The Commentary was amended in the 2013 Plan.
The subject-matter insured will normally be built according to a building contract entered into between the yard and the buyer. In order to safeguard the interests of both parties in the subject-matter insured and components/parts to be incorporated in the subject-matter insured, it is therefore necessary for the insurance to be for the benefit of both the yard and the buyer. Normally, it will also follow from the shipbuilding contract that one of the parties, usually the yard, is required to take out insurance. This obligation to take out insurance normally also comprises the buyer’s deliveries in the form of paid instalments and deliveries of equipment. This means that the buyer will also have a direct claim against the insurer in the event of a total loss as far as instalments and the value of delivered equipment are concerned. In relation to this type of contractual regulation as well, the builders’ risks conditions must therefore cover the interests of both parties.
The conditions are based on a normal situation where the yard is the person effecting the insurance and the buyer is given the status of co-insured according to Cl. 8-1, cf. first sentence. This means that both the yard and the buyer will have the status of assured and be entitled to compensation for their economic interest in the subject-matter insured to the extent that this follows from the conditions.
Only the yard takes out the insurance that is secured under Chapter 19. In principle, the insurance does not comprise the subcontractors, cf. the fact that the co-insurance provision in Cl. 19-3 applies only to the buyer. If it is desirable for the insurance also to comprise the subcontractors’ interests, it is therefore necessary to take out a separate co-insurance according to Chapter 8. In that event it is also necessary to ensure that the place of insurance as agreed under Cl. 19-5, sub-clause 2, includes the subcontractor’s premises.
The insurance is effected for the benefit of the yard as the person effecting the insurance to the extent that the yard bears the risk for the subject-matter insured and components thereof, etc., when a casualty occurs. Normally, the risk transfers to the buyer upon delivery of the subject-matter insured. Until delivery has taken place, the yard bears the risk for the subject-matter insured. If the subject-matter insured is totally destroyed with the effect that the yard’s duty to deliver is terminated, the yard must therefore refund to the buyer the instalments on the contract price which the latter has paid during the period of construction. The “total-loss risk” for the yard therefore consists in the investments that it has made in the subject-matter insured being lost without the contract price, or a proportion thereof, being recoverable from the buyer. In addition the yard bears the risk of partial damage, which consists in the yard having to repair, at its own expense, any damage which the subject-matter insured sustains in connection with less extensive accidents before the risk has passed to the buyer.
The co-insurance of the buyer covers the buyer’s economic interest as defined through the building contract. If the buyer is required, for his own account, to procure certain components, equipment or materials to be incorporated in the subject-matter insured, the buyer’s status as co-insured entails that these are included in the builders’ risks insurance, provided that this is set out in the insurance contract or is otherwise indicated by the conditions. However, the buyer´s deliveries (often referred to as “OFE” – Owner Furnished Equipment) are only covered by the insurance from the time they arrive in the builder’s yard in the port where the yard is located, cf. Cl. 19-5. If the buyer´s deliveries are delivered directly on board the subject-matter insured and the latter is outside the place of insurance, the buyer´s deliveries are covered from the time they arrive on board the subject-matter insured. However, this is subject to the condition that the buyer’s deliveries are covered by the insurance, cf. Cl. 19-9 (b).
In addition to the risk for the buyer´s own deliveries, the co-insurance comprises the buyer’s interest in a refund of instalments paid on the contract price in the event of a total loss. Prior to delivery, risk relating to the subject-matter insured will normally be borne by the yard. This means that the yard must refund instalments paid in the event of a total loss. However, in exceptional cases it is conceivable that the buyer bears the risk for loss of the object of the contract prior to delivery, in which case this interest will be covered. This is also the case if the insurance period is extended beyond the date of delivery so that the risk for the subject-matter insured has passed to the buyer. However, the buyer’s position as co-insured must also give him a direct claim against the insurer in the event of a total loss, even if this is the yard’s risk. This is of significance if the yard is insolvent so that the insurance compensation would in its entirety have gone to the bankruptcy estate, while the buyer would have had to be content with a dividend claim. The co-insurance will therefore ensure that the yard, or its bankrupt estate, does not receive any total-loss compensation without the buyer at the same time being refunded his advance payments.
Co-insurance of the buyer for the instalments paid on the contract price is, on the other hand, only valid if he has made the payments himself, or if they were paid by others on his behalf. Other intervening payers will not receive a corresponding automatic status as co-insured.
The fact that the buyer is co-insured “under Cl. 8-1” means that his ranking right against the insurer will be no better than that of the yard. This tallies with Cl. 19-3, sub-clause 2, of the conditions. If the buyer wants a better cover in the form of an independent co-insurance, he must take out co-insurance under Cl. 8-4.
As mentioned above, Cl. 19-3 is based on the normal situation where the yard is the person effecting the insurance. However, it is conceivable that the buyer might want to take out the insurance himself, e.g. because he has the title to the subject-matter insured. Such procedure is normal in offshore insurance. In that event, a separate agreement must be concluded if the yard is to be co-insured.
The cover of mortgagees is effected in accordance with the general rules of the Plan: see Chapter 7.
The second sentence states that the co-insurance does not apply to the expense coverage according to Section 3. The buyer himself must also arrange for separate insurance cover for any additional expenses incurred in connection with an unsuccessful launching or the removal of the subject-matter insured.
Under sub-clause 2, the co-insurance also applies to liability under Section 4, i.e. liability which the buyer may incur as a result of employees or management’s wrongful acts in respect of a third party in connection with the implementation of the building project.
Liability cover under the builders’ risks insurance is subsidiary to any other liability insurances taken out by the buyer.