WELCAR 2012

Tim TaylorBarlow Lyde & Gilbert LLP

30 September 2011

Joint Rig Committee

� Project started 2009

� Intention to publish 2010

JRC WELCAR Sub Committee

� Brian Randall- formerly Watkins

Syndicate (Chairman)

� Steve Dyke-Hiscox

� Steve Warren-Canopius

� David Sharp-AAA/INDECS

� Tim Taylor-BLG

� Paul Dawson-formerly Beazley

� Geoff Jones-Catlin

� Duncan Wilson-QBE

� Dudley Chapman-Lloyd Warwick

Others who contributed

� Nigel Chapman-Clyde & Co

� Joe McMahon-CTe

� Mark Stronge and Gary Mawditt-

Matthews Daniel

� Nigel Carpenter-Braemar

Steege

� John Harris-Braemar Steege

� IMCA

What has been going on?

Progress

� Working on WELCAR revisions for over 2 years

� 2nd Quarter of 2010 was optimistic

� Progress has been made

Revised Timetable

� Publication Today 30 September 2011

� Consultation Draft

� Brokers

� Assureds

� Adjusters

� IMCA (Contractors)

� Lawyers

� Feedback by 3 November

� Publication January 2012

What is in it?

History of CAR Policies

� Wide cover

� 1990’s broad form wordings

� “overdeveloped product in an overheated market”

� Low premiums

� Huge claims

� Need to achieve balance. Align claims to declared values

Good Things About WELCAR 2001

� Stability

� No litigation

� A lot of settled claims

Less Good Things

� Schedule B problems

� Change of Risk

� Escalation

� Warranty Surveys

� Contractors

� Who is “boss”

� Access to policy

� QA/QC uncertainty

� Consequences of breach

� Contractual indemnities/limits

� Does the contractor have enough “skin in the game”

� Contract rates for remedial work (cost v profit)

� Registration of wording

What does it look like?

Aim of New Wording

� To reflect 10 years of experience of writing on the basis of

WELCAR 2001

� To improve the quality of the contract wording

� Clearer

� More consistent

� Use of more contemporary language

Key Changes

� Declarations are more comprehensive as regards limits and

deductibles

� New sub-limits for marine spread, mobilisation and

demobilisation

� Clear distinction between core “all risks” cover and various

optional extensions

� New extensions for leak/damage search costs, denial of access,

excess removal of debris

� List of deductibles more comprehensive. Section Two deductible

is now an “excess amount”

� Defined terms grouped together. New or clearer definitions for

� Terrorism

� Windstorm

� Occurrence

� Offshore/Onshore

� Physical damage

� Physical loss

� Scope of Insurance tightened

� Conditions applying to “Other Insureds” have been drawn

together

� Loss notification requirements clarified

� Cancellation provisions added for war and strikes risks

� Premium adjustment provisions clarified

� Insurers can request up to date project costs

� Premium adjustment completely separate from Escalation

� Contracts (Rights of Third Parties) 1999 Clause

� General Exclusions Section

� Race

� Cyber Attack

� Terrorism and War

� Political Risks Exclusion

� Institute Builders Risk Clauses not incorporated generally

� Sue & Labour (Minimising Losses) capped at 50% of value of

item

Optional Coverages

� Expediting costs

� Offshore cancellation

� Test and Leak or Damage search costs

� Standby costs

� Denial of Access

� Forwarding Charges

Optional Coverages Continued

� Excess Removal of Wreck or Debris

� Excess Marine Spread/Mobilisation/Remobilisation

� Defect Write Back

� Watercraft Endorsement (Section Two)

� Existing Property/Contractual Endorsements (Section Two)

Major Changes

� Warranty Survey Requirements

� QA/QC

Warranty/Survey Requirements

� Condition precedent to attachment of cover in respect of each

operation that Certificate of Approval issued by MWS

� Duty on all Insureds to comply with the

recommendations/restrictions of MWS

� Breach of duty will lead to non-recovery for loss arising out of the

breach

QA/QC

� Replaced by modified due diligence clause

� No warranty or condition precedent

� General obligation on all Insureds (Principal and Other) to exercise due diligence including requirement for and compliance with QA/QC systems

� Failure to comply will result in non-recovery attributable to failure

� “Other Insureds” will have no access to benefits of the policy if they fail to comply

� If rights of subrogation against a contractor are prejudiced by contract limitations, the Principal Insured will be subject to an additional deductible

Defective Part

� Not a major change

� Definitions

� “Physical Damage”

“A change in state or condition of the Property Insured which is

permanent, materially impacts its usefulness and is caused by an

extraneous and fortuitous event.

Property Insured shall not be regarded as Physically Damaged

or physically lost solely by virtue of the existence in such

Property Insured of any defect in design, plan or specification,

defect in workmanship, defect in material or latent defect.”

Defective Part Definition

“Any part of the Property Insured which is or becomes defective

and/or unfit or unsuitable for its actual or intended purpose or

which will not achieve its intended design life, whether by reason

of defect in design, defect in plan, defect in specification, defect

in material, defect in workmanship, a combination of one or more

of those. The term Defective Part shall also include such

ancillary components which are not themselves defective, but

which would normally be removed and replaced by new

components when the component that is faulty is rectified.”

Defective Part Exclusions

“The coverage afforded by this Section One shall not apply to:

L. the cost or expense of replacing, repairing or rectifying any

Defective Part which has not suffered Physical Loss or

Physical Damage;

Defective Part Exclusions

“The coverage afforded by this Section One shall not apply to:

� Physical Loss or Physical Damage to the Defective Part itself

unless

� The loss is suffered during the period of insurance, and

� The loss was a direct result of a cause external to the Defective Part , and

� The defect within the Defective Part did not contribute to the loss

Resultant Loss or Damage Caused By A

Defective Part

� Is Covered

� If it suffered during the Period of Insurance

Defective Part Write Back (Optional)

� Similar to WELCAR 2001

� Subject to a new common costs clause

Common and/or concurrent repair costs:

“This clause applies only to the coverage provided under this Insurance for any

Physical Loss or Physical Damage caused by or arising from any defect in

design, defect in plan, defect in specification, defect in workmanship, defect in

material or Defective Part by virtue of the exceptions within Additional Exclusions

6.M(i) and (ii).

Where all or part of the cost of replacing, repairing or rectifying the defect or

defects giving rise to such Physical Loss or Physical Damage is incurred in

common with or concurrently with all or part of the cost of repairing or replacing

such Physical Loss or Physical Damage, the insurers’ liability for such common

and/or concurrent costs will be limited to a proportionate share of such costs.

Common Costs Formula

The proportionate share of the common and/or concurrent costs to be borne by the

insurers is to be determined using the following formula:

1 x 3

1 + 2

where

1 = the reasonable and necessary costs to repair or replace the Physical Loss

or Physical Damage (including common and/or concurrent costs), adjusted in

accordance with Additional Condition 5.A; and

2 = the actual cost to replace, repair or rectify the defect (including common

and/or concurrent costs); and

3 = the common and/or concurrent costs.

What Happens Next?

What Happens Next?

� http://www.lmalloyds.com/lma/Web/Market_Places/_nbsp__nbsp_M

arine/Joint_Rig/Web/market_places/marine/JRC/Joint_Rig.aspx?hk

ey=61ac5d6b-b48c-467f-bde3-f626a36932aa

� Explanatory note

� Respond to JRC by 3 November

� Further revisions and consultation

� Publication in January 2012

WELCAR 2012

Tim TaylorBarlow Lyde & Gilbert LLP

30 September 2011