Commentary

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Section 1: General rules relating to the scope of the insurance

  • Clause 18-1. Scope of application and applicable rules

    This provision was amended in 2016.

    The first sentence establishes that the rules in Part One shall apply unless specifically amended under this Clause. It is no longer deemed necessary to state in cl. 18-1 that Chapter 18 only applies to the extent it is set out in the insurance contract. The 1996 Commentary to the previous Cl. 18-1 stated that “there is no clear distinction between ordinary ships that are insured under the general hull insurance conditions of the Plan, Chapters 10 to 13, and offshore structures that are insured in accordance with Chapter 18”. Developments since 1996 have demonstrated that insurance of conventional trading and passenger vessels is a complete different risk from insurance of MOUs. The insurance market is today very much aware of the different risks involved and will know when they are insuring MOUs which appropriately should be covered on the basis of Chapter 18. If the parties should have forgotten to expressly incorporate Chapter 18 in an insurance for MOUs covered on the basis of the Plan, the presumption must be that the insurance is intended to be on the basis of Chapter 18 unless it is apparent from the wording or implied terms that the parties did not so intend.

    MOUs are not defined in the Plan but in practice, however, Chapter 18 will first and foremost be used for vessels and other mobile installations that are used for the exploration for, exploitation or storage of natural resources offshore, or in support of such activity. The designation of the insurance as an insurance of “mobile offshore units” means that it accordingly covers both various forms of vessels operating on the continental shelf and various forms of mobile units. It is irrelevant whether the unit is designed like a ship and is a ship (e.g. a drilling vessel or a Floating Production Storage and Offloading vessel “FPSO” or a Floating Production Storage vessel “FPS”), or if it falls outside the normal concept of a ship, e.g. jack-up or semi-submersible units.

    The heading of Chapter 18 contains the word “mobile”. This means Chapter 18 is not intended to be used for fixed or stationary installations, e.g. platforms resting on poles rammed into the seabed. Other types of stationary facilities, e.g. pipelines are not intended to be insured on the basis of Chapter 18. However, Chapter 18 is not based on any such absolute distinction between mobile and stationary facilities or structures. The stationary platforms and structures which were the solutions for offshore field developments up until mid 1990s are no longer the chosen concept for new developments, particularly in frontier areas where there is no existing infrastructure in place, and when the field is in deep water. Newer fields have therefore been developed with floating MOUs connected to various equipment placed on the seabed. This underwater equipment may also belong to the owner of the MOU and is then normally comprised by the insurance of the MOU. Chapter 18 has been amended as appropriate to adapt to applying also to such underwater equipment belonging to the MOU. Traditional fixed installations are for the most part owned by the licence owners and insured under their comprehensive energy insurance arrangements. By fixed installations are thus meant steeljacket or concrete gravity base installations which are placed in the field to be used throughout the life of the field. However, there is no point in drawing a sharp distinction between a mobile and a fixed installation. The parties must evaluate together which insurance conditions that are best suited for insuring their interests.

    Cl. 18-1 (a) Insurable value/Sum insured/Ref. Cl. 2-2 and Cl. 2-3
    In previous versions, Cl. 18-1, letter (a), sub-clause 1, stated that the sum or sums insured shall be deemed to constitute the assessed insurable value(s) unless circumstances indicated otherwise. This provision was in 2016 made general and moved to Cl. 2-2, sub-clause 2, and thus deleted in Cl. 18-1 letter (a). As a consequence, the remaining sub-clauses were renumbered.  

    Cl. 18-1 (a) sub-clause 1 now opens for the parties to agree separate sums insured for the MOU and disconnectable equipment. The reason is that owners of certain MOUs, in particular FPSOs, may also own subsea equipment which  isdisconnectable from the unit, and left behind on the offshore field location when the MOU is temporarily away from the location. Such equipment, consisting of flexible risers, umbilicals, mooring lines and a buoy, can often represent significant values. When the MOU and such subsea equipment are disconnected and the MOU is away from the field they are no longer exposed to common risks of loss or damage as would be the case when together at the field location. A serious loss to the MOU or the subsea equipment whilst disconnected may render the damaged unit/equipment condemnable if only the value of the unit or the subsea equipment is taken into consideration and not the combined values.

    Cl. 18-1 (a) sub-clause 2 provides that when the parties have agreed to insure with separate values, the insurance operates as separate insurances for the MOU and the disconnectable equipment respectively.

    Cl. 18-1 (a) sub-clause 3 provides that when the MOU is within the field at which it is to operate, the MOU and its equipment are considered one insured object with the combined scheduled values as the sums insured.

    Cl. 18-1 (b) Perils insured against/Ref. Cl. 2-8 and Cl. 2-9
    Cl. 18-1, letter (b), sub-clause 2, was added in 2016. 

    Cl. 18-1, letter (b), sub-clause 1, contains a limitation in the cover of perils and must be seen in conjunction with the rules relating to perils insured in Cl. 2-8 to Cl. 2-10. The Plan has two main types of perils: “marine perils”, cf. Cl. 2-8, and “war perils”, cf. Cl. 2-9. The rules in Chapter 18 are applicable to insurance against marine perils, as well as to insurance against war perils. If no special agreement concerning perils insured against has been made, under Cl. 2-10 the insurance will only cover “marine perils”. There is obviously nothing to prevent one and the same insurance contract covering marine perils as well as war perils.

    An insurance “against marine perils” shall be an “all risk” insurance from the outset: The insurance covers all perils to which the interest is exposed, unless specific exclusions are stated. The exclusions from marine perils appear from Cl. 2-8 (a) to (d). The exclusion in Cl. 18-1 (b) comes as an addition to these exclusions.

    By contrast, an insurance against war perils only covers “named perils”, i.e. the war risks insurance only covers the perils “named” in Cl. 2-9. Cl. 18-1, letter (b), is a relevant exclusion also under a war risks insurance if the blow-out and thus the need for drilling a relief well should have its root cause in a “named” war peril as defined in Cl. 2-9.

    The provision in Cl. 18-1 letter (b), sub-clause 1, must also be seen in conjunction with the limitations of the perils insured against which follow from Section 2 of Chapter 18 on H&M insurance, in particular the exclusion for loss due to ordinary use in Cl. 18-4 (cf. Cl. 10-3), and the exclusions for damage due to inadequate maintenance in Cl. 18-19 (cf. Cl. 12-3), and error in design, etc., in Cl. 18-20 (cf. Cl. 12-4).

    The background for the provision is the risk of blow-outs, i.e. uncontrolled ejecting of drilling fluid through the drilling hole and into the sea or the air, followed by uncontrolled emission of oil, gas or fluid from the well and into the sea or the air caused by a pressure from the underground. Such blow-out may be followed by ignition of the well fluids and explosion and fire. Blow-outs will often need to be stopped by the drilling of a relief well. It is perfectly conceivable that an insured drilling unit may be requested to drill one or more such wells in order to assist another unit/installation, and it may, depending on the prevailing circumstances, be natural, or even necessary, for such a request to be complied with. Commercial vessels in distress threatening life, environment and property requiring emergency salvage or rescue operations are a natural parallel. For the insured unit to embark on a salvage operation will very often represent a relevant alteration of the risk under the hull insurance, cf. Cl. 3-8 and Cl. 3-9. However, according to Cl. 3-12, sub-clause 2, the insurer automatically covers the added risk involved in “measures taken for the purpose of saving human life” or by “the insured ship salvaging or attempting to salvage ships or goods during the voyage”. A salvage operation which consists in the drilling of a relief well is, however, considered a high risk operation. The risk to the salvaging unit is not comparable to a salvage operation in commercial shipping. It is first and foremost the licensees'/operator’s interests which are at stake: the risk of the oil well being destroyed and the risk of extensive pollution liability, etc. The consideration of mutuality which may be said to be the background for Cl. 3-12, sub-clause 2, in ordinary hull insurance is missing here. The provision therefore excludes this special “salvage risk” from the perils insured against. This obviously does not preclude the possibility of having the risk covered under a separate agreement, possibly subject to an additional premium.

    The exclusion for the drilling of a relief well must apply, even if the drilling is ordered by the authorities. According to Cl. 2-8 (b), third sentence, “measures taken by a State power for the purpose of averting or limiting damage” are admittedly covered by the insurance, provided the risk of such damage is caused by a peril covered by the insurance against marine perils. However, the provision in sub-clause (b) must, as a special Clause, prevail over the general provision in Cl. 2-8. It is therefore irrelevant for the insurer’s liability whether it is the operator who decides that a relief well shall be drilled, or whether the operator is acting on the instructions of the authorities.

    Earthquake and volcanic eruption are not excluded perils.

    Cl. 18-1, letter (b), sub-clause 2, makes it clear that construction risks insurances pursuant to Section 6 also cover strike and lock-out in the same way as construction risks covered pursuant to Chapter 19, cf. Cl. 19-1, see further the Commentary to Cl. 19-1. 

    Cl. 18-1 (c) Alteration of the risk/Ref. Cl. 3-8
    Storage and use of explosives or radioactive material is a perfectly normal occurrence during operations on the Continental Shelf and therefore constitutes a foreseeable risk, which the insurer can calculate when entering into the contract.

    Cl. 2-8 relating to marine perils contains no limitation concerning damage resulting from the storage or use of explosives. Explosion, fire and other damage resulting from such storage or use must therefore be covered in the normal way, unless the assured has breached any of the obligations in Chapter 3. However, Cl. 2-8 (d) nos. 1 to 4 contain general exclusions for various types of nuclear-related risks. If the storage or use of radioactive material causes radiation, radioactive contamination or any other nuclear-related risk as specified in these provisions, resulting loss or damage will therefore fall outside the scope of cover. The same applies to insurance against war risks, see Cl. 2-9, sub-clause 2 (b), nos. 1 - 4.

    Cl. 18-1 (d). Loss of the main class/Ref. Cl. 3-14
    This sub-clause (d) corresponds to Cl. 3-14 with some amendments to adapt to normal modus of operations for MOU. The heading and wording of Cl. 3-14 was amended in the 2013 Plan emphasising that Cl. 3-14 applies only to loss of the main class as opposed to loss of optional additional class notations. The wording of sub-clause (d) is amended in the same way. See further the Commentary to Cl. 3-14.

    Sub-clause (d) expressly states that the insurance does not terminate until the on-going operation can be terminated in accordance with applicable regulations and the field operator’s consent and arrives at the nearest safe port in accordance with the insurer’s instructions. Thus it is safeguarded that the assured is protected by the insurance until he safely can terminate the on-going operation and bring the MOU to a for the MOU safe port as instructed by the insurer. If the class can be restored while the MOU is on the field or off-shore, there should not normally be any need for the insurer to require the assured to bring the MOU into port. But if the insurer all the same should require surveying the MOU in port, the insurance will continue until the MOU has arrived at the port designated by the insurer.

    Cl. 18-1 (e).  Safety regulations/Ref. Cl. 3-22 and Cl. 3-25
    A new no. (3) was added to sub-clause 1 in 2016. This is relevant for construction risks insurance covered pursuant to Section 6. A corresponding relevant amendment to sub-clause 2 was made.

    Sub-clause 1 no. (1) provides that the well to which the MOU is connected shall be equipped with blow-out preventer(s) (BOP) or other well pressure control equipment which are wellhead safety devices used to prevent pressure build-up in the well from extending up to the MOU when the primary barriers in the well fail to contain the formation pressure under control and thus prevent surface blow-outs. As mentioned in the Commentary to Cl. 18-4, a blow-out may occur when the drilling reaches a subsurface formation which contains oil, gas or other fluid under higher pressure than the hydrostatic pressure of the drilling fluid in the well. The formation fluids will then flow into the well bore and mix with the drilling fluid and increase the pressure in the well and push up through the hole and via the MOU and into the environment, unless it is stopped by a blow-out preventer. A surface blowout will also involve the risk that the oil or gas may ignite with extensive fire and explosion damage as a result. Some types of loss resulting from such a blow-out will, according to their nature, fall outside the scope of cover under Chapter 18, inter alia liability for personal injury and liabilities in connection with oil spilled into the sea. The MOU itself may be damaged or become a total loss as a result of a surface blow-out. Losses of this nature are normally covered under Chapter 18, subject to the exceptions which follow from  sub-clause (f), cf. also sub-clause (b). It is therefore of the utmost importance for the insurers that all reasonable measures are taken in order to prevent a blow-out. Most important of all in this connection is the use of blow-out preventers.

    Offshore petroleum activities are subject to extensive safety regimes through public authorities regulations stipulate that drilling, well work-over and production operations shall be carried out in a safe manner.

    The requirement is that the well, to which the MOU is connected, shall be equipped with pressure control device on the top of the well when this is actually feasible. The deciding factor as to when the wellhead safety device shall be installed must therefore be what follows from “standard practice”. The same requirement applies to the procedures for the installation, the number and the testing of the device. “Standard practice” means the practice that is common within the offshore industry for the type of well drilling, work-over or production operation and shall as a minimum be in accordance with the requirements of the relevant regulatory authority. As regards the reference to “standard issue” it means that the wellhead safety device shall be of the type which is common for the type of well and operation with the adequate pressure rating as the actual or expected well pressure will require.

    Sub-clause 1 no. (2) contains safety regulations in respect of moves of MOUs. Prior to move, the assured must prepare a move plan, which shall be approved by the claims leader. If an operation manual exists which has been approved by the classification society or regulatory or flag state authorities, it may be used as a basis for the move plan. If no such manual exists, the insurer is entitled to demand that technical expertise be brought in to evaluate the move plan and physical arrangements associated with the move.

    The move plan shall be adhered to during the move and serves as a special safety regulation under Cl. 3-25, sub-clause 2, cf. sub-clause (b), second sentence.

    Sub-clause 1 no. 2 (a) limits the requirement for a separate move plan to such MOUs that do not move by own propulsion but require assistance of other vessels, tugs, heavy-lift vessels and the like to move. The market practice has developed that for shorter moves within a confined area which are routinely carried out specific move plans do not have to be submitted to the claims leader for approval and in such cases an agreed distance of move is agreed as between insurers and the assured. A panel of approved marine warranty surveyors to review move plans and give recommendations are often written into the insurance contracts.

    Sub-clause 1 no. 2 (b) is new and in response to the development of new practice in the deep water drilling industry to move the MOU over shorter distances without pulling up the whole length of the riser string and the BOP before moving the MOU. Although the newer MOUs are specially equipped to move with riser and BOP hanging under the MOU, insurers consider the operation may represent an increased risk and require such moves to be specially reviewed and approved. Shorter moves between wells within the same offshore field, often within the industry referred to as “well-hopping” which are done routinely, do not require specific move plans to be prepared for each move provided, however, that the MOU is technically equipped to do such move with riser and BOP suspended. Insurers’ main concern about such operations, in addition to the MOU’s capability to move with the riser and BOP suspended, is the increased fatigue stresses that the riser string is exposed to during such moves. The move plan shall in particular contain due consideration of the remaining fatigue life in the riser system before the move, the stresses during the move and remaining fatigue life after the move. Another concern is the risk of grounding or striking seabed infrastructure of any kind, for which the sailing route shall be part of the move plan with minimum clearances to be defined and approved by claims leader, an appointed warranty surveyor or other technical expert approved by the claims leader.

    If the move entails a change of the area of operation, both parties may demand an adjustment of the premium according to Cl. 18-1, sub-clause (h).

    Sub-clause 1 no. (3) is applicable for construction risks covered pursuant to Section 6. Under this provision the assured is obliged to appoint a surveyor, approved by the claims leader, to review the project plan and procedures for moves and lifts and, when applicable, offshore installation of components or modules. The surveyor shall draw up an initial risk assessment on the basis of his initial review. The claims leader is granted the authority to approve the surveyor on behalf of all participating co-insurers. On the basis of the surveyor’s initial risk assessment, the claims leader is authorised to approve the further scope of survey that is deemed required from the insurers’ point of view to identify the risks involved in the various phases of and operations during the project. If the project in the view of the claims leader does not require any such survey, the claims leader may, on behalf of all participating co-insurers, waive the right to demand such survey. 

    The claims leader may for certain operations, subject to the further scope of survey, demand that the surveyor shall issue a certificate of approval when he is satisfied with the preparations for the particular operation, e.g. a heavy lift involving risk for substantial damage if something goes wrong. If the assured commences the operation in question before the certificate of approval is issued, he will be in breach of the safety regulation.

    Sub-clause 2 of Cl. 18-1, letter (e), provides that the regulations in sub-clause 1 no. (3) shall be regarded as safety regulations. With regard to no. (3), as opposed to nos. (1) and (2), it is expressly referred to Cl. 3-25, sub-clause 1. This is done to make it clear that for breach of the regulations in no. (3), the ordinary rules of identification under Cl. 3-36 to Cl. 3-38 shall apply and not the extended identification pursuant to Cl. 3-25, sub-clause 2, which is applicable for breach of the regulations in nos. (1) and (2). 

    Cl. 18-1 (f). Measures to avert a blow-out, etc./Ref. Cl. 4-7 to Cl. 4-12
    The provision limits the insurer’s liability for costs incurred in controlling blow-outs and cratering, or fire in connection with a blow-out.

    As regards the term “blow-out” reference is made to the Commentary on Cl. 18-1 (e) sub-clause (1). “Cratering” is an after-effect of a blow-out in that a submarine crater is formed in the subsoil around the well due to uncontrolled flow of oil, gas or fluid in the well. If oil or gas is suddenly released in large quantities, the pressure conditions in the subsoil may change to such an extent that the area around the oil well collapses so that an underwater crater is formed. For an MOU resting on the sea bottom (a totally submersible or jack-up structure) such “cratering” may result in the foundation being pulled away with the result that the MOU loses its stability and topples.

    Blow-out and cratering of a well, possibly accompanied by fire, will first and foremost be a great concern for the licensees and the exposure they face from such incident. There will be a risk of the loss of human life and economic assets, in addition to a major potential pollution liability. Extensive measures will be initiated to get the flow of oil, gas or other fluid under control and stopped. The licensees are the ones who bear the liability for any pollution emanating from the well fluids, etc., and they are the ones to suffer the loss of or damage to the well. Where an MOU is brought into the efforts to fight a blow-out, etc., the regard for the safety of the actual MOU will often merely be a collateral motive. If the Plan’s rules were to be applied in full in such cases, this would require a discretionary allocation of the overall loss in connection with the well control operation among the interests at stake for the owner and the licensees, cf. Cl. 4-12, sub-clause 2. Only the portion attributed to the owner would be recoverable from the hull insurer. However, it would not be easy to carry out such an apportionment, first and foremost because the values of the assets at stake for the licensees (including the potential oil pollution liability) are difficult to estimate. Given that Cl. 18-1 sub-clause (f) excludes this item from cover; the owner has a strong incentive to secure an agreement with the licensees (in practice the operator) to the effect that they shall cover the costs of averting or minimising the loss in connection with a blow-out, etc., in full. This is also in concordance with the allocation of risk normally used in offshore contracts.

    Only measures aimed at gaining control of a blow-out, etc., are covered by the provision. If a fire has broken out on board the MOU as a result of a blow-out, the costs (possibly salvage award) incurred in connection with the fire fighting or the towing of the MOU away from the area of danger, will have to be covered by the insurer under the rules in clauses 4-7 et seq. of the Plan.

    Sub-clause 2 states that loss or damage to the insured MOU is not excluded by virtue of this exclusion. Such loss or damage will be recoverable in accordance with the terms and conditions as otherwise applicable.

    Cl. 18-1 (g) The limit of liability of the insurer/Ref. Cl. 4-18
    Sub-clause (g) is repeating to a large extent verbatim what is provided in Cl. 4-18, but a cap of USD 500,000,000 is put on the cover for costs of preventive measures. Sub-clause (g) is spelling out that it is the cover under the hull insurance that is governed by the Clause. Cover under other types of insurances, namely Loss of Hire insurance (Section 4), and War Risks (Section 5) will be governed by Cl. 4-18 to the extent it is not deviated from in these Sections.

    MOUs with sum insured under the hull insurance of USD 500,000,000 or less will still have available two times the sum insured. If costs of preventive measures exhaust the separate sum insured available for such costs, they may as before be compensated under the sum insured under the hull insurance provided that this sum is not consumed by the damage to or loss of the MOU. For MOUs with a sum insured higher than the limit, costs of preventive measures will be limited to USD 500,000,000, but if this amount is consumed there may of course still be available an un-used part of the sum insured under the hull insurance. If this sum insured is e.g. USD 750,000,000 and the costs of repair only amounts to USD 500,000,000, there will be available to cover costs of preventive measures the remaining un-used USD 250,000,000 under the hull insurance. In this example there will be available altogether USD 750,000,000 to cover costs of preventive measures (USD 500,000,000 limit on costs of preventive measures + USD 250,000,000 from un-used portion of the hull insurance).

    Sub-clause 2 provides for in the same way as Cl. 4-18 that a third separate sum insured shall be available to cover collision liability according to Cl. 18-36 to 18-38. According to Cl. 18-37 this sum insured corresponds to the sum insured under the hull insurance, but it is now also capped at USD 500,000,000 or for 50% of the sum insured whichever is the greater amount, see further the Commentary to Cl. 18-37.

    Thus for MOUs with sum insured under the hull insurance of USD 500,000,000 or less, there will be as before available up to three times the sum insured under the hull insurance. But for MOUs with sum insured under the hull insurance of e.g. USD 1,000,000,000, there will now be two times the sum insured available.

    The reason for introducing these capped/reduced limits is that for MOUs with high values it binds up too much capacity to insure/reinsure an exposure of three times the sum insured. Even if the risk of reaching the theoretical maximum exposure is remote, reinsurers charge premium for making such capacity available. Typically salvage costs are by law limited to 100% of the salved values, which are the values in damaged condition. In serious salvage cases the salved values are therefore normally significantly lower than the insured values as the MOU will have suffered serious damage in order to need salvage assistance. Besides, the salvage awards for values in the hundreds of millions of USD, will never reach 100% of the salved values. Even in complicated and long lasting salvage operations for high value vessels or MOUs, salvage awards will only in rear cases reach as high as 50 % of the salved values. For practical purposes it is inconceivable that anybody will use as much as USD 500,000,000 in costs of preventive measures.

    The same reasoning goes for collision liability. Normally the assured will be entitled to limit liability to sums below USD 500,000,000, and it binds up capacity and costs unnecessary premium to reinsure liability of this magnitude. Besides, collision liability is also covered under the hull interest insurance, cf. Cl. 18-39 (b) with a separate sum insured equal to the sum insured under the hull interest insurance, see further the Commentary to Cl. 18-39.

    If an assured should be required by contract to cover more than USD 500,000,000 for costs of preventive measures and collision liability, the assured must get such excess cover on individual basis.

    Cl. 18-1 (h) The area of operation/Ref. Cl. 3-15
    This Clause was amended in 2016.

    Sub-clause 1 provides that the area of operation is worldwide within the ordinary trading area as defined in Cl. 3-15, sub-clause 1, unless otherwise agreed in the insurance contract. If the assured wishes to operate the MOU in an excluded or conditional trading area, cf. the Appendix to Cl. 3-15, he must notify the insurer in accordance with Cl. 3-15. Any such operation will be subject to Cl. 3-15. However, the maximum ¼ deduction pursuant to Cl. 3-15, sub-clause 3, first sentence, is increased to USD 1,000,000. If the insurer is entitled to any further deduction according to Cl. 3-15, sub-clause 3, last sentence, such deduction comes in addition to the ¼ deduction maximised at USD 1,000,000.

    Sub-clause 2 is edited to fit to the new sub-clause 1 so that if the area of operation shall not be worldwide within the ordinary trading area, but restricted to e.g. a smaller area or one or more specific fields, such area of operation must be set out in the insurance contract. The same goes, of course, if the area of operation shall be within any excluded or conditional trading area. 

    The description may be relatively narrow, e.g. associated with a field, e.g. Ekofisk, or a larger area, e.g. the North Sea or the Gulf of Mexico. If the assured changes the area of operation set out in the insurance contract, this may, depending on the circumstances, represent an alteration of the risk according to Cl. 3-8. The change from one field in the North Sea to another, e.g. from Ekofisk to Statfjord, will normally not represent an alteration of the risk. If, however, the new area of operation is considerably further away, e.g. from the North Sea to the Gulf of Mexico, the consideration may be different, in particular if the move shall take place during a period with a high weather risk, or where it involves an MOU that has to be towed (wet or dry) and the towage is considered particularly risky. If the change of the area of operation represents an alteration of the risk the insurer is entitled to cancel the insurance, cf. Cl. 3-10. If the assured has failed to give notice of the change, and a casualty occurs, the insurer is also free from liability provided that he can prove that he would not have accepted the insurance if he had known about the change. If, however, the insurer would have accepted the insurance even if he had known of the change, but would have agreed different conditions, he will be liable if the casualty was not caused by the change, cf. Cl. 3-9.

    If the insurance contract does not set out the area of operation, the MOU may operate all over the world within the trading area, cf. sub-clause 1 and Cl. 3-15. The move of the MOU from one area of operation to another will in that event not represent an alteration of the risk, as long as the MOU remains within the ordinary trading area. However, it follows from Cl. 18-1 sub-clause (e), (2) that a move of the MOU by other means than by its own propulsion or with its riser and BOP suspended shall be made in accordance with a removal plan approved by the claims leader. This applies irrespective of whether or not the area of operation is stated in the insurance contract. In the event of a breach of this safety regulation, the insurer may be free from liability according to Cl. 3-25.

    Sub-clause 2, first sentence, imposes a duty on the assured to notify the insurer if the MOU is to change its area of operation set out in the insurance contract. If several areas of operation have been agreed, a move between these areas of operation does not give rise to any duty to notify the insurer, but will still require approval according to sub-clause (e), see above. Sub-clause 2, first sentence, does not stipulate any sanctions if the assured fails to give notice of the move of the MOU to an area of operation outside the area agreed with the insurer. However, if the insurer is entitled to charge an additional premium, he may do so retroactively once he gets to know about the move.

    A change of the area of operation may decrease the risk for the insurer. Hence, the second sentence entitles both parties to demand an adjustment of the premium in the event of a change of the area of operation, while the third sentence establishes that in the event of an increase in premium, the insurer must notify the person effecting the insurance not later than 14 days after the insurer has received notice of the changed area of operation.

    Cl. 18-1 (i) Co-insurance and waiver of subrogation of third parties
    An insurance effected on the basis of the Plan automatically also covers a mortgagee’s interest, cf. Cl. 7-1. However, other third parties’ interests are not covered, unless specifically agreed, cf. Cl. 8-1. In connection with the insurance of offshore MOUs there is, however, a need for a more extensive cover of third parties’ interests than what follows from Chapters 7 and 8.

    To the extent that a co-insured third party has ownership interests or other economic interests in the capital value of the insured MOU, a co-insurance will, in addition to protection against subrogation, also afford him insurance cover of the said economic interest. That the said persons have such ownership interests is in particular relevant in connection with various types of equipment covered under the insurance of the MOU. Where the relevant third parties do not have such economic interest, it is the protection against subrogation, and not full scope of the co-insurance cover, which will be the entire purpose of the co-insurance. The need for protection against subrogated claims is related to the fact that the party in question is in such a position that he risks causing damage to the MOU. At the same time the contract between the owner of the damaged object and the person causing the damage will normally contain mutual hold harmless and indemnity provisions, commonly referred to as “knock-for-knock” principle, which means that it is the owner, and not the person causing the damage, who shall cover the damage. The owner has in other words waived the right to hold the contractor, charterer, etc., liable for damage which they may cause to the MOU. The basis of the “knock-for-knock” principle is, however, that the insurer is not entitled to be subrogated to the assured’s claim against the person causing the damage in recourse proceedings, cf. Section 4-3 of the Norwegian Compensatory Damages Act and Cl. 5-13 of the Plan. Protection against subrogation under the insurance therefore becomes an important part of the “knock-for-knock” regulation.

    During the revision of the Plan it was found expedient to distinguish between those situations where there was merely a need for protection against subrogated claims, and those situations where there was a need for more extensive co-insurance status. This has been done by sub-clause 1 regulating the protection against subrogated claims, while sub-clause 2 regulates co-insurance.

    According to sub-clause 1, the insurer waives the right of subrogation against any person causing damage who has contractually disclaimed liability for damage to the MOU and reserved the right to protection against recourse from the insurer. The protection against subrogated claims has in other words been given those persons causing damage who have, on a contractual basis, been given an undertaking that the insurer shall not be entitled to claim against them, and is not given to any specifically named groups of persons. In this way the insurance contract comes in as an extension of the “knock-for-knock” agreements entered into concerning the use of the structure or the equipment in offshore operations. Often the protection against recourse will benefit typically contractors, charterers, or licensees in the area of operation in question. However, the protection may also be extended to others, e.g. another contractor/supplier engaged by the licensees (the operator) to carry out certain services or work in connection with the MOU or other field operations, units or installations within the same field license.

    The provision stipulates the condition that the relevant contractual regulation, where the person causing the damage disclaims liability and reserves the right to protection against recourse, “is regarded as customary in the activities in which the MOU is involved”. Implicit in this condition is first and foremost that protection against recourse shall only be reserved for those groups of persons who normally obtain such protection under the contractual system used in the petroleum industry. The question as to what is “customary” must be evaluated, both in relation to the type of activities in question, and in relation to the geographical area where the MOU is located. In many areas petroleum activities will normally be based on a “knock-for-knock” principle with extensive and relatively clear and unambiguous rules as to who shall be covered by the regulation. However, it is also conceivable that there are areas where such regulation is not customary, in which event this must be decisive. Reference is furthermore made to the Commentary on Cl. 4-15 concerning unusual or prohibited contractual conditions.

    The provision does not state who must have entered into the contract with the person causing the damage. This has been done deliberately. The protection against subrogated claims may be set out in different contracts in the contractual pyramid frequently encountered in the petroleum industry, at the same time as these contracts may have been entered into by different groups of persons. The crucial point is that the person causing the damage is, through such a contract, ensured protection against any subrogated claims from the insurer, and not who is his contracting partner under this contract. The protection for the insurer lies in the fact that the protection against subrogation of the person causing the damage shall be in accordance with customary contractual regulation in the industry, see above. If the insurer wants a more narrow protection against subrogation, he will have to stipulate this in the insurance contract.

    The provision is worded as a traditional waiver-of-subrogation” and may appear, on the plain reading of its wording, to be an absolute waiver of the insurer’s right of subrogation. However, such far-reaching exclusion of liability will not be valid. A person causing damage may not disclaim liability for his own intentional or grossly negligent acts under Nordic countries´ laws, cf. e.g. Section 36 of the Norwegian Contracts Act. In reality, it is therefore Cl. 3-33 of the Plan which will determine the limit of the insurer’s right of subrogation, ref. Commentary to sub-clause 3 below.

    Sub-clause 2 regulates the co-insurance question. However, also here it was decided to tie the insurer’s obligation directly to the persons who on a contractual basis have been given the right to co-insurance under the insurance of the MOU, and not to defined groups of persons. This ensures that the co-insurance satisfies contractual obligations, and at the same time prevents the status of a co-assured being given to groups of persons who in reality have no need for, nor any expectation of, such cover.

    Where a co-insurance is tied to contractual obligations, it is no condition for co-insurance that the co-assured has an economic interest in the insured MOU. It is conceivable that a contract presupposes co-insurance protection also of groups of persons without such economic interests, e.g. a drilling contractor who has no ownership interest in the MOU or any part of the associated equipment. In that event, the full co-insurance protection under Cl. 18-1, sub-clause (i)(2), would not give the co-assured very much more than the limited protection against subrogation according to sub-clause 1. However, often the co-assureds will have such ownership interests, e.g. by owning the equipment they are going to use themselves. As mentioned in Cl. 18-2, sub-clause 1 (b), such equipment will be covered by the insurance, regardless of ownership. In that event, the co-assured has a direct insurance against damage to his own property.

    The co-insurance may also be of significance in connection with the cover of collision liability. If an MOU is chartered on bare-boat conditions, a collision liability will lie with the charterer in his capacity as manager and operator, i.e. employer of the crew of the MOU. Provided that the owner of the MOU is required to co-insure the bare-boat charterer, such liability will be covered under a hull insurance effected by the owner.

    The normal situation will be that the owner of the MOU will act as the person effecting the insurance when an MOU is insured. In that event, he also has status as assured. The provision in sub-clause 2 will in such cases first and foremost be significant for the charterer, including bare-boat charterers, contractors and sub-contractors engaged by the owner. The provision will also encompass the interests of the licensees, including the operator and their contractors who are contracted to perform services on-board in direct connection with the MOU operations, provided that they have in contracts with the owner or others in the chain of contracts with the owner have reserved the right to co-insurance under the insurance of the MOU. If, in exceptional cases, the insurance is effected by a charterer, contractor/sub-contractor or licensee/operator, the owner of the MOU will in the same way be co-insured, provided he has a contractual right to status as co-assured under the insurance.

    As in sub-clause 1, sub-clause 2 stipulates a prerequisite that the contractual regulation of a co-insurance must be “customary in the activities in which the MOU is involved”. In relation to the co-insurance protection it is, however, not sufficient to have a liability regulation based on a “knock-for-knock” principle. The contracts must in addition normally contain a requirement for co-insurance protection of the relevant group of persons. This question will first and foremost be significant where the relevant co-assured has an economic interest in objects covered by the insurance. If no such interest exists, he will normally be sufficiently protected through the waiver of subrogation in sub-clause 1.

    Sub-clause 2, second sentence, contains a subsidiarity regulation and establishes that the co-assured’s cover under the insurance of the MOU is subsidiary to any insurance effected by the co-assured himself. One of the purposes of the co-insurance clauses in contracts is to avoid double-insurance. If the co-assured has nevertheless taken out a separate insurance against the same risks, there is no reason why the loss, damage or liabilities shall also be covered under the insurance of the MOU.

    Co-insurance under sub-clause 2 follows the rules in Chapter 8.

    The new sub-clause 3 in the 2013 Plan regulates that the subrogation protection and co-insurance rights of third parties under this Clause shall under no circumstances be any broader than what has been agreed under the relevant contracts under which such rights and protections accrued. This means that the third-party who is protected by the waiver of subrogation or has status as co-assured, does not have wider protection or rights against the insurers than he has against the owner of the MOU under the contracts or at law.

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    Clause 18-1. Scope of application and applicable rules

    The rules in Part One shall apply with the following amendments: Insurable value/Sum insured/Ref. Cl. 2-2 and Cl. 2-3 MOUs which can disconnect from offshore field equipment may be scheduled in the insurance contract with separate sums insured for the MOU and  the disconnectable equipment. When t...