Damage to Existing Property Coverage Property Damage or Third Party Liability?

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1 Damage to Existing Property Coverage Property Damage or Third Party Liability? Frank Streidl Head of Offshore Energy AOEC - 26 September 2014

2 Disclaimer Please Read "Whilst all reasonable care has been taken to ensure that the information in this seminar is accurate Zurich does not guarantee its accuracy or completeness. Zurich are not responsible for any errors or omissions or for the results obtained from the use of such information and Zurich assumes no liability in connection with it." 2

3 Structure 1. Background 2. Wordings 1. Section II Liability Insuring Agreement Coverage 2. DTEP Exclusion Endorsement 3. DTEP Exclusion Buyback 3. Triggers 4. Case Study - Examples 5. Challenges 6. Zurich s Solutions and Resolution 7. Outlook 8. Q & A 3

4 1. Background The WELCAR 2001 Offshore Construction All Risks Policy was drafted by Tim Burroughs of Wellington Syndicate in the late 1990s in response to the poor performance of the Builders All Risks policies written by the Energy Insurance market at that time. The wording is split into two sections. Namely, Section I covering Physical Damage to the Project Works and Section II which deals with Third Party Liabilities arising from the Project Works. The industry has experienced a handful of claims in the last 24 months whereby damage has been caused to Existing Property during an Offshore Construction Project. The Projects have been insured under WELCAR 2001 and had Damage to Existing Property Exclusion Buyback cover endorsed to the policy in Section II. Is this the right place? 4

5 2. WELCAR Section II Liability Insuring Agreement 1. COVERAGE Underwriters agree, subject to the limitations, terms, conditions and exclusions herein, to indemnify the Assured(s) for Ultimate Net Loss which the Assured(s) shall be obligated to pay by reason of i. Liability imposed upon the Assured(s) by law, and/or ii. Express Contractual Liability, for Bodily Injury or Property Damage caused by an Occurrence, provided always that the Occurrence takes place during the Project Period and arises out of the activities described in the Scope of Insurance section herein. 5

6 2.2 DTEP Exclusion Endorsement ENDORSEMENT Existing Property/Contractual Exclusion The coverage provided under Section II of the attached Policy shall not apply to any claim for damage to or loss of use of any property for which the Principal Assured: 1) owns that is not otherwise provided for in this policy; 2) has use of, custody, physical control, access, right of way or an easement to by operation of a contract or agreement; or 3) is liable or claimed to be liable by operation of any indemnification, hold harmless or similar provision contained within any contract or agreement. All other insuring agreements, terms, conditions, definitions, exclusions, notice requirements, schedules and endorsements of the Policy remain unchanged. 6

7 2.3 DTEP Exclusion Buyback Existing Property/Contractual Exclusion Buyback Notwithstanding the Existing Property Contractual Exclusion contained in this Policy, it shall not apply to any claim for: Physical loss of and/or physical damage to existing property as scheduled. All other insuring agreements, terms, conditions, definitions, exclusions, notice requirements, schedules and endorsements of the Policy remain unchanged. 7

8 3. The Triggers Third Party Knock for Knock and Mutual Hold Harmless agreements remove any contractual liability. Contractual or Legal Liability Without an Express Contractual Liability, there is no indemnity under the policy. Obligation to Pay No obligation to pay as first party property. Differentiate between indemnity based and fault based contracts! 8

9 4. Case Study - Examples Case 1 - all triggers work. Case 2 some triggers fail. 9

10 All confused now? Good. So what are our options? 10

11 5. Challenges As a Market, underwriters might have accepted premium for a coverage that can not be indemnified by legal definition. Currently Section I WELCAR does not provide coverage for DTEP. Some Clients/Brokers schedule a blanket sub limit without identifying the values, type of property or the proximity of crossings or others companies property do they own or operate all the property? Deductibles for a Property cover the deductibles are typically higher than the Liability cover. Wording no current DTEP wording used by the Market for first party exposures. 11

12 6. Zurich's Position and Resolution Declinature of all claims to Section II where there is no Contractual Liability. Development of a wording for DTEP when a first party risk. Continued dialogue with Clients directly on the issues. Continued dialogue with JRC and other Insurers on the use of the Zurich wording for inclusion within the revised WELCAR wording or on an individual basis. Continued dialogue with Brokers on the challenge and a full review of clauses presented to rectify the problem. 12

13 7. Market Outlook Revision of WELCAR will include a revised clause to close the coverage gap. Zurich are open to further discussion, use of our wording or modification to assist on the general issue going forward. Welcome sharing of views at any point in the future, either through JRC or other forums. 13

14 8. Q & A Thank You for Your Attention. Question? 14