Maritime Law Association of the US IberoAmerican Institute of Maritime Law October 2013 By Stirling...

Maritime Law Association of the US IberoAmerican Institute of Maritime LawOctober 2013

By Stirling Leech Clyde&Co – Brazil

CURRENT CHALLENGES IN PROVIDING INSURANCE COVERAGE IN MAJOR ENVIRONMENTAL DISASTERS – OVERVIEW OF AVAILABLE/RELEVANT COVERAGE

Introduction Introduction Offshore and Onshore

Shipping Sector

P&I Insurance Coverage

Pool cover

Extra or fixed premium cover

Offshore packages

Oil & Gas Sector

Oil & Gas Insurance Coverage

Operator’s cover

Contractor’s cover

Introductioncont/dIntroductioncont/d

Oil & Gas Insurance Coverage – cont/d

Insurance on Mobile Offshore Drilling Units (MODUs)

Control of Well insurance

Offshore construction insurance

Operating insurance

Business interruption, delay and start-up and loss of life

Offshore liability risks

Pollution insurance

Onshore/downstream insurance coverage

Sufficiency/adequacy of insurance coverage to meet major environmental disasters

The Underlying General Shipping Sector

The Underlying General Shipping Sector

Transportation of crude, other fuel oils and gas

Bunker spills

Hazardous and noxious substances

Wreck removal

Salvage

“Costa Concordia”

Debate

Spiralling costs

Who bears them?

The offshore shipping sector

Specialised vessels

P&I Insurance CoverageP&I Insurance Coverage

Regular Cover P&I Pool pollution limits. Contracted liability and “knock for knock”

agreements Exclusion from poolable cover and fixed

premium/limit contracted extension cover Offshore packages

Skuld, Gard & Standard P&I Clubs

Oil and gas drilling and production operations

Tug and supply vessels, construction vessels, pipe and cable laying vessels, dredgers, pile driving vessels

Limits – lower

FPSOs and FPUs etc

Other fixed premium cover

The Oil and Gas Sectors The Oil and Gas Sectors

Buyers of insurance basically:

Oil companies

Contractors

Their roles The oil companies

The JVA

• Specifies insurance required

• Typically, Operator to arrange insurance programme

• But each company may purchase insurance The Contractors

Specialist companies

Responsible for insuring their own vesels and equipment

Responsibilities and liabilities defined in service contract

Risk allocation

Non P&I Offshore Insurance Coverage

Non P&I Offshore Insurance Coverage

(a) Mobile Offshore Drilling Units (MODUs)

• American Institute Time Clauses, the Norwegian Plan, LMOMUF

• Limited amount of liabity coverage

• Role of P&I Clubs

(b) Control of Well insurance

• Blow-outs

• Operator procures insurance

• EED and LSW wordings

Non P&I Offshore Insurance Coverage

Non P&I Offshore Insurance Coverage

(b) Offshore Construction

• Design Engineering, FEED contract, construction and installation

• Allocation of risk

• Indemnities irrespective of fault

• Exceptions for gross negligence or wilful misconduct

• Responsibility for providing CAR insurance

• Contractor or Operator?

- Contractor possibly if one EPC contract

- Operator controlled approach more likely

• LOGIC

• P&I risks to be insured by Contractor

• WELCAR policy form 2001

• Pollution coverage

• WELCAR 2012

Non P&I Offshore Insurance Coveragecont/d

Non P&I Offshore Insurance Coveragecont/d

(d) Operating Insurance

• Package Policy

• LSPF stand alone form

• Institute Time Clauses Hulls – Port Risks

(e) Business Interruption, Delay and Start-Up, Loss of Hire

• Not all companies purchase

• “P-36” platform loss

(f) Offshore Liability Risks

• Myriad of exposures

• Complex area

• Package policies traditionally with exclusions and buy-backs

Non P&I Offshore Insurance Coveragecont/d

Non P&I Offshore Insurance Coveragecont/d

(f) Offshore Liability Risks – cont/d

• Stand alone wordings

• LSW 244 and 245

• London ‘Claims Made’ wording (JL 2003/007)

• ‘Occurrence’ form (JL 2003/006)

• London CGL wording LPO 418(B)

• Exclusions

Non P&I Offshore Insurance Coveragecont/d

Non P&I Offshore Insurance Coveragecont/d

(g) Pollution insurance

• Operators generally accept responsibility for pollution risk from their fixed and floating facilities etc

• Contractor accepts liability for bunker spills and leaks of fuel from MODU and construction vessels

• Normally provided under control of well policies and under CAR or umbrella liability policies

• Stand alone wordings for e.g. OPA/OPOL

• OIL and WQIS

Non P&I Offshore Insurance Coveragecont/d

Non P&I Offshore Insurance Coveragecont/d

Onshore/downstream insurance

Encompasses:

All aspects of oil, gas and petrochemical operations such as refining of crude, cracking of hydrocarbons into petrochemicals, transportation and storage

Catastrophe, liability/pollution and business interruption cover

OIL and other market players

Conclusions and Sufficiency/Adequacy of Coverage

Conclusions and Sufficiency/Adequacy of Coverage

Coverages developed significantly recently, especially with increased number of specialized vessels and FPSOs and general offshore activity

Sufficiency/adequacy of coverage?

- Dovetailing contractual wordings/extra contractual liability risks against coverage

- Sufficiency of different insurance wordings? Too many wordings but not enough dovetailing together?

- Increasingly higher exposures

- Pollution

- Fines

- Criminal

- Wreck removal

- FPSOs and FSUs covered by CLC/Fund Conventions?

Thank you

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© Clyde & Co LLP 2009

Contact:Contact: Stirling Leech Partner

Clyde&Co Rua Padre João Manoel 199/2ºConj. 24, Cerqueira CésarCep 01411-001 Sao PauloTel: (11) 2768-8720Fax: (11) 2768-8723

Rio de JaneiroTel: (21) 2217-7716Mob: +44 (0) 7879 032 042E-mail: stirling.leech@clydeco.com