It was a historic victory when the Noreco Group was awarded the highest judgment amount in Danish history in the order of USD 344,332,446 plus five years’ interest in its pursuit of a claim for cover under an all risk marine offshore property insurance.
The case concerned insurance cover relating to damage sustained on the Siri platform situated in the Danish part of the North Sea. The matter commenced with the discovery of cracks in the platform’s bearing sponson structure on 31 August 2009 during an annual routine inspection.
Following the discovery of the cracks in the sponson, the production of the platform was closed and all non-essential personnel were evacuated, which resulted in lost production from the field in the years 2009-2010.
Immediate investigations were undertaken as to the nature and cause of the cracks ascertained and over the years a number of technical expert reports were commissioned by both the operator of the platform, Noreco and Noreco’s insurers in the attempt to identify what had caused the cracks.
All experts involved agreed that the immediate cause of the cracks in the sponson was failure in the so-called grouted connection between the sponson sleeve and the caisson. As a result of the failure, a gap developed in the grout annulus creating increased dynamic forces from the caisson. The increased stress on the sponson lead to the cracks allowing the grout to fall out from the sleeve in the sponson holding the caisson. This enabled the caisson to move (millimetres), which caused increased forces from the 86 meter long and 900 ton heavy caisson leading to cracks.
The experts did, however, not agree on when and why the grouted connection started deteriorating leading to the failure and whether the loss and damage suffered by Noreco due the damage were recoverable under Noreco’s marine offshore insurance policy.
Certain expert reports concluded that the deterioration of the grouted connection commenced as early as 1999 when the platform was installed. Other reports concluded that the grouted connection became subject to increased stress from 2003-2004 during a so-called tie-in project in which certain additional satellite oil wells were connected to the platform.
Repair works were carried out in the period after the discovery of the cracks in the sponson. During January and February 2010, production from the platform was reinstated although with certain restrictions.
Noreco claimed insurance cover relating to property damage and for repair costs, sue and labour expenses and for loss of production income under its marine offshore insurance policies established in the period 1 January 2006 until 2009 when the damage was detected. All policies in question were all risks policies with specific cover for property damage, sue and labour expenses and loss of production income and were issued on almost identical terms indemnifying the assured “…against all risks of direct physical loss of or physical damage to property insured during the period of this section [insurance cover].”
The insurers denied cover under the policies for several reasons, the main submission being that the claim had been lodged against the wrong insurers as the relevant point in time in respect of triggering cover was the occurrence of the initial cause of the damage.
As a consequence of the damage and the failing insurance cover, Noreco was forced to sell the platform to DONG Energy in the summer of 2011.
In the course of this transaction, the claim for insurance cover for the damage remained with Noreco and, in February 2014, Noreco instituted legal proceedings against their insurers before the Maritime and Commercial High Court in Copenhagen, Denmark.
The position of Noreco and the insurers
During the proceedings Noreco’s insurers maintained in support of their defence that the time of the first manifestation of the cracks was not the relevant point in time when determining cover under the policies irrespective of whether the damage could or should have been detected before 31 August 2009. In their view, the relevant point in time triggering cover was the time of occurrence of the initial cause of the damage, which they alleged was in 1999 when the platform was installed as its design – according to the insurers – allegedly was flawed.
The main argument from Noreco was that the insurance was an all risk insurance policy providing cover “…for loss of or physical damage…during the period” implying that it was the manifestation of the damage that was decisive with respect to time in the determination of when cover was triggered. Consequently, the relevant time to apply when determining the insurance cover was the time of occurrence and manifestation of actual physical damage, i.e. the cracks in the sponson or possibly the years leading up to the discovery of the cracks at which point the damage may be deemed to have been progressing. Seeing that the cracks were discovered on 31 August 2009 and that no cracks were discovered during the annual survey in 2008, Noreco maintained its claim for cover under the policy in force in the year before the annual inspection on 31 August 2009.
Accordingly, the defendants in the Danish court proceedings were the underwriters at the time of discovery or manifestation of the cracks in the sponson on 31 August 2009. Further, Noreco had also lodged an alternative claim against the underwriters concerning the policy years immediately preceding the 2008/2009 policy period in the event that the damage and losses flowing therefrom were deemed to have occurred in the policy period preceding the 2008/2009 policy period.
In addition to the insurers’ main defence in respect of Noreco claiming under the wrong policy, the insurers further relied on various technical reports in support of the damage being exempted from cover as a result of several policy exclusions being applicable concerning inherent vice, wear and tear, gradual deterioration, metal fatigue, etc., and faulty design.
The insurance cover was extended to include loss or damage arising from faulty design of any parts of the structure with the exception of the cost or expense of repairing, modifying, replacing or renewing such part or parts incurred by reason of betterment or alteration in design.
The underwriters were unsuccessful in all of their arguments submitted in support of their denial of cover for Noreco’s losses resulting from the damage to the platform.
On 15 December 2016, the Maritime and Commercial High Court in Copenhagen, in a unanimous judgment rendered by a panel consisting of a total of seven judges, found in favour of Noreco on basically all its claims, including expenses incidental to operating loss and to repair of the platform.
Bech-Bruun has represented Noreco in the dispute since 2010, and will continue its work in the pending appeal case which was lodged by the insurers with the High Court of Eastern Denmark on 24 February 2017.
To learn more from the author, please contact Louise Lundsby Wessel at email@example.com.