CONTINGENT OEE SEMINAR

Transcription

1 CONTINGENT OEE SEMINAR 5 JULY 2012 Slide No. 1

2 1. CLIENT 2. LEGAL 3. AREA OF OPERATION 4. CONTRACT/INSURANCE Slide No. 2

3 1. CLIENT Financially Sound Parent or Subsidiary Parent Company Guarantees Letter of Credit Slide No. 3

4 2. LEGAL English Law Preference Country Specific no choice i.e Statoil (Norway) Slide No. 4

5 3. AREA OF OPERATION In country Lawyer Stena Entity/Branch required. Restrictions Permits, Licenses, Visas etc USD Payments/Exchange Control Restrictions Any Other Matters ie Proportion Liability Slide No. 5

6 4. CONTRACT/INSURANCE In House Review External Lawyers P&I H&M Slide No. 6

7 WILFUL MISCONDUCT Wilful Misconduct means an intentional or reckless disregard by Senior Managerial Personnel of Good Oilfield Practice or any of the terms of this Agreement in utter disregard of avoidable and harmful consequences, but shall not include any act, omission, error of judgement or mistake made in the exercise in good faith of any function, authority or discretion vested in or exercisable by such Senior Managerial Personnel, including but not limited to any action taken in good faith in response to special circumstances, including safeguarding of life, property or the environment and other emergencies. Slide No. 7

8 WILFUL MISCONDUCT Senior Managerial Personnel means in relation to any company, any person employed by it or any of its AFFILIATES, as a director or other corporate officer or senior manager. For the purposes of this definition, senior manager shall mean only in relation to the relevant company any member of its board of directors or of the management committee comprised of senior managers which has overall responsibility for the management of the assets and interests of such company and its subsidiaries and any person employed by such company or its AFFILIATES who directly reports to any such committee or board or to any member of it. Slide No. 8

9 Contingent OEE seminar July 5, 2012

10 Contingent OEE Seminar Lloyd s Old Library. July 5,

11 CONTRACTUAL INDEMNITIES Reservoir and Wells COMPANY shall be responsible for and shall save, defend, indemnify and hold harmless CONTRACTOR from and against any claim in respect of loss of or damage to any underground reservoir or formation or damage to or loss of a well owned and/or operated by COMPANY and for regaining control of a wild well owned and/or operated by COMPANY and for the cost of redrilling a well owned and/or operated by COMPANY, unless caused as a result of the clear and substantiated gross negligence of the CONTRACTOR Contingent OEE Seminar - Lloyd s Old Library. July 5,

12 CONTRACTUAL INDEMNITIES For Pollution from COMPANY property and equipment COMPANY shall be responsible for and shall save, defend, indemnify and hold harmless CONTRACTOR from and against any CLAIM in respect of all loss, damage, personal and bodily injury, including death sickness or disease caused to THIRD PARTY and damage to THIRD PARTY property and equipment and all costs for clean-up and/or remediation caused by blow-out, uncontrolled well flow, cratering or pollution or any other manifestation emanating from a well owned and/or operated by COMPANY or from Company s property and equipment, unless caused as a result of the clear and substantiated gross negligence of the CONTRACTOR Contingent OEE Seminar - Lloyd s Old Library. July 5,

13 INSURING AGREEMENT This section is extended to afford coverage on a contingent basis and shall reimburse the Insured hereunder for any legal and/or contractual liability arising from the Insured s gross negligence and/or wilfull-misconduct resulting from the operations of the Insured as a drilling contractor, but this insurance shall only cover costs, expenses and/or other sums for which the Insured is legally and/or contractually liable that would otherwise have been recoverable herein as a well owner if said well owner were the insured herein. Subject to Energy, Exploration, and Development Insurance (EED 8/86). Contingent OEE Seminar Lloyd s Old Library. July 5,

14 INSURING AGREEMENT EED 8/86 Sub-Section A Control of Well Sub-Section B Redrill / Restoration Sub-Section C Seepage and Pollution, Clean-up and Contamination Plus various optional additional coverage endorsements Contingent OEE Seminar Lloyd s Old Library. July 5,

15 INSURING AGREEMENT Due Diligence Clause It is a condition of this insurance that the Assured shall exercise due care and diligence in the conduct of all operations covered hereunder, utilising all safety practices and equipment generally considered prudent for such operations, and in the event any hazardous condition develops with respect to an insured well, the Assured shall at their sole expense make all reasonable efforts to prevent the occurrence of a loss insured hereunder. Warranties It is warranted that where the Assured is the operator on any insured well being drilled, deepened, serviced, worked over, completed and/or reconditioned, a blowout preventer(s) of standard make will, when in accordance with all regulations, requirements and normal and customary practices in the industry, be set on surface casing or on the wellhead and installed and tested in accordance with usual practice. Contingent OEE Seminar Lloyd s Old Library. July 5,

16 CIRCUMSTANCES Presentation Title and Date

17 CIRCUMSTANCES

18 INCIDENT

19 INCIDENT

20 INCIDENT

21 INCIDENT

22 CONTROL OPERATIONS Control pic Presentation Title and Date 22

23 CAUSATION SCENARIO ONE Contingent OEE Seminar Lloyd s Old Library. July 5,

24 CAUSATION SCENARIO ONE Contingent OEE Seminar Lloyd s Old Library. July 5,

25 CAUSATION SCENARIO ONE BOP PIPE RAM Drillpipe Pipe ram Contingent OEE Seminar Lloyd s Old Library. July 5, 2012

26 CAUSATION SCENARIO ONE Contingent OEE Seminar Lloyd s Old Library. July 5,

27 CAUSATION SCENARIO ONE Conclusion driller negligence? Contingent OEE Seminar Lloyd s Old Library. July 5,

28 CAUSATION SCENARIO TWO Contingent OEE Seminar Lloyd s Old Library. July 5,

29 CAUSATION SCENARIO TWO BOP BLIND / SHEAR RAM Blind / Shear Ram Contingent OEE Seminar Lloyd s Old Library. July 5, 2012

30 CAUSATION SCENARIO TWO Worn / damaged elastomer seal Blind / shear ram Contingent OEE Seminar Lloyd s Old Library. July 5,

31 CAUSATION SCENARIO TWO Conclusion gross negligence? Contingent OEE Seminar Lloyd s Old Library. July 5,

32 CAUSATION SCENARIO THREE Contingent OEE Seminar Lloyd s Old Library. July 5,

33 CAUSATION SCENARIO THREE From: To: Drilling Contractor Head office Drilling Contractor Toolpusher We need to extend the contract duration a lengthy fishing operation would be useful consider over-torquing the drillstring Contingent OEE Seminar Lloyd s Old Library. July 5,

34 CAUSATION SCENARIO THREE Conclusion wilful misconduct? Contingent OEE Seminar Lloyd s Old Library. July 5,

35 SUMMARY SCENARIO 1 (WRONG BOP RAM ACTIVATED): NEGLIGENCE? SCENARIO 2 (WORN SEALS): GROSS NEGLIGENCE? SCENARIO 3 (DELIBERATE OVER-TORQUING): WILFUL MISCONDUCT? Contingent OEE Seminar Lloyd s Old Library. July 5,

36 Everyday. Everywhere. Presentation Title and Date 36

37 Contingent OEE Insurance What Contingency? Tim Taylor Partner Clyde & Co LLP 5 July 2012

38 Basic Questions Commercial Need? When? Does it work?

39 The Incident How could a claim arise? Driller sucked into litigation following an incident Contractual indemnity uncertain - Facts - Insolvency of operator - Other reasons? EED/86 Obvious exposure for Section C coverage for liabilities Other Sections exposed too - COW and Redrill

40 The Cover Is the language clear enough? Will it respond when it should?

41 Typical Wording This section is amended to afford coverage on a contingent basis and shall reimburse the Insured hereunder for any legal and/or contractual liability arising from the Insured s Gross Negligence and/or wilful misconduct resulting from the operations of the Insured as a drilling contractor, but this insurance shall only cover cost, expenses and/or other sums for which the Insured is legally and/or contractually liable that would otherwise have been recoverable herein as a well operator if said well operator were the insured hereon Subject to Energy, Exploration, and Development Insurance (EED 8/86).

42 Important Bits This section is amended to afford coverage on a contingent basis and shall reimburse the Insured hereunder for any legal and/or contractual liability arising from the Insured s Gross Negligence and/or wilful misconduct resulting from the operations of the Insured as a drilling contractor, but this insurance shall only cover cost, expenses and/or other sums for which the Insured is legally and/or contractually liable that would otherwise have been recoverable herein as a well operator if said well operator were the insured hereon. Subject to Energy, Exploration, and Development Insurance (EED 8/86).

43 Does it Work? What is the contingency? Intention is that it provides cover for the drilling contractor in respect of legal and/or contractual liability Arising from gross negligence and/or wilful misconduct The contingency is circumstances where the normal indemnity from the operator in favour of the driller does not work because of gross negligence and/or wilful misconduct Not for other reasons e.g. if the operator is insolvent Subject to terms of EED 8/86

44 Legal or Contractual Liability Very broad language Legal liability to third parties Liabilities under the drilling contract Other contracts?

45 Gross Negligence Not recognised as a matter of English insurance law In England negligence: failure to take reasonable precautions - (objective standard = reasonable man test but variable according to the context) recklessness: don t intend harm but perceive the risk & go ahead anyway - (subjective standard = what did this individual think) wilful misconduct: dishonesty and/or conduct equivalent to criminal intent or recklessness; - (NB the misconduct not just the conduct must be wilful) But there is no established meaning of gross negligence under English law.

46 Wilson v. Brett (1843) 11MFW 13. Lord Cranworth: "Gross negligence is ordinary negligence with a vituperative epithet". Tradigrain S.A. v. Intertek Testing Services [2007] GWCA civ 154. Moore-Bick LJ: "The term gross negligence, although often found in commercial documents, has never been accepted by English Civil law as a concept distinct from civil negligence". Sucden Financial v. Fluxocane [2010] EWHC Blair J: "I cannot see myself that the addition of the word "gross" to negligence adds much, if anything". Spread Trustee Co Limited v. Sarah Ann Hutcheson [2011] UKPC 13 dated 15 June Whatever gross negligence means, it is something less than wilful misconduct.

47 Other Places New York law does recognise gross negligence and wilful misconduct but this may not be the same as the test under US general maritime law the conduct should smack of intentional wrongdoing Canadian law also recognises gross negligence but probably has a lesser standard of moral turpitude than in NY

48 Whose Conduct? Attribution Which actions of which individuals are the actions of the company? Question of fact (at least in England) - Acts or knowledge of individuals if they are the people whose acts or knowledge were intended to count as that of the company for the particular purpose (Meridian Global Funds v Securities Commission [1995]) - The directing mind and will of the company

49 The Trigger Liability of the driller to third parties arising out of conduct which is also a breach of the drilling contract What does the Drilling Contract say? What is the scope of the indemnity? When might it not apply? What law will govern that question? How bad does the conduct have to be?

50 Public Policy Issues Will insurance respond for wilful misconduct There are public prohibitions for policies subject to United States law against insurance coverage for intentional or inherently harmful acts Potential questions Did the company intend to harm a third party? Was harm inherent in the act itself? Was the (harmful) conduct condoned by management Did the company benefit?

51 English Policy It is a principle of public policy that a party cannot recover an indemnity against the consequences of his own intentional criminal or tortious act: (Kennedy LJ in Charlton v. Fisher [2001]) A contractual indemnity in respect of a deliberate wrongful act is generally void, irrespective of whether it is criminal as well as tortious. (Brown Jenkinson & Co. Ltd v Percy Dalton (London) [1957]) concerning an indemnity to shipowners for issuing a clean bill of lading in respect of damaged cargo. The rule (probably) applies to acts and omissions occurring abroad and which were unlawful under the laws of the country in which they occurred

52 Striking the balance In Lord Lane CJ it is not the label which the law applies to the crime which has been committed but the nature of the crime itself which in the end will dictate whether public policy demands the court to drive the applicant from the seat of justice. Where that line is to be drawn may be a difficult matter to decide R v Chief National Insurance Commissioner [1981]

53 What Does it Mean? A Contingent OEE Policy may well not respond to meet the commercial needs of the drilling contractor If the conduct of the drilling contractor is egregious enough to deprive him of his indemnity under the drilling contract because his conduct is criminal or morally reprehensible Any assessment of exposure and the extent of cover requires an analysis of the terms of the relevant drilling contract and its proper law the potential exposures in the places where drilling activity occurs the proper law of the Contingent OEE cover

54 Other Issues Contingent OEE is subject to EED 8/86 Due diligence provisions Compliance with warranties - Working BOP Insolvency Simple refusal by Operator to pay - Defence costs - Time for payment

55 SUMMARY SCENARIO 1 (WRONG BOP RAM ACTIVATED): NEGLIGENCE? SCENARIO 2 (WORN SEALS): GROSS NEGLIGENCE? SCENARIO 3 (DELIBERATE OVER-TORQUING): WILFUL MISCONDUCT? Contingent OEE Seminar Lloyd s Old Library. July 5,

56 Tim Taylor Partner Direct Dial: Mobile: Clyde & Co LLP is a limited liability partnership registered in England and Wales. Authorised and regulated by the Solicitors Regulation Authority. Clyde & Co LLP 2012 TORONTO SAN FRANCISCO MONTREA L NEW JERSEY NEW YOR K ST PETERSBURG MOSCOW LONDON & GUILDFORD PARIS NANTES BELGRADE DOHA DUBAI RIYADH ABU DHABI Clyde & Co Offices Associated Offices PIRAEUS CARACAS RIO DE JANEIRO DAR ES SALAAM NEW DELHI MUMBAI SHANGHAI HONG KONG SINGAPORE