Commentary

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Section 4: Liability insurance

  • Clause 19-20. Scope of the liability insurance

    The provision was amended in the 2013 Plan. In sub-clause 1 the term “imposed” has been replaced by “required” and sub-clause 4 regarding the assured’s liability for damage to the environment if the damage occurred in direct connection with the performance of the building contract is new.

    The liability cover comprises the yard’s liability to third parties. Additionally, the buyer is co-insured under this provision in order to ensure that he is covered if he has not taken out a separate liability insurance that covers liability in connection with the building project. If the yard has taken out the insurance, it therefore follows from Cl. 19-3 that the term “assured” in Cl. 19-20 comprises both the yard as the person effecting the insurance and the assured and the buyer as co-insured. If, however, the insurance is taken out by the buyer, the yard will not be co-insured according to Cl. 19-3 and will thus not be comprised by the liability part of the builders’ risks insurance either. In such cases the yard must take out its own insurance or arrange to be co-insured under the buyer’s cover.

    The first sentence establishes that liability comprises personal injury and loss of life. The basis for liability is irrelevant; it may be liability based on fault for the yard’s management, employer’s liability or non-statutory strict liability. On the other hand, there is an important limitation to the requirement that the injury must have arisen in direct connection with the performance of the building contract, cf. below.

    The issue of whether trial trips/delivery voyages are comprised by the insurance depends on whether they are carried out within the area specified by the certificate, including the trading area, cf. Cl. 19-5, sub-clause 1 (b). If this is the case, damage caused by the yard during such runs must be regarded as damage that has arisen “in direct connection with the execution of the building contract.” Whether there are invited guests or others who are injured is irrelevant in this connection: see, however, the exclusion in Cl. 19-21, sub-clause 1 (a), in respect of the yard’s own employees, cf. below. The same must be the case for injuries during transport to or from the subject-matter insured with another vessel to the extent that the yard becomes liable for such damage. Here the yard may incur transport liability if he owns or leases the vessel. If, however, the transport is handled by another carrier it will normally be that carrier, and not the assured, who will be liable.

    The terms “personal injury” and “loss of life” are referred to in further detail in Cl. 17-34. Reference is therefore made to the comments on that provision.

    The second point establishes the insurer’s liability for property damage caused to a third party. That the object must belong to a “third party” means that damage to or loss of the yard’s own objects is not covered. The term “third party” must be read as a “third party” here in relation to the yard or buyer as tort-feasor. If the yard causes damage to the buyer’s property, this will in principle be comprised by the liability insurance. The same applies if the buyer causes damage to the yard’s property. To the extent that such damage is covered by the hull conditions in Chapter 19, Sections 1, 2 or 5, the damage will, however, fall outside the scope of the liability insurance, cf. Cl. 19-21 (c). Reference is furthermore made to the comments on Cl. 17-35, sub-clause 1.

    The third point concerns liability for removal of wrecks that is required by the authorities.  In the 2013 Plan the word “imposed” was replaced with “required”. The wreck-removal liability concords with the international liability according to IMO rules and comprises the assured’s liability in connection with the raising, removal, destruction, marking or illumination of the subject-matter insured or parts thereof. Only liability imposed by the authorities, and thus not contractual liability, is covered. This also follows from Cl. 19-21, sub-clause 1 (e). Reference is furthermore made to Cl. 17-39 of the Commentary on coastal and fishing vessels.

    Only the assured’s legal liability for damages is covered. The yard must therefore be liable according to general rules of liability law determining the basis for liability, causation and loss in order to trigger payment of the insurance. If the yard out of consideration for its customers or for other reasons chooses to cover damage for which it does not have liability, this is irrelevant to the insurance.

    A further condition is that the liability has arisen “in direct connection with the performance of the building contract”. Like shipowner’s liability insurance, liability insurance under a builders’ risks cover is therefore tied directly to a specific subject-matter insured - i.e. in this connection a building contract. Liability for damages in connection with other building projects must be allocated to the builders’ risks cover of these projects.

    That liability arises “in direct connection with the performance of the building contract” means that liability is connected with the actual construction work or the handling of parts or materials intended for the relevant subject-matter insured. Liability in connection with the handling of materials or parts before it has been decided that these parts, etc., shall be used for the said subject-matter insured, accordingly falls outside the scope of cover and will have to be covered under a more general liability insurance for the yard or the buyer. The same must be the case for liability connected with the assured’s general operations.

    On the other hand, it is not a condition that liability arises in connection with the actual construction work. Liability arising during storage or transport of parts for the relevant subject-matter insured must also be covered, provided that this takes place within the place of insurance according to the insurance contract. Similarly, liability arising during a trial run or a delivery run within the place insured must be covered.

    The provision in Cl. 19-20 must be seen in conjunction with the general rule regarding perils in Cl. 19-1. The insurance therefore applies to any marine peril and to the war perils strikes and lockouts. However, it does not cover the yard’s liability for damages resulting from other war perils, unless a war-risk insurance has been effected under Section 6.

    Sub-clause 2 deals with the insurer´s cover of damage to objects belonging to the yard resulting from collision or striking after the subject-matter insured has been launched. This provision must be seen in conjunction with the general sister-ships rule in Cl. 4-16 about the insurer’s liability in the event of damage to objects belonging to the assured. If the subject-matter insured causes damage to objects belonging to the assured during or after launching, and this is attributable to circumstances for which the assured would have been liable if the damaged objects belonged to a third party, the insurer is liable to the assured according to Cl. 4-16 to the same extent as he would have had to cover the assured’s liability to third parties. This now follows from the reference to Cl. 4-16 as regards damage from collision or striking following launching. The provision is worded such that the sister-ships rule shall not apply to any damage to the assured’s own property other than what is specifically mentioned.

    The fact that the liability cover in Section 4 has been extended to include buyer’s liability if it is the yard that is effecting the insurance, cf. Cl. 19-3, entails that Cl. 4-16 shall also apply if the subject-matter insured causes damage to the buyer’s property. However, this is hardly a very practical situation.

    Cl. 4-16 does not cover the situation where the subject-matter insured causes damage to the buyer’s property without the assured’s conduct having given rise to liability. However, such damage should be covered by an ordinary property insurance taken out by the assured, and not under the builders’ risks insurance, which concerns either damage to or loss of the subject-matter insured and components thereof, etc., or the assured’s liability for damages.

    Sub-clause 3 establishes that the insurer covers the assured’s liability for bunker oil pollution damage in accordance with the provisions laid down in national legislation that are based on the provisions of the International Convention on Civil Liability for Bunker Oil Pollution Damage, 2001 (the Bunkers Convention). Through this provision, cover under the Plan is expanded to include all liability under the Bunkers Convention. This approach tallies with practice, where it has been customary for the parties to agree on a corresponding expansion of cover by incorporating a special clause in the insurance contract. The provision corresponds to Cl. 17-41.

    Sub-clause 4 was new in the 2013 Plan.

    Sub-clause 4 establishes that the insurer covers the assured’s liability for damage to the environment. Vessels trading in the waters of the states in the European Economic Area are liable for damage to the environment pursuant to the rules of the EU Directive 2004/35CE of 21 April 2004 on environmental liability with regard to the prevention and remedying of environmental damage. The purpose of the Directive is to establish a framework of environmental liability based on the ‘polluter-pays’ principle, to prevent and remedy environmental damage. The Directive applies where environmental damage and damage to protected species and natural habitats are concerned, to occupational activities which present a risk for human health or the environment. The Nordic countries have incorporated the rules of the Directive into their national legislation. In Denmark, the relevant acts are Act of 17 June 2008 No 466 relating to environmental damage (Lov om undersøgelse, forebyggelse og afhjælpning af miljøskader - Miljøskadeloven) and Act of 22 December 2006 No 1757 relating to environmental protection (lov om miljøbeskyttelse); in Finland, Act of 29 May 2009 No 383 relating to remedying certain environmental damage (Lag om avhjälpande av vissa miljöskador); in Norway, Act of 19 June 2009 No. 100 Relating to the Management of Biological, Geological and Landscape Diversity (Nature Diversity Act) – (Lov om forvaltning av naturens mangfold - naturmangfoldloven); and in Sweden, the Environmental Code of 11 June 1998 (Miljöbalken).

    Examples of environmental damage that can give rise to a claim for environmental compensation include:

    • A vessel, tow, etc. sails into waters that are too shallow and the keel damages a coral reef.
    • A vessel, tow, etc. drifts into a wetlands area and runs aground. The vessel/hull and the rescue vessels that must enter the area destroy nesting sites and disturb the birds’ food supply, with the result that the area is partly abandoned.

     Environmental damage in the form of the discharge of bunkers is regulated in sub-clause 3 above.

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    Clause 19-20. Scope of the liability insurance

    The insurer covers the assured’s liability resulting from personal injury or loss of life, loss of or damage to an object belonging to a third party, and liability for the removal of wrecks required by the authorities if the loss arose in direct connection with the performance of the building...

  • Clause 19-21. Limitations on the liability insurance

    Clause 19-21 was amended in 2016 to be verbatim the same as Cl. 18-98, sub-clauses 5 and 6. Apart from mere editorial amendments, the only amendment of substance is that the words “contractor or sub-contractor” were added in sub-clause 1, letters (a), (b) and (d).

    Sub-clause 1 (a) excludes liability for personal injuries or loss of life of the yard’s own employees. This exclusion is also extended to the employees of the yard’s contractors or sub-contractors. For Norwegian yards this liability will normally be covered by the occupational injury insurance. In that event, it follows from sub-clause 2 that this liability falls outside the scope of liability insurance under the builders’ risks insurance. It is nevertheless necessary to have a separate rule to cover foreign yards that do not have the type of insurance or social benefit schemes for their employees as mentioned in sub-clause 2. A person is “employed” by the assured if the yard, in addition to wages or salary, covers the employer’s social security contributions for the person in question. The same applies to employees of the yard’s contractors or-sub-contractors. A consultant with a consultant’s fee and without any contract of employment is, by contrast, not employed.

    Sub-clause 1 (b) excludes objects that belong to the yard’s employees from the cover. This exclusion is also extended to belongings of employees of the yard’s contractors or sub-contractors. The exclusion is in accordance with the exclusion in sub-clause (a), and also with the provision in Cl. 17-35, sub-clause 2.

    Sub-clause 1 (c) is patterned on Cl. 17-47, sub-clause 1 (a), but applies only to damage which is recoverable under Chapter 19, Sections 1, 2 and 5. This has to do with the fact that the liability insurance under the builders’ risks insurance terminates concurrently with the termination of the hull insurance under Section 2 or Section 5, which means that there is no question of tying this liability cover to the ordinary hull insurance or other insurances on Plan conditions.

    In accordance with the provisions in Chapter 17, this insurance is complementary in relation to other covers. It is therefore irrelevant whether the said insurance has in actual fact been effected; whether or not the loss could have been covered under the relevant insurance is the decisive factor.

    Only losses which, according to their nature, could have been covered under the said insurances fall outside the liability cover under the builders’ risks insurance. If the buyer suffers a loss which falls outside the scope of the said insurances, e.g. consequential loss, this must be covered under the liability conditions, provided that the requirements as regards adequate causation are satisfied.

    Sub-clause 1 (d) contains a delimitation in relation to other liability insurances which the yard has taken out. If the liability is e.g. covered by an ordinary liability insurance taken out by the yard, this will prevail over the liability cover under the builders’ risks insurance. However, this applies only if such liability insurance has been effected; on this point the cover is thus subsidiary, not complementary. The liability cover pursuant to Cl. 19-20 is also subsidiary to any liability insurance effected by the yard’s contractors or sub-contractors.

    According to sub-clause 1 (e), furthermore, the insurer does not cover liability which is based exclusively on a contract. This exclusion concords with normal non-marine liability insurances which do not cover contract liability. However, the rule differs from ordinary shipowners’ liability insurance, which does not have such an exclusion.

    Examples of such contracts include:

    • Liability which exceeds what follows from general rules of liability law, but which the assured nevertheless has committed himself to bear by a promise, a contract, an agreement or a guarantee (e.g. guarantee commitments in a building contract);
    • Liability which the assured must ultimately bear because he has waived his right of recourse;
    • Liability for expenses/costs/losses related to the performance of the assured’s contract (i.e. agreed performance, delivery, contract work, etc.)
    • Liability in connection with unusual or prohibited contractual conditions (cf. Cl 4-15 and associated Commentary)

    Sub-clause 2 deals with cases of liability for personal injury which the insurer does not cover. It is evident from the provision that arrangements other than insurance have been included, cf. sub-clause 2 (a), and to some extent the cover has been made complementary to insurance benefits which are imposed by collective agreement and financed by the liable employer (cf. sub-clause 2 (c)). The solution is almost identical to Cl. 17-47, sub-clause 2, but the relationship to the occupational injury insurance has been adjusted to the fact that the insurance shall also be applicable to building projects at foreign yards. Reference is therefore made to Cl. 17-47, sub-clause 2.

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    Clause 19-21. Limitations on the liability insurance

    The insurer does not cover: liability for personal injury or loss of life of the employees of the assured, contractors or sub-contractors,  liability for loss of or damage to objects belonging to the employees of the assured, contractors or sub-contractors,   loss or liability  which is insurable...