In 2022, the German Supreme Court dismissed an application by the assured claimant against the denial of leave to appeal against a decision by the Hanseatic Court of Appeal of the City of Hamburg (Folio no. 6 U 49/21). The facts of the case can be summarised as follows: The assured vessel suffered a crankshaft damage which was repaired by grinding. The maker`s limit for reducing the crank pin diameter was maintained, namely a 10 mm tolerance for grinding. 7mm were ground, leaving 3 mm for further repairs by grinding. The repairs were accepted by class. Nevertheless, the assured alleged a “depreciation in value” of the vessel due to the repair by grinding and claimed a new crankshaft or at least compensation for a depreciation in value due to the diminished integrity of the material on account of the grinding works.
The court held that the claim already failed on the expert damage assessment procedure. Nevertheless, the court clarified the meaning of the insured`s “expenses incurred for the repair work” (“Ausbesserung”) and also indirectly stated in its reasons that it could be interpreted in a way that the claim could have succeeded if a devaluation had been proven. The Hamburg Appeal Court`s ruling is a first because so far there have been no court decision in the marine insurance context on the general issue of whether devaluations are covered under Marine Hull Insurance. This is why this article’s author chose the topic of hull cover for depreciation in value for his presentation in Athens shortly before the Posidonia event in May 2024. This article summarises the presentation.
In contrast to NORDIC PLAN clause 12-1 and section 69(2) and (3) of the Marine Insurance Act 1906, the German Hull Terms ADS and DTV-ADS do not contain any express provision regarding depreciation. The German Hull Terms only stipulate that the indemnity payable by the insurer is limited to the expenses incurred for the repair work (“Ausbesserung”). In this regard the Hanseatic Court of Appeal of the city of Hamburg clarified that the insurer owes these expenses required to restore the vessel to its condition prior to the damage, i.e. not only the cost of restoring the vessel to seaworthiness and not only the cost of restoring the vessel to its class. As mentioned, the court also indirectly stated that the clause could be interpreted to include the indemnification of devaluation.
It seems, however, that also in view of the decision it is still clear, that at least a purely commercial depreciation in value is not insured. This clearly follows from the fact the Hull insurance is a property insurance insuring physical damage. A pure commercial depreciation, i.e. a drop in value even though repairs fully restored the usability and operation is, therefore, not covered.
On the other hand, if all possible repairs which were carried out are still found to be imperfect because either the useability, the reliability of operation, the lifetime or the appearance of the vessel are affected, it is arguable to treat this as an unremedied physical damage. It is, however, another matter whether a grinding of a crankshaft within the maker`s limits has any practical implication on the running of the ship and/or remaining lifetime of the crankshaft. In the case the Hanseatic Court of Appeal of the city of Hamburg decided this remained an open question due to the lack of factual evidence on the depreciation alleged.