January 17, 2013

How do you get the most out of your Marine Warranty Surveyor?

This is a question many underwriters are asking; particularly when claims arise which they feel could have been prevented by the Marine Warranty Surveyor (“MWS”).

On 10 January 2013 Clyde & Co hosted a panel discussion on issues arising from the MWS system, with a focus on offshore energy and renewables. The panel was made up of a number of senior figures within the energy insurance market – Geoff Thomas of Braemar Adjusting, Len Messenger of Lancashire Holdings Ltd, and Nigel Chapman and Tim Taylor of Clyde & Co..  The event was very well attended, with over a hundred senior underwriters, claims underwriters, brokers and adjusters present.

To illustrate the perils and pit-falls of the MWS system, Nigel Chapman presented a scenario involving the laying of a fictional gas export pipeline in West Africa.  The scenario contained a number of common issues that arise in such situations, including vaguely worded MWS recommendations, failures to keep the MWS informed of changes to the project and disputes as to the authority of the MWS to halt an unsafe project.

Scope of Work

One of the themes running through the seminar was that if underwriters wish to be well protected by their MWS, it is ultimately up to them to stipulate for it in clear terms in their policies.  The MWS clause and scope of work is the MWS’s authority and armoury; if the clause is vaguely worded or lacking in “teeth” then it is unlikely that the MWS would have sufficient authority on site to effectively protect underwriters’ interests, and similarly it is less likely that the courts would give effect to any breaches by the assured if the matter were to be litigated.

Geoff Thomas noted from his experience of energy claims that pressure was often put on the MWS to give a project the go-ahead.  He gave an example of a platform installation where the MWS had allowed the project to proceed despite continuing bad weather.  Part of the problem is that the MWS may not feel confident about their authority to delay or stop a project, which could be alleviated if the MWS clause and scope of work clearly gave him that power.  Geoff Thomas mentioned that from a claims perspective it’s common to see only negative examples of the MWS’s performance, and the audience discussion highlighted a number of examples of where a MWS’s threat to withdraw their approval had been sufficient to prevent a dangerous situation from continuing.

Tim Taylor gave a summary of the English law position on warranties.  He stressed that true warranties must be exactly complied with. Non-compliance or breach of the warranty automatically discharges underwriters from further liability, and it does not matter if the assured attempts to remedy the breach before loss.  As a matter of law it is irrelevant whether the breach directly causes a loss as all liability ceases on breach of the warranty, but in practice the English court imposes a high burden on underwriters to prove that the clause was indeed intended to be a warranty and that a breach has in fact occurred.  The best way for underwriters to deal with this high burden is to draft their MWS clause in such a way that it clearly sets out the requirements of the clause and the effect if it is breached by the assured.

The Joint Rig Committee Marine Warranty Surveyors’ Code of Practice 2010

Len Messenger highlighted that many of the common problems experienced with the MWS system could be lessened if the Joint Rig Committee’s MWS Code of Practice were written into more policies.  For example, one issue seen in practice and highlighted by the scenario was where the MWS gives vague recommendations after reviewing a manual or vessel.  The Code of Practice states that “Recommendations issued for the Assured’s implementation should be targeted to reduce risk to Underwriters and worded in a clear and explicit manner and whether the recommendation has been implemented or not should be capable of being objectively verified.”

Len Messenger also mentioned that efforts were underway within the industry to create an MWS qualification which would ensure a minimum level of training in the core skills.

Conclusion

The voice of the panel was that if underwriters wish to get the most out of their MWS it is crucial that they define the scope of work and the MWS’s powers as clearly as possible. Further, if they want the MWS clause to take effect as a warranty, it is up to them to stipulate for it in clear language.  We’d be interested to hear how you get the most out of your MWS.

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