Energy Loss Scenario based on the Nordic Marine Insurance Plan 2013

London 13 July 2015

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Agenda

Energy Loss Scenario based on the Nordic Marine Insurance Plan 2013

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Energy Claim Case based on the Nordic Marine Insurance Plan 2013

Introduction to the Loss Scenario

Extract of the Policy Wording

Claim Process – How will a Norwegian Claims Leader approach this case

The Loss Notification phase – Initial Consideration in order to get the situation under control/clause consideration

The claims monitoring phase – Clause Consideration

The final adjustment and settlement phase – Clause Consideration

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Loss Scenario

Drillship “X2” move from one field to another

Operation Area; North Sea

Move plan issued to Leader. Drillship “X2” moves well excess of safety zone (500m) of the nearby fixed platform. Drillship X2 exposed to unexpected bad weather

Drillship “X2” lose control of their propulsion system

Drillship “X2” collides with a Fixed Platform

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Loss Scenario

Both units a total loss/ no knock for knock agreement in place between the parties

Drillship “X2” Owner fully responsible

Mitigation/ salvage costs incurred in the amount of USD 600,000,000

Value Fixed Platform: USD 1,800,000,000 Bn.

Value Drillship “X2”: USD 1,400,000,000 Bn.

Split H&M USD 1,120 Bn./ HI USD 280 Mill.

What will be covered under Drillship “X2” Owner`s H&M policy??

What will be Drillship “X2” Owner`s Collision liability towards the fixed platform owner??

How will the adjustment be under ITC??

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Loss Scenario – Extract of Insurance Cover

Conditions: Nordic Marine Insurance Plan 2013

Policy Period: 01.01.15 – 01.01.16

Insured unit: Drillship – “X2”

Interest: H&M, HI and LOH

Sum Insured: USD 1.4 Bn. - split H&M USD 1.12Bn/ HI USD 280 M. and LOH 60/290/290 – LOH sum insured USD

130,500,000

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Loss Scenarios – Extract of Insurance Cover - Cont

Trading Area: Worldwide

Classification Society: DNV GL

Claims Leader: Norwegian Claims Leader

Following market: Aspen and other London based markets

General conditions: Including Assured`s liability arising from collision or striking as per clauses 18-35 to 18-38 & 18-39 (b)

Special Conditions: Condemnation – ref. clause 18-10

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Loss Notification Claim Monitoring Claims Settlement

Review coverage

Notify carriers

Forward loss adjusters’ reports

to all carriers

Liaise with applicable

insurers

Pre-empt loss issue for smooth claims handling

Ensure regular claims

reporting

Deal with payment or account

requirements

Manage claims processing

Collect and distribute funds

Validate payments to loss

payeesAppoint

loss adjuste

r

Appoint loss

adjuster

Assign

Marsh

resource

Prepare

claims

Handling

procedure

The claim process and main clause consideration

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Prepare claims

handling procedure

Appoint

loss adjuste

r

Appoint loss

adjuster

AssignMarsh

resource

Assign

Marsh

resource

Prepare

claims

Handling

procedure

The Loss Notification phase – Initial Claims Leader Consideration in order to get the situation under control

Emergency Response/ Salvage operations. Bring the situation under control soonest possible. Emergency team will be put into operation

Minimizing potential loss of life, injury, pollution and damage to the environment, damage to the vessel, her cargo and other property

Establishing communication lines

Loss Adjuster on site asap

High Profile Incident/ Media Attention. Protecting Owner's reputation and brand

Legal aspects including but not limited to collisions, salvage, fires, general average, actions against third parties, etc.

Help Assured to safeguard their interest

Total loss consideration

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Prepare claims

handling procedure

Appoint

loss adjuste

r

Appoint loss

adjuster

AssignMarsh

resource

Assign

Marsh

resource

Prepare

claims

Handling

procedure

Loss Scenario – Situation under control

The situation is brought under control within 12 hours

No loss of life or serious injuries

Mitigation/salvage costs incurred in the amount of USD 600 M.

4 days after the incident the Drillship X2 is declared a total loss.

No knock for knock agreement in place

Drillship Owner fully responsible for the incident

Fixed Platform also declared a total loss

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Norwegian Law

• If a casualty has occurred, the assured shall do what may be reasonable expected to avert or minimise the loss

• Assured act as a prudent uninsured

Clause 3-30. Duty of the assured to avert and minimise loss

Norwegian Law

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• Assured shall provide the insurer with information and documents required by the insurer for the purpose of settling the claim.

Clause 5-1. Duty of the assured to provide particulars and documents

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• Claims Leader is entitled to take steps with binding effect on the co-insurers

• The right of the claims leader to act on behalf of the co-insurers

Clause 9-2. The right of the claims leader to act on behalf of co-insurers

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•The Plan covers All Risks, subject to a few specific exceptions

•Main exceptions:

a.) War Riskb.) Intervention by state powerc.) Insolvencyd.) RACE II clause (1-5)

Clause 18-1. (b) Perils insured against/ ref. Cl. 2-8 and Cl.2-9

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The Nordic Marine Insurance Plan

• Assured has the burden of prove that he has suffered a loss covered by insurance

• Insurer has the burden of prove that an exclusion apply

Clause 2-12. Main rule relating to the burden of proof

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• If the MOU has been damaged without the rules relating to total loss being applicable, the insurer is liable for the cost of repairing the damage in such a manner that the MOU is restored to the condition it was prior to the occurrence of the damage.

Clause 18-17. Main rule concerning liability of the insurer

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• Wells equipped with BOP

• Separate MOU move plan to be approved by the Claims Leader

Clause 18-1. (e) Safety regulations/ Ref. Cl.3-22 and Cl.3-25

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Norwegian Law

The Nordic Marine Insurance Plan

Assured’s Special Condition

• Norwegian law and exclusive Norwegian jurisdiction

Clause 1-4. Jurisdiction and choice of law

Norwegian Law

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The Nordic Marine Insurance Plan

• The area of the operation for the MOU shall be set out in the policy

Clause 18-1. (h) The area of operation/ Ref Chapter 6

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Norwegian Law

The Nordic Marine Insurance Plan

• Before any damage is repaired, it shall be surveyed by a representative of the assured and a representative of the insurer

• Will submit stage by stage reports

Clause 18-27. Survey of the damage

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• Time-limit for notification of a casualty

Assured looses right to claim if notice not given within six months from assured, master or chief engineer became aware.

Clause 5-23. Time-limit for notification of a casualty

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Clause 18-1. (c) Alteration of the risk/ Ref. Cl. 3-8

• Limited number of cases where cover terminates if a particular alteration of risk occurs;

Change of ownership

Loss or suspension of the main class

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• The Claims Leader is responsible for setting up a Claims Adjustment

Clause 9-9. Claims Adjustment

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Appoint

loss adjuste

r

Appoint loss

adjuster

AssignMarsh

resource

Assign

Marsh

resource

Prepare

claims

Handling

procedure

The claims monitoring phase – Clause Consideration

• Negotiations phase

• The limit of liability of the insurers

• Collision consideration

• Total loss consideration

• Defense measures

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Clause 18-1. (g) The limit of liability of the insurer

• H&M liable up to the sum insured for loss caused by any type of casualty

• Loss mitigation/salvage costs capped at USD 500 million

• The H&M insurer has a separate liability to third parties which is a result of collision or striking

Hull insurance “on full conditions”;

• Physical Damage to the unit

• Loss mitigation/ salvage cost

• Collision liability

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• The insurer will indemnify the assured for loss of liability imposed on the assured due to collision or striking by the MOU, its accessories, equipment or cargo, or by a tug used by the MOU

• The exclusion of liability for damage to or loss of fixed installations on the continental shelf under paragraph 18-14 of the 1996 plan was removed during the 2013 revision.

Liability of the assured arising from collision or strikingClause 18-35. Scope of liability of the insurer

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• Collision liability under the H&M policy equals to sum insured but not exceeding USD 500 M. or 50% of sum insured, whichever is the higher amount.

• Loss Scenario: Value Drillship “X2”: USD 1,400,000,000 Bn.

Split H&M USD 1,120 Bn./ HI USD 280 Mill.

Collision Liability: USD 560,000,000

Liability of the assured arising from collision or strikingClause 18-37. Maximum liability of the insurer in respect of any one casualty

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• If insurance has been effected against total loss and excess collision liability (hull interest insurance), the insurer is liable for the amount stated in the policy

• Loss Scenario: Value Drillship “XX2”: USD 1,400,000,000

Split H&M USD 1,120 Bn./ HI USD 280 Mill.

Excess Collision Liability: USD 280,000,000

Liability of the assured arising from collision or strikingClause 18-39. Insurance against total loss and excess collision liability (hull interest insurance)

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Clause 18-8. Total loss

The assured may claim compensation for a total loss if the MOU is lost without there being any prospect of being recoverered, or if the MOU is so badly damaged that it cannot be repaired.

Clause 18-10. Condemnation (Constructive total loss) CTL

Cost of repairs will exceed 80% of:a.) insurable value or,

b.) of the value of the ship after repairs if this is higher than the insurable value

Special clause. Condemnation to Clause 18-10 of the Nordic Plan 2013

The asssessed insurable value (Hull and Machinery value) together with the Hull Interest shall be the insurable value or the value of the ship after repairs (estimated/ agreed market value). Furthermore, it is agreed that there is a claim for condemnation where the conditions otherwise specified in that paragraph are satisfied when the cost of repairs exceed the insured value under Section A (Hull and Machinery)

Total LossClauses 18-8./ 18-10. and Special Clause

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• Loss Scenario: Value Drillship “X2”: USD 1,400,000,000

Split H&M USD 1,120 Bn./ HI USD 280 Mill.

Trigger for total loss: Repair cost exceeds USD 1,120Bn

Total LossClauses 18-8./ 18-10. and Special Clause

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• Insurers not liable for LOH, when Assured entitled to a Total Loss compensation

Loss of hire insurance for MOUsClause 18-44. Total Loss

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• When the final claim is likely to take some time to complete, Assured may request Insurers to make an interim Payment on Account

• Basis is completed repair work and cost incurred

• Loss Adjuster will recommend POA in report submitted to Leader for formal approval

Clause 5-7. Duty of the insurer to make a payment on account

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Appoint

loss adjuste

r

Appoint loss

adjuster

Assign

Marsh

resource

Prepare

claims

Handling

procedure

The final adjustment and settlement phase – Clause Consideration

Formal agreement reached between the parties

Collect documentation

Adjust the claim

Final payment

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• Claims Lead to issue the claims adjustment as soon as possible. He may give responsibility for drafting the adjustment to an average adjuster

Clause 5-2. Claims Adjustment

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• The assured as well as the insurer may demand that the adjustment be submitted to a Nordic average adjuster for his opinion before the dispute is brought before the court

Clause 5-5. Disputes concerning the adjustment of the claim

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• According to § 5-4 – Assured are entitled to interest on their claim adjustment

• Loss Adjuster to review documentation and invoices from the Assured and finalize the claim adjustment

Clause 5-4. Interest on compensation

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• In The event of a total loss, the mortgagee`s interest takes priority

Clause 7-4. Payment of compensation

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• Compensation is payable six weeks after the date when the claim adjustment is or should have been issued.

Clause 5-6. Due Date

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Claims Scenario – Collision Liability – Final Adjustment

• Drillship collides with a fixed installation

• Both units a total loss/ no knock for knock agreement in place

• Drillship owner fully responsible

• Mitigation/ salvage costs incurred in the amount of USD 600,000,000

• Value fixed platform: USD 1,800,000,000

• Value drillship: USD 1,400,000,000 (Split: H&M: USD 1,120,000,000 and HI USD 280,000,000)

What is covered under the Drillship Owner`s H&M policy?

•Total loss of the Drillship: USD 1,400 Bn. (Clause 18-1. g)

•Mitigation/ Salvage: USD 500 Mill. (Clause 18-1. g)

•Collision liability (H&M) USD 560 Mill. (Clause 18-37.)

•Excess Collision liability (HI) USD 280 Mill. (Clause 18-39.)

Total recovery : USD 2,740 Bn.

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Claims Scenario – Collision Liability – Final Adjustment

What is Drillship Owner`s overall collision liability towards the Fixed Platform Owner?Value Fixed Platform: USD 1,800 Bn.

Drillship Owner`s Hull and Machinery Insurers:

•Collision liability (H&M): USD 560 Mill.

•Excess Collision liability (HI): USD 280 Mill.

Drillship Owner`s P&I Clubs:

•Primary P&I: USD 500 Mill.

•Excess P&I: USD 460 Mill.

Total recovery : USD 1,800 Bn.

•H&M insurer will pay collision liability from ground up/ P&I club XS

•Insurers may require “knock for knock” in contracts where customary in the industry, ref. clauses 4-15. (b) and 3-28. by accepting waiver of subrogation.

•Knock for knock contracts customary in the North Sea.

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Claims Scenario – Collision Liability – Final Adjustment ITC

• Drillship collides with a fixed installation

• Both units a total loss/ no knock for knock agreement in place

• Drillship owner fully responsible

• Mitigation/ salvage costs incurred in the amount of USD 600,000,000

• Value fixed platform: USD 1,800,000,000

• Value drillship: USD 1,400,000,000 (Split: H&M: USD 1,120,000,000.and HI USD 280,000,000)

What is covered under the Drillship Owner`s ITC H&M policy:

•Total loss of the Drillship: USD 1,400 Bn.

•Mitigation/ Salvage: USD 600 Mill.

•Collision liability-RDC/ FFO Not applicable under H&M

Total recovery : USD 2,000 Bn.

Collision Liability under Drillship Owner`s P&I Clubs:

•Collision liability 4/4 FFO USD 1,800 Bn.

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Realistic Loss Scenario!!!

Thank You for your attention