Damage to Existing Property WELCAR Asia Offshore Energy Conference 26 September 2014 Barry Stimpson Partner

Transcription

1 Damage to Existing Property WELCAR 2001 Asia Offshore Energy Conference 26 September 2014 Barry Stimpson Partner

2 What are the issues? Introduction to DTEP issue Contractual background WELCAR 2001 coverage under Sections I and II Existing Property exclusion and Buyback

3 Contractual Regime Sub/Contractor Other Assured Existing Project Tie-In + Crossover Company Principal Assured Logic K4K PROJECT Operational Property Insurers WELCAR S.II

4 Introduction to DTEP issue Existing Property exposure for Owner/Operator Tie-ins to owned or partially-owned property at location Historically dealt with in Liability section of CAR policies

5 LOGIC Company and Contractor definitions Permanent Works

6 LOGIC Indemnities Indemnity regime on a knock-for-knock basis except for third party liabilities arising from fault of Contractor or Company

7 Tie-In and Pipeline Agreement(s) Indemnity given to existing field operator by project operator Extent of indemnity usually assumes all responsibility for damage to existing property arising from tie-in or cross over activities irrespective of negligence Scope of indemnity can often extend to loss of revenue and loss of use, as well as pollution and clean-up liability

8 WELCAR 2001 Section I and II distinct and not always placed together S.1 - primary/s. 2 - excess Scope of Insurance for Sections I and II covers activities undertaken in the course of the Project provided such are within insured values.

9 WELCAR Section 1 Section I - Insured Property includes works in performance of all contracts relating to the Project, provided included in contract values, including all temporary works and insured equipment and/or property that is not for incorporation into the contract works shall be covered whilst it is being utilised in the Project - Not covered: - Existing property which does not form part of Project Works and has not been declared to contract values

10 WELCAR Section II Coverage to indemnify the Assured for Ultimate Net Loss which Assured is obligated to pay by reason of: i. Liability imposed upon the Assured by law and/or ii. Express Contractual Liability for bodily injury of Property Damage caused by an occurrence and arises out of activities described in Scope of Insurance

11 WELCAR Section II Cross Liabilities of each Assured to the other is covered with limited exceptions In no case shall this Section II of the Policy provide coverage for any physical loss of or physical damage to or defects discovered in the property insured under Section I. Exclusion 21 Section II does not apply to actual or alleged liability for damage to or loss of or loss of use of property owned, used or in control, custody or control of Assured

12 DTEP Buyback (in Section II) Existing Property/Contractual Exclusion Buyback Nothwithstanding 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 identified on the attached schedule of insured property. DTEP buyback intended to provide cover for liability for damage caused to existing property and negates effect of Exclusion 21

13 Liability issues 1. Arguably there remains no trigger of cover under Section II due to (i) the absence of the Assured s liability to another party, and (ii) the absence of an obligation to pay 2. Also, Section II is an excess cover so should the Assured s operational policy not respond first? - Digby v General Accident [1940] CA LLLR at But, insurers have taken premium to provide indemnity for liability for loss/damage to Assured s existing property!

14 100% owned by same Company Sub/Contractor Other Assured Existing Project Company Principal Assured Logic K4K PROJECT Operational Property Insurers WELCAR S.II DTEP buy-back required

15 100% Third party Existing Property Sub/Contractor Other Assured Existing Project Company Principal Assured Logic K4K PROJECT Operational Property Insurers WELCAR S.II No DTEP buyback required

16 Partly owned by same Company Sub/Contractor Other Assured Existing Project Company Principal Assured Logic K4K PROJECT Operational Property Insurers WELCAR S.III? WELCAR S.II DTEP buy-back required

17 Reinsurance Absence of legal liability could impact insurers ability to recover Section II Buy back payments from their reinsurers Exxon Valdez liabilities - King Syndicate v Brandywine

18 Possible Solutions?

19 Disclaimer The views expressed by the author are his own and do not necessarily reflect that of ReedSmith LLP. The information in this presentation does not constitute legal advice and no reliance should be made on the contents of the presentation. Specific legal advice should be sought in every instance.