WELCAR and Damage to Existing Property – the search for certainty of cover
We have recently been involved in a case where a dispute arose about the cover for physical damage to first party property (and consequential loss) under the standard endorsement/buy back for Damage To Existing Property wording for the WELCAR offshore construction policy form. To avoid this kind of dispute going forward, Partner Jonathan Bruce considers how the market can provide this cover and give insureds clarity on this issue.
The DTEP Exclusion and Buy-Back was developed as a way for insureds to obtain cover for physical damage to their own existing property. It has almost always been structured as an endorsement to Section II of the WELCAR policy, the liability section. On occasion, this has led to an argument that cover could not be provided for first party physical damage under the liability section, because the endorsement could not provide cover that was greater in scope (cover for physical damage as well as liability) than the section to which it attached. Both insureds and insurers are keen to avoid the risk of lengthy and expensive disputes arising out of this uncertainty in the standard DTEP wording, and so the area is ripe for solutions which provide certainty to insurers and insureds alike.
One option is to have DTEP endorsements to both Section I (which covers physical damage to the project works) and Section II. Insureds should note, however, that without care, this can lead to premium being paid twice.
A second possibility would be to write the cover previously given (or thought to be given) under the DTEP Exclusion and Buy-Back in a new Section III to WELCAR. In isolation, that is an unattractive risk for underwriters.
A third potential solution would be to leave the endorsement in the liability section, but to re-draft it so as to deem all existing property third party property and to settle losses on that basis, whether or not the property in question is actually first party or third party. This was the approach taken to existing property in the "Wilcar" wording introduced by Willis in around 2008. Such a solution makes sense given the context that the risk is of a liability type.
These potential solutions each have advantages and disadvantages and different insurers may decide to address the issue in different ways, depending upon the cover which they wish to give and the needs of individual insureds. However, the crucial point, for the DTEP Exclusion and Buy-Back and more generally, is the need to look critically at wordings, even where they are long established, to ensure that they perform their intended function, prior to losses emerging.
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