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The Swedish Club Letter 2–2006 Insurance New Insurance for Newbuildi ■■ The Swedish Club is one of very few marine insurance companies that offer a range of products Tord Nilsson broad enough to cover most of the needs of ship- Area Manager owners. Team Göteborg I We will soon complement the products we have by adding an insurance that specifi cally targets the needs of shipowners with newbuildings on order. Our fi rst contact with owners has traditionally been when they have started to look for suppliers of H&M, P&I Cover for liabilities in respect and FD&D insurances. We do in some cases cover FD&D for newbuildings and of superintendents and for the crew whilst travelling to and from the shipyard just prior to delivery. We feel that owners need to start looking at their insurable interests long other shipowners’ personnel before delivery, as there are risks relating to the newbuilding that could affect attending at newbuildings owners adversely. Only a few owners currently do this. Our Newbuilding Risks Insurance is one product and it encompasses three areas: 1. Cover for liabilities in respect of superintendents and other shipowners’ ■■ personnel attending newbuildings. The P&I cover 1that can be offered by a This insurance includes liabilities under the terms of the employment contract to club in the Internatio- Annica Börjesson pay damages or compensation for personal injury, illness or death of the superin- nal Group is ultimately Claims Executive tendent whilst attending the NB site or travelling to and from the site. regulated by the Poo- Team Göteborg I < Hospital, medical, repatriation, funeral or other expenses necessarily incurred ling Agreement, “the in relation to the superintendent whilst attending the NB site. Pool”, in which the clubs in the Group share certain layers of < Legal liabilities, whether statutory or framed in tort, as well as approved the P&I risks they insure. When agreeing to share risks, it is contractual liabilities and legal and other costs incurred to protect or defend natural that only agreed risks can be shared, that the risks are against recoverable liabilities. “poolable”, and this has an effect on what type of cover can < Cover for personal injury liabilities and liabilities to third parties due to the be afforded. acts of superintendents/personnel. Many of the International Group clubs have however be- < The limit of the cover is USD 6 million for each accident or occurrence. come aware of needs for types of cover that borders to or are < Deductible USD 5,000. closely linked to the P&I cover, but which risks are not “poo- 2. Cover for the fi nancial loss a shipowner will have if the vessel on order is lable”. Several clubs offer, therefore, additional or extra cover not delivered or is delayed for certain risks. The clubs underwrite these risks themselves, with or without reinsurance, with the result that the clubs offer This cover can be tailor-made to encompass only non-delivery or to include dif- different types of covers in this respect. ferent aspects of physical damage and/or other events resulting in a delay of the delivery of the vessel. The P&I cover < Bankruptcy of the shipyard can also be covered, as can political risks. The key word in P&I insurance, “liabilities”, denotes legal < The value of a vessel might have risen during the time between signing the liabilities, i.e. liabilities that follow from shipowners’ underta- contract and the actual delivery. If the vessel is lost prior to delivery, own- kings under contracts or liabilities that follow from applicable ers will only receive their down-payments back. Any increase in the price of mandatory law. The point of departure for any P&I risk is newbuildings or in freight rates is not insured. If a vessel is built on the back furthermore that the shipowner is covered in respect of lia- of a charter contract, the charterers will be able to cancel the contract and bilities incurred by him in his capacity as owner, operator or the owner will loose out on the revenue generated by the contract. The cost charterer of the entered ship; as opposed to being a shipowners’ of acquiring similar tonnage will in most instances, mean additional costs general liability cover. for shipowners. The same principle applies for linear operators, as lead times As regards liabilities in respect of persons, the P&I insu- and costs to fi ll the gap for a vessel that is not delivered or delayed can be rance accordingly covers legal liabilities that arise as a direct substantial. consequence of the operation of the entered ship. Consequent- < Limit of cover – between USD 500,000 and USD 5 million, but can be higher ly, liabilities in respect of persons during newbuildings are and can be variable. excluded from P&I cover. < The cover can be extended to include physical damage to the vessel, delayed Shipowners, however, often provide crew for a new ship delivery and insurance of refund guarantees. prior to taking over the ownership (during building or when < There will be limited capacity for this product as the risk for a total loss is taking delivery of the ship) and the crew then normally signs considerable in certain areas of the world, due to the risk of earthquakes and on under the terms of the crew contract, under which the severe weather. This means that we will have to limit the number of risks writ- shipowner is liable. What is more, liabilities towards other ten in a certain yard, area or region. Once the limit has been reached, we may personnel attending at the building site, superintendents, are have to decline cover or revise premiums to properly refl ect the aggregation also excluded from P&I cover. This is also the case for liabili- of risk. ties to third parties, such as the yard, that are incurred by the 3. Cover for legal disputes relating to the newbuilding contract. 9 continues on page 24 This is a traditional FD&D cover for newbuilding disputes. ■ 2222 The Swedish Club Letter 2–2006 Insurance ngs Cover for the fi nancial loss Newbuilding contracts a shipowner will have if from an FD&D the vessel on order is not perspective delivered or is delayed ■■Traditionally, cov- ■■3 The Club may, as 2er has been available a service to future P&I from the insurance Tord Nilsson and FD&D members, Anders Leissner market for: Area Manager insure the newbuilding FD&D Manager Team Göteborg I Team Göteborg III 1. The consequences contract against FD&D of physical dam- risks. This FD&D cover age to the vessel under construction or to the shipyard or is provided on an ad hoc basis and is subject to special condi- subcontractors’ facilities. The indemnity payable in event tions and entails that the member will enjoy legal support as of loss would be loss of future charter hire or profi t, or well as cover for legal costs in case there will be a dispute under increased cost of replacement. that contract. The member will be greatly assisted, when as- sessing the risks of the newbuilding process, to know that he 2. Loss of stage payments paid into the shipyard as a result of has access to legal expertise in the event of a dispute. In addi- a failure to honour a bank guarantee following cancellation tion, the cover enables the Club and the member to develop of the shipbuilding contract. an early business relationship. Recent developments both in the shipping and shipbuild- The newbuilding contract is in essence a sales contract ing industries and in the insurance market, have made this between a yard, (the builder) and a buyer. One fundamental whole subject more interesting. question under this contract is at what point of time title is passed. Usually, title (and risk) in the construction remains Industry Developments with the builder until delivery, but occasionally does the con- Shipyard order books in most of the major shipbuilding na- tract provide that title is passed to the buyer after the fi rst tions are full until 2009 or beyond. Slots for newbuildings in instalment has been paid. In all circumstances, the buyer is re- shipyards have become an increasingly valuable commodity quired to pay huge sums in advance, and the buyer will clearly that can be traded in their own right. Newbuilding values and be concerned about the extent to which his assets are protected contract prices have increased steeply. in the event that the vessel is not delivered. The Club would Shipowners with ships on order for delivery in the next two like to take this opportunity to address two questions that are or three years should ask themselves the following questions: frequently raised. l What will my newbuilding be worth at current prices on 1. What are the buyer’s rights to damages in the event of non- delivery, either to me or to another owner? delivery due to total loss of a ship during the construction l Is the shipyard required to deliver a replacement vessel if process? the cause of non-delivery is force majeure? l Could the delivery of my vessel, or series of vessels, be af- Where there is a total loss during the construction this will fected by an event that occurs even before the keel is laid most likely mean a complete end, frustration, to the newbuild- for my fi rst vessel? ing contract and the contract itself is likely to provide for the l What would be the consequences if the newbuilding is mechanism by which it is to be terminated and what the im- not delivered as specifi ed in the terms of the building con- plications are.
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