1. The role of insurance in the offshore oil and gas industry
Dr Özlem Gürses
King’s College London

2. Overview Oil companies : consortium Appointment of an operator
The exploration stage
Seismic surveys
Employment of a drilling contractor
Sub-contracting some of the operations
Consultancy contracts for analysis of soil conditions
Construction and installation of relevant infrastructure.
Hand over the facilities to the Operator for production

3. Contractual relationships
Underlying contracts
between operator and contractors and
between contractors and sub-contractors
Liability provisions
Insurance provisions

4. Insurance Construction of the field Property Liability
Employers Liability
Pollution
Oil and natural gas in transit or in storage
Package policies
Gard Marine and Energy Ltd v Tunnicliffe [2012] Lloyd's Rep. I.R. 1 Devon Energy Corporation, a large independent oil exploration and production company, was insured under an Energy Package Insurance Policy. The package included OEE, business interruption and liability.

5. WELCAR 2001 Deductible is appropriate to pass to the contractor
The operator arranges CAR insurance on behalf of all parties
Deductible is appropriate to pass to the contractor
Usual arrangement: loss to owned properties and personal injuries to own employees will be assumed by each party by means of mutual or reciprocal indemnities irrespective of fault, negligence or breach of duty whether statutory or otherwise of the indemnified party

6. Indemnities: Caledonia North Sea Ltd v London Bridge Engineering Ltd [2002] 1 Lloyd's Rep. 553
(1)  … the contractor shall indemnify, …. the company and its parent, subsidiary and affiliate corporations and participants, … from and against any claim, demand, cause of action, loss, expense or liability …by reason of:
… (c) … Injury to or death of persons employed by or damage to or loss or destruction of property of the contractor or its parent, subsidiary or affiliate corporations, or the contractor's agents, sub-contractors or suppliers, irrespective of any contributory negligence, whether active or passive, of the party to be indemnified, unless such injury, death, damage, loss or destruction was caused by the sole negligence or wilful misconduct of the party which would otherwise be indemnified; …

7. Caledonia North Sea v London Bridge
Operator settled the claims made both by its own as well as the contractors’ employees
Then it raised claims against the contractors by relying on the cross indemnities clause (for the settlement of death and personal injury claims in respect of these contractors’ employees).
Contractors: the indemnity is not to apply unless the contractor is liable at common law or for breach of statutory duty

8. Caledonia North Sea v London Bridge
The indemnity says nothing about the contractors having to be liable to the employee.
It imposes a general liability to indemnify the operator against any liability in respect of their own employees, with an exception only in a case in which the accident is attributable to the sole negligence or wilful misconduct of the operator.

9. WELCAR 2001
May range in scope from a single pipeline installation right through to the construction of a complete offshore field.
Rig building, platform construction
A list of operations (eg procurement, towage etc) covered
All risks of physical loss of or damage …
Definition of assured
Definition of properties
And occurrence
Exclusions: eg cost of renewing faulty welds a defective part / distinguish from damage resulting from defective part

10. WELCAR 2001
Section II incorporates third party legal and contractual liability
And reasonable legal costs and expenses incurred in defence of any covered claim

11. Control of well insurance
Operator is in charge and responsible for the cost of controlling a wild well
The Operators Extra Expense (OEE)
Energy Exploration and Development 8/86
One of the most common cases when the control is lost is blow out.
when the underground pressures become greater than the downward pressure exerted by the column of drilling mud inserted while the hole is being drilled.

12. Energy Exploration and Development
EED 8/86
A) Control of well
the costs of equipment and manpower used to bring the well under control
Definitions of well being out of and under control
Exclusion: loss or damage to drilling or production equipment and for loss of use
B) Redrilling/Extra-Expense – When a well is brought under control it may need to be re-drilled or restored to its pre-blowout condition

13. EED 8/86 C) Seepage and pollution
Trigger: accident or occurrence taking place during the policy period provided that it arises well becoming out of control
legal liability for damages in respect of third party property damage and injury
costs incurred by the assured to clean up : does not require legal liability.
The insured has autonomy to act quickly to try to prevent pollution reaching the shore.

14. Insurance of drilling barge and platforms
London Standard Drilling Barge Form (LSDBF)
London Standard Platform Form (LSPF)
London Market Offshore Mobile Unit Form (LMOMUF)

15. Operating insurance All risks Survey requirements
Cover hull and machinery of the drilling barges including all their equipment, tools, machinery, while engaged in the drilling operation
All risks
Survey requirements
Classification warranty

16. Operating Insurance CTL defined Sue and labour
War and terrorism exclusion but these may be insured under a package policy
Liabilities: a drilling contractor may have a P&I entry.

17. Business interruption
Delay in start Up (DSU): A delay in the commencement of production, due to incidents occurring at the construction stage
It is also known as Advanced Loss of Profits (ALOP)
Loss of Production Income (LOPI)
Trigger: accidental physical loss of or damage well out of control

18. Incorporation of Institute time and cargo clauses
Mentor Insurance Co (UK) Ltd v Norges Brannkassee Skandia Insurance Co [1993] 2 Lloyd’s Rep IR 268
hull and machinery insurance of the Ocean Champion that was one of the vessels used by the owner as a jack up rig in ocean drilling and oil exploration.
XL: $1 million deductible and up to $22 million in excess of $1m were insured separately

19. Further matters Definition of assured Sue and labour
National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 Lloyd's Rep. 582
Sue and labour
Eg, tugs were employed for some 12 months to provide safe positioning for a FPSO after the failure of the swivel system.
But note: expenses be shared between assured and underwriters proportionately to the extent of their respective interests
The limitation of expenses to 25 per cent of the declared value of the item
Subrogation in co-insurance
Generally waived
Gard Marine & Energy Ltd v China National Chartering Co Ltd [2017] UKSC 35