 payable as particular average.
- Add sue-and-labour tug (220,000) and the hull's salvage share, without deducting the deductible from them.
The assured's instinct - one deductible per event - is actually right for the damage items, but the error is in trying to apply the deductible to the sue-and-labour and salvage amounts, which are additional and undeducted. Confirm the policy wording on whether the deductible applies 'to the aggregate of all claims arising out of any one event' and whether salvage is expressly outside it.