Commentary

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Section 2-3: Damage

  • General

    This Section is a complete incorporation of the Clauses of Chapter 12 which are relevant for hull insurance of MOUs. The Clauses are amended as found necessary to suit repairs of MOUs which may be complex and involve significant costs and expenses and require different considerations than repairs of conventional ships’ damages. An MOU will, in addition to its hull and machinery, also have special equipment and/or processing plant which represent high proportions of the MOU’s total value. Remote areas of operation compared to possible suitable repair facilities may result in significant costs in moving the MOU to a repair facility. Equipment and processing facilities for floating production units will often be specially designed for that particular unit and damage repair options of such facilities may for various reasons be limited. The availability of replacement items for damaged parts which need to be replaced will often be limited and involve extensive delivery time; 6 to 12 months is not unusual.

  • Clause 18-17. Main rule concerning liability of the insurer

    This Clause was new in the 2013 Plan and is verbatim the same as Cl. 12-1. Reference is made to the Commentary to Cl. 12-1. 

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    Clause 18-17. Main rule concerning liability of the insurer

    If the MOU has been damaged without the rules relating to total loss being applicable, the insurer is liable for the costs of repairing the damage in such a manner that the MOU is restored to the condition it was in prior to the occurrence of the damage. Liability arises as and when the repair...

  • Clause 18-18. Compensation for unrepaired damage

    This Clause was new in the 2013 Plan and is verbatim the same as Cl. 12-2. Reference is made to the Commentary to Cl. 12-2. 

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    Clause 18-18. Compensation for unrepaired damage

    Even if repairs have not been carried out, the assured may claim compensation for the damage when the insurance period expires. Compensation is calculated on the basis of the estimated reduction in the market value of the MOU due to the damage at the time of expiry, but shall not exceed the...

  • Clause 18-19. Inadequate maintenance

    This Clause was new in the 2013 Plan w and is verbatim the same as Cl. 12-3. Reference is made to the Commentary to Cl. 12-3. 

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    Clause 18-19. Inadequate maintenance, etc.

    The insurer is not liable for costs incurred in renewing or repairing a part or parts of the hull, machinery, plant or equipment which were in a defective condition as a result of wear and tear, corrosion, rot, inadequate maintenance and the like.

  • Clause 18-20. Error in design, etc.

    This Clause was new in the 2013 Plan and is verbatim the same as Cl. 12-4. Reference is made to the Commentary to Cl. 12-4. 

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    Clause 18-20. Error in design, etc.

    If the damage is a result of error in design or faulty material, the insurer is not liable for the costs of renewing or repairing the part or parts of the MOU, machinery, plant or equipment which were not in proper condition, unless the part or parts in question had been approved by the...

  • Clause 18-21. Losses that are not recoverable

    The Clause corresponds to Cl. 18-12 of the 1996 Norwegian Plan, which made an amendment to Cl. 12-5 (a). In the 2013 Plan, Cl. 12-5 has been partly incorporated into Cl. 18-21 and has been partly re-written. Cl. 18-21 (e) was deleted in 2016.

    Cl. 18-21 (a): Clause 12-5 (a) has been split into Cl. 18-21 (a) regulating the coverage of crew wages and maintenance costs and Cl. 18-21 (b) regulating the exclusion of ordinary expenses connected with the running of the MOU during the period of repair.

    According to Cl. 12-5 (a) the insurer does not cover costs of wages and maintenance of the crew during the period of repairs. However, in connection with insurance of MOUs the insurer has in practice covered costs of wages and maintenance of the crew that has been engaged in repair work or otherwise necessary, e.g. marine, nautical, etc. crew, during repairs carried out at sea. The reason is that often it is less costly to carry out the repairs while the MOU is offshore or in sheltered waters nearby its offshore location rather than to bring it over a long distance to a shore repair facility/yard. Hence, what was previously provided in Cl. 18-12 of the 1996 Plan is in the 2013 Plan stated in sub-clause (a).

    Cl. 18-21 (b): In connection with damage to an MOU, it is conceivable that the assured engages a supply vessel which is under contract with him or the licence operator and is therefore in the area, to be used during offshore repairs. If the assured incurs additional expenses in this connection, his expenses must be covered by the insurer as part of the costs of repairs. When repairs are carried out at sea, either at the offshore location or in sheltered waters, insurers will also be liable for the costs associated with catering, accommodation and safety services for the crew engaged or necessary for the repairs at sea.

    Cl. 18-21 (c): This sub- clause was new in the 2013 Plan and is verbatim the same as Cl. 12-5 (b). Reference is made to the Commentary to Cl. 12-5 (b).

    Cl. 18-21 (d): This sub-clause was new in the 2013 Plan and corresponds to Cl. 12-5 (c). Reference is made to the Commentary to Cl. 12-5 (c). However, as MOUs do not carry passengers under issued passenger tickets, but will accommodate third party personnel and occasional visitors which are not part of the MOU’s regular crew, “passengers” are replaced by “third party personnel or visitors”. Such personnel or visitors include the license operator’s, the operator’s contractors and sub-contractors personnel, as well as personnel of the MOU owner’s contractors or sub-contractors, unless the MOU owner contractually has assumed the responsibility for such personnel. This does not apply to repairers personnel.

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    Clause 18-21. Losses that are not recoverable

    The insurer is not liable for: crew’s wages and maintenance, except for crew who are engaged in  repairs,  ordinary expenses connected with the running of the MOU during the period of repair,  expenses of shifting, storing and removal of cargo, accommodation of third party personnel and visitors.

  • Clause 18-22. Damage to the drill string

    This Clause is the same as Cl. 18-11 of the 1996 Plan, but with some editorial amendments in the 2013 Plan.

    The provision establishes certain limitations to the cover, which are additional to the limitations in Cl. 12-3 to Cl. 12-5.

    The provision concerns “loss of or damage to the drill string … whilst in the well or in the water”. Unless due to “external circumstances, for which the drilling contractor is liable under contractual conditions which are regarded as customary within the area concerned”.

    “External circumstances” comprises typically fire, blow-out, cratering, lightning, explosions above the seabed, floods, tidal waves, ice, tornadoes, storms, cyclones, hurricanes, earthquakes or collisions. The underlying drilling contracts places the risk of such causes of damage with the owner of the MOU/the drilling contractor, while the licensees/operator cover other damage. Damage attributable to wear and tear, inadequate maintenance, etc, or to the fact that the drill string for other reasons cannot take the strain to which it is subjected during the performance of the work will in this context not be deemed as “external circumstances”. However, the term “external circumstances” also covers more ordinary heavy-weather damage than hurricanes, storms, etc., e.g. where high seas or difficult current conditions result in damage to or loss of the drill string. The term does not, however, cover the situation where the drill string is left in the well due to technical problems in retrieving it, or where the string gets jammed in connection with ordinary drilling. Nor do “external circumstances” comprise damage to the string as a result of negligence on the part of the drilling contractor, or someone for whom he is liable. However, if the direct cause of damage is fire, etc., and the fire is caused by negligence, the insurer will not be free from liability. Here the question of liability must be evaluated under the general rules in Chapter 3 relating to the duties of the assured.

    The cover only extends to external circumstances for which the drilling contractor is liable according to customary contractual practice within the relevant area. If, for example, it is customary for the license operator to assume the risk in respect of damage caused by fire or explosion, this damage does not concern the insurer. In that event, it is irrelevant whether the drilling contractor under the relevant contract has accepted this risk if this is contrary to customary contractual practice.

    The limitation applies to the drill string, as installed, including any of its component parts such as weights, stabilisers, thread connections etc.

    Sub-clause (b) excludes from cover drill strings “left in the well for purposes other than drilling” if a decision is made to that effect by the persons who are responsible for the drilling operations. The provision does not apply to cases where attempts to retrieve the string from the hole are abandoned due to technical difficulties which this entails. In such cases the string shall be considered lost, and the loss is, as mentioned, excluded from cover according to sub-clause (a). The purpose of leaving the string must be that it is intended to serve as tubing for gas or oil produced from the hole. This means that it is no longer part of the drilling equipment, and it should for that reason no longer be covered. Effectively, this also follows from the principle stated under Cl. 18-3 (b) (in respect of mooring/anchoring system which is left behind for other use than the insured MOU): the drill string left behind no longer constitutes part of the “equipment” of the MOU.

    The limitations in Cl. 18-19 to Cl. 18-21 apply in addition to the limitations in Cl. 18-22.

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    Clause 18-22. Damage to the drill string

    The insurer is not liable for loss of or damage to the drill string: whilst in the well or in the water, unless the loss or damage is a result of  external circumstances, for which the drilling contractor is liable under  contractual conditions which are regarded as customary within the relevant...

  • Clause 18-23. Deferred repairs

    This Clause was new in the 2013 Plan and is verbatim the same as Cl. 12-6. Reference is made to the Commentary to Cl. 12-6. 

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    Clause 18-23. Deferred repairs

    If the repairs have not been carried out within five years after the damage was discovered, the insurer is not liable for any increase in the cost of the work that is incurred later.

  • Clause 18-24. Temporary repairs

    This Clause was new in the 2013 Plan and corresponds to Cl. 12-7. Reference is made to the Commentary to Cl. 12-7.

    When the MOU with disconnectable equipment are insured with separate sums insured as per Cl. 18-1 (a), sub-clause 2, and the loss or damage occurs whilst disconnected as per Cl. 18-1 (a), sub-clause 3, the 20% p.a. shall be calculated of the sum insured for the part to which the loss or damaged occurred. 

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    Clause 18-24. Temporary repairs

    The insurer is liable for the costs of necessary temporary repairs when permanent repairs cannot be carried out at the place where the MOU is located. If temporary repairs of the damaged object are carried out in other cases, the insurer is liable for costs up to the amount he saves through the...

  • Clause 18-25. Costs incurred in expediting repairs

    This Clause was new in the 2013 Plan and corresponds to Cl. 12-8. Reference is made to the Commentary to Cl. 12-8.

    When the MOU with disconnectable equipment are insured with separate sums insured as per Cl. 18-1 (a), sub-clause 2, and the loss or damage occurs whilst disconnected as per Cl. 18-1 (a), paragraph 3, the 20% p.a. shall be calculated of the sum insured for the part to which the loss or damaged occurred.

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    Clause 18-25. Costs incurred in expediting repairs

    If the assured, in order to limit his loss of time, expedites repairs of the damaged object by extraordinary measures, the insurer’s liability for the costs thereby incurred is limited to 20 % p.a. of the insurable H&M value as per Cl. 18-1, (a) for the time saved by the assured. The time saved f...

  • Clause 18-26. Repairs of an MOU that is condemnable

    This Clause was new in the 2013 Plan and is verbatim the same as Cl. 12-9. Reference is made to the Commentary to Cl. 12-9. 

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    Clause 18-26. Repairs of a MOU that is condemnable

    If a MOU is repaired despite the fact that the conditions for condemnation are met, the insurer’s liability is limited to the sum insured plus additional costs under Cl. 4-19, if applicable, but with the deduction of the value of the wreck.

  • Clause 18-27. Survey of damage

    This Clause was new in the 2013 Plan and is verbatim the same as Cl. 12-10. Reference is made to the Commentary to Cl. 12-10. 

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    Clause 18-27. Survey of damage

    Before any damage is repaired, it shall be surveyed by a representative of the assured and a representative of the insurer. The representatives shall submit survey reports, in which they describe the damage and state their opinions as regards the probable cause of each individual item of damage,...

  • Clause 18-28. Invitations to tender

    This Clause was new in the 2013 Plan and corresponds to Cl. 12-11. Reference is made to the Commentary to Cl. 12-11.

    When the MOU with disconnectable equipment are insured with separate sums insured as per Cl. 18-1 (a), sub-clause 2, and the loss or damage occurs whilst disconnected as per Cl 18-1 (a), sub-clause 3, the 20% p.a. shall be calculated of the sum insured for the part to which the loss or damaged occurred.

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    Clause 18-28. Invitations to tender

    The insurer may demand that tenders be obtained from repairers of his choice. If the assured does not obtain such tenders, the insurer may do so. If the time taken to obtain tenders exceeds ten days as from the date the invitation to submit tenders is sent out, the insurer is liable to compensate...

  • Clause 18-29. Choice of repairers

    This Clause was new in the 2013 Plan and is verbatim the same as Cl. 12-12. Reference is made to the Commentary to Cl. 12-12. 

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    Clause 18-29. Choice of repairers

    The tenders received shall, for the purpose of comparison, be adjusted by the costs of removal being added to the tender amount. The assured decides which repairers shall be used, but the insurer’s liability for the costs of repairs and removal is limited to an amount corresponding to the amount...

  • Clause 18-30. Removal for repairs

    This Clause was new in the 2013 Plan and corresponds to Cl. 12-13. Reference is made to the Commentary to Cl. 12-13.

    There have been discussions whether the costs involved in getting an MOU back to the place of operation are covered in a case where the MOU has been brought to shore for repairs. It follows from the Commentary on Cl. 12-13 that the insurer’s liability for “removal” covers the entire deviation to and from the repair yard, which must imply that basically the insurer is liable for such removal back to the place of operation. However, this presupposes that the damage occurs after the MOU has arrived at the place of operation. If the damage occurs prior to that point in time, e.g. during towage from land to the first place of operation, the insurer’s liability is limited to the removal back to the place of damage, and not to the place of operation.

    Liability during removal also covers wages and maintenance of the crew, provided that the crew is “necessary”, cf. for further details Cl. 12-13 and the Commentary on that provision.

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    Clause 18-30. Removal for repairs

    Subject to the limitation that follows from Cl. 18-29, the insurer is liable for the costs of moving the MOU to the repair location, including wages and maintenance for necessary crew, bunkers and similar direct expenses in connection with the running of the MOU during the period of time involved...

  • Clause 18-31. Apportionment of common expenses

    This Clause was new in the 2013 Plan and is verbatim the same as Cl. 12-14. Reference is made to the Commentary to Cl. 12-14. 

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    Clause 18-31. Apportionment of common expenses

    Expenses incurred which are common to repair work for which the insurer is liable and other work which is not covered by the insurance, shall be apportioned on the basis of the cost of each category of work. However, common expenses which depend on the length of the period of repairs shall be...

  • Clause 18-32. Ice damage deductions

    The sub-clause 1 was new in the 2013 Plan and is verbatim the same as Cl. 12-15. Reference is made to the Commentary to Cl. 12-15.

    The sub-clause 2 was new in the 2013 Plan and is verbatim the same as Cl. 12-17. Reference is made to the Commentary to Cl. 12-17.

    Cl. 12-16 is not incorporated into Section 2 of Chapter 18, hence the incorporation of Cl. 12-15 and Cl. 12-17 is made into Cl. 18-32.

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    Clause 18-32. Ice damage deductions

    Damage due to striking against or contact with ice, except collision with icebergs on the open sea, is recoverable subject to any deduction stated in the insurance contract . The following are recoverable without deductions: loss recoverable under Cl. 18-17, sub-clause 4, Cl. 18-28, sub-clause 2,...

  • Clause 18-33. Deductible

    This Clause corresponds to Cl. 18-13 of the 1996 Plan, but incorporates with amendments Cl. 12-18 in the 2013 Plan. Reference is made to the Commentary to Cl. 12-18.

    Damage caused by bad weather arising as a result of the same atmospheric disturbance shall be regarded as one casualty. All loss or damage arising from the entire atmospheric disturbance shall be regarded collectively as one casualty. This provision supersedes the rule in Cl. 18-34, sub-clause 2. ”Atmospheric disturbance” means a low atmospheric pressure which results in a severe storm pattern with strong winds combined with heavy seas, rain, snow, sleet, hail, ice, thunder and lightning, hurricane, typhoon, cyclone or tornadoes etc., as defined by a public weather bureau.

    As in Chapter 12, the deductible must be calculated for each MOU. In the event of damage to several MOUs, an equivalent number of deductibles shall be calculated in the settlement.

    It follows from the reference to Cl. 18-34 that no deductible shall be calculated in the event of a total loss of the insured MOU.

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    Clause 18-33. Deductible

    For each casualty the amount stated in the insurance contract shall be deducted. Damage caused by heavy weather occurring as a result of the same atmospheric disturbance shall be regarded as a single casualty. Costs in connection with the claims settlement, cf. Cl. 4-5, and loss arising from...

  • Clause 18-34. Basis for calculation of deductions according to Clauses 18-32, 18-33 and Clause 3-15

    This Clause was new in the 2013 Plan and is verbatim the same as Cl. 12-19. Reference is made to the Commentary to Cl. 12-19.

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    Clause 18-34. Basis for calculation of deductions according to Clauses 18-32, 18-33 and 3-15

    Deductions under Cl. 3-15, sub-clause 3 , Cl. 18-32 and Cl. 18-33 are calculated on the basis of the full amount of compensation according to the Plan and the insurance conditions before deductions under any of these Sections are made. Deductions are also made if damage to the MOU is recoverable...