In what is being termed a landmark ruling, the Thai Court confirmed the denial of coverage in a case involving the catastrophic failure of a wind turbine, represented by Clyde & Co’s team in Thailand.
The court ruled that the manufacturer and contractor's adherence to “industry practice” did not outweigh evidence of gross negligence presented by insurers. This decision mandates renewables manufacturers and contractors to rigorously ensure that subcontractors fulfil their responsibilities, as failure to detect subcontractors' lapses can lead to a denial of insurance coverage.
The case stemmed from an incident in 2018, where a wind turbine nacelle in Thailand collapsed. An investigation revealed that the bolts connecting the 195-ton nacelle and blades to the tower had gradually loosened and fallen out, causing the remaining bolts to shear under stress and the nacelle and blades to plummet 157 metres to the ground. Fortunately, there were no injuries resulting from the incident.
It was discovered that the subcontractor failed to tighten the bolts to the required torque, leading to their loosening due to the turbine's movement and vibrations. Additionally, an employee of the claimants was found to have turned off vibration alarms and reset the wind turbine without conducting an inspection, which could have averted the loss.
During the defects liability period, the manufacturer was contractually bound to repair the damage and sought reimbursement from insurers. However, insurers cited various exclusions, including that for gross negligence, in denying the claim.
The court concluded that the main contractor, a subsidiary of the manufacturer, failed to ensure that the work was properly executed. Consequently, their claim against the insurers was dismissed, with the insurers awarded costs.
“This decision highlights the contradiction in turbine supply agreements that says manufacturers will be responsible for the work of sub-contractors, but then allows them to pass the cost of breaches to insurers – with premium ultimately paid by the owner. Manufacturers will now have to take greater care to ensure the sub-contractor performed their tasks with due diligence and up to contractual standard. In terms of renewables insurance, this could be a game changer for holding manufacturers to a higher standard than industry practice,” Clyde & Co Bangkok partner Ian Johnston said.
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