Loss of Hire Insurance (LOH) is designed to protect the shipowner against losses where the vessel is wholly or partially deprived of income because of damage to the vessel that is covered by the relevant Hull and Machinery policy, including but not limited to:
Standing / grounding
Heavy weather damage
For instance, if a breakdown of the propulsion machinery occurs and the vessel has to call at a yard for repairs (so-called “average repairs”), the loss of hire insurance will cover the period she is detained and not able to earn freight.
Time charterparties usually contain off-hire clauses which may be triggered by the charterers to avoid payment of hire when the vessel is damaged, for example clause 15 of the NYPE form of charterparty.
Subject to a deductible period, the insurance covers a per diem (daily) amount agreed upon when the insurance is bought, for a certain number of days (normally 60, 90 or 180 days). The sum insured is calculated by multiplying the number of indemnity days by the vessel’s stipulated daily income. There is also an overall limit per policy year.
The deductible period (typically 14 days) will be applied to the beginning of the period the vessel is detained, after which the indemnity period starts to run.
Should a vessel exceed its indemnity period at an early stage in the life of the cover, there is the possibility for the assured to re-instate cover for the remaining period of the policy year at an additional premium.
Approximately 1 in 3 vessels experience an H&M claim each year.
Approximately 1 in 5 H&M claims result in a LOH claim.
Therefore approximately 1 in 15 vessels experience a LOH incident per year.