First English Law Decision On WELCAR Offshore Construction Form

In what is understood to be the first English law decision on a policy underwritten on the WELCAR form, Mrs Justice Carr in the Commercial Court in Munich Re Capital Limited v Ascot Corporate Name Limited [2019] EWHC 2768 (Comm) held that there was no maintenance cover under a facultative excess of loss reinsurance contract which had not been extended to reflect the underlying policy and the ongoing project work. The decision reflects the unusual circumstances of the insurance and reinsurance placement for the project which should have been "back to back" (but were not) and includes some interesting observations on the operation of the period clause in offshore construction (re)insurance contracts.

Background

The Claimant in this action, Munich Re, underwrote a line on an offshore CAR policy insuring Chevron in respect of its Bigfoot project in the Gulf of Mexico. The original insurance was underwritten on the now standard WELCAR 2001 offshore construction form with certain amendments. In addition to insurance for the construction phase of a project, WELCAR 2001 provides limited cover for an additional period post-completion for maintenance work and making good defects (the Maintenance Period). Munich Re in turn reinsured part of its exposure on the original insurance under a facultative excess of loss reinsurance policy underwritten by the Defendant, Ascot. It was common ground that the reinsurance was intended to be "back to back" with the original insurance policy although there were differences as to premium, limits and other terms where stated. The original insurance was subject to Texas law whereas the reinsurance contract was governed by English law.

Munich Re paid Chevron US$26 million in respect of its share of liability for claims in 2015, after expiry of the main Project Period, and sought to recover a portion of those losses under the Maintenance Period provision in the reinsurance policy. Ascot declined on the basis that Munich Re had failed to extend the period of the reinsurance contract in line with extensions to the Project Period of the underlying insurance.

Project Period(s)

The Project Period in the underlying insurance originally ran from April 2011 until final completion of the project predicted to be at the latest around September 2014. As is frequently the case with offshore construction projects, construction delays led to three extensions of the Project Period by original insurers including Munich Re until 31 December 2018 at which point the project transferred to the Operational Insurances effective 1 January 2019.

The reinsurance policy initially adopted the same Project Period as the original insurance. However, there was no attempt or agreement to extend the...