Shipyard Works – Beware the spider’s web of contractual obligations, liabilities and insurance cover

As the world becomes more litigious a number of shipyards have changed the way they work, facilitating subcontractors to carry out work, and it’s not always immediately obvious.

Instead of a yacht owner contracting directly with the shipyard for all works, some shipyards are now renting the yard space and craning a yacht in and out of the water, along with providing storage. The shipyard (or the owner) then facilitates various smaller contractors to undertake works for the yacht owner, but crucially the yacht owner may have to contract directly with multiple small contractors rather than one large shipyard. Enter the spider’s web of contractual obligations, liabilities, and insurance cover! Who is responsible in the event of an incident?

A yacht owner’s insurance policy is quite likely to contain a “refit, repair and hot works clause” clause which says that whenever the vessel is contracted to undergo any refit, repair or hot works the owner must ensure that the yard and/or other contractors carry current and operative liability insurance indemnifying the yard and the yacht owner for all liabilities up to at least the lesser of the insured value of the vessel or a fixed amount of EUR 2,000,000 (for example, check your policy) in the case of other contractors.

Many small contractors do not carry liability insurance with limits sufficient to satisfy insurers requirements. Where the contractor does have current insurance, is it with a reputable market/underwriter and does it provide cover for losses to goods entrusted to the insured?

As Louise Billington, Sarnia Yachts’ inhouse Insurance Manager puts it, “Picture the scene – a yacht hauled out in a yard with multiple small contractors working throughout the yacht.  If that yacht were to catch fire overnight, you can just imagine the complicated situation that will ensue trying to find out whether this was caused by one contractor or another, the yard or even the owner/crew.

This then leads to a complicated scenario between insurers. If there is a small contractor who it is eventually determined was at fault, what if they do not have sufficient liability cover? This scenario exposes the yacht owner to a loss that his/her own insurers may not cover if it is below the limit policy terms and conditions.”

So, in summary, there is an extensive amount of work that needs to be undertaken analysing all contracts before a yacht enters a yard. Captains or owner’s representatives would be wise to not sign such contracts before this review is undertaken.  Limitations of liability, perhaps to the value of the works, rather than the value of the yacht, are common and are often hidden in a contractual document. Insurers can often request that there is no limitation of liability and therefore this should be an aspect that is not overlooked in the yard period process.

When planning yard time Captains and Owners should consider the above points and build in sufficient review time in advance of any yard works. Sarnia Yachts’ inhouse Insurance Manager is adept at assisting and providing support in unravelling these spider’s webs, but this requires enough warning in advance of the shipyard works.

If you would like to discuss further please feel free to contact Louise Billington.

Lou Billington

Email: [email protected]

Phone: +44 (0) 23 8212 6434

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Many small contractors do not carry liability insurance with limits sufficient to satisfy insurers requirements

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