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
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