In an unpublished opinion, the U.S. Court of Appeals for the Fifth
Circuit ruled that insurers are not obligated to reimburse a shipyard for
the cost of repairs made to ships when the defects were not discovered
during the warranty period. In the instant case, the shipyard built four
lift boats. The contracts included a warranty and an obligation to repair
and replace defects discovered within 180 days of delivery. The insurers
provided coverage for the shipyard for, among other things, sums that the
shipyard became legally obligated to pay under its contracts. Cracks were
discovered in the jack-up legs approximately three years after delivery.
The cracks were found to have been caused by faulty welds by the shipyard.
The shipyard repaired the jack-up legs and filed claims for reimbursement
with the insurers, who then brought a declaratory judgment action. The
court held that, while there may have been good business reasons for the
shipyard standing behind its work well beyond the warranty period, the
insurers were justified in refusing to reimburse the shipyard for such
repair work. XL Specialty Insurance Company v. Bollinger Shipyards
Lockport LLC , No.
02-30387 (5th Cir., September 10, 2003).
(Source: HK Law)