Briefing

WELCAR wording appeal

On 9 May 2024, the Court of Appeal handed down judgment in Technip Saudi Arabia Limited (“Technip”) v The Mediterranean & Gulf Insurance and Reinsurance Co¹, dismissing an appeal against a decision of Jacobs J² in which he had denied a claim brought by Technip against Medgulf on the basis of a policy exclusion in an Existing Property Endorsement.

Background

The Appellant, Technip, was the principal contractor on an offshore construction project in the Khafji Field, offshore Saudi Arabia. Medgulf underwrote a policy of offshore construction all risks insurance on the WELCAR 2001 form in connection with the project. The policy named both Technip and the field operator as Principal Insureds. Technip time-chartered a vessel to assist in the performance of certain of the contract works. On 16 August 2015, the vessel was returning to port when it allided with an unmanned wellhead platform. Technip claimed an indemnity under the policy in respect of its liability for the allision.

At first instance, the Judge held that Technip’s claim was excluded by the Existing Property Endorsement in the policy which defines the scope of cover for damage to existing property. The Endorsement excludes cover for property owned by “the Principal Insured”. The Judge held that this applied because the platform was owned by the field operator, a Principal Assured. The Judge granted permission to appeal on the proper construction of the Endorsement.

Appeal judgment

On appeal, Technip argued that the reference in the Endorsement to “the Principal Assured” in a contract of insurance where there is a single contracting party (that being the consequence of the composite nature of the policy) should be read as a reference to the Principal Assured that is claiming an indemnity under the policy. As a result, the exclusion did not apply because the damaged platform was not owned by Technip but by another Principal Insured. Technip believed that the effect of the Judge’s construction was to deprive Technip of any, or a very substantial part of any, effective property liability insurance.

The Court of Appeal dismissed Technip’s appeal and upheld the first instance Judge’s decision. Sir Geoffrey Vos MR, with whom Lewison LJ and Arnold LJ agreed, held that the exclusion in the Endorsement is to be properly interpreted as excluding claims for damage to property owned by any of the Principal Insureds named in the policy. This includes Technip’s claims for damage to the platform which was not scheduled in the Endorsement. The first instance Judge’s construction accorded with the natural and ordinary meaning of the Endorsement and its commercial rationale. The composite nature of the policy was irrelevant.

Comment

This finding leaves contractors (when they, as opposed to the project owner, are the principal insured, who arranged the insurance – not the traditional scenario but not uncommon in some regions) in an awkward position. Without a crystal ball, it is difficult for a contractor to know what assets between a project site and the ports might be (or during the project become) owned by one of the other principal insureds. In a case like this the liability cover would not respond. This does leave, for the contractor, a potential gap in cover for damage to any property which is not scheduled. There are sound commercial reasons for this for insurers but the converse could also be argued from a contractors’ perspective.

Footnotes