Trend to extending owner liability in offshore wreck removals, says Skuld

In the latest edition of The Field, Oslo, Norway-based marine insurer Skuld has written on contractual wreck removal and the complexities that often arise from it. It noted that recently there had been a trend toward extending the owner’s liability in offshore wreck removal contracts.

Skuld noted that wreck removals were often complex, lengthy operations which could be extremely expensive to complete, and that some of the biggest P&I claims ever paid out had been wreck removals. Recent legislative changes had affected when wreck removals could and would be ordered, but offshore wreck removal was, to an extent, being driven by contractual requirements.

Skuld looked at how mutual and commercial P&I cover respond to both wreck removal and wreck removal liability, in the context of offshore operational contracts and covers. It has also provided advice on identifying potential contractual wreck removal exposures which fall outside of the standard cover regime.

Mutual cover had become even more important following the introduction in 2015 of the International Convention on Removal of Wrecks, under which party states have power to order the removal of a wreck from their territorial and internal waters. Were such an order made, the owner (and by extension insurer) would be liable for all the costs of locating, marking and removing the wreck, subject to any exceptions and limitations provided in the Convention. For states which are not parties to the Convention, liability for wreck removal remains governed by their domestic law.

In the offshore sector matters were somewhat different as the circumstances in which wreck removal would be required was more often than not set out in the contract.

Many offshore contracts contained a clause regulating the circumstances in which wreck removal would be required. Traditionally, these clauses simply narrated the circumstances in which mutual cover would respond.

However, Skuld noted that recently there had been a trend toward extending the owner’s liability. Many contracts now contained wording which made the owner liable for removing the wreck when the Company considered that it was already or might in the future interfere with their operations.

Unfortunately for owners, said Skuld, wreck removal ordered only by the charterer fell outside the scope of mutual cover. That meant that the owner had a commercial exposure to the cost of the wreck removal.

Not content with being able to order at their convenience the removal of the wreck of a vessel following a casualty, some charterers had gone further and introduced “site clearing” requirements. These clauses imposed on the owner a liability to remove from the sea bed anything they lose operationally, rather than just following a casualty. These clauses could also require the owner to provide that indemnity for their whole Group, which was an even more significant liability.

Skuld said that these clauses were likely a consequence of the Licensee trying to pass down the contractual chain the liabilities they had assumed in their licence agreement. However, this failed to account for the relative time an owner would be involved in the project and what they derived from it, as against that of the Licensee. This, said Skuld, was particularly significant because such a liability was far beyond the scope of mutual cover.

As charterers continued to try to push more and more liability down the contractual chain, owners were faced with an increasingly difficult contractual environment, and rising numbers of liabilities which fell outside the scope of mutual cover.

“Rather than having to leave these as a commercial exposure for the owner, Skuld Offshore offers a range of additional, fixed-limit commercial covers which can respond to liabilities such as contractually ordered wreck removal”, the insurer said.

Some of Skuld’s recent wreck removal experience included:

  • Kea Trader
  • Sternö
  • TK Bremen
  • MFV Predator
  • MY Sierra Romeo