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The Association shall not cover under a P&I entry liabilities, losses, costs and expenses incurred by the Member during the course of performing dredging, blasting, pile-driving, well intervention, cable or pipelaying, construction, installation or maintenance work, core sampling, depositing of spoil, power generation and decommissioning to the extent that such liabilities, losses, costs and expenses arise as a consequence of:
a claims brought by any party for whose benefit the work has been performed, or by any third party (whether connected with any party for whose benefit the work has been performed or not), in respect of the specialist nature of the operations; or
b the failure to perform such specialist operations by the Member or the fitness for purpose and quality of the Member’s work, products or services, including any defect in the Member’s work, products or services; or
c any loss of or damage to the contract work,
provided that this exclusion shall not apply to liabilities, losses, costs and expenses incurred by the Member in respect of:
i loss of life, injury or illness of crew and other personnel on board the Ship;
ii the wreck removal of the Ship; or
iii oil pollution from the Ship or threat thereof
but only to the extent that such liabilities, costs and expenses are within the cover available under any other Rule or the terms of entry agreed.
When vessels are engaged in servicing the offshore industry or in construction and maintenance projects either at sea or in port they may be considered to be engaged in ’specialist operations’ for the purposes of Rule 59. In such a case, the cover that is available from the Association is restricted since the Member is then vulnerable to additional risks that are different from those that have traditionally been considered by the mutual Members of a P&I club to be risks that they are prepared to share inter se. Consequently, Rule 59 draws a distinction between “liabilities, losses, costs and expenses that are incurred by the Member during the course of performing specialist operations” (which are described in more details below and excluded from cover) and liabilities losses, costs and expenses that are incurred by the Member whilst undertaking conventional trading operations (which are not excluded from cover). The demarcation line between the two types of risk can often be blurred but the Association has a responsibility to decide the issue in an objective manner that is consistent and fair to the membership as a whole and to its pooling partners and reinsurers.
(A) …shall not cover under a P&I entry liabilities …incurred by the Member during the course of performing dredging, blasting, pile-driving.… (Rule 59)
Rule 59 refers to a number of specific operations that are considered to be ‘specialist operations’. Instead of having merely a general reference to ‘specialist operations’, which creates some uncertainty as to whether an activity is excluded or not, the Rule lists expressly the activities for which cover is excluded. The activities that are not covered under the current Rules are as follows: Dredging, blasting, pile-driving, well intervention, cable or pipelaying, construction, installation or maintenance work, core sampling, depositing of spoil, power generation and decommissioning.
The exclusion is triggered, not by reference to the type of Ship that performs the operation, but by reference to the nature of the operation that is being conducted by that Ship. Therefore, the exclusion does not apply to liabilities etc., that are incurred by a Member as a result of an event that occurs whilst a specialist pipe-laying Ship is operating as a conventional ship when carrying pipes from a loading port to the project area, but it would apply to liabilities etc., that are incurred by a Member as a result of an event that occurs whilst a general purpose Ship is performing pipe-laying operations, e.g. liability arising as a result of damage caused by that Ship to the pipeline during the course of such operations. Cover is excluded in such circumstances even though the events that give rise to liability etc., are not made manifest until after the completion of those operations, e.g. the rupture of an incorrectly laid pipe that occurs after completion of the pipe-laying operations.
Cover is excluded when such liabilities etc., are incurred by the Member and usually arise when the Member carries out such specialist operations himself. However, in some circumstances, the Member may incur liability when the operations are carried out by third parties pursuant to a contract that makes the Member liable for such operations. Cover is also excluded in those circumstances.
A Member who has been using a Ship for conventional trading purposes but wishes to use the Ship thereafter for specialist operations, should be aware that such a change of use is a material fact and an alteration of risk that should be promptly disclosed by the Member to the Association pursuant to the provisions of Rules 6 and 7. If the Member fails to do so then cover may not be available.1
The Association may be able to arrange additional cover for specialist operations even though cover for such risks is excluded under the Rules.2
(B) …liabilities, losses, costs and expenses…to the extent that such liabilities…arise as a consequence of… (Rule 59)
Cover for liabilities that arise as a consequence of specialist operations is excluded in the circumstances itemised in sub-paragraphs a – c. Therefore, Rule 59 does not exclude cover for other types of claim, provided that cover is available for such claims under the Rules or any special terms of cover that may have been agreed between the Association and the Member.
Sub-paragraphs a and b relate to claims that are made as a result of the manner in which the specialist operations have been carried out, whereas sub-paragraph c relates to liabilities that arise because of the loss of, or damage to, the contract work that has been caused by the Member whilst engaged in specialist operations.
(C) …claims brought…in respect of the specialist nature of the operations… (Rule 59.a)
Rule 59.a is broadly drafted to exclude cover for a wide variety of claims that can be brought against the Member whether in contract or in tort in respect of the specialist nature of the operations. Cover is excluded whether the claim is brought by a party for whose benefit the work is being performed or by any other third party. Therefore, cover is excluded if the claim is made against the Member as sub-contractor by the party for whose ultimate benefit the work is being carried out, or by the Member’s contractual partner, or by any other third party if the relevant liability, loss, cost or expense is caused by the specialist nature of the relevant operation.
For example, if a cable-laying Ship were to reverse and collide with a diving support vessel that is being operated by a sub-contractor whilst laying a fibre optic telecommunications cable in order to avoid excessive tension on the cable, thereby causing the diving support vessel to capsize and the death of the divers and an on-site representative of the telecom company that were on board, cover is not available for the Member’s liability for such loss of life and personal injury since the incident that gave rise to the Member’s liability was caused by the specialist nature of the operation. However, if the collision had taken place before either ship was engaged in that operation, cover would be available under Rule 36 since it would have been the result of a traditional marine risk that was not influenced by any specialist operations.
(D) ...failure to perform such specialist operations or…fitness for purpose… (Rule 59.b)
Cover is not available if the Member fails to perform the specialist operations. For example, if a cable-laying Ship that has been contracted to lay a new telecommunications cable were to suffer an engine breakdown prior to commencement of the operations, and the breakdown cannot be repaired in time to enable the Ship to meet the contractual deadline, cover is excluded for any liability that the Member might incur to the telecom company should that company terminate the contract and claims damages for the losses that it has sustained as a result of the Member’s failure to perform.
Furthermore, cover is not available for liabilities etc., that are incurred by the Member as a result of the substandard quality of the Member’s work, or of the fact that such work is not fit for purpose, or as a result of any defect in such work, products or services. Such liability is very different in nature to the type of liability that is normally encountered by the membership at large in relation to the operation of Ships, and, consequently, cover is excluded. Typically, such a claim would normally be brought by the person on whose behalf the Member is performing the specialist operation. For example, if a fibre optic cable has not been laid in accordance with the terms of the license that has been provided by the relevant licensing authority, the cable may have to be moved at several locations at considerable additional cost to the telecom company that owns the cable. Cover is excluded for any liability that the Member has to reimburse the telecom company for such costs.
(E) …any loss of or damage to the contract work… (Rule 59.c)
Cover is not available for liability etc., that is incurred by the Member for the loss of, or for damage to, the works that are the subject matter of the specialist operations, e.g. to a pipe that is being laid, or to harbour works that are being repaired. Any material, components or parts, including computer hardware and software that are destined to become parts of the project will be treated as integral parts of the ‘contract work’ for the purpose of this exclusion once the Member has started the process of adapting or installing the said material, component or part etc, as the case may be, for the purpose of becoming an integral part of the works that are the subject matter of the specialist operation.
It is not necessary that the loss or damage should be caused by the particular specialist operation in which the Ship is engaged at the material time provided that it arises during the course of those operations. For example, if a pile-driving vessel that is engaged in construction work on a jetty were to collide with, and damage, the jetty as a result of the negligent navigation of its Crew, cover is not available for claims that arise as a result of such collision. However, if the pile-driving vessel were to collide with another jetty that is not the subject matter of the specialist operations, cover may be available under Rule 37 subject to the scope of cover for liability for damage to fixed and floating objects that is applicable under the Hull Policies of the Ship.
(F) …provided that this exclusion shall not apply to… (Rule 59 proviso)
Rule 59 does not exclude cover for certain types of liabilities, costs etc., although they arise during, and in connection with, the specialist nature of the operations that are being performed by the Member. The relevant liabilities are listed in provisos i, ii and iii, and cover is available to the Member in such circumstances to the extent that cover is otherwise available under the Rules or any special terms of entry that have been agreed between the Association and the Member. Therefore, cover is not excluded for liabilities etc., that are incurred by the Member for the loss of life, injury or illness of Crew members or other personnel that are on board the Ship (as opposed to persons that are not on board the entered Ship)3 or which may be incurred by the Member for the removal of the wreck of the Ship,4 or for oil pollution from the Ship, or the threat of such pollution, cover for which is available under Rules 27 and/or 29, 40 and 38 respectively. This reflects the desire of the clubs that are members of the International Group of P&I Clubs to provide the widest scope of cover except for when claims can be said to be caused by the particular nature of the specialist operations.
1 See the Guidance to Rules 6 and 7.
2 The Association can provide Contingent General Liability (CGL) cover. For further details please refer to www.gard.no.
3 See the example in (E) above.
4 See the commentary in (F) of the Guidance to Rule 40.