Marine Delay in Start Up

“ Touching The Adventures ”

May 16th, 2008
AIMU
 Introduction to Marine DSU
Delay in Start Up, Advance Loss of
Profits are
are::

The unique Marine Consequential Loss

covers that address the marine time
element exposures of major project
ventures..
ventures
 Why do we need a special
cover?
Because Standard clauses exclude
exclude::
A.“Loss, damage or expense proximately
caused by delay, even though the delay be
caused by a risk insured against” or
Warrant :
B.“Free of claim for loss of market or for
loss, damage or deterioration arising from
delay, whether caused by a peril insured
against or otherwise
otherwise..”
 Drivers for this product

It is the Financiers ( Banks) that drive this cover

cover..
They want their investment protected to the
highest possible degree
degree..
It is purchased on behalf of the owner/operator
owner/operator..
Be it a consortium, joint venture, government
authority, corporation or other entity
entity..
It is not for the benefit of the contractors
contractors..
The scarcity of capital in the current credit
market will likely increase demand for this
product..
product
 The Form
One of the most common forms in use today, The
ECB form, was developed in London in the 60
60’s’s..
It is a policy of Indemnity
Indemnity..
It is not a Performance Cover
Cover..
The loss triggers are
are::
1. Loss caused by loss of or damage to property
property..
2. Loss caused by Mechanical breakdown of or
damage to the Vessel, Aircraft or other
Conveyance..
Conveyance
3. Loss caused by a general average, Salvage or
lifesaving operation
 Duration of Coverage
The duration of coverage defines the period of
protection for the goods covered
covered..
a) From the time they leave the premise of the
manufacturers in the country of origin, during
ordinary course of transit and any specifically
agreed storage until delivered to site
site..
b) Breakdown of the conveyance protection begins
from the time the vessel or craft comes
alongside the berth or mooring position to
receive the cargo
cargo..
 Indemnity Period
The indemnity period is not measured from the
time of the event that triggers a delay
delay..
The indemnity period begins at the anticipated
start up date of the operation
operation..
The period is expressed in a specific unit of time
Months/Weeks/Days..
Months/Weeks/Days
The waiting period or deductible is expressed in
the same unit of time as the indemnity period
period..
 Policy Term
In general, the policy term commences at the
signing of the contract and remains in force until
the final acceptance of the project project.. Some
contracts can take several years to complete
complete..
It is not uncommon to have little or no cargo and
MCL exposure until well into the contract period
period..
Should the anticipated acceptance date of the
project be moved, either forward or back it is a
condition of the policy that the underwriter be
advised..
advised
Once the policy is in force it is non
non--cancelling
cancelling..
 Measure of Indemnity
 The Sum payable is broadly expressed as as::
 The reduction in production
 Increases in the cost of working
 Standing Charges are expressed as as::
 The costs which are not affected by any change in the
output of the business but which remain to be paid in
full..
full
 Interest payments
 Rents
 Taxes
 Fuel purchase agreements
 Common Coverage Elements
 The policy will only respond for loss to property that is
described in the policy or in a schedule attached and then
only to the extent that those risks would be covered under
the specified forms
forms;; at a minimum
minimum::
 Institute Clauses Cargo (A)
 Institute War
 Institute Strikes

 A loss caused by mechanical breakdown of the

conveyance references similar Voyage Hull clauses and
Aircraft clauses
clauses..
 The survey warranty
This clause at a minimum will apply to all Key
and Critical Items
Items..
..
 Requires the surveyor to supervise and approve all loadings,
discharges and stowage throughout the entire voyage
voyage..
 Requires the assured to give timely notice of changes to the
schedule so that the surveyor can attend
attend..
 Survey fees are usually for the account of the assured although
inspection fees can, in some cases be set aside from the
premium..
premium
 It suspends coverage for breaches
breaches..
 Principle Consideration for the
Marine DSU Underwriter
Ideally, the Marine DSU Underwriter
should insure the cargo for the project
project..
 It’s about controlling the decisions to promote the
best mutual outcome
outcome..
 It eliminates disputes between coverage forms
forms..
 It eliminates disputes between claims units
units..
 It eliminates confusion regarding Claim reporting
reporting..
 Underwriting Analysis
Step 1. Begin with your Strength! Underwrite the cargo!
What are the total values to be shipped?
Where will the plant and equipment be coming from and
where is project site?
Is the site a green field project or are there existing facilities
to received the cargo?
If this is the 2 nd or 3rd expansion of a project what was the
past experience?
What are the special shipping considerations?
Will storage be needed and where?
What is the cargo limit?
What is the DSU Limit?
Fair winds and following Seas..
 Underwriting Analysis
Step 2. Identify the key/critical Items that could give rise
to a DSU loss
loss..
A typical application will include an Engineering Proposal
that will include a project time line or phase diagram that
will graphically indicate when major milestones of the
project commence and are due to complete as well as
what items are critical
critical..
The engineering proposal will also include the cost
components that make up the DSU limit limit.. It is up to the
underwriter to analyze the components to ensure the
costs fall within the scope of the cover
cover..
 Underwriting Analysis
Step 3. Work with your team
team..
Surveyors – CAR/EAR underwriters -Brokers
Nominate your surveyors early
early..
Make sure you can share underwriting information with
them..
them
Make sure other underwriters will support your
nomination..
nomination
Make sure your client has no objections
objections..
Develop an estimated survey plan that lays out the
costs based on the proposal provided
provided..
 Underwriting Analysis
Step 3. Work with your team.
Surveyors – CAR/EAR underwriters -Brokers
Consult with your CAE/EAR colleagues.
Do they agree with the replacement estimates?
Review the leeways and the testing periods?
Is the technology proven or is it prototype?
 Underwriting Analysis
Step 3. Work with your team.
Surveyors – CAR/EAR underwriters -Brokers

Is the broker looking for a marine lead or follow?

What are you prepared to offer?
Do you know the lead?
Will you need to consult with your reinsurer?
Will you need to consult with your home office?