The Commentary has been rewritten in the 2013 Plan. It is patterned on the definitions in Cl. 12-4, and much of the content must be seen in conjunction with the Commentary on this Clause. Cl. 12-4 deals with the terms “error in design” and “faulty material”, and the terms in Cl. 19-15 must therefore have the same meaning, but account must be taken of the fact that Cl. 19-15 relates specifically to newbuildings or rebuilding/conversion projects at the building yard. Furthermore, Cl. 19-15 makes specific mention of “faulty workmanship”.
Error in design
The term “design” refers to the entire process from the drawing of the component concerned, specification of types of material and dimensions, how the individual components of the subject-matter insured are produced/manufactured, structure/shape, the quality of the materials and the construction/composition of the components that eventually will constitute the subject-matter insured.
An error in design means that the subject-matter insured has deficiencies or defects because it has been wrongly designed or built. Such errors apply in particular in cases where a part or parts of the subject-matter insured have been given the following characteristics or the following errors have been made:
- An unsatisfactory shape, arrangement or function
- A degree of strength that proves to be inadequate
- An error in drawings of the individual parts
- An error in the specification of types of material, dimensioning and strength
- An error in the specification of the manufacturing procedure/the method used to manufacture the component and the choice of procedure/method.
- An error in the execution of the process of manufacturing the part. If an incorrect specification of the manufacturing process has been given, the resulting defects must be regarded as errors in design. On the other hand, defects attributable to the fact that a performing link in the production process has failed to comply with the specifications given cannot be classified as errors in design. However, the definition of the term is by no means clear-cut.
An error in design can be subjective or objective
A subjective error in design means that the design is such that, in the light of current knowledge and standards, it is unsuitable and that this should have been evident. This thus constitutes a reproach to the assured for the choices that were made. In order for an error in design to be regarded as subjective, however, steps must have been taken to remedy the error before the subject-matter insured was delivered if the error had been discovered. An objective error in design means that the design is such that it appeared to be reasonable when it was chosen, but subsequently proved to be inadequate or sub-standard. This can, for instance, apply to new and untested materials.
The term “faulty material” implies that the material in a part of the subject-matter insured is of a quality inferior to the presupposed standard. These faults in material consist particularly of cases where the material in a part or parts of the subject-matter insured:
- is of a quality inferior to materials that would otherwise have been chosen in accordance with good shipbuilding practice
- is defective in the sense that the material used does not correspond to the specifications
- is defective in terms of the structure and/or strength of the material. The material may be suitable, but has deteriorated, is inappropriate or unfit for its intended use.
Faulty material will normally be concealed in the sense that it is not detectable by a superficial examination. Detection will normally require more complex methods, such as material analyses, load tests, etc.
Consequently, the yard, too, will be unaware of the fault in material until it materialises in the form of damage. Faulty material thus refers to the inherent or original fault in the material, and not to a fault that is discovered at a later date. The faulty material must therefore have been present during the entire lifetime of the part. It is not, for instance, a question of faulty material when material used in the subject-matter insured has been weakened as a result of an earlier casualty. The quality deficiency may be due to a defect in casting or some other fault in the structure of the material which occurred during processing, or to the supplier of the material having delivered a quality which is not in accordance with the quoted specifications (e.g. the steel supplied is too brittle).
However, faulty material can also be caused by an external influence, such as when the part falls during processing in the workshop and sustains a flaw.
Faulty workmanship will as a rule be related to work that is carried out on the subject-matter insured. This type of fault applies in particular when work on a part or parts of the subject-matter insured relates to the following:
- an error in workmanship has occurred, such as when the material chosen, the dimensioning or the actual execution of the work is contrary to regulations, recognised norms and good ship-building practice;
- an inferior quality of work/poor workmanship has been done by the building yard due to deficient quality, knowledge and technical execution.
The limitation with respect to faulty workmanship is due to fundamental doubts about covering the building yard’s costs of rectifying a fault due simply to poor workmanship. Faulty “workmanship” has occurred, for instance, when the welding is not in compliance with the designer’s regulations or generally recognized building standards.
Damage due simply to accidents during work, e.g. fire damage resulting from negligence during welding, or hull damage that occurs when the subject-matter insured is topples over due to inadequate support in the building dock, is not, however, to be regarded as “faulty workmanship”.
It is also conceivable that faulty workmanship may be carried out which does not cause any direct physical damage to the subject-matter insured or its components, but which nevertheless gives rise to a loss for the insured. e.g. that the wrong type of propeller is installed and must later be replaced. Such losses also fall within the scope of the term “faulty workmanship” and are thus included in the exclusion.
The incorrect choice of material is also included in the term “faulty workmanship”. This could, for instance, comprise the choice of the wrong steel quality or overly thin steel during the building process.
The limitations apply only to “costs of renewing or repairing the part or parts” which were not in proper condition due to the stated perils. This means that the exclusion applies only to the costs of repairing the part that is defective, i.e. the primary damage. In such case, the assured must cover the costs of renewing or repairing the part that was not in proper condition, while the insurer is liable for the consequential damage. If the subject-matter insured runs aground during the trial run due to faulty design or faulty workmanship as regards the steering gear, the grounding damage will thus be recoverable, but not the costs of repairing or replacing the steering gear.