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There is no room in this article to debate at length the exact nature of this provision This does matter since it would determine which of the parties, assured or underwriters, has to prove what the costs would have been. In short, it would seem to be a claims provision affecting the measure of indemnity rather than a coverage provision, even though it has, rather confusingly, been placed in the Perils clause as a limited exception to coverage. As such, the onus of proof of the new excess probably therefore rests on the assured rather than on underwriters. The costs that would have been incurred in repairing the latent defect will thus have to be separately proved by the assured.
It has, however, been argued that where, for example, an engine is damaged as a result of a latent defect and has to be stripped down for repair and the same costs of stripping down would need to have been incurred to correct the latent defect if that had been done without the presence of any consequential damage, then, in calculating the cost of correction that would have been incurred, these stripping-out costs should also be apportioned (as with common charges where owners’ and underwriters’ work is being undertaken at the same time). Unhappily, even in the case where these costs were exactly the same, that suggestion does not seem (in my view) to accord with the new wording.
The first requirement under this wording seems to me to be to establish the reasonable cost of repairs of the damage caused by the latent defect. These are the actual costs incurred and the cost of repairing the defect and any actual common costs for owners’ and underwriters’ accounts will already have been taken account of in reaching this figure. These costs can hardly be what is being referred to in the new additional wording since if they were, the introduction of this new limitation would be a meaningless complication and one would in reality merely work out the claim exactly as before. The different wording of Clause 2.2.1 is to be compared in this respect.
The second requirement under Clause 2.2.2 must surely be to work out what it would have cost to repair the defect alone? What would it have cost the shipowner to correct it by stripping down, and all? None of that is recoverable on the clause as drafted.
Unfortunately (in what is from the point of view of clarity a singularly unhelpful omission from the new wording) no time is mentioned for working out the theoretical expense of correction. Is it at inception, casualty, damage, repair, immediately before any of these, or at some other time? Depending on the situation of the ship at the relevant time and the nature of the defect, the time (which will also govern the place) at which the calculation is to be made could have a large impact on the size of the theoretical costs. It has been suggested at various seminars in which underwriters and their representatives have taken part that it should be at commencement of the policy. Whether that is correct or not, it emphasizes that this is all Owners’ work and that one is asking the question – what would the reasonable cost to owners have been of repairing the defect had they done so at that time? As such, no common costs enter into this part of the calculation.
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