Commentary

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Section 2-1: General rules relating to the scope of the H&M insurance

  • Clause 18-2. Objects insured

    This Clause corresponds to Cl. 18-2 of the 1996 Plan but was edited in the 2013 Plan.

    This provision is divided into two and patterned on Cl. 10-1 and Cl. 10-2. Cl. 18-2 regulates the objects of the insurance, while the cover of objects removed from the MOU is contained in Cl. 18-3.

    Sub-clause 1 (a) provides that the insurance first and foremost covers the MOU stated in the insurance contract. The types of MOUs which are normally covered under this Chapter are described in further detail in the commentaries to Cl. 18-1.

    Damage to or loss of the MOU will first and foremost affect the owner, and he is the primary assured. Any mortgagees are automatically co-assured under the rules in Chapter 7. However, a number of other persons will be co-assured under the insurance contract, see Cl. 18-1, sub-clause (i)(1), and Chapter 8 of the Plan. The owner will also normally be the person effecting the insurance. However, insurance under Chapter 18 can also be effected by others, e.g. a bare-boat charterer or manager. In those cases the owner will normally be co-assured.

    As a rule, a separate insurance will be effected for each individual MOU, but several MOUs may also be insured collectively. If the same insurance contract is to cover several MOUs, an (agreed) insurable value will be stated for each MOU. A natural interpretation of such agreement is that each MOU shall be regarded as being insured separately. A corresponding interpretation is natural where separate insurable values are agreed for equipment, machinery, etc.

    The fact that individual MOUs s (possibly parts of an MOU) are insured separately will in the first place be of significance in the event of a total loss. It will be sufficient that the conditions for compensation for total loss (e.g. the condemnation conditions) are met for the individual insured object. The same applies to Cl. 6-3 on premium in the event of total loss. Furthermore, a deductible according to Cl. 18-34 shall be calculated separately for each insured object.

    According to sub-clause 1 (b), which has been amended from earlier versions of the 1996 Plan, the insurance also covers machinery, equipment, plant and spare parts for structure, machinery and equipment. The term “spare parts” concords with the conception in practice that equipment included spare parts.

    Point (1) of sub-clause 1 (b) has been rewritten in the 2013 Plan in accordance with Cl. 10-1 and modified for MOUs. The provision establishes that only machinery, equipment, plant and spare parts which belong to the assured, or which have been borrowed, leased or purchased with a sales lien or similar encumbrance, are covered. The provision reflects the fact that equipment used in the petroleum industry often has different owners; it may belong to the owner of the MOU, the licensee for whom the MOU is carrying out contract work/operation, a charterer of the MOU or an independent contractor. Often certain parts of the equipment will belong to one party, while other parts of the equipment will belong to others.

    The term “assured” automatically includes anyone who is co-assured under the insurance. In other words, all equipment on board which is either owned by or in the care, custody or control of the co-insured persons in their capacity of borrower, lessee or purchaser under a vendor’s lien, is covered by the insurance.

    If the person operating the MOU leases the equipment and operates the equipment himself, the owner of the equipment will normally be co-assured. By contrast, a firm or a person who or which is subcontracted by the contractor and operates his or its own equipment, e.g. a divers’ firm with its own diving equipment, will normally not have the status of co-assured. If, as an exception, such a firm should have such status, the equipment will be covered under Cl. 18-2 (b). On the other hand, equipment which belongs to the crew or other personnel of contractors, license operator or third parties on-board the MOU will always fall outside the scope of cover.

    Point (2) in sub-clause 1 (b) provide cover in general for all machinery and equipment etc. listed under (b) regardless of whether it is on board, above water or subsea or in the well.

    Given that all equipment is covered, it goes without saying that this includes drilling equipment, even if this is not explicitly mentioned. The drill string and safety equipment against blow-outs located in the water are therefore also covered. However, the cover of the drill string is subject to important limitations, see Cl. 18-22.

    The provision will not cover subsea equipment which are either left on the seabed when the MOU leaves the place of operation, or which are launched in advance of the MOU’s arrival on location unless such equipment is scheduled separately as per Cl. 18-1 (a), paragraphs 2 and 3. Anchors, anchor chains, etc. which are cast in advance are, however, covered under Cl. 18-3, sub-clause 1 (b), and for blow-out preventers an extended cover is given in Cl. 18-3 (c).

    Sub-clause (c) is new, but concords with Cl. 10-1, sub-clause 1 (c), according to which the hull insurance covers bunkers and lubricating oil on board.

    Sub-clause 2 contains certain limitations of the cover of accessories. Sub-clause 2 (a), in accordance with the principle in Cl. 10-1, sub-clause 2, excludes certain articles of consumption from the scope of cover. The assumption is that such articles will be covered under a special equipment insurance. Sub-clause 2 (b) excludes helicopters from the cover. Helicopters may be covered by the term “equipment … on board” in sub-clause 1 (b), and in the absence of a specific exclusion, they could therefore come within the scope of cover, provided they were owned, etc. by one of the assured. However, the natural solution is for helicopters with equipment and spare parts to be covered under a separate aircraft hull insurance. The exclusion is general and also cover helicopters which land on the MOU due, for instance, to engine problems.

    Sub-clause (c) excludes “blueprints, plans, specifications, logs, etc.” including “copies” cf. the term “etc”. The exclusion covers various documents and records which may be of considerable value (in particular the logs kept of drilling operations may contain very valuable information about the geological structure of the seabed and accordingly concerning the probability of finding petroleum in the area. The reason why the documents are nevertheless excluded from cover is partly difficulties in agreeing on their value in terms of money, partly the possibility which the interested parties have of continuously transmitting important data to shore. Much of the logs and data which used to be paper documents are now kept as digitally stored data. The exclusion is equally applicable to such digitally stored data/information; however, the hardware on which such data/information is stored on, including the software, is nevertheless covered but only for the cost of replacement. Costs or recovering digital data/information will thus not be recoverable under the insurance.

    Sub-clause 2 (d) excludes mini-submarines and remotely controlled underwater equipment (Remote Operated Vehicles) whilst in operation. This type of equipment is basically covered by sub-clause 1 (b) (2), cf. “under water”. However, the most expedient solution is for such equipment to be covered under a separate insurance, because practice as regards the use of the equipment varies. Submarines, etc. are therefore only covered under the MOU’s insurance up until the time where they may be said to be “in operation”. Normally, the object is deemed to be “in operation” when rigging, lifting, etc. starts. There is in other words no requirement that the object shall be removed from the MOU in order for it to be deemed to be “in operation”.

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    Clause 18-2. Objects insured

    The insurance covers: the MOU’s hull and superstructure, all its machinery, equipment, plant and spare parts which: belong to the assured or have been borrowed, leased or purchased with a vendor's lien or similar encumbrance, and are on board, above water, subsea or in the well, bunkers and...

  • Clause 18-3. Objects temporarily removed or separated etc. from the MOU

    This Clause corresponds to Cl. 18-3 of the 1996 Plan but was edited and amended in the 2013 Plan.

    The provision supersedes the provision relating to “insurance of objects removed from the ship” in Cl. 10-2, which does not quite fit in with insurance of MOUs.

    Sub-clause (a) corresponds to Cl. 10-2 for hull insurance of ships.

    This part of the insurance covers in the first place machinery and equipment as well as spare parts for the structure, machinery or equipment, if the objects are on board a “vessel, structure or fixed installation” which is moored to or is in the vicinity of the insured MOU and has been used in connection with that structure, cf. point (1). On this point there has thus been a certain extension. However, as the insurance of objects removed from the structure is limited, in terms of function as well as location: the vessel/structure/installation in question must be used in conjunction with the operations carried out by the insured MOU, and must either be moored to the insured MOU or be in its vicinity.

    Secondly, the insurance of objects removed from the MOU covers machinery, equipment, etc., which have been temporarily removed from the MOU for repairs, rebuilding, storage, etc., cf. point (2). The cover includes transport to and from the MOU in connection with work or storage as mentioned. However, only objects which have been on board, cf. “removed”, are covered. The scope of cover consequently does not comprise new equipment in storage at the base and in transit for the first time to the MOU. However, a certain cover of such objects is provided in point (3), cf. below. The insurance of objects removed from the MOU further does not cover - subject to the exceptions which follow from sub-clauses (b) and (c) - equipment which is left behind when the MOU has to leave the place of operation temporarily because of repairs of damage, etc.

    The third element of the insurance of machinery, equipment, etc., removed from the MOU covers storage which falls outside the scope of point (2). This part of the insurance is new. The cover includes storage of the removed object, regardless of the purpose of the storage or its duration. Nor is there any requirement that the stored object must be removed from the MOU.  New objects, which were purchased for the MOU, but which are kept in storage before being used on board, are therefore also included. A fundamental prerequisite for cover is, however, that the object concerned “belongs to” the insured MOU. If the object can be used on several MOUs, and it has not been clearly decided during the storage period that it is going to be used on the insured MOU, it must be covered under a separate storage insurance. If an object is purchased and stored as belonging to the insured MOU, but is later taken on board a different MOU than the one insured, the cover will cease under point (3) as soon as the decision has been made that the object is to be shipped to another MOU and will have to be insured in conjunction with that particular MOU.

    The cover under point (3) is, however, subject to certain limitations. In the first place to a limitation in amount: the objects in question are covered up to 10% of the sum insured under the hull insurance. This has to do with the fact that practice regarding storage varies considerably, and the insurers need to have control of this part of the cover. If the assured wants more comprehensive cover, a separate insurance must be effected. On the other hand, the insurer is fully liable for any damage up to the stated amount, cf. the fact that Cl. 2-4 relating to under-insurance does not apply.

    Secondly, a separate deductible shall be calculated for this part of the cover. The fact that a deductible shall be calculated in the event of damage to stored objects goes without saying. However, the provision relating to a separate deductible becomes significant if one and the same incident should, in exceptional cases, occur to both the MOU and the objects stored. In that event, two deductibles must be calculated in the claims settlement (unless it is a case of total loss). If only one deductible has been agreed, a deduction of twice that amount shall thus be made. If the assured wants a lower deductible for objects covered under point (3) than for the MOU in general, this must be specifically agreed in the insurance contract.

    Objects covered under point (3) shall be kept out of a total-loss settlement concerning the structure. The value of these objects must therefore be deducted from the insurable value in the event of a condemnation settlement. However, objects covered under point (2) shall be included in the total-loss settlement in the normal way.

    Sub-clause (b) is new and extends the cover to “anchor, anchor chain, etc.”, which are used for the MOU at the operation site. In addition to the anchor(s), this cover includes buoyancy elements and buoys which are integral parts of the mooring system. Further, both anchor chain and other types of moorings, e.g. wires or synthetic ropes/lines, cf. “etc.”, are covered. The cover applies both when the anchor(s), etc., was cast before the arrival of the MOU, and when left behind after the MOU has departed, e.g. in connection with repairs. Cover is, however, subject to the condition that the mooring/anchor system forms part of the insured MOU’s equipment. If the mooring/anchor system is left behind in connection with a replacement of the insured MOU in order to be used by another MOU it will no longer belong to the insured MOU.

    Sub-clause (c) entails cover of blow-out preventers (BOP) left on the well location due to casualty or measures to avert such casualty. The provision only covers “blow-out preventers”, and not any other type of device.

    Normally a BOP left behind will be mounted on the wellhead, but the provision also covers the situation where the BOP is left next to the wellhead. That a BOP is “left behind” means that there was a decision made to leave it.

    The cover only concerns the situation where the BOP is left behind due to a casualty or measures to avert or minimise such casualty. If the BOP is left behind as part of the normal operation of the MOU, it is not covered by the insurance.

    When an MOU suffers damage for which it will need to move to a repair location to perfect the repairs, it will not be able to retrieve the BOP when it is mounted on the wellhead as the ultimate blow-out barrier for the well. In such circumstances, the MOU will return to the well location and reconnect to the BOP to resume the well operation it was engaged in when the casualty occurred.

    If the MOU cannot reconnect to the BOP and continue the operation it is engaged in immediately prior to the casualty the expenses involved in lifting a BOP left behind are recoverable as costs of measures to avert or minimise loss. Such expenses are incurred for the purpose of averting a total loss of the said BOP.

    Sub-clause (d) is new in the 2013 Nordic Plan, and provides cover for subsea equipment associated with an MOU which is disconnectable from the unit, and which is not insured with a separate sum insured as per Cl. 18-1 (a) paragraphs 2 and 3. Similar to mooring/anchoring systems under sub-paragraph (b) above, the cover applies to such equipment installed at the offshore location both prior to the MOU arrival and after its departure.

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    Clause 18-3. Objects temporarily removed or separated etc. from the MOU

    The insurance covers: Objects mentioned in Cl. 18-2, sub-clause 1 (b), which: are on board a vessel, structure or fixed installation, which is moored to or is in the vicinity of the insured MOU and has been used in connection with that MOU, or have been temporarily removed from the MOU for...

  • Clause 18-4. Loss due to ordinary use

    This Clause was new in the 2013 Plan and is verbatim the same as Cl. 10-3. Reference is made to the Commentary to Cl. 10-3.

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    Clause 18-4. Loss due to ordinary use

    The insurer is not liable for loss that is a normal consequence of the use of the insured MOU and its equipment.

  • Clause 18-5. Extension of the insurance

    This Clause was new in the 2013 Plan and is verbatim the same as Cl. 10-10. Reference is made to the Commentary to Cl. 10-10. 

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    Clause 18-5. Extension of the insurance

    If, upon expiry of the insurance period, the MOU has sustained damage for which the insurer is liable and which is of such a nature that repairs are necessary to make the MOU compliant with technical and operational safety requirements, the insurance is extended until the MOU has arrived at a pla...

  • Clause 18-6. Liability of the insurer of the MOU is salvaged by the assured

    This Clause was new in the 2013 Plan and is verbatim the same as Cl. 10-11. Reference is made to the Commentary to Cl. 10-11.

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    Clause 18-6. Liability of the insurer if the MOU is salvaged by the assured

    If the insured MOU is salvaged by a vessel or another unit belonging to the assured, the insurer is liable as if the salvage operation had been carried out by a third party.

  • Clause 18-7. Reduction of liability in consequence of an interest insurance

    This Clause was new in the 2013 Plan and is by and large verbatim the same as Cl. 10-12 apart from some editorial amendments. Reference is made to the Commentary to Cl. 10-12.

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    Clause 18-7. Reduction of liability in consequence of an interest insurance

    If the assured receives compensation under a hull interest insurance or a freight interest insurance, and the amount paid under the respective insurances exceeds 25 % of the agreed insurable value as per Cl. 18-1 (a) applicable to the H&M insurance against the same perils, the H&M insurer’s...