Builders' risks insurance

On October 1, 2002, at the Nagasaki shipyard, a fire swept through the Diamond Princess while it was fitting out alongside. The cruise ship had not been delivered, it was insured under builders' risks, and the yard ended up delivering the sister hull under that name. Builders' risks insurance covers a ship while it is still a construction site. The reference wording in the London market remains the Institute Clauses for Builders' Risks (1/6/88), which yards in Asia and Europe often adopt with country-specific amendments. Cover runs from the cutting of the first plates or the laying of the keel until delivery, and it follows the ship off the yard: launch, sea trials, moves between docks. It is in principle an all risks cover for loss or damage, with hull-type liability (collision, third-party damage) during trials. The underwriting difficulty comes from value. It is low when the keel is laid, then climbs as blocks, engines and equipment arrive. The contract usually sets it at the shipbuilding contract price, with a premium adjusted at the end on the value actually reached. The most argued point is faulty design. The 1988 clauses cover loss caused by faulty design but exclude the cost of repairing the defective part itself. That opens long debates between yard, owner and insurers over what counts as damage and what counts as mere replacement. A yard delivering a series of sister ships also weighs through accumulation: one defect can show up on five hulls. Not to be confused with contractors' all risks cover, which insures a civil engineering project, or with standard hull cover, which takes over only at delivery.