1. Project Cargo Be the Expert
Steven P. Weiss
CPCU, AMIM, NAMS-CMS
SVP Project Cargo & Latin America Marine Manager
Mariners September 22, 2014
Let me introduce the LIU attendees
We will be available for questions now and after the presentation

2. What is Project Cargo? Single Project Infrastructure Building
Complements Construction
Delay in Start-up/Advanced Loss of Profits
Project Cargo is the way the pieces that make up a construction project get there.

3. Examples of Targeted Classes
Petrochemical, oil & gas refining and transport
Power generation
Mining
Bridge expansion
Underground rail or tunnel
Pharmaceutical plants
Terminal expansion
Owner or contractor controlled
Just to name a few – effectively, any cargo/goods in transit, particularly those coming from international suppliers, for construction, refurbishment, upgrade etc. can be covered under a PC policy.

4. What is involved? Project Management Project Location Type of Build
EPCM: Engineering, Procurement, Construction, Management
Project Location
Green vs. Brown
Developed vs. Underdeveloped
Type of Build
Modular
Stick Built
Logistics and Delivery
Gantt charts
Replacement times
DSU worksheets
EPCM – these are the companies that manage a project. The Bechtels, Jacobs, SNC’s of the world.
Green – new sites
Brown – previously used sites
Modular – building large components offsite and shipping them in
Advantages – Can build in lower cost areas. May speed up project
Disadvantages – size limits mobility and vessel types and trailers to deliver
Stick Build – Bring in all the components in their smallest size and construct on site
Advantage - Location of site not limited, pieces all fitted together on site, no chance for misalignment
Disadvantage – cost factor – HRSG modular built in Malaysia for 1/3 the cost of stick building in NY. Location readily accessible by water.

5. Location Examples
INSERT: pictures greenfield, brownfield, developed & undeveloped, etc

6. Types of Project Build
Modular built
Stick built

7. Gantt Chart
This is a critical piece of the planning tools for projects. This helps us with shipping schedules, DSU mitigation, etc.
FID – Financial Inception Date

8. Policy Construction Project Specific Two Sections
Section One – Physical Damage
Section 2 – Delay in Start up/Advanced Loss of Profits
Conditions are relatively standard
Different Named Insured's can be in Sections 1 and 2

9. What/Who is an Insured? Insured Clause
Section I (Fill in Named Assured)
Hereinafter referred to as the Named Insured with respects section 1 only
And any subsidiary, affiliated, associated, allied or financially controlled company (but excluding any company exercising financial control over the Named Insured) as exists now or may be constituted and for which the Named Insured has the responsibility to insure, hereinafter referred to as the Insured.
For account of whom it may concern.
Insured to also include, at the option of the Named Insured, any other contractors, subcontractors, lenders, project consultants, architects, engineers, suppliers or other entities associated with the project herein described, as may be nominated by the Named Insured, all for their respective rights and interests, but in all cases, unless specifically agreed to in writing by the Insurers.
Excluding ship owners, ship charterers, ship managers and/or freight forwarders.
Loss, if any, payable to Named Insured or Order.
Section II (Normally Project Owner only)
Responds to loss covered under section plus a couple extensions.
This names the assured for the policy covering the principal and contractors potentially responsible for the procurement of goods. It is important to note that logistics operators (people coordinating the transit) are excluded. As such, you should be working with your clients to ensure they do not waive any rights in this regard and/or contact your underwriter when considering a waiver. This text is in the handouts so we will not belabor the point
This is where the other then traditional named assureds need to become named.
Note the exclusion for ship owners, ship charterers, ship managers and freight forwarders.

10. Geographical Limits
At and from Ports and/or Places anywhere in the World to Project Site noted above, direct shipment or via ports and/or places in any order, including transits to or from and whilst at the premises of forwarders, packers, consolidators, haulers, warehousemen and other bailees, via any route, including risks in customs and temporary storage as required, transshipment by land, air or water whether customary or otherwise and including return shipments if and as applicable.
World wide limits
Transshipments
Any approved route
Excluding Economic Sanctioned countries

11. Voyage Clause
This insurance commences from the time of attachment of the Insured's interest in the subject matter insured but unless otherwise specifically agreed herein not prior to the time the goods are set in motion in the Insured's and/or sub-contractor's and/or suppliers premises, storage depots and/or warehouses for the imminent commencement of transit and continues in the normal course of transit during packing, repacking, storage within the ordinary course of transit, consolidation, deconsolidation, stuffing and unstuffing, and containerization and at transshipment points including and during delays beyond the control of the insured, subject always to the provisions of the Institute Clauses incorporated herein, until the goods are delivered to site at final destination including return shipments of damaged cargo to manufacturers or suppliers premises and return back to site. Including all loading and unloading risks.
Warehouse to warehouse including storage during the ordinary course of transit. Covers client from imminent dispatch at the suppliers premises during the ordinary course of transit to site (not just the Ocean or International voyage), meaning all on-land voyages are also covered. Storage outside of the course of transit can be covered, usually at an AP.
Consolidation/Deconsolidation
Includes return of damaged goods
Loading and unloading
All subject to Institute Clauses and their restrictions. Does not give loading and unloading cover to ICC “C” clauses.

12. Vessel Conveyance Limit
Section I The Insurers shall not be liable for more than (insert limit) in respect of goods on any one vessel, aircraft and connecting conveyance or in any one place at any one time.
Maximum cargo any one conveyance (explain conveyance). This is determined via ascertaining what shipment will have the highest value at risk any one conveyance. The transport logistics group should be able to assist with this information. The DSU Sum Insured, if purchased, would stack on top of this.

13. Types of Conveyances Heavy Lift/ Haul Ships
Transport can be: Ship, Barge, Truck, Train, heavy haul trailer, Aircraft, Any approved conveyance.

14. Types of Conveyance
Aircraft

15. Types of Conveyance
Barges

16. Types of Conveyance
Heavy Haul Trailer

17. Estimated Project Sendings
At the inception of the policy, it is estimated that USD (insert estimated amount) will be shipped in respect to the project contemplated by this policy. Actual amounts will be determined at the end of the policy period and additional premium if required will then be assessed based on the audited amounts.
This is total estimated value of the sendings at risk. We work on the best known estimate, fully understanding that this number could be a moving target. You will note that we build in a flexible feature to paying an adjusting premium when we get to that part to allow for this variable.
This plus the conveyance limit are the principal components an underwriter will use as your rating basis for Section I. Ideally these are two key pieces of information you should be gathering when seeking a quote or indication.

18. Critical Items
For the purpose of this insurance a critical item is either named below or is defined as any item which, in the event of a loss under the marine policy, cannot be re-manufactured/repaired, re-shipped, installed, tested and commissioned and still leave a two-month window prior to the scheduled start-up date. The critical items are as follows: (Name items) Warranted all critical items as identified shipped under deck other than where such critical items are shipped in totally enclosed steel containers per purpose built container vessel.

19. Typical Critical Items
Heavy Lifts
Unusual Logistics
Specialized Equipment
Long Lead Time
High Values
Last Minute Arrivals
Bottlenecks
Contractor’s Equipment
Anything that could affect the project’s on-time completion
Discuss the photos on the next pages as the critical items
Use the ship from Dockwise sinking as critical contractors equipment and the crane from the nuke facility

20. Critical Item Examples
INSERT: new photographs of reactors, HRSG, container cranes, turbines, etc.

21. Survey Warranty
In respect of named critical items (per section 14 above), as specified, it is warranted that the Leading Insurer will be advised at least 10 (ten) working days prior to the shipment/movement of such items to enable their Risk Management and/or their appointed representatives, where deemed necessary by the Leading Insurer to:
Approve vessel(s), tug(s), barge(s) and/or any other carrying conveyance(s) and all lifting equipment including cranes, tackle, etc., required for loading/transshipment/unloading operations.
Approve and/or attend all packing, loading, stowage, securing, transportation, discharge and unloading arrangements and operations throughout the entire transportation chain.
Risk Engineering is an important feature of managing project cargo risks. As you can imagine there are a lot of logistical issues to consider when moving project cargo. Each policy normally contains a survey warranty, which is included to ensure the client and underwriter have time to review the logistics of the move and share expertise. As we move billions upon billions of dollars of project cargo equipment a year, we are looking to lend our expertise to everyone’s benefit. This is not the entire survey warranty; critical items to be named and surveyed, notification requirements, goes on to discuss how the policy reacts if a survey is missed.

22. Typical Exclusions
In addition to exclusions noted elsewhere, the policy does not cover:
Electrical and mechanical derangement unless the insured property is otherwise damaged from an external cause.
Rusting, oxidation, discoloration in respect of unpacked or unprotected insured property and of all uncontainerized items shipped on deck.
Barge shipments, unless written prior approval of underwriters is given and at terms/conditions/premium to be agreed
A & B due to the fact they are inherencies (un-insurable)
C because of the RM and need to declare all information for a new risk (covered and taken into account if declared at the time of quoting)

23. Typical Exclusion (cont.)
Loss, damage or expense caused by or resulting from final position, installation and/or testing.
Bending, twisting and/or distortion of steelwork unless caused by a peril covered under Institute Cargo Clauses (C) CL.254 dated 1/1/82.
Damage to coatings and linings of pipe.
Equipment procured from within the same country as the project site location, unless otherwise endorsed hereunder.
D and G – to clear up that this is covered by the construction/builders risk policy
E & F – inherent

24. General Average
This insurance covers general average and salvage charges adjusted or determined according to the contract of affreightment and/or the governing law and practice (or if there is no contract of affreightment according to York-Antwerp Rules) incurred to avoid or in connection with the avoidance of loss from any cause except those specifically excluded herefrom. For the purpose of claims for general average contributions and salvage charges recoverable hereunder the Insured property shall be deemed to be insured for its full contributory value. General average deposits shall be payable on production of general average deposit receipts.
General Average – a term of art in Marine law. These two slides define it. We don’t have enough time today or in the next week to completely discuss this.
(1) History of GA – a natural law of the sea founded on equity and as old as the oldest commercial sea voyages;
(2) GA exists quite independently of marine insurance – it is a liability which faces every shipper who sends his goods by sea, or every consignee who receives such goods whether the shipment has been insured or not;
(3) Although GA is not dependent on contract, however, a contract of affreightment will invariably contain the Rules upon which a GA should be adjusted – York/Antwerp Rules
(4)  GA security and procedures.
This policy does cover the necessary bonds, etc. in the event a GA is declared
Note: Do not spend any time here at all.

25. 50/50 Clause
Upon arrival at the final destination, goods are to be inspected by the Insured for possible damage incurred during transit. In the case of packed goods, which are to be left in their packing until a later date, the packing is to be visually inspected for signs of possible damage. If any sign of damage is visible, the goods are to be unpacked immediately and inspected. Any damage discovered is to be reported to the marine policy. Any damage to the goods which becomes manifest only upon their unpacking will be ascribed to the marine policy or the construction/erection policy according to whether it clearly was caused before or after arrival of the goods at the location. Where it is not possible to establish whether the damage was caused before or after arrival of the goods at the location, it is agreed that settlement will be made 50/50 by the marine and the construction/erection policies.
In the event of a claim and the actual time of the damage cannot be ascertained, but could be Marine or Construction, this sets out a settlement tool.

26. Cutting Clause
In the event of a pipe being damaged but being reasonably usable for the purpose for which it was originally intended if the damaged part is cut off, the Insurers’ liability shall be for the proportion of the insured value which the length of the part cut off bears to the length of the complete pipe but they shall have the benefit of any salvage in respect thereof. In addition the Insurers shall be liable for the costs of cutting the pipe, cutting and refitting flanges, re-cutting bevels or otherwise rendering the pipe usable for its original purpose.
Mitigation

27. Storage/Delay en Route
Should there be an accumulation of interests beyond the limits expressed in this policy by reason of any interruption of transit and/or occurrence beyond the control of the Insured, or by reason of any casualty at a transshipping point and/or on any connecting conveyance, this policy shall attach for the full amount at risk, but in no event for more than twice the policy limit as expressed in this Clause, provided notice be given to the Insurers as soon as practicable upon becoming known to the Insured.
2 times the limits for accumulation/delay in transit

28. Institute Classification Clause 01/01/2001 (amended)
Qualifying Vessels
Age Limitation
Craft Clause
National Flag Society
Prompt Notice
Law and Practice
Can also consider the US Class wording.
This is in the policy – spells out what a qualifying vessel is, age limits, etc.

29. Trade Sanctions
Inasmuch as this Clause does not conflict with the law of the jurisdiction in which the Insurers are operating, which at all times shall remain paramount, whenever coverage provided by this policy would be in violation of any United States economic or trade sanctions such as, but not limited to, those sanctions administered and enforced by the United States Treasury Department’s Office of Foreign Assets Control (“OFAC”), such coverage shall be null and void. Similarly, any coverage relating to or referred to in any certificates or other evidences of insurance or any claim that would be in violation of United States economic or trade sanctions as described above shall be null and void.
The Insured agrees to assist the Insurers in all respects or pursue rights of recovery against other responsible third parties.
The above agreement is not to interfere with rights of subrogation against packers and/or their Insurers.
Also could use the international sanctions wording.
OFAC restrictions – not covered if violated

30. Forms Comparison ICC “C” clauses are most restrictive:
Fire or explosion
Vessel or craft being stranded, sunk or capsized
Overturning or derailment of land conveyance
Collision or contact of vessel, craft or conveyance with any external object other then water
Discharge of cargo at a port of distress
General average sacrifice
Jettison

31. Forms Comparison (cont.)
ICC “B” clauses extend “C” with:
Earthquake, volcanic eruption or lightning
Washing overboard
Entry of sea, lake or river water into the vessel, craft, hold, conveyance, container, lift van or place of storage
Total loss of any package lost overboard or dropped whilst loading on to, or unloading from, vessel or craft

32. Forms Comparison (cont.)
ICC “A” clauses are the broadest:
This insurance covers all risks of loss or damage to the subject matter insured
Exceptions are provided by clauses 4, 5, 6 and 7

33. Section II: Delay in Start-up (DSU)
Who funds projects and what interest do they have?
Banks: Corporate and Investment Bankers
Protection of principle and interest
Contractually protected through a lenders agreement
Shareholders
Protection of share value and ROI
Will pull support for company/diminish share value
Less impact on insurance requirements
Internal
Divisional expectations/management bonuses
Government
Adherence to process and budget
Can be a significant source of funding
Marine Delay in start-up
An insurance that protects the financial interest/solvency of the project in the event a covered loss occurs and delays the project completion.

34. Why would I need DSU? What’s on the line? Fixed costs
Variable costs that cannot be easily put on hold
Profits
Revenue projections
Ramp-up period
Testing and commissioning
Loss of revenue under a contract
Interest costs
Contractual payment requirements
Many items are custom built with long lead times, meaning if lost, the project can be delayed for a considerable amount of time. The exposure can be insured for a very reasonable amount.

35. Types of DSU coverage Gross Earnings Continuing Costs Financing Costs
Loss of Revenue from contracts
Some of the things that can be insured under DSU

36. DSU Limit
Section II
The Insurers shall not be liable for more than (insert limit) per day for each day’s delay as recoverable under Section II, and in no event to exceed (insert number) or (number days) days in total. The preceding number of days will heretofore be known as the Maximum Period of Indemnity.

37. How is DSU triggered? Loss under Section I of policy
Can you buy standalone?
Claims Control
What if you have bought items with the requirement that you want them delivered?
Contingent
Claims Cooperation

38. DSU Critical Information
Anticipated date of commencement of operations
DSU Worksheet
Measure of Indemnity
Non insurance-related delays

39. DSU Worksheet Spreadsheet outlining what the intention is to cover
Continuing and variable costs identified
Loss of production identified
DSU driver identified

40. Measure of Indemnity
In the event the subject matter insured herein shall be lost or damaged and such loss or damage would be recoverable under section 1 of this policy or but for the deductible applicable to section 1 of this policy would be recoverable under section 1 of this policy then under section 2, Marine Delay in Start-up of this policy, the insured shall be indemnified to the extent of (per #9 of the signed Declarations) per day for each day’s delay after the scheduled start up date or amended schedule start up date resultant upon such loss or damage subject at all times to the insured self retention of the first (per #10 of the signed Declarations) of such each and every delay.
Covered under Section A
Indemnified for actual loss up to daily/monthly limits as per policy language
After amended start-up date and self insured retention
Delay due to accidents of transporting conveyances

41. How do I choose my market?
What markets can write Cargo/DSU?
Leading Underwriters
Must have related underwriting experience
Must have structured solution to risk management issues, and team of vetted surveyors worldwide
Must have structured solution to handling claims, quick to respond and empowered
Market Capacity / Shared Participation
North America vs. London vs. Europe
Presenting to Markets – interactive presentations

42. Underwriting How do markets underwrite project risk?
Physical Damage rate is generally as per market, or slightly higher
DSU premium based on “Rate on Line” methodology
Potential downside is HUGE
Must count on loss prevention, and claims handling
Commodity Driven

43. Risk Management
Surveyors are key to the success of a project, acting as Underwriters’ eyes and ears from the planning stage through execution:
When should the Surveyor be involved?
What is the role of the Surveyor?
Factors in Company/Surveyor selection
In-house
External

44. Risk Management
Pre-Bind: to assist the Underwriter in the analysis of the risk from a logistics and complexity standpoint
Agree Critical Items
Agree estimated costs for surveys
Review logistics package
Post-Bind
Kickoff meeting
Set up survey parameters
Assign Surveyors
Accomplish the actual surveys

45. Risk Engineering Review of Engineering and Design
Critical items
Discuss bottlenecks
Structural/packing for voyage
Vessel and Route Selection
Breakbulk vs. Containerized
Heavy Lifts: self-loading or not
Weather: WNA, hurricanes, winter access
Inland: rail, truck, unusual circumstances
Barge

46. What is a Project Submission?
Risk details
Wording
Financial details of project
Location
Expected load and discharge ports
Timelines
DSU information: spreadsheet, measure, etc.

47. Project Cargo/DSU Claims
Notify
Mitigate
Repair/Replace
Expediting
Network
Affinity with client

48. Keys to Project Success
Project Knowledge
Underwriting
Claims
Risk Engineering
Specialized Risk Analysis
Coordinated Involvement (project lifecycle)
Client
Broker
Underwriter
LIU can offer the individual expertise in all of these areas but can also offer coordinated approaches from Project Cargo through construction through operational. If you have any questions, please track down one of us at the cocktail party.

49. Recent Items of Interest
Largest claim: Hurricane Ike
Voyage Clause/Duration of Risk
Vessel Classification Clause
Returned Shipment Clause
Non-standard wording
Inland Transit

50. Claims Transfield Kemerton Motiva Chilca 3 Sithe Goreway
MPX Paraneiba I

51. Questions?
And if any of you are available we are having cocktails at The Tasting Room on West Alabama at 530pm tonight