Navigators Group Inc. Insuring a World in Motion SPECIALIST OPERATIONS Anthony Desbrousses Cartagena de Indias February 19 th 2015
Better safe than sorry Samuel Lover (1797-1868) Make sure that all your special risks are insured Allow you in case of accident to concentrate all your efforts on the actual handling of urgencies Avoid you the stress and the cost of dealing with insurance coverage and reputation issues, as it unfortunately happened in the following cases 2
Micoperi SrL v Shipowners Mutual Protection and Indemnity Association [2011] EWHC 2686 3
A confusing subject, even for P&I Clubs An incident occurred during some construction work in an oil field off Turkey which led to a claim against a ship owner by a third party. At first, the P & I Club of the ship owner accepted cover and even agreed to provide security by way of a letter of undertaking. All was well 4
Until the P & I Club concluded that the ship owner was in fact not covered because the casualty was the result of specialist operations and was therefore excluded from cover under the policy. For some reason (a cynical person might assume that the P&I Club was merely defending its letter of undertaking..) the P&I Club agreed to continue to support its Member and to provide legal assistance, albeit under reservation of rights. 5
Specialist operations The claim was subsequently settled for about USD 6,000,000. The P&I Club denied the claim. The dispute went to Arbitration. The P&I Club won. The Commercial Court in London then agreed with the Arbitrator and held that the P&I Club was entitled to deny cover by reference to its assertion of the specialist operations exclusion despite the fact that the P&I Club had represented to the ship owner that they had accepted cover by providing a LOU to the third party. 6
Or again in this case A tug and a barge merely insured to carry cargoes were engaged into a substantial bridge construction project in Sweden. The Tug owner even accepted to endorse all the builders liabilities, but forgot to tell his P&I insurers that he needed specialist operations cover; which turned out to be a problem when a floating tyre got stuck in the propeller, the convoy lost power and steering, hit the bridge, and dropped the brand new bracket.. 7
Specialist operations The best way to approach this subject of Specialist operations is probably to consider a simple scenario: A country with a very strong growth rate sees lots of investors ready to pour capital. Infrastructures need to be built quickly before being operated and maintained. Tenders are open for the construction of a port terminal, an oilfield, the dredging of a navigation channel, the carriage of all necessary building equipment and personnel, the future operation and maintenance of the terminal with tugs, barges, small ships etc. The contractor s requirements are very wide, ranging from the obvious jobs which match the ship owner s core activity, to perhaps some more obscure side-jobs and risks, for which you should probably be insured. 8
Specialist operations Are you going to discard this business opportunity, or are you going to run uninsured for these extra risks, hoping that all will go well? Most often, the contractor will not in fact give you any choice at all and will ask for evidence of your insurance arrangements beforehand. What are they? This is when your insurance broker s nightmares (and yours!) begin.. 9
Specialist operations Looking at your P&I policy, you probably think prudent to check the list of exclusions, and here is what you immediately realise: Specialist operations are excluded from the P&I cover All P&I policies contain more or less the same exclusions - perhaps slightly differently worded - but they in essence all mean the same thing. But is it really this simple? Let s look closer 10
Specialist operations: how far does the exclusion go? Notwithstanding anything to the contrary contained herein it is hereby understood and agreed that cover hereunder shall in no instance apply to: - Any claim relating to loss damage liability or expense incurred by the Insured during the course of performing specialist operations unless otherwise agreed in writing. Specialist operations include but are not limited to dredging, salvage, well-stimulation, cable or pipe laying, construction, installation or maintenance work, core sampling, depositing of spoil, professional oil spillage response training (but excluding fire-fighting) to the extent that such loss, damage, liability or expense arises as a consequence of: - a) claims brought by any party for whose benefit the work has been performed, or by any third party (whether connected with any party for whose benefit the work has been performed or not) in respect of the specialist nature of the operations; or - b) the failure to perform such operations by the Insured, or the fitness for purpose and quality of the Insured s work, products or services including any defect in the Insured s work products or services; or - c) any loss of or damage to the contract work; - Provided that this exclusion shall not apply to any claim in respect of: d) loss of life, injury or illness of crew and other personnel on board a vessel named herein, and e) wreck removal of a vessel named herein 11
during the course of performing specialist operations This is the type of operation rather than the type of ship that really matters. If a ship is designed to carry out specialist operations but does not actually perform specialist operations at the time of the incident, she is still insured under her standard P&I cover, even if no Specialist operation insurance is in place. The difficulty then consists in the choice of the cut off date - or even time! - for the beginning of the non-insured specialist operation. A paradise for lawyers.. 12
Notwithstanding anything to the contrary contained herein. 13
Does the towage liabilities cover amount to anything? No. At best, you will get P&I insurance for a customary towage. A customary towage is by definition not a specialist operation. Such a customary towage contract would often have to be knock for knock and this requirement fits very badly with many offshore activities, and therefore with specialist operations. One must also take into account the type and size of the craft being towed which is sometimes extremely different from a ship or a barge. 14
Does the Salvors P&I insurance cover amount to anything? A fine line between professional salvage and non professional salvage. Some P&I providers will only provide salvors cover for non professional salvage. Other P&I providers will potentially be able to provide salvors P&I cover for all types of salvage services no matter if professional or non professional, but they will require ad hoc risk assessment and negotiations on premium for instance, which can take time and render the Insurer s response inappropriate in case of accident (say that a towage unfortunately turns into an urgent salvage work). 15
Does the Contractual insurance cover amount to anything? No. It is tempting to assume that a contractual insurance cover will protect you for all liabilities under any contract, and therefore any liabilities incurred during specialist operations accepted by contract. But here again, this is a wrong assumption. The contractual insurance cover is designed to cover other sets of liabilities (deviations from the knock for knock agreements, waiver of rights to limit liability, name business partners as co insured, remove wreck on charterers mere demand). 16
Specialist operations include but are not limited to This is not very attractive in terms of risk management. One could argue that the P&I provider leaves the door open for endless coverage discussions in case of accident, but this is not (exactly) what it is about. The insurer s intention is to make sure that he never excludes (or indeed includes) in his policy some risks which he does not know or understand yet, as they constantly evolve with science and technology. 17
this exclusion shall not apply to any claim in respect of: d) loss of life, injury or illness of crew and other personnel on board a vessel named herein, and e) wreck removal of a vessel named herein To complicate things further, certain claims are still treated as standard primary claims even when they arise solely out of the specialist nature of the works. These claims include loss of life, injury or illness claims from crew and other personnel on board your vessel, wreck removal. Some insurers go as far as covering oil pollution claims, which makes sense for claims under the bunkers blue card. 18
Specialist operations The matter is therefore very much subject to interpretation and to the commercial decision of your P&I insurer. The interpretation sometimes even depends on who you speak to, even within a given insurance company, depending on an underwriter s personal experience. For example, some might view anchor handling or even operating a mono buoy as specialist operations whilst other P&I insurers may take the view that a tug does not just tow and that if one insures a tug, it should be taken for granted that these tasks will not be treated as specialist operations. 19
The reaction of the insurance market: Some providers offer ready to go packages (mostly designed for the offshore industry) that are attractive, but inevitably run the risk of selling more insurance than the ship owner really needs. For instance, a basic package will include the use of ROVs, which is not necessarily what is needed when driving piles into a shallow river. On the other hand, you may find more simple clauses like the following example which although they seem austere at first sight have the advantage of being a blank canvass ready to be painted to the clients exact needs.
M/V ----- Specialist Operations Clause In respect of the above mentioned vessel(s) only, coverage is hereby reinstated in respect of those liabilities excluded as specialist operations as a result of the vessel's involvement in operations under contract with reference: [The contract under which the subject vessel performs such Specialist Operations having been to provided to the P&I insurance by ----- dated -----.] Limit of Liability: USD ----- any one accident or occurrence. Deductible: USD ----- any one accident or occurrence. Notwithstanding the limit of liability stated herein, in the event that a single incident gives rise to a claim under the terms of both this clause and the subject vessel's other conditions of cover (in accordance with the policy schedule), the maximum recovery under this policy shall not exceed the Combined Single Limit of Liability of USD ----- any one accident or occurrence stated within the policy schedule. Premium: USD ----- in full. 21
Specialist operations Would you say that the following are specialist operations? 22
SPECIALIST OPERATIONS IN THE OFFSHORE INDUSTRY Survey, data acquisition and core sampling 23
SPECIALIST OPERATIONS IN THE OFFSHORE INDUSTRY Drilling 24
SPECIALIST OPERATIONS IN THE OFFSHORE INDUSTRY Well stimulation 25
SPECIALIST OPERATIONS IN THE OFFSHORE INDUSTRY Precision stone dumping over exposed pipelines and cables 26
SPECIALIST OPERATIONS IN THE OFFSHORE INDUSTRY Construction, installation or maintenance work 27
SPECIALIST OPERATIONS IN THE OFFSHORE INDUSTRY Operating mono buoys 28
SPECIALIST OPERATIONS IN THE OFFSHORE INDUSTRY Anchor handling 29
SPECIALIST OPERATIONS IN THE OFFSHORE INDUSTRY Professional oil spillage response training 30
SPECIALIST OPERATIONS IN THE OFFSHORE INDUSTRY Remotely operated vehicle (ROV) and Diving Support 31
SPECIALIST OPERATIONS IN THE DREDGING INDUSTRY Dredging using barges and excavators 32
SPECIALIST OPERATIONS IN THE DREDGING INDUSTRY Dredging, using cutter suction dredgers, trailing suction hopper dredgers, or even DOP dredgers 33
SPECIALIST OPERATIONS IN THE DREDGING INDUSTRY Depositing of soil 34
SPECIALIST OPERATIONS IN THE CONSTRUCTION INDUSTRY Pile driving 35
SPECIALIST OPERATIONS IN THE CONSTRUCTION INDUSTRY Pile driving 36
SPECIALIST OPERATIONS IN THE CONSTRUCTION INDUSTRY Construction of offshore windfarms 37
SPECIALIST OPERATIONS IN THE CONSTRUCTION INDUSTRY Construction but also demolition 38
SPECIALIST OPERATIONS IN THE CONSTRUCTION INDUSTRY Cable or pipe laying 39
SPECIALIST OPERATIONS IN THE CONSTRUCTION INDUSTRY Ploughing 40
SPECIALIST OPERATIONS IN THE MOORING MAINTENANCE INDUSTRY Lifting submerged equipment 41
SPECIALIST OPERATIONS IN THE MOORING MAINTENANCE INDUSTRY Delivering fenders 42
SPECIALIST OPERATIONS IN THE SALVAGE INDUSTRY Salvage 43
SPECIALIST OPERATIONS IN THE SALVAGE INDUSTRY Wreck removal of ships 44
SPECIALIST OPERATIONS IN THE SALVAGE INDUSTRY or planes.. 45
SPECIALIST OPERATIONS IN THE TOWAGE INDUSTRY Non customary towage of pipes with limited and temporary buoyancy 46
Specialist operation, conclusion It is strongly recommended to seek advice from both your broker and your P&I insurer, even after the policy has been subscribed. This is an opportunity to discuss extended covers and in fact any insurance issue, before an incident happens. 47
SPECIALIST OPERATIONS Questions? 48