There has been a lot of focus in the offshore wind industry on the scope of work of the marine warranty surveyor ("MWS"), e.g. what vessels they should inspect and what operations they should witness in person, but there is often uncertainty as to what will happen if the contractor fails to follow the recommendations of the MWS, or indeed fails to consult the MWS in the first place. The MWS is not a policeman, but nevertheless it is important that they understand their powers so that they can warn the assured if their actions could jeopardise their insurance cover.
To a large extent, this uncertainty can be reduced by making sure that the insurance policy contains a thorough and well-drafted MWS clause.
Not all MWS clauses are created equal. As a start, you need to consider whether the MWS clause is a warranty, a condition precedent or a mere condition, as this will have a direct effect on how it works in practice.
If it is a warranty, then even a minor breach will terminate the entire policy automatically, resulting in no insurance cover for the remainder of the project unless underwriters choose to waive the breach. If it is a condition precedent, then typically a breach will not terminate the policy but will mean that any claims arising from the failure to follow the MWS's recommendations will not be paid. Finally, if it is a mere condition then it will have no effect on policy coverage but insurers may be able to claim damages against the insured in some limited circumstances.
It must be noted that the treatment of warranties as a matter of English law will soon be changing with the arrival of the Insurance Act in August 2016. The effect will be that a breach of warranty does not terminate insurance cover, but rather insurers' liability for causative claims is suspended until the breach of warranty is remedied by the insured.
Looking at some practical examples, the standard MWS clause in the WindCAR policy is framed as a warranty, as follows:
“Warranted [MWS] and or their local agents to prove and issue as applicable certificates on the project as follows.”
A failure by the insured to obtain an applicable Certificate of Approval before commencing operations, for example, will therefore automatically terminate cover. What is apparent, however, is that there is no mention of what should happen if a contractor fails to follow the MWS's oral or written recommendations, or what will happen if the MWS is simply not consulted about a hazardous condition offshore. As it is currently drafted, therefore, this clause provides only limited powers to a MWS.
Other MWS clauses are not framed as warranties, but rather as conditions precedent. For example:
“insurance cover for all aspects listed in the attached endorsement is subject to approval / certification by the warranty surveyor.”
Being a condition precedent rather than a warranty, failure to obtain a Certificate of Approval for a relevant operation will not terminate the policy, but will mean that underwriters are not liable for claims which may arise as a result. Again, the clause is silent as to the status of recommendations from the MWS, or what should happen when the MWS is not consulted.
In order to be fit for purpose, I suggest that a MWS clause should contain, at a minimum, the following elements:
- Clear guidance as to whether the clause is a warranty or a condition precedent. Given the impending arrival of the Insurance Act, it may be prudent to frame the clause as a condition precedent to ensure consistency before and after the Act takes effect.
- A clear link to the MWS scope of work.
- What is the effect of failing to obtain a Certificate of Approval where one is required?
- What is the effect of the assured deviating from a pre-agreed work plan which is the subject of a Certificate of Approval? This is often dealt with in the Certificate of Approval itself, but to ensure consistency it would make sense to put it in the clause itself.
- What is the effect of failing to follow oral and/ or written recommendations from the MWS?
- What is the effect of failing to consult the MWS in relation to a hazardous situation?
- Confirmation that the MWS is entitled to speak directly to underwriters.
In order to obtain greater certainty across the market as to the role of the MWS, it is suggested that it would be a positive move for the offshore wind industry to agree a standard MWS clause which could be included in every relevant policy. There is discussion within the industry of putting together a precedent scope of work and MWS code of practice. This is a sensible idea, and a standard MWS clause could be included as part of this package. This approach has worked well in the offshore oil and gas industry, where the Joint Rig Committee ("JRC") MWS clause, scope of work and code of conduct has been used to good effect for a number of years. A link to the JRC paper can be found here.