TT Talk - Ensure infrastructure investments are adequately protected

  • Date: 11/10/2012
  • Source: TT Talk 165

Marine and inland terminal facilities employ many types of heavy machinery to perform their operations. From mobile equipment to gantry cranes, or even conveyor systems that are structurally integrated into a building, these units will be as basic or as sophisticated as the operator’s needs dictate.

The purchase of any equipment represents a significant financial investment, and that investment can, of course, be protected through an equipment insurance policy. Such insurance is designed to cover physical damage to the unit, and by specific extension, any loss of income and related increased costs of working that arise from a covered loss while the unit is being repaired (known as ‘business interruption’ cover). For newly purchased equipment, coverage usually only becomes effective when the equipment is deployed in the operation.

But what happens before the time of deployment also merits consideration.

In a recent case, a marine terminal ordered a rail-mounted gantry crane from a manufacturer in the Far East. As is often the case with such large equipment for marine terminals, the crane was transported fully assembled to the operator’s facility by ship.

When it arrived at the terminal, the crane was carefully positioned on the dockside rails, and the ship prepared to depart. In this process, and with the ship’s crew being unaware, a section of the ship’s superstructure became entangled with the boom of the crane.

As the ship moved away, the crane was lifted from its rails, dragged over the apron of the pier, and left partially hanging over the water. The crane suffered significant structural damage, and the berth was rendered inoperable while the damages were assessed and repairs initiated.

The frustration for the terminal operator was compounded by the complexity of the legal and insurance situation. Since the equipment had not been brought into operation at that point, the equipment cover for the crane had not yet commenced and the unit was, therefore, not insured for physical damage. Similarly, the business interruption insurance normally follows from an ‘insured peril’, meaning that the damage has to be covered before the coverage for related costs is triggered.

This case illustrates the need for two significant covers.

  1. The first is cargo insurance – during any ocean voyage, any goods that are being transported can be insured on a direct damage basis for losses that occur during transit. Most cargo underwriters consider their cover to be terminated once the goods are delivered to their destination, irrespective of whether or not additional steps must be taken to render the goods fit for their intended purpose. However, a cargo underwriter can agree to extend the terms of his insurance to include the period after delivery and during the erection and acceptance testing of the unit.
  2. Alternatively, the operator can obtain a policy to cover the engineering risk while the unit undergoes its installation process.

On the legal side, operators need to take care to ensure that the purchase contract clearly identifies which party is at risk for the entire period up to full acceptance and bringing the equipment into service. Other cases have evidenced unhelpful gaps that have led to litigation.

In the aftermath of this crane incident, the operator arranged for the manufacturer to repair the unit and claimed against the ship to recover his losses and extra expenses.

But beware, even when liability seems straight-forward – as in this case – there are likely to be arguments about quantum. Furthermore, the recovery process can itself be costly and time-consuming. With adequate insurance in place, much of the burden can be avoided; involve your broker or underwriter in a thorough risk assessment.

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