Transcript Name of presentation - Marine Seminar

Examining Welcar 2001:
A Contractors Perspective
Mary Shaddock Jones
AGC and Director of Insurance and Compliance
Global Industries Offshore LLC
Agenda
1. Typical Contractual Risk Allocation between
Owner/Operator and Contractor in offshore
construction contract.
2. Does it really matter who negotiates and
purchases the CAR policy? i.e. Principal Assured
vs. Other Assured
3. Hypothetical Questions and Answers Session
4. Conclusion
Risk of Loss vs. Insurance
Contractor = “Other Assureds”
• Special Conditions for “Other Assureds”
– “It is a condition precedent for any party listed under Other
Assureds…that they perform their operations according to a
Quality Assurance/Quality Control system which complies with the
Quality Assurance/Quality Control provisions passed on by the
Principal Assureds” …
– “The rights of any Assured under this insurance shall only be
exercised through the Principal Assureds”….
– “As a condition precedent to their benefiting from the automatic
waiver of subrogation in this clause, Other Assureds must perform
their operations according to the provisions passed on by the
Principal Assureds through each and every written contract
awarded within the scope of insured works as scheduled under
the Policy.”
Communication is Crucial
•
“Communication and consultation between the underwriter and the
insured buyer is crucial in seeking to develop a policy that is
sustainable to both the insured and the insurer in order to provide
“pre-event” certainty of coverage”.
•
In situations where the owner/operator purchases the CAR policy,
the contractor generally has no opportunity for communication
and/or consultation with the underwriter; therefore, its voice is
silent. Yet, it is the contractor who generally assumes risk of loss
or damage for the Work being performed.
•
As a result, it is critical that Contractors know and understand the
Welcar 2001 policy and the particular terms and conditions
contained in the owner purchased policy.
Question #1
• I understand that there is a “standard”
Welcar 2001 policy. If this is true,
why would/should I need a copy of
the owners CAR policy provided they
contractually agree to provide a
standard Welcar 2001 policy?
Answer:
• There is no “regulated” or “printed” Welcar
2001 policy which ensures that all of the
basic Welcar 2001 terms and conditions
are actually purchased by the owner.
Lesson #1
• If the owner is providing the CAR policy- make
sure to either obtain a draft policy before you bid
on a job (and if awarded the job obtain a true and
correct copy of the policy) and read it or include
within your contractual qualifications that certain
items must be included in the CAR policy or risk of
loss shifts back to the owner with a defense and
indemnity clause.
Question #2
• The owner isn’t providing me with the
Schedule B attached to the Welcar
policy. I was provided with a copy of
Schedule A which shows the TCV at
$100 million. Is this all I need?
Answer: Policy Limit?
•
Underwriters’ total liability under Section I for all claims arising out of any one
Occurrence shall not exceed 125% of the latest agreed Schedule “B” values,
including payments made under the sue and labour clause, the additional work
clause and the removal of wreckage and/or debris clause (each of which is
separately limited under the appropriate coverage clauses).
•
In the event of escalation as provided under clause 5 of Section I,
Underwriters’ total liability under Section I for all claims arising out of any one
Occurrence shall not exceed 150% of the initial Schedule “B” values, including
payments made under the sue and labour clause, the additional work clause
and the removal of wreckage and/or debris clause, and the Escalation Clause
(each of which is separately limited under the appropriate coverage clauses).
•
Notwithstanding anything contained herein, Underwriters’ maximum limit of
liability in respect of Section I shall not exceed the Schedule “A” value in the
aggregate.
Answer:
Example A:
Example B:
(cont)
Lesson #2
• It is critical that a contractor understand:
–
(i) if the Welcar policy purchased by the owner requires
a Schedule B and
– (ii) if yes, how the owner is structuring the breakdown of
the project costs and milestones in the original Schedule
B and any updated Schedule B’s submitted to the
underwriter.
Question #3
• The owner didn’t provide me with the
detailed requirements for the Marine
Warranty Surveyor before we started
the project. We had an accident and
the adjuster is asking for the Marine
Warranty Surveyor certifications. Am
I in trouble?
Answer: Warranty Clause
WARRANTY (EXEMPLAR-FINAL VERSION TO BE AGREED)
Warranted London Offshore Consultants and/or Global Maritime and/or
Noble Denton Associates and/or London Salvage Association and/or
MatthewsDaniel approve and issue as applicable Certificates on the project
as follows:
Conceptual – Certificates
outs/installations.
to
be
issued
prior
to
relevant
load-
i. Procedures for laying, burying, jetting and rock dumping, trenching (all if
and as applicable) including the tie-ins of same and installation of spool
pieces and risers.
ii. Positioning and orientation procedures for jackets at offshore site(s).
iii. Piling in procedures in respect of ii. above.
Answer: Due Diligence
DUE DILIGENCE
It is a condition of the Policy that the Assureds shall exercise due
care and diligence in the conduct of all operations covered under
the Policy, utilizing all safety practices and equipment generally
considered prudent for such operations.
In the event any
hazardous condition develops, including with respect to any well
from which consequential damages covered by the Policy may
arise, the Assureds shall at their expense make all reasonable
efforts to prevent the occurrence of a loss insured against under
the Policy
Answer: Forfeiture
FOREFEITURE
If an Assured shall breach any provision of the Policy, there shall
be no coverage for that Assured as to the particular claim in
connection with which the breach occurred, provided that there is
no statute to the contrary in the country or state in which the
insurance was made.
If any Assured shall make any demand for indemnity under this
Policy that is false or fraudulent, as regards amount or otherwise,
this Policy shall become null and void, and all coverage hereunder
shall be forfeited.
Lesson #3
• Every Welcar Construction All Risk Policy contains the Due
Diligence clause and some type of Marine Warranty Survey
clause. It is critical that you are provided with a copy of the
clauses from the owners prior to commencing work so that
you can provide the requirements to the Project
Management Team.
Failure to have the proper certifications from a marine
warranty surveyor or to comply with the Due Diligence
clause as required by the policy can void coverage in the
event of a loss.
Question #4:
• We buckled a pipeline late one night. We
couldn’t start the repair until the next
morning, but when we tried to begin the
repairs the weather turned bad and we had
to wait three days. The owner and the
adjuster appear to be saying that the
Welcar policy doesn’t cover the three day
downtime on our marine spread. Is this
correct?
Answer: Basis of Recovery
Basis of Recovery
In the event of an Occurrence covered under Section I of the
Policy, Underwriters agree to indemnify the Assured on the
following basis:a)
Items repaired or replaced- “New for Old” plus towage,
installation and all other costs necessarily incurred and duly
justified in repair or replacement- as per latest agreed
Schedule B.
Answer: Stand-By Charges
STAND-BY CHARGES
Subject to a sub-limit of US$ (AMOUNT) any one Occurrence
aggregated at US$ (AMOUNT) over the Policy Period,
Underwriters shall indemnify the Assureds for the cost of stand-by
time on vessels and/or craft and/or equipment actively engaged in
the course of repair following an Occurrence covered under
Section I, where the Assureds are prevented from working in,
around or about the damaged property by bad weather, including
named hurricanes.
Lesson #4
• When an accident occurs, make sure that the vessel
personnel are specific in their vessel logs as to what they
are doing to repair the damaged work in order to carefully
put your claim together.
• One of the first things you will be asked to produce will be
the vessel logs showing the activity on the barge to support
your claim for costs related to the repair.
Question #5
• We were in the process of installing a jacket when
all of a sudden the jacket tipped over on its side
and fell to the seabed. We had a cable attached
to the jacket so were able to begin lifting the
jacket up to recover it and place it on a cargo
barge for inspection. After a couple of hours the
waves kicked up. We were afraid of capsizing the
barge, so we laid the jacket down and retrieved it
a couple of hours later. When it was inspected, it
did not look like it was damaged, but our client
wants us to take it in for stability testing – Do we
have a claim under the Welcar 2001 policy form?
Answer: Different Options!
•
•
•
•
Stand-By Time
Physical Damage
Sue and Labour
Additional Work
Sue and Labour Clause
SUE AND LABOUR CLAUSE
It is further agreed that in the case of any imminent physical loss or physical damage
to the property insured hereunder, which is the direct result of a peril insured against,
the Assureds, their servants and their agents may sue, labour and travel for, in and
about the defense, safeguard and recovery of the subject matters insured without
prejudice to this insurance and may incur reasonable expenses in efforts to avert or
minimize a loss which may fall under Section I.
The expense so incurred shall be borne by the Assureds and Underwriters
proportionately to the extent of their respective interests. No acts of Underwriters or
the Assureds in recovering, saving, or preserving the property insured shall be
considered as a waiver of acceptance of abandonment.
Underwriters limit of liability under this clause shall be 25% of the scheduled value
contained in the latest agreed Schedule B at time of loss of the item or items that are
the subject of such sue and labour.
Additional Work Clause
ADDITIONAL WORK
In the event that the structure or insured property is set down or
wrongly positioned, which is the direct result of a peril insured
against, Underwriters shall indemnify the Assureds for the cost of
additional work that is required in respect of positioning or
repositioning, sinking, submerging and stabilizing the property
insured herein insofar as such cost does not fall within the cover
afforded by the sue and labour clause. However Underwriters’
liability under this clause shall not exceed the percentage amount
that would be recoverable under the sue and labour clause and
then only to the extent that the Policy Limit is not exhausted by a
claim under the sue and labour clause.
Lesson #5
• The Welcar Policy is intended to cover physical loss or
physical damage to the Work arising out of an occurrence.
There should be some tangible evidence of damage, such
that the part insured is altered physically and requires repair.
• That said, there may be some coverage under the Sue and
Labour or Additional Work clauses that don't necessarily
require actual damage to the Work.
Question #6
• We just performed a shore pull using the HDD
method with steel pipe that was not coated.
During a routine inspection of the pipe that was
laid, it appeared that there were some latent
defects in the pipe as manufactured. The owner
has refused to accept the pipe and insists that we
purchase new pipe and perform a new HDD shore
pull. Is there coverage under the Welcar 2001
policy?
Answer: Defective Parts
DEFECTIVE PARTS
The insurance afforded by Section I covers physical loss and/or physical
damage to the property insured herein occurring during the Policy Period
and resulting from a Defective Part, faulty design, faulty materials, faulty or
defective workmanship or latent defect even though the fault in design may
have occurred prior to the attachment date of the Policy.
Section I, however, does not provide coverage for loss or damage to
(including the cost of modifying, replacing or repairing) any Defective Part
itself, unless all of the following are satisfied:
a.
b.
c.
such Defective Part has suffered physical loss or physical damage during the
Policy Period;
such physical loss or physical damage was caused by an insured peril external
to that part; and
the defect did not cause or contribute to the physical loss or physical damage.
Answer: Defective Parts
(cont)
DEFECTIVE PARTS
In no case shall Section I provide coverage for any cost or expense incurred by reason
of betterment or alterations in design.
In the event of the total physical destruction of one or more of the items listed in the
Schedule “B” attached to the Policy, then this exclusion shall only apply to an
identifiable part or parts of such scheduled item or items.
For the purposes of this clause a “Defective Part” shall mean any part of the subject
matter insured which is or becomes defective and/or unfit or unsuitable for its actual or
intended purpose, whether by reason of faulty design, faulty materials, faulty
workmanship, a combination of one or more thereof or any other reason whatsoever.
The term “Defective Part” shall also include such ancillary components, which are not
themselves faulty, but which would normally be removed and replaced by new
components when the component that is faulty is rectified.
Defective Part Buy-Back
DEFECTIVE PART EXCLUSION BUY-BACK
Notwithstanding the provisions of the Defective Part Clause in Section I of the attached Policy,
this insurance will pay for the cost of repair or replacement of defective parts which have
suffered physical loss and/or physical damage during the Policy period, but the recovery of such
costs is subject to:
a)
deductible $
each part, each accident or Occurrence; and
b)
a total aggregate limit of $
including the Maintenance Period; and
c)
the provisions of the Basis of Recovery Clauses in Section I of the Policy; and
d)
an additional premium $
for all losses during the Policy period,
being paid in full.
However, it is specifically understood and agreed that this endorsement will not provide
recovery for cancellation charges, stand-by costs or consequential costs or expenses that would
not be recoverable under the terms and conditions of the Policy in the absence of this clause.
Lesson #6
•
•
•
It is important to determine who is supplying and who is assuming
responsibility for the materials being installed. If the owner is
supplying the material, then the contract should exclude any risk of
loss on the contractor for defective material.
If the contractor is purchasing the material and/or has assumed
liability for it in the contract, then it is critical to determine the
likelihood that the material could be defective so that you can cover
either all or part of it through a Defective Part Exclusion Buy-Back
and/or contractually with the manufacturer of the material.
If the owner buys the CAR policy, then it will be critical to request
information prior to the bid as to the value of the material and the
availability of coverage under the owner provided CAR policy for
Defective Parts.
Conclusion
•
•
•
•
As I stated in the beginning of my presentation, I do not proclaim to
be an expert on the Welcar 2001 policy.
I am simply relaying to you how I interpret the language of the
Welcar 2001- from a contractor’s perspective.
There is a balance that can be struck between the insured and the
insurer, but it does take communication. Unfortunately, when an
owner/operator buys the CAR policy, yet places risk of loss on the
contractor, the necessary communication from the contractors
perspective may not be heard.
I am positive that there are counter views to what I have said. I
encourage discussions so that all of us, Owners/Operators,
Contractors, Underwriters, Brokers and Adjusters are on the same
page so that we have the required pre-event certainty that we look
for when transferring or assuming risk.
Questions?
Mary Shaddock Jones
Global Industries Offshore, LLC
8000 Global Drive
Sulphur, LA 70665
337-583-5324 Office
337-499-3689 Cell
[email protected]