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Rule 60 Drilling, production and accommodation vessels and barges

1 For drilling vessels, barges and any other vessels or barges employed to carry out drilling or production operations in connection with oil or gas exploration or production, including accommodation units moored or positioned on site as an integral part of any such operations, the Association shall not cover under a P&I entry any liabilities, losses, costs or expenses arising out of or during drilling or production operations, provided that for the purposes of this Rule 60.1:

a the Ship shall be deemed to be carrying out production operations if, inter alia, it is a storage tanker or other vessel engaged in the storage of oil, and either

i the oil is transferred directly from a producing well to the storage vessel; or

ii the storage vessel has oil and gas separation equipment on board and gas is being separated from oil whilst on board the storage vessel other than by natural venting; and

b in respect of any Ship employed to carry out production operations in connection with oil or gas production, the exclusion in this Rule 60.1 shall apply 

from the time that a connection, whether directly or indirectly, has been established between the vessel and the well pursuant to a contract under which the Ship is employed until such time that the Ship is finally disconnected from the well in accordance with what contract. 

For semi-submersible heavy lift vessels and any other vessels designed exclusively for the carriage of heavy lift cargo, the Association shall not cover under a P&I entry liability for loss of or damage to or wreck removal of cargo, save insofar as the carriage is undertaken on contractual terms approved by the Association.

 

Guidance

Rule 60 deals with two quite separate situations that are linked by the fact that each involves the use of a Ship in activities that are not traditionally performed by Ships that are entered in the Association for mutual risks. 

Whereas Rule 59 establishes the exclusions of cover that apply when a Ship is engaged in ’specialist operations’, Rule 60.1 regulates the limited cover that is available when drilling vessels, barges and any other vessels or barges are employed to carry out drilling or production operations in connection with oil or gas exploration or production, or accommodation units that are moored on site as an integral part of such operations. Therefore, Rule 60.1 is more specific than Rule 59 in the scope of its applicability and, when considering the scope of the cover that is available, it is necessary to establish which Rule is applicable in the particular circumstances. 

Rule 60.1 mirrors the terms of the Pooling Agreement that establish the contractual basis on which the Association and the other clubs that are members of the International Group of P&I Clubs are able to buy the collective market reinsurance that benefits the members of all such clubs including the Association. 

Rule 60.2 deals with the quite different situation in which claims are brought against semi-submersible heavy lift vessels or any other vessels that are designed exclusively for the carriage of heavy lift cargo for loss of, or damage to, or wreck removal of, cargo, save insofar as the carriage is undertaken on contractual terms that have been approved by the Association. The rationale for this exclusion is also the appreciation that the use of such specialised Ships can give rise to very substantial claims that are substantially greater in scale and quantum that the kind of claims that Members of a mutual association are prepared to share inter se

The structures that are identified in Rules 60.1 and 60.2 are entitled to limited P&I cover. However, those Rules must be read subject to the overriding requirement that, to qualify for any degree of cover, the various structures described in those Rules must satisfy the definition of ’Ship’ in Rule 1.1. and the definition of ’eligible vessel’ under the Pooling Agreement. Rule 1.1 defines a Ship as follows: a “ship or other floating structure entered in the Association (other than a mobile offshore unit entered in accordance with Part III of these Rules)”. Furthermore, Appendix II of the Pooling Agreement defines an ’eligible vessel’ as: 

“Any ship, boat, hydrofoil or other description of vessel (including a lighter, barge or similar vessel howsoever propelled but excluding (a) a unit or vessel constructed or adapted for the purpose of carrying out drilling operations in connection with oil or gas exploration or production and (b) a fixed platform or fixed rig) used or intended to be used for any purpose whatsoever in navigation or otherwise on, under, over or in water or any part of such ship, boat, hydrofoil, hovercraft or other description of vessel or any proportion of the tonnage thereof or any share therein.” 

Provided that the various structures that are identified in Rule 60.1 comply with such definitions, Members are entitled to P&I cover provided that the claims also comply with the Rules and any other terms that may have been agreed between the Association and the Member other than for liabilities, losses, costs or expenses that arise out of, or during the course of, drilling or production operations that are specifically excluded by Rule 60.1. 

Similarly, semi-submersible heavy lift vessels and any other vessels that are designed exclusively for the carriage of heavy lift cargo and which otherwise satisfy the definition of ’Ship’ in Rule 1.1 are entitled to P&I cover other than for liability for loss or damage to, or wreck removal of, cargo, unless such carriage is undertaken on contractual terms that have been approved by the Association. 

Such restrictions apply only to cover that is subject to the sharing and reinsurance arrangements of the Pooling Agreement. However, the Association provides alternative cover for mobile offshore units which is not reinsured in the Pool. 

(A) For drilling vessels, barges and any other vessels or barges…employed to carry out drilling or production operations in connection with oil or gas exploration or production…the Association shall not cover under a P&I entry any liabilities, losses, costs or expenses arising out of or during drilling or production operations. (Rule 60.1)
It must be appreciated that the P&I cover that is available under Rule 60.1 is limited either by the nature of the relevant structure or vessel and/or by the nature of the operation in which that structure or vessel is engaged. These restrictions apply since it is considered that the risks to which the Association would otherwise be exposed are not risks that should be shared by the membership of a marine mutual association. 

Since the P&I cover that is made available by the Association is restricted to structures that comply with the definition of ’Ship’ in Rule 1.1 and ’eligible vessel’ in Appendix II of the Pooling Agreement (see above), the scope of P&I cover that is available to vessels that are engaged in drilling operations is extremely limited by virtue of the nature of the ship.1 However, storage tankers or other vessels that are engaged in the storage of oil may comply with such a definition. If so, it is also necessary, in order to determine whether cover is available, to consider whether the relevant liabilities, losses etc., were incurred whilst such vessels were engaged in production operations as defined for the purpose of Rule 60.1 or as a result of such operations. Rule 60.1.(i) states that a Ship is deemed to be engaged in such production operations either when the oil is transferred directly from a producing well to the storage tanker or when the storage tanker has oil and gas separation equipment on board and gas is being separated from oil whilst on board the storage tanker other than by natural venting. 

Rule 60 does not establish the period during which a Ship is deemed to be engaged in drilling operations but, it does so in relation to production operations, i.e. from the time that a connection has been made between the Ship and the production site for the purposes of cargo production pursuant to a contract under which the Ship is employed to do such work until such connection has been permanently disconnected pursuant to such contract including any times during which the connection between the Ship and the production site has been temporarily disconnected. The rationale for such exception is that during such period, the Ship is not able to trade as a traditional vessel and is exposed to very substantial liabilities, losses, costs and expenses that are very different in nature to those that arise normally in the ordinary course of the operation of ships, e.g. an explosion or a fire on a platform, or an uncontrolled flow of oil or gas from a well. However, cover is not excluded for liabilities, losses etc. that are incurred by specialist vessels or structures that satisfy the definitions of ’Ship’ in Rule 1.1 and ’eligible vessel’ in Appendix II of the Pooling Agreement when they are employed otherwise than in carrying out drilling or production operations in connection with oil or gas exploration or production, e.g. for oceanographic research purposes such as core sampling and well stimulation. 

(B) …arising out of or during drilling or production operations. (Rule 60.1)
Cover for all liabilities, losses, costs and expenses is excluded if they arise either:

i ‘out of drilling or production operations’, i.e. if they are caused by, or occur as a result of, such operations; or

ii ‘during’ such operations, i.e. they occur whilst the Ship is engaged in such operations but regardless of whether they are in fact caused by such operations or by a normal marine or other risk. 

For example, if a member of the Crew of the Ship is injured as a result of a gas blow-out, cover is excluded for any liability that the Member may have for any claim that is brought against him by the Crew member. However, cover is also excluded for liabilities, losses etc., that are incurred by a Member if a member of the Crew is injured as a result of falling down a stairwell during the course of drilling operations in circumstances which could equally have occurred even if the Ship had not been engaged in drilling activities at the time. 

(C) ...provided that for the purpose of this Rule 60.1.a the Ship shall be deemed to be carrying out production operations if… (Rule 60.1)
Rule 60.1 describes the type of activities that are deemed to constitute production operations for the purposes of the Rule. The factor that links all of them is the use of the Ship as a storage or product separation facility and not as a means of carrying passengers or cargo. 

(D) …accommodation units moored or positioned on site as an integral part of such operations… (Rule 60.1)
For the purposes of Rule 60 an accommodation unit is considered to be engaged in drilling or production operations when the vessel is moored or positioned on site as an integral part of such operations even though the vessel is not directly involved in the drilling or exploration process. However, cover is not excluded for liabilities that arise as a result of events that occur at a time when the accommodation unit is proceeding to or from the site.2 

(E) For semi-submersible heavy lift vessels and any other vessels designed exclusively for the carriage of heavy lift cargo the Association shall not cover under a P&I entry liability for loss of or damage to or wreck removal of cargo… (Rule 60.2)
Semi-submersible heavy lift vessels and any other vessels that are designed exclusively for the carriage of heavy lift cargo and which otherwise comply with the definition of ’Ship’ in Rule 1.1 are entitled to P&I cover except for liability for loss of or damage to, or wreck removal of, cargo, unless such liability arises under the terms of a contract of carriage that have been approved by the Association. 

The restriction of cover that is described in Rule 60.2 applies only to vessels that are designed exclusively for the carriage of heavy lift cargo. Therefore, the restriction does not apply to ships that have the capability to carry heavy lift cargo but which are not designed exclusively for that purpose and which regularly carry other forms of cargo as well as heavy lift cargo. The question of whether a vessel is designed exclusively for the carriage of heavy lift cargo is a question of fact depending on all the circumstances. 

Cover is restricted for such vessels since the activities in which they are engaged can result in very heavy losses that are not compatible with the risks to which Members that operate conventional Ships are normally exposed. The cargoes that are normally carried by such vessels are extremely large and valuable components for on or offshore industrial projects that are transported to sites such as oil and gas exploration fields. Due to the weight and/or value of the cargo, the limits of liability that may apply in the event of claims may be very high. Furthermore, the cost of removing or raising cargo from the wreck of such a vessel, or after cargo has fallen from such a vessel, is normally very high. Consequently, it is considered that the liabilities, losses etc., that arise as a result of the carriage of such cargo on such ships differ substantially in nature and scale from those that the membership as a whole will normally expect to bear when operating their Ships. Consequently, Rule 60.2 provides that cover is available from the Association only if the carriage is undertaken on contractual terms that have been approved by the Association. 

However, the restriction extends only to liabilities, losses etc., that arise in relation to claims for the loss of, or for damage to, or for the wreck removal of cargo, i.e. the type of liability for which cover would otherwise be available under Rules 34 or 40. Therefore, P&I cover is available for other types of claim that may be made against such vessels, e.g. for claims that are made in relation to the Crew under Rule 27. 

(F) …save insofar as the carriage is undertaken on contractual terms approved by the Association (Rule 60.2)
The purpose and aim of this provision is to ensure that the Association does not provide cover for liabilities, losses etc., that arise in relation to the carriage of heavy lift cargo on Ships that are designed exclusively for such carriage under terms of carriage that are not considered to be acceptable to the Association or which are excluded under the Pooling Agreement. Cover is available for liabilities that arise pursuant to the terms of the Heavycon 2007 charterparty since such terms are approved by the Association provided that the charterparty has not been materially amended.


1 It is unlikely that a drilling vessel can satisfy the test of ‘eligible vessel’ for the purposes of Appendix II of the Pooling Agreement.
2 An accommodation unit is a Ship as defined in Rule 1 and is therefore entitled to cover under Rule 2 unless it is a mobile offshore unit that is entered in accordance with Part III of the Rules.