Insurance Required During Construction Or Conversion of Vessels Or Rigs
1. Builder’s All Risk Insurance:
Usually during the contract negotiation stage, when it is as yet unclear as to which party will be accepting which liabilities, which party will be responsible for procuring the insurance and absorbing the deductibles, etc., both parties look more deeply into the breadth of available BAR coverage.
We can say that Builder’s Risk Insurance for the energy class of business provides coverage under three different forms:
- London Institute Builder’s Risk Clauses 1.6.88 (CL 351) – or American equivalent
- WELCAR form
- Custom forms tailor-made to specific risks or Owners or shipyards.
Is the protection provided under all BAR policies the same? No! For a comparison between wordings please contact a trusted insurance broker of your choice.
2. War Risks and Strikes, Riots, Civil Commotions (SRCC):
a. Institute War Clauses Builder’s Risks 1/6/88 (CL 349) –
Coverage incepts once the vessel is launched (or wet) and provides coverage for loss of or damage to the insured vessel / rig caused by:
- war, civil war, revolution, rebellion insurrection, or civil strife arising therefrom, or any hostile act by or against a belligerent power
- capture seizure arrest restraint or detainment, arising from perils covered above, and the consequences thereof or any attempt thereat
- derelict mines torpedoes bombs or other derelict weapons of war.
b. Institute Strikes Clauses Builders’ Risks 1/6/88 (CL 350) –
Provides coverage for loss of or damage to the insured vessel / rig caused by:
- strikers, locked-out workmen, or persons taking part in labor disturbances, riots or civil commotions
- any terrorist or any person acting maliciously or from a political motive.
We recommend that this coverage be amended to include Vandalism and Malicious Mischief.
Please also review if the terrorism coverage provided under this clause is either restricted or broadened, or if there are any other applicable clauses such as Sabotage & Terrorism Endorsements. In any case, be sure that the coverage afforded is adequate for your Client so your Client makes an informed decision.
3. Liability – Insurance coverage that protects an insured against claims made by third parties for damage or injury to their property or person. These losses usually come about as a result of negligence of the insured. In marine construction, this policy is referred to an MGL, marine general liability policy. In non-marine circumstances, the policy is referred to as a CGL, commercial general liability policy. The construction contract should determine which parties are liable in which instances for losses of Third Party Liability nature.
Insurance policies can be divided into three broad categories:
- Product Liability – Protection against a Manufacturer’s liability for injuries or property damage after a manufactured product has been sold. Extraordinary liability accompanies the manufacture of a product.
- Completed Operations – Protection against a Contractor’s liability for injuries or property damage suffered by Third Parties as a result of the Contractor completing an operation.
- “Trips & falls & damage” – Protection against injuries or property damage on premises or hulls within care, custody, control of a party.
4. Umbrella Liability – This type of liability insurance provides excess liability protection. Your business needs this coverage for the following reasons:
- It provides excess coverage over all the “underlying” liability insurance carried.
- Instead of purchasing a large limit on all of an insured’s policies, this structure allows an insured to purchase the coverage once to sit atop various policies, thereby increasing the limit for many policies.
- We recommend that this coverage provide automatic replacement coverage for underlying policies that have been reduced or exhausted by loss.
5. Additional coverages available for consideration during the construction phase:
- Cargo / Transit Insurance – to protect against All Risks of loss of or damage to the shipments of material, equipment, etc. that will form part of the construction (i.e., the topsides from Russia to the UK)
- Marine Delay in Start-Up – to protect against lost profit plus extra expenses due to the delay in arrival of critical components; for instance, due to thrusters being dropped into the water during loading of vessel – causing a 3-month delay in project (due to back-order of specific thrusters required per specifications)
- Hull & Machinery & Protection & Indemnity Insurance – to protect against All Risks of loss of or damage to the vessel / rig – and liabilities resulting from the vessel / rig – during transport after completion at Yard (for instance, if delivery is not ex-Yard, but rather at final drilling Site)
- Hull & Machinery & Protection & Indemnity Insurance – to protect against All Risks of loss of or damage to any vessels / crane barges that might be used to assist in the construction of the vessel / rig
- Liquidated Damages Insurance – to protect against penalties for failure to satisfy an agreement; for instance, for late delivery of unit due to losses of a BAR nature
- Political Risk Insurance – to protect a foreign entity against loss suffered due to political risk nature (including Confiscation, Nationalization, Expropriation, Selective Discrimination, Contract Frustration, Inconvertibility & Non-Transfer of funds, etc.)
- Professional Indemnity (PI) Insurance – to protect against legal liability arising from any professional negligent act, error or omission in rendering or failing to render professional services by an Assured. We recommend that you look into the design and engineering work and contractual requirements and track records involved in the rig, and see what protections are already in place.
The standard requirements of both Owners and Shipyard:
- Workmen’s Compensation / Employers’ Liability as required by applicable statute
- Auto Liability as required by applicable statute
6. Coverages available for the shipyard post-delivery (relating to the construction phase):
- Following delivery of a unit to an Owner, usually Maintenance & Discovery coverage is purchased.
- Warranty coverage is also possible.
What is the difference between Maintenance Coverage of a Builder’s Risk Policy and Warranty Coverage?
The Maintenance Cover is simply an extension of the Builder’s Risk policy, which in this case survives delivery of the vessel to the owner, with coverage being no broader than that contained elsewhere in the policy, subject to all of the conditions and exclusions of that policy.
The Warranty Coverage is “back-to-back” protection of the Assured’s contractual Warranty Clause to Owner. This means that the Warranty Clause from the contract actually becomes the insuring condition of the Warranty Policy.