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Special Aspects Of Insurance Of Gas Pipelines As Construction Facilities
 
PIIS231243500022334-5-1
DOI10.18572/2410-4396-2020-1-89-92
Publication type Article
Status Published
Authors
Valentin A. Kotousov 
Affiliation: Saint Petersburg State University of Economics
Address: Russian Federation, St. Petersburg
Journal nameEnergy law forum
EditionIssue 1
Pages89-92
Abstract

This article describes special aspects of insurance of gas pipelines as construction facilities. Construction of main gas pipelines is a complex, costly and long-term process. Construction thereof is conducted in different climate zones using expensive and hi-tech, sometimes even unique, equipment. Insurance helps protect investments in construction and covers sudden, unexpected losses. Insurance coverage for construction of gas pipelines is based on the “all risks” concept with general and special insurance exclusions and can be corrected by including specific terms and clauses. Considering the need to ensure an adequate reinsurance level, a number of insurance companies, when determining insurance coverage, use CAR (Contractors’ All Risks) or EAR (Erection All Risks) insurance terms, as well as a combination with or without additional types of insurance coverage. The author suggested insurance coverage models taking into account special aspects of gas pipelines construction and erection risk insurance by including specific terms and clauses in the insurance policy. In addition, the author specified requirements for insurance companies providing coverage for gas pipelines construction and erection risks based on the research he has conducted.

Keywordsenergy law, contractual regulation in the energy sector, construction and erection risks insurance policy for main gas pipeline construction
Received06.02.2020
Publication date29.03.2020
Number of characters10378
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1 Construction of main gas pipelines is a complex, costly and long-term process. Construction is conducted in different climate zones using expensive and hi-tech, sometimes even unique, equipment.
2 The objective of the article is to suggest insurance coverage models considering specific aspects of gas pipelines construction and erection risks and define criteria an insurance company is to meet to provide coverage for gas pipelines construction and erection risks. Insurance helps protect investments in construction and covers sudden, unexpected losses.
3 As aptly noted by V.V. Romanova, although Article 741, Clause 1, of the Civil Code of the Russian Federation (hereinafter referred to as the Russian Civil Code) states that the provision on construction site insurance is optional, construction and erection risks insurance is a common practice when entering into gas pipelines construction contracts. [1]
4 As per Article 741 of the Russian Civil Code, the contractors bear risks of accidental destruction of, or accidental damage to, a construction project until it is accepted by the customer, the contractors are also responsible for safe-keeping of the property provided by the customer and the quality of the finished facility as defined by Articles 714 and 755 of the Russian Civil Code.
5 The customer has a stake in reliable protection of its property rights and timely completion of the construction project. It is common practice for customers to take out an insurance policy for construction and erection risks for risk management themselves. This was also noted by S.V. Dedikov. [2] In this case, a policy is made for the benefit of the customer and/or contractors at all levels in respect of property and/or operations for destruction, loss of, or damage to which they are liable. Investors can also be beneficiaries under the contract. Third party liability insurance is made for the benefit of parties that may be harmed and are legally entitled to compensation of damages if the victim dies.
6 The insurance amount is based on the cost of construction and erection operations inclusive of value added tax (hereinafter referred to as VAT) according to the contractor’s agreement or other documentary confirmations, and the cost of equipment inclusive of VAT. However, as a measure of cost saving by application of differentiated insurance rates, it makes sense to break out the costs of production facilities, equipment, and infrastructure (roads, bridges, warehouses, security systems, civil engineering buildings, including those built at the production site as separate subfacilities). Additionally, a limit of third-party liability for fatal or non-fatal injury and/or damage to property of third parties, as well as for environmental harm caused by the work performed.
7 L.N. Klochenko [3] stated that insurance coverage for construction and erection is based on the “all risks” insurance coverage concept.
8 The insurance contract (policy) should include the following risks:
9 Destruction, loss of, or damage to, the facility under construction/erection, including materials, building structures, equipment, and other property used or designed to perform operations up to the full contract price, including equipment, under “all risks” conditions, from the commencement of operations up to facility delivery under a certificate of acceptance of the constructed facility by the acceptance committee; Destruction, loss of, or damage to, the facility in operation due to errors and defects that occurred during construction and were found during operation within the warranty period; Incurring third party liability for fatal or non-fatal injury and/or damage to the property of third parties during work performance; Incurring liability for environmental harm occurring during work performance.
10 It should also be noted that insurance coverage for materials and equipment under a construction and erection risk policy is valid:
11 During transportation of materials and equipment from the storage place to the construction site or on-site storage facility, from their receipt for transportation, including transfers and transshipments, up to delivery to the contractor at the place of construction/erection, including loading and unloading; During storage by the contractor at the onsite storage facility/construction site; During construction, erection, commissioning, and other operations at the construction site throughout the construction period up to commissioning.
12 At all other times, materials and equipment are not covered under a construction and erection risks insurance policy, and insurance coverage for these risks has to be provided under a separate property insurance policy.
13 Considering the need to ensure an adequate reinsurance level, a number of insurance companies, when determining insurance coverage, use CAR (Contractors’ All Risks) or EAR (Erection All Risks) insurance terms, as well as a combination with or without additional types of insurance coverage.
14 For instance, the rules of construction and erection insurance of Joint-Stock Company Gas Industry Insurance Company (hereinafter referred to as the Rules) stipulate insurance policies under CAR and/or EAR conditions. [4]

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1. Romanova V.V. Legal Regulation of Construction and Modernization of Energy Facilities: Monograph / V.V. Romanova. Moscow : Yurist Publishing House, 2012. P. 271–288.
2. S.V. Dedikov. Construction and Erection Risk Insurance Policy: Civil and Legal Aspects / S.V. Dedikov // Russian Laws: Experience, Analysis, Practice. 2015. No. 5. P. 3–8.
3. L.N. Klochenko. Insurance Coverage Models in Construction and Erection Risks Insurance Policies / L.N. Klochenko // Russian Laws: Experience, Analysis, Practice. 2015. No. 5. P. 9–22.
4. SOGAZ. Construction and Erection Risks Insurance Rules. URL: https://www.sogaz.ru/upload/iblock/660/091_pravi-  la-strakhovaniya-stroitelno_montazhnykh-riskov-ot-17.04.2017.pdf.

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