WELCAR 2001 (offshore construction form)
London market form for offshore construction projects (platforms, pipelines, FPSOs): physical damage to the project in Section I, liabilities in Section II, on a composite policy.
August 16, 2015, in the neutral zone between Saudi Arabia and Kuwait. A vessel chartered by Technip, heading back to port, strikes an unmanned wellhead platform owned by KJO, the field operator. Technip settles with KJO for some 25 million dollars and turns to its insurer, under a WELCAR 2001 policy. The English Court of Appeal dismissed its claim on May 9, 2024: the existing property endorsement excludes property of "the Principal Assured", meaning any principal assured, KJO included, and not only the one making the claim. WELCAR 2001 is the London market's reference wording for offshore oil and gas construction: jackets, topsides, subsea pipelines, FPSOs, seabed installations. Section I covers physical damage to the works and to materials destined for the project, from onshore fabrication through transit, installation and testing, and during the maintenance period. Values are declared in a schedule (Schedule B), and the insurer's liability is capped at 125% of the latest declared values, which leaves room for cost overruns. Section II covers third party liability arising from an event on the project. The policy is composite: the operator, its co-venturers, the main contractor and subcontractors all appear on it, each with its own rights. That is where the trouble starts, as Technip showed: who is a "Principal Assured", who is an "Other Assured", and to whom an exclusion drafted in the singular applies. Vessels and floating equipment used for construction are excluded unless they become part of the permanent works, and the operator's existing property is covered only through a negotiated buy-back. The Joint Rig Committee at Lloyd's has been working on a revision since 2009, and a more restrictive draft circulated in 2011. The 2001 text is still the one that gets placed and litigated, twenty-five years on.
Textbook case, in numbers. A platform project declares 320 million dollars in Schedule B; Section I is capped at 125%, or 400 million. During the lift, the process module drops into the sea. Replacement: 380 million, above declared values because steel prices rose. With a 2.5 million deductible, the insurer pays 380 - 2.5 = 377.5 million, under the cap. As it falls, the module damages an existing pipeline owned by the operator, repaired for 12 million: without an existing property buy-back, Section I pays none of it.
WELCAR, WELCAR 2001 Offshore Construction Project Policy, offshore construction all risks form, WELCAR wording
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