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SR-000136 - Supreme Court of Texas

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SR-000136 - Supreme Court of Texas Powered By Docstoc
					                              NO. 08-0890
_______________________________________________________________________

                                IN THE
                      SUPREME COURT OF TEXAS
_______________________________________________________________________

           THE HOUSTON EXPLORATION COMPANY, ET AL.

                                                       Petitioners

                                  v.

              WELLINGTON UNDERWRITING AGENCIES
                       LIMITED, ET AL.,

                                                    Respondents.
_______________________________________________________________________

                       On Petition for Review from the
                Fourteenth Court of Appeals at Houston, Texas
                            No. 14-07-00970-CV
_______________________________________________________________________

              THE HOUSTON EXPLORATION COMPANY’S
       RESPONSE TO UNDERWRITERS’ POST-SUBMISSION BRIEF
                            AND APPENDIX
_______________________________________________________________________


                                 S. Shawn Stephens
                                 Texas State Bar No. 19160060
                                 Farrell A. Hochmuth
                                 Texas State Bar No. 24041107
                                 BAKER & HOSTETLER LLP
                                 1000 Louisiana, Suite 2000
                                 Houston, TX 77002
                                 (713) 646-1398 (Telephone)
                                 (713) 751-1717 (Facsimile)

                                 COUNSEL FOR PETITIONER
                                 THE HOUSTON EXPLORATION
                                 COMPANY
                                             TABLE OF CONTENTS

                                                                                                                                Page


TABLE OF CONTENTS ..................................................................................................... i

INDEX OF AUTHORITIES ..............................................................................................iii

I.       THE AGENCY ISSUE IS IRRELEVANT TO RESOLUTION OF THIS
         COVERAGE DISPUTE BECAUSE THE UNAMBIGUOUS POLICY
         LANGUAGE COVERS STANDBY COSTS.......................................................... 2

         A.       Courts Cannot Infer Exclusions When None Are Written Into A
                  Policy. ............................................................................................................ 3

                  1.        Exclusions are to be construed strictly against Underwriters............. 5

                  2.        An exclusion cannot be inferred, especially where language
                            remaining in the Policy covers standby repair costs........................... 6

                            a.         The standby repair costs “arise from” the damage to
                                       the covered property................................................................ 9

         B.       Underwriters Cannot Rely On Extrinsic Evidence To Construe This
                  Policy. .......................................................................................................... 12

II.      UNDERWRITERS    RELY       ON          HEAVILY                 CONTROVERTED
         EVIDENCE AND MISREPRESENT THAT EVIDENCE IN THEIR
         POST-SUBMISSION BRIEF................................................................................. 14

         A.       Standby Coverage Was Not Traded Away By Any Agent Of THEC. ........ 14

                  1.        Underwriters did not initially believe that standby coverage
                            was excluded by striking paragraph 13. ........................................... 15

                  2.        The record shows that Tysers’ acted as Underwriters’ agent
                            during placement. ............................................................................. 18

                  3.        Even if the London broker and the local broker were THEC’s
                            agents, their contemporaneous statements show that they did
                            not trade away standby coverage...................................................... 19




                                                                 i
                 4.        The “sophisticated insured” theory has never been used by a
                           Texas state court, but even if it had, the theory does not apply
                           here. .................................................................................................. 21

                 5.        Underwriters attempt to mislead the Court into believing that
                           THEC saw a copy of the Policy before the loss. .............................. 23

        B.       The Record Shows Standby Coverage Was Not A Supplemental
                 Coverage Option.......................................................................................... 25

        C.       THEC Did Not Eliminate Standby Coverage To Reduce The
                 Premium. ..................................................................................................... 27

CERTIFICATE OF SERVICE .......................................................................................... 29




                                                               ii
                                        INDEX OF AUTHORITIES

Cases

Admiral Ins. Co. v. Trident NGL,
      988 S.W.2d 451 (Tex. App.—Houston [1st Dist.] 1999, pet. denied) ..................... 9

Altru Health System v. Am. Protection Ins. Co.,
       238 F.3d 961 (8th Cir. 2001) .................................................................................... 3

Baladran v. Safeco Ins. Co. of Am.,
      972 S.W.2d 738 (Tex. 1998) .............................................................................. 8, 11

Barnett v. Aetna Life Ins. Co.,
      723 S.W.2d 663 (Tex. 1987) .................................................................................... 5

Employer’s Casualty v. Holm,
     393 S.W.2d 363 (Tex. Civ. App.—Houston 1965, no writ)..................................... 3

Evanston v. Autofina,
      256 S.W.3d 660 (Tex. 2008) .................................................................................. 10

Feiss v. State Farm Lloyds,
       202 S.W.3d 744 (Tex. 2006) ........................................................................ 1, 12, 13

Forbau v. Aetna Life Ins. Co.,
      876 S.W.2d 132 (Tex. 1994) .................................................................................. 12

Gamma Group Inc. v. Transatlantic Reinsurance Co.,
    242 S.W.3d 203 (Tex. App.—Dallas 2007, pet. denied).......................................... 4

Grain Dealers Mut. Ins. Co. v. McKee,
      943 S.W.2d 455 (Tex. 1997) .............................................................................. 5, 27

HECI Explor. Co. v. Neel,
      982 S.W.2d 881 (Tex. 1998) ................................................................................... 4

Imperial Ins. Co. v Ellington,
      498 S.W. 368 (Tex. Civ. App.—San Antonio 1973, no writ) .................................. 5

Jones v. American Economy Ins. Co.,
       672 S.W.2d 879 (Tex. App.—Dallas 1984, no writ)................................................ 3

Kennon v. Shepard,
     127 N.E. 426 (Mass. 1920)..................................................................................... 13


                                                           iii
Kinzbach Tool Co. v. Corbett-Wallace Corp.,
      160 S.W.2d 509 (Tex. 1942) .................................................................................. 18

Lanasa v. Universal Ins. Co.,
      302 U.S. 556 (1938) ................................................................................. 6, 8, 10, 11

McCarthy Bros. Co. v. Continental Lloyd’s Ins. Co.,
     7 S.W.3d 725 (Tex. App.—Austin 2000, reh’g overruled) ................................ 9, 12

Meadows v. Walker,
     324 F.Supp.2d 282 (S.D. Tex. 1971)........................................................................ 3

Mid-Century v. Lindsey,
     997 S.W.2d 153 (Tex. 1999) .................................................................................... 9

Millers Mutual Fire Ins. Co v. Murrell,
       362 S.W.2d 868 (Tex. Civ. App.—Fort Worth 1962, writ ref’d n.r.e.) ................... 2

National Union Fire Ins. Co. of Pittsburg, Pa. v. Hudson Energy Co., Inc.,
      811 S.W.2d 552 (Tex. 1991) ........................................................................ 2, 3, 4, 5

Providence Wash. Ins. Co. v. Proffitt,
      239 S.W.2d 379 (Tex. 1951) .............................................................................. 2, 11

Self v. King,
         28 Tex. 552 (Tex. 1866) .............................................................................. 1, 12, 13

SMI Realty v. Underwriters at Lloyd’s,
      179 S.W.3d 619 (Tex. App.—Houston [1st Dist.] 2005, pet. denied) ................. 3, 5

St. Laurence Explosives Corp. v. Worthy Bros. Pipeline Corp.,
       916 F. Supp. 187 (N.D.N.Y. 1998)......................................................................... 13

State Farm Life Ins. Co. v. Beaston,
       907 S.W.2d 430 (Tex. 1995) .............................................................................. 8, 11

Straub v. Screvin,
      19 S.C. 445 (S.C. 1883).......................................................................................... 13

Stryker Corp. v. XL Insurance,
       2006 WL 1997142 (W.D. Mich. 2006, 14-15) ....................................................... 21

Sun Oil v. Madeley,
      826 S.W.2d 726 (Tex. 1981) .................................................................................. 12



                                                           iv
Tenneco, Inc. v. Enter. Prods. Co.,
      925 S.W.2d 640 (Tex. 1996) .................................................................................... 4

Travelers v. Jarrett,
      369 S.W.2d 653 (Tex. Civ. App.—Waco 1963, no writ) ....................................... 10

Union Pacific Resources Group, Inc. v. Neinast,
      67 S.W.3d 275 (Tex. App.—Houston [1st Dist.] 2001, pet. denied) ....................... 4

Utica Nat. Ins. Co. of Texas v. American Indem. Co.,
      141 S.W.3d 198 (Tex. 2004) .................................................................................... 5

Utica v. American Indemnity,
       141 S.W.3d 198 (Tex. 2004) .................................................................................... 9

Vought Aircraft Indus. Inc. v. Falvey Cargo Underwriting, Ltd.,
      2010 WL 2573214 (N.D. Tex. 2010) ..................................................................... 22

Wellington Underwriting Agencies, Ltd. v. Houston Exploration Co.,
      267 S.W.3d 277 (Tex. App.—Houston [14th Dist.] 2008, pet.
      granted)............................................................................................................... 6, 13

Wolf Hollow I, L.P. v. El Paso Marketing L.P.,
      WL 4262048 (Tex. App.—Houston [14th Dist.] 2010) ........................................... 4

Yzaguirre v. KCS Resources, Inc.
      53 S.W.3d 368 (Tex. 2001) ...................................................................................... 4

Statutes

TEX. INS. CODE § 21.04 ..................................................................................................... 18

Other Authorities

RESTATEMENT (SECOND) OF AGENCY § 379 .................................................................... 18




                                                                v
TO THE HONORABLE SUPREME COURT OF TEXAS:

        Seventy-eight days after oral argument, Underwriters filed a misleading post-

submission brief inviting the Court to consider a hotly-contested, unresolved factual

dispute on an issue which is irrelevant to resolution of the coverage question presented in

this appeal.

        Specifically, Underwriters now use disputed parol evidence to erroneously argue

that, although there is no exclusion of standby coverage written in the Policy, an alleged

agent of OSFI agreed to delete standby coverage from the Policy when Underwriters

struck paragraph 13 (a separate sublimit for standby costs) from the Policy. (SR 5). But

the Court need not consider the muddy fact dispute raised in Underwriters’ Post-

Submission Brief because resolution of the agency issue is irrelevant to the determination

of this coverage dispute for two reasons. First, exclusions to coverage must be clearly

expressed in writing and no exclusion of standby coverage is written in this Policy.

Second, under Texas law, unambiguous polices cannot be altered by parol evidence and,

since Underwriters have always maintained that the Policy at issue is unambiguous,1 they

cannot now rely on disputed parol evidence to argue that an alleged agent of OSFI agreed

to eliminate standby coverage when the Policy language clearly provides for such

coverage. Thus, regardless of whether the London broker, Tysers, was The Houston

Exploration Company’s (“THEC”) agent in the drafting of this Policy, only the language


1
 (See, e.g., SR 5, 13, 17, 18. The attached appendix contains every page of the Sworn Record cited in this brief.
The pages are listed in numerical order by the page number assigned in the Sworn Record.




                                                       1
of the unambiguous Policy controls the coverage question and that language covers these

standby costs. See, e.g., Feiss v. State Farm Lloyds, 202 S.W.3d 744, 746-47 (Tex.

2006); Self v. King, 28 Tex. 552, 554 (Tex. 1866).

         Finally, as will be shown in great detail below, Underwriters misrepresent the

record and rely on mountains of heavily controverted parol evidence in their errant

attempt to make the agency issue relevant to this appeal, despite the fact that this appeal

should simply revolve around one exhibit—the Policy.

         For the following reasons, this Court should reject Underwriters’ tardy, ill-

conceived theories which are based on controverted parol evidence and should, instead,

rely on the language of the unambiguous Policy to reverse and render a decision in favor

of THEC because the standby repair costs at issue are covered by the plain language of

the Policy.

I.       THE AGENCY ISSUE IS IRRELEVANT TO RESOLUTION OF THIS
         COVERAGE DISPUTE BECAUSE THE UNAMBIGUOUS POLICY
         LANGUAGE COVERS STANDBY COSTS.

         This Court does not have jurisdiction to resolve factual disputes, but even if it had

jurisdiction to resolve a factual dispute,2 the question of whether Tysers was THEC’s

agent is irrelevant to the resolution of this case because the dispositive point is not


2
  Furthermore, the agency question is not part of this interlocutory appeal. The trial court held that standby costs
were covered by the unambiguous language of the Policy; therefore, the disputed agency issue was never reached or
resolved below and, as will be shown herein, cannot, despite Underwriters’ current claim, have been resolved “as a
matter of law” in favor of Underwriters. (SR 2771-2, 7103-04). In fact, the agency question is an issue on which
summary judgment motions are pending in the trial court. (SR 2531-37, 2771-2). Consequently, the trial court did
not include the agency issue as an issue certified for review in this interlocutory appeal; rather, the issue certified for
interlocutory review was whether the Policy’s plain and unambiguous language covered these standby repair costs.
(SR 7105-07).




                                                            2
impacted by the agency issue at all. The truly dispositive point is the fact that Texas law

requires exclusions to coverage to be clearly expressed in a policy or they are not

effective. See, e.g., National Union Fire Ins. Co. of Pittsburg, Pa. v. Hudson Energy Co.,

Inc., 811 S.W.2d 552, 555 (Tex. 1991); Providence Wash. Ins. Co. v. Proffitt, 239 S.W.2d

379 (Tex. 1951); see also Millers Mutual Fire Ins. Co v. Murrell, 362 S.W.2d 868 (Tex.

Civ. App.—Fort Worth 1962, writ ref’d n.r.e.); Employer’s Casualty v. Holm, 393

S.W.2d 363, 367 (Tex. Civ. App.—Houston 1965, no writ); Jones v. American Economy

Ins. Co., 672 S.W.2d 879, 880 (Tex. App.—Dallas 1984, no writ). This is especially

relevant with regard to all risk policies. SMI Realty v. Underwriters at Lloyd’s, 179

S.W.3d 619, 627 n.3 (Tex. App.—Houston [1st Dist.] 2005, pet. denied) (exclusions for

coverage for rapid leaks would not be inferred as an exclusion of gradual leaks). It is

undisputed that no exclusion of standby coverage is written into this Policy. (SR 406-07

at 185:9-12). In fact, this Policy contains two pages of very specific written exclusions to

coverage, but an exclusion of standby coverage is not included in that list of exclusions. 3

(SR 85-87).

        Consequently, as a matter of law, standby coverage was not expressly excluded

from this unambiguous Policy and the agency dispute cannot alter that point.

          A.       Courts Cannot Infer Exclusions When None Are Written Into A
                   Policy.

        Ignoring Texas law, which requires exclusions to be clearly expressed in a policy,

3
 Given that an elimination of standby coverage was omitted from such a specific list of exclusions, this Court must
presume such was an intentional omission. Meadows v. Walker, 324 F.Supp.2d 282 (S.D. Tex. 1971).




                                                        3
Underwriters ask this Court to infer an exclusion of standby coverage because Paragraph

13, a sublimit4 for standby costs, was stricken from the Policy. But this Court has

repeatedly refused to infer an exclusion into a policy when none exists. See, e.g., Hudson,

811 S.W.2d at 555.

        For example, this Court has held that a policy’s express exclusion of coverage for

accidents occurring while a non-instrument rated pilot simultaneously controlled an

airplane did not, by inference, also exclude coverage for accidents occurring while both

an instrument-rated pilot and a non-instrument-rated pilot controlled an aircraft. Id.

        Thus, in Hudson, this Court specifically addressed the point at issue in this case,

concluding that, had the insurance company also wanted to exclude coverage for

simultaneous piloting accidents in additional to those caused by non-instrument-rated

pilots, it was required to expressly write that exclusion in clear and unequivocal language

into the policy. Id. The insurer’s failure to write such an express exclusion into the

policy could not, and should not, be remedied by a court’s resort to parol or extrinsic

evidence. Id. This holding is the necessary result of the fact that Texas courts will not re-

write an agreement for parties by adding terms to the agreement that the parties could

have included themselves, but did not; instead, the courts must enforce the agreement that

the parties did reduce to writing. See, e.g., Yzaguirre v. KCS Resources, Inc. 53 S.W.3d

368, 373 (Tex. 2001); Tenneco, Inc. v. Enter. Prods. Co., 925 S.W.2d 640, 646 (Tex.


4
 A sublimit is a cap on identified expenses which is less than a policy’s overall monetary limits. See, e.g., Altru
Health System v. Am. Protection Ins. Co., 238 F.3d 961, 964 (8th Cir. 2001).




                                                        4
1996); HECI Explor. Co. v. Neel, 982 S.W.2d 881, 888 (Tex. 1998); see also, Wolf

Hollow I, L.P. v. El Paso Marketing L.P., WL 4262048 (Tex. App.—Houston [14th Dist.]

2010); Gamma Group Inc. v. Transatlantic Reinsurance Co., 242 S.W.3d 203 (Tex.

App.—Dallas 2007, pet. denied); Union Pacific Resources Group, Inc. v. Neinast, 67

S.W.3d 275 (Tex. App.—Houston [1st Dist.] 2001, pet. denied).

        Based on the body of case law cited above, this Court cannot rely on an inference

to create an exclusion to standby coverage because, by their very nature, inferences are

not clear expressions of a party’s intent to exclude coverage.                           Imperial Ins. Co. v

Ellington, 498 S.W. 368, 371 (Tex. Civ. App.—San Antonio 1973, no writ); Hudson, 811

S.W.2d at 555; SMI Realty Mgmt. Corp. v. Underwriters’ at Lloyd’s London, 179 S.W.3d

619, 627 n.3 (Tex. Civ. App.—Houston [1st Dist.] 2005, pet. denied).

                 1.       Exclusions are to be construed strictly against Underwriters.

        Furthermore, when dealing with alleged exclusions to coverage, this Court must

adopt the policy construction which “favors the insured as long as that construction is not

unreasonable, even if the insurer’s construction appears to be more reasonable or a more

accurate reflection of the parties’ intent.”5 Utica Nat. Ins. Co. of Texas v. American

Indem. Co., 141 S.W.3d 198 (Tex. 2004) (quoting Hudson, 811 S.W.2d at 555); Grain

Dealers Mut. Ins. Co. v. McKee, 943 S.W.2d 455, 458 (Tex. 1997).                                    Specifically

applicable to the Policy at hand, exclusions from, and limitations on, coverage are to be


5
  Underwriters’ “sophisticated insurer” theory has never been used by a Texas state court, is not applicable in this
case, and will be addressed in detail below.




                                                         5
construed strictly against underwriters. Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663,

666 (Tex. 1987); Hudson, 811 S.W.2d at 555. Inferring an exclusion, where none is

written in the Policy, also deviates from this time-honored rule of policy construction.

                 2.       An exclusion cannot be inferred, especially where language
                          remaining in the Policy covers standby repair costs.

        Additionally, it is not reasonable to infer the exclusion of standby coverage from

the striking of Paragraph 13 because such an inference is based on the faulty premise that

Paragraph 13 was the only source of standby coverage contained in the Policy form. But,

as is described below, there are other sources of coverage for standby repair costs which

remained in this Policy even after paragraph 13 was stricken. Thus, assuming arguendo,

Paragraph 13 was a source of standby coverage, it was not the sole source of standby

coverage in this Policy form, so striking Paragraph 13 could not eliminate standby

coverage from the Policy and should not cause the Court to ignore the language actually

remaining in the Policy which provides coverage for standby repair costs. Lanasa v.

Universal Ins. Co., 302 U.S. 556, 560 (1938).

        More specifically, the Policy’s insuring clause6 plainly states that the Policy

covered “all risks of physical loss of and/or physical damages to the property” as long as

the loss of, or damage to, the property “arises from an Occurrence within the Policy

Period.” (SR 75). No one—not even Underwriters—ever disputed that the physical

6
    Paragraph 13 merely introduced a sublimit for standby vessel charges into the Policy.
This is similar to the way adjacent paragraphs in the Welcar form policy introduced other sublimits. For example,
Paragraph 11 introduced a sublimit on charges for removal of wreck, wreckage and debris. Stricken Paragraph 12
would have introduced a sublimit for charges related to tests, leak and damage searches. (SR 81). By eliminating
the sublimit on standby charges, Underwriters made the entire Policy limit available for standby costs.




                                                       6
damage to the jacket and leg pile was a covered occurrence; therefore, under the plain

language of the Policy’s insuring clause, all repair costs (including standby repair costs,

incurred while repairing the damage to the jacket and leg pile) are covered, regardless of

whether Paragraph 13 was stricken. Wellington Underwriting Agencies, Ltd. v. Houston

Exploration Co., 267 S.W.3d 277, 281 (Tex. App.—Houston [14th Dist.] 2008, pet.

granted).

        Further proving that this Policy provides coverage for all standby repair costs is the

fact that at least two of the Policy’s provisions actually indemnify THEC for these repair

costs. First, THEC is indemnified under §1a for these standby repair costs because, in the

event of an occurrence, Underwriters “agree[d] to indemnify” THEC for “all other costs”

necessarily incurred and duly justified in “repair or replacement” of the damaged

property. (SR 76). Thus, based on the plain language of §1a, these standby costs, which

were necessarily incurred and duly justified7 in the repair of the jacket and leg pile, were

recoverable.

        Second, THEC is also indemnified for the standby repair costs at issue under §1d

of this Policy, which mandates that Underwriters reimburse THEC for vessel charges,

such as standby costs, incurred by vessels used in or about a repair. (SR 77). Further,

§1d also plainly states that costs “shall” be recoverable for prehired or owned vessels

7
  THEC presented uncontroverted evidence below of the reasonableness of, and necessity for, the standby charges,
and Underwriters never rebutted that evidence. (SR 615, 651, 911-12, 922-23, 928-29, 942). In fact, Underwriters’
corporate representative admitted that the standby repair charges “were directly related to [the] incident” and that,
Underwriters “had no reason to question the rates charged.” (SR 651). Underwriters’ claims adjuster, specifically
found these standby repair costs to be reasonable and directly claim-related and recommended that they be paid. (SR
6196-97).




                                                         7
“used in or about the repair, reinstatement, replacement or salvage.”                 (Id.).

Underwriters’ adjuster determined the repair vessels (which incurred these standby

charges) were prehired or owned by OSFI and that they were used in or about the repair.

(SR 6196-97). Since the standby costs at issue were incurred by vessels used in or about

the repair, they “shall” be recoverable. (SR 77, 923, 928-29).

      As is shown above, the plain language actually contained in this Policy covered

and indemnified THEC for all repair costs—including the standby repair costs at issue—

arising from the occurrence. (SR 75-77). Consequently, inferences derived from the

elimination of Paragraph 13, even if it had been a source of standby coverage, could not

destroy the standby coverage remaining in the Policy. (Compare SR 69 and 75-77 to SR

81); Lanasa, 302 U.S. at 560 (1938).

      As the Court will recall, the United States Supreme Court reached a similar

conclusion in the Lanasa case when one source of coverage remained in a policy even

though another source of coverage had been removed from it. Id. In Lanasa, where a

stranded ship’s cargo of bananas rotted before the ship could be floated, the insurer

denied coverage for the loss because a policy rider, providing coverage for the decay of

fruit due to stranding, was cancelled prior to the loss.         Id.   However, despite the

cancellation of the rider, the Supreme Court held that the policy still covered the loss

because another source of coverage (found in the policy’s insuring clause, covering perils




                                            8
of the sea),8 remained in the policy. As a result, cancellation of the rider did not remove

coverage for the loss of the cargo provided by the perils of the sea clause. Id. at 560.

        Because Texas courts are not free to ignore the language written in a policy, the

Supreme Court’s Lanasa analysis is the only proper way to interpret the Policy at issue

where a source of coverage remains in the policy and where no exclusion of standby

coverage is expressly written into the Policy. See, e.g., Baladran v. Safeco Ins. Co. of

Am., 972 S.W.2d 738, 741 (Tex. 1998); State Farm Life Ins. Co. v. Beaston, 907 S.W.2d

430, 433 (Tex. 1995). The agency issue raised by Underwriters in their post-submission

brief cannot alter this analysis.

                         a.       The standby repair costs “arise from” the damage to the
                                  covered property.

        Apparently aware that coverage for standby repair costs remains in the Policy and

cannot be over-ridden by an inference, Underwriters next erroneously urge this Court to

deny coverage by arguing that these standby repair costs are not the direct result of the

damage to the property. (Underwriters’ Post-Submission Brief, pp. 9-11). But this

argument is contrary to this Court’s rulings holding that, where a policy provides

coverage (as it does here) for damages that “arise from” a covered loss, those damages are

also covered. See, e.g., Mid-Century v. Lindsey, 997 S.W.2d 153 (Tex. 1999). For

example, Justice Hecht, writing for this Court in the Mid-Century9 case, held that where a


8
  Stranding is a peril of the sea. Lanasa, 302 U.S. at 572.
9
  In Mid-Century, the damage (Lindsey’s injury) had a causal connection to the covered property (insured pickup
truck) because the damage arose from the use of the vehicle “as a vehicle” and was therefore covered by the auto
policy. Mid-Century, 997 S.W.2d at 158-160.




                                                       9
policy provided coverage for losses “arising from” a covered peril and where the injury at

issue had a causal connection to the covered loss, that damage “arose from” the insured

peril and was covered. Mid-Century, 997 S.W.2d at 158; see also Utica v. American

Indemnity, 141 S.W.3d 198 (Tex. 2004), (this Court distinguished the direct causation

standard, like that urged by Underwriters here, from the more relaxed causation standard

which applies when (as here) the words “arising out of” are used in an insurance policy);

McCarthy, 7 S.W.3d 725, 729 (Tex. App.—Austin 2000, pet. denied); Admiral Ins. Co. v.

Trident NGL, 988 S.W.2d 451, 454 (Tex. App.—Houston [1st Dist.] 1999, pet. denied).

Here, the standby repair costs were incurred while the repairs to the damage to the jacket

and leg pile were made and would not have been incurred “but for” the damage to the

jacket and leg pile. Thus, standby repair costs have a causal connection to the occurrence

and are covered.

      Likewise, in Evanston v. Autofina, 256 S.W.3d 660 (Tex. 2008), this Court, in an

opinion authored by Justice Green, resolved a split among the intermediate courts of

appeal regarding coverage for damages when the words “arising from” appear in an

insurance policy. There, Autofina sought coverage under a contractor’s insurance policy

for settlement sums paid after a contractor’s employee drowned in an oil storage tank at

Autofina’s refinery. Coverage was only available if the employee’s death “arose out of”

his employer’s operations. Rejecting the direct causation theory used by the Amarillo

Court of Appeals and urged by Underwriters here, this Court specifically adopted a

broader standard, holding that a mere “causal connection or relationship” needs to exist



                                           10
between damages and a covered occurrence (there, the contractor’s operations) to

establish coverage when the phrase “arising out of” is used in a policy. Id. at 665-666;

see also Travelers v. Jarrett, 369 S.W.2d 653 (Tex. Civ. App.—Waco 1963, no writ).

Because the employee’s death occurred while he was actively engaged in his job duties

for the contractor, it arose out of the contractor’s operations and coverage existed for the

claim. Autofina, 256 S.W.3d at 667.

       Likewise, in the previously-mentioned Lanasa case, the United States Supreme

Court also rejected an argument like that made in Underwriters’ post-submission brief.

Lanasa v. Universal Ins. Co., 302 U.S. 556 (1938). In Lanasa, the insurance company

argued that the loss of the ship’s cargo (rotting bananas) was directly caused by the

“inherent vice” of the fruit, rather than by a covered peril, and refused to pay the insured’s

claim. Id. at 560. However, the Supreme Court rejected the insurer’s argument, adopting

a standard which covers all damages naturally flowing from the covered peril. Id. at 565,

572. Because the rotting of the cargo naturally flowed from the stranding, a covered

peril, the loss of the cargo was also covered. Id. The relevant test is not, as Underwriters

assert, a direct causation standard—instead, the Supreme Court merely required, as this

Court does, that a logical causal link exist between the damages and the covered peril.

Id.; see, e.g., Providence v. Proffitt, 239 S.W.2d 379 (Tex. 1951). Here, because these

standby repair costs would not have been incurred but for the damage to the jacket and

leg pile, they arise from and have a causal connection to that damage. Lanasa, 302 U.S.

at 572.   Therefore, the standby repair costs are covered and Underwriters’ agency



                                             11
argument cannot impact that result.

        B.     Underwriters Cannot Rely On Extrinsic Evidence To Construe This
               Policy.

       At its core, Underwriters’ post-submission brief asks the Court to ignore the

language left in the Policy and to unwisely infer that standby coverage was eliminated

from the Policy based on the act of striking Paragraph 13, a theory it supports by

misconstruing disputed testimony from interested witnesses.          (Underwriters’ Post-

Submission Brief, pp. 1-8). But this extrinsic “evidence” is irrelevant because, as this

Court has repeatedly held, in construing insurance policies, the court’s primary goal “is to

give effect to the written expression of the parties’ intent” and not to what the parties

allegedly intended. See, e.g., Baladran v. Safeco Ins. Co of Am., 972 S.W.2d 738, 740-41

(Tex. 1998) (quoting State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433 (Tex.

1995) (emphasis added)); Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex.

1994); see also McCarthy Bros. Co. v. Continental Lloyd’s Ins. Co., 7 S.W.3d 725, 728

(Tex. App.—Austin 2000, reh’g overruled). Therefore, an argument which is dependent

on extrinsic evidence (i.e., contested testimony from interested witnesses to support

inferences derived from the striking of Paragraph 13) cannot be used to alter the

unambiguous language of the Policy, which, as discussed above, plainly provides

coverage for standby repair costs.

       Underwriters’ argument also violates other well-established judicial doctrines

(such as the merger doctrine and the parol evidence rule) which prevent courts from

relying on extraneous evidence to construe unambiguous agreements. See, e.g., Feiss v.


                                            12
State Farm, 202 S.W.3d 744 (Tex. 2006) (homeowner’s policy did not cover mold, this

Court refused to look at a prior HO-B policy and also refused to look at the Texas

Department of Insurance’s interpretation of HO-B policies because extrinsic evidence

cannot be used to create an ambiguity); Sun Oil v. Madeley, 826 S.W.2d 726 (Tex. 1981)

(prior draft and negotiations are merged into final document and cannot be used to alter

final document’s terms); Self v. King, 28 Tex. 552 (Tex. 1866) (no words are to be added

or subtracted from written agreement).

      Using stricken language to interpret an unambiguous policy is also unsound from a

public policy perspective. Inferring exclusions to insurance coverage based on extrinsic

evidence, rather than looking to the plain language of the policy, is fraught with the

opportunity for abuse—especially when the assured does not see the policy before

coverage is bound—because underwriters can accept premiums for broad coverage and

then create after-the-loss arguments, based on extrinsic evidence, to justify denials of

coverage. This practice is likely to transfer from the insurance context to all types of

contracts, which will make written contracts less certain, which, in turn, undermines

Texas business.

      Moreover, in holding that the stricken language of Paragraph 13 was “decisive” in

determining the intent of the parties as to coverage for standby repair costs, the court

below created an unsound new exception (where words marked out of a contract are still

legible) to the rule that language external to an unambiguous contract cannot be used to

interpret it. Houston Exploration, 267 S.W.3d at 288. The court below seems to say that,



                                          13
although the words were marked out by the drafter of the Policy (Underwriters), because

the words can still be read, those stricken words, and inferences from them, can be used

to override words left in the Policy. Id. This is a major and unwise departure from Texas

law and from the law in other states. See, e.g., Self, 28 Tex. at 554; Feiss, 202 S.W.3d at

745; Kennon v. Shepard, 127 N.E. 426, 427 (Mass. 1920); St. Laurence Explosives Corp.

v. Worthy Bros. Pipeline Corp., 916 F. Supp. 187, 190 (N.D.N.Y. 1998); Straub v.

Screvin, 19 S.C. 445, 449 (S.C. 1883). A failure to reverse the Fourteenth Court’s new

treatment for stricken, but still legible, words will create great uncertainty in Texas

contracts because it will allow eliminated words to be consulted to rewrite contracts well

after the agreements have been made. Further, the extension of that error requested by

Underwriters (the reliance on contested testimony from interested witnesses to bolster

Underwriters’ inference that striking paragraph 13 eliminated standby coverage from this

Policy) will only exacerbate these problems.

II.    UNDERWRITERS RELY ON HEAVILY CONTROVERTED EVIDENCE
       AND MISREPRESENT THAT EVIDENCE IN THEIR POST-SUBMISSION
       BRIEF.

       Furthermore, even if the Court could look to extrinsic evidence to interpret an

unambiguous policy, and even if resolution of the agency issue could affect the outcome

of this appeal, this Court should not rely on the evidence cited by Underwriters because it

is heavily controverted and, in some points in Underwriters’ brief, misrepresented.

        A.     Standby Coverage Was Not Traded Away By Any Agent Of THEC.

       In its post-submission brief, Underwriters rely on disputed parol evidence to argue




                                            14
that Tysers, the London insurance broker, was THEC’s agent. This is apparently an

attempt to erroneously insinuate that, at the time coverage was bound, Underwriters

intended to exclude standby coverage from the Policy and that THEC was aware of this

alleged intent. But as will be shown in detail below, the record actually shows that

Underwriters did not, at the time coverage was bound, believe that striking paragraph 13

deleted standby coverage from the Policy. Instead, the record confirms that it was not

until Wellington’s Claims Manager (as opposed to someone on the underwriting/placing

side of the business), saw the size of THEC’s standby claim, that he concocted this

“deletion of coverage by striking a sublimit” theory to justify Wellington’s refusal to pay

the claim. (SR 605, 5862-64). As will also be shown below, the record establishes that

Tysers was not THEC’s agent and Tysers did not, and was not authorized to, trade away

standby coverage.     Finally, the record also shows that, contrary to Underwriters’

allegations, THEC did not see, prior to the loss, any draft of this Policy in which

Paragraph 13 had been stricken. (SR 119, 185, 7599-7604).

             1.     Underwriters did not initially believe that standby coverage was
                    excluded by striking paragraph 13.

      Consistent with the fact that Underwriters’ argument is a convenient after-the-fact

fiction created by Wellington to justify its failure to pay THEC’s standby claim, the

record shows that, when the claim was first made, Underwriters discussed the standby

portion of the claim in several communications, including in those with their own

adjuster, but never, in any of these discussions, did Underwriters state that standby

coverage had been excluded from the Policy. (SR 609, 899-901, 1363-64, 2232-33,


                                            15
5965-66, 6174-81, 6182, 6488). Had Underwriters really excluded standby coverage by

striking paragraph 13, it is reasonable to assume that they would have so stated the

moment they became aware that there was a standby component to this claim, rather than

waiting seven months to make that statement.

         Further evidence that Underwriters did not intend to exclude standby coverage

when they struck the sublimit in paragraph 13 is the fact that the Cover Note,10 a

summary of coverage created for Underwriters by Tysers and sent to the local broker

three days after the loss, lists the Policy’s exclusions to coverage, yet an exclusion of

standby coverage is not among the listed exclusions. (SR 6342).

         Also consistent with the fact that Underwriters did not intend to exclude standby

coverage when they struck the sublimit is the fact that it was not until several months

after learning that standby costs would be part of THEC’s claim—and upon learning the

size of that portion of the claim—that lead Underwriters’ claims manager, John Hodgett,

suddenly formulated the position that the Policy did not cover standby costs.11 (SR 318-


10
   A cover note is “a document issued by a broker pending the issue of a policy which confirms the arrangement of
cover for the named assured.” http://www.lloyds.com/help/Glossary/Glossary.htm. THEC did not see this Cover
Note until after the loss. (SR 6342). The loss occurred on August 24, 2002. (SR 921). On August 27, 2002, this
Cover Note (issued by Tysers on behalf of Underwriters) states that Terrorism has been excluded absolutely, that
construction whilst in the yard has been excluded, and the choice of law clause is amended to U.S.A. law. There is
no reference to any other deletions of coverages. (SR 136, 306-07, 6342). Specifically, no exclusion of standby
coverage is stated. (Id.)
11
   Specifically:
         Underwriters were advised that the insurance claim contained a claim for standby expenses no later than
          December 17, 2002. (SR 600, 2328, 6485-87).
        Underwriters were also specifically told in their adjusting agent’s initial report dated February 19, 2003,
         that THEC’s claim included a standby costs component. In fact, the report states: “The Assured’s claim is
         expected to comprise the expenses associated with engineering, accessing and driving the subject A3 leg
         pile, grouting of the A3 leg, together with charges due to weather delays and the attempts made to date by
         the Assured to return the platform to an even, horizontal attitude. (Emphasis added.). (SR 6172-6180 at




                                                        16
19, 600, 605-06, 653, 897, 2332-33, 6153, 6489, 6491).

      Thus, not even parol evidence supports Underwriters’ current argument that they

intended to eliminate standby coverage by striking paragraph 13, the standby sublimit,

from the Policy.




       6180, 2008-10).
      On March 13, 2003, Underwriters’ adjuster, Mr. Bayless, e-mailed Underwriters’ Hodgett, expressly
       stating that, further to Mr. Hodgett’s request, Bayless had “requested a breakout of loss costs between the
       pile repair, platform/engineering costs, and downtime expenses from the project manager Technip –
       Houston. . .” (SR 6181, 2012).
      On March 25, 2003, Mr. Bayless met with Underwriters in London and delivered a copy of Houston
       Exploration’s claim submission letter and specifically discussed the fact that the claim would include
       weather standby. (SR 2013, 6182-85). The total claim resulting from the freefall of the piling was
       originally anticipated by Underwriters to be in the range of $400,000 – $500,000. When Underwriters
       received the first indication from MatthewsDaniel that the claim would be roughly $3.1 Million, they
       questioned the increase as well as application of the separate policy limit of $1.7 Million for the pilings, but
       not coverage of the standby claim. (SR 318-19, 600, 606, 2332-33, 6153, 6489, 6491).
      On March 25, 2003, the London broker’s (Tysers’) David Wiles e-mailed the Lead Underwriters’
       (Wellington) Guy Monk and advised that “We understand that weather delays from the Hurricanes may
       have added to costs significantly.” (SR 2331-32, 6488).
      On March 25, 2003, a copy of the policy was sent by the London broker, Tysers, to the Lead Underwriters’
       (Wellington’s) Hodgett. (SR 2332). Hodgett was on the claims side, not the Underwriting side. (SR 2332,
       6490).
      The first time Underwriters raise the issue of coverage for standby expenses does not occur until months
       after it learned that standby costs were part of the claim, in an e-mail dated June 26, 2003, from
       Underwriters’ Hodgett to Tysers’ Sydenham questioning coverage for standby costs in light of the fact that
       paragraph 13 has been stricken and asking its adjuster, Bayless, for an explanation of whether he thought
       standby costs were covered in light of the fact that paragraph 13 is “deleted.” (SR 615, 116, 2048, 6263,
       6492). Even here, Hodgett is merely questioning standby coverage. If such coverage had been deleted,
       Hodgett would have stated so from the very start.
      On June 27, 2003, the adjuster, Bayless, responded directly to Lead Underwriter (Wellingtons’ Hodgett),
       by stating that the placing Broker (Tysers’ Sydenham) has confirmed that standby charges are included in
       the project values declared. (SR 629, 2048-49, 6264).
      On June 30, Wellington’s Hodgett e-mailed Tysers’ Sydenham acknowledging receipt of Bayless’ June 27,
       2003, response and stating that “to enable [Hodgett] to consider it properly,” he needed a copy of Tysers’
       claim file, a full copy of the slip plus a “full copy of the Certificate of Insurance that was given to the
       Insured evidencing coverage placed for the South Timbalier ‘A’ platform.” (SR 630, 6493).
      It was not until July 14, 2003, that Lead Underwriter (Wellington’s Hodgett) formulated Underwriters’
       current theory when he denied coverage for standby expenses, stating only that “Underwriters do not accept
       that they provide coverage for standby charges. The clear and express deletion of the clause providing
       such cover is the clearest evidence of the parties’ intentions that such charges should not be covered. . . .”
       (SR 632-33, 6265).




                                                        17
                 2.       The record shows that Tysers’ acted as Underwriters’ agent
                          during placement.

        Likewise, Underwriters’ argument—that Tysers, the London broker, was THEC’s

agent “as a matter of law”—is also erroneous. There is ample evidence in this record

showing that the London broker, Tysers, acted as Underwriters,’ not THEC’s, agent with

regard to the formation of the Policy, the investigation of the loss and the execution of the

proof of loss at issue. In fact, the record shows that Wellington, the lead underwriter,

relied entirely on the London broker, Tysers, to communicate with the other Underwriters

in setting up coverage, in drafting the Policy, in communicating to the assureds, in

collecting and distributing the premium and in investigating the claim.12 Wellington, the

lead underwriter, relies on Tysers to set up coverage (and for other services) because

Wellington has no staff, and Wellington pays Tysers for these services. (SR 368, 377,

130, 285-86).

        Additionally, Tysers is Underwriters’ agent as a matter of law because Tysers

“examin[ed] into, or adjust[ed], or aid[ed] in adjusting, [a] loss for or on behalf of any

insurance company.” Under Texas Insurance Code § 21.04, any entity that engages in




12
  Tysers issues the cover note, which describes what will be covered. (SR 282). Underwriters also instructs Tysers
to prepare the policy documents, present the documents to the various Underwriters for signing, and to then retain
the policy unless or until Underwriters request it to be brought to them from Tysers. (SR 377). Underwriters do not
maintain their own policy file, but instead, rely on Tysers' file. (Id.). Underwriters do not communicate with the
assured, and rely on Tysers to do so for them. (SR 633). Tysers physically creates the documents that become the
actual insurance policy at the instruction of Underwriters. (SR 377). Wellington, the lead Underwriter here, does
not have any staff. (Id.). In fact, the lead Underwriter testified that Wellington would have to "hire a whole bunch
more staff and everything else," so Wellington pays Tysers to create and administer the policy for Underwriters
instead. (SR 377).




                                                        18
such acts13 is the agent of the insurer, as a matter of law. TEX. INS. CODE § 21.04

(emphasis added). Thus, even if it were appropriate for this Court to resolve this disputed

agency issue, Underwriters’ argument is not supported by the law.

                  3.       Even if the London broker and the local broker were THEC’s
                           agents, their contemporaneous statements show that they did not
                           trade away standby coverage.

         Similarly, the record shows that the two people Underwriters now allege were

THEC’s agents and who allegedly traded away standby coverage for a reduced premium,

did not, even as late as the claim adjustment stage, believe that they had traded away

standby coverage. These people are the local broker, Greg Lary, and Guy Darell of the

London broker, Tysers, who Wellington admits it pays to set up and maintain coverage on

Wellington’s behalf. (SR 377). If Underwriters’ position were true, when it became

apparent that standby repair costs constituted part of THEC’s claim, one would expect

that Darell or Lary would have immediately stated that they had been authorized to delete

standby coverage and had done so when they placed the coverage. But neither made such


13
   Wellington does not have its own claim file, and relies entirely on Tysers' file, because Wellington never deals
directly with any assureds. (SR 377, 606-07, 633 ("The way things are done in London, Counselor, I never speak to
the assured. The assured never speaks to me. All communications between me and the insured are done
through...Tyser and Company.")). When the claim at issue arose, it was forwarded by the Houston broker to the
London broker, who brought the claim to Wellington, the lead Underwriter. (SR 139, 143-44). Wellington, the lead
underwriter, reviewed the claim, and several months later, denied it by making a note in Tysers' (the London
broker’s) file. (SR 680-82, 632, 656). Each Underwriter did likewise, communicating their acceptance or rejection
of the claim through Tysers. (SR 656-57, 666). Thus, Tysers, the London broker, essentially acts as part of the
underwriting and claims department for Underwriters in creating and maintaining a file for Underwriters' review.
Underwriters' reliance on Tysers as its agent did not stop there. Tysers is paid by Underwriters for their services in
bringing business to them and "for the work [Tysers] does for Underwriters," even though such amounts were not
disclosed to either assured. (SR 368, 377, 130, 285-86). He who pays an agent is generally that agent's principal,
RESTATEMENT (SECOND) OF AGENCY § 379, and an agent has a duty of disclosure and may not accept a commission
or benefit without full disclosure to the principal. Kinzbach Tool Co. v. Corbett-Wallace Corp., 160 S.W.2d 509,
514 (Tex. 1942).




                                                         19
a statement. In fact, the contemporaneous statements of both Darell and Lary during the

adjustment phase (well before litigation) demonstrate that they originally believed

standby repair costs were covered by the Policy and that the striking of paragraph 13

merely removed a sublimit applicable to standby costs from the Policy, not coverage for

such costs:

             On June 17, 2003, the London broker’s (Tysers’) Guy Darell stated that:
              “[I]f you delete clause 13 you are not deleting standby coverage but
              deleting the additional limit . . . clause 1a page 11 of the wording that
              would pick up standby charges, as they are duly justified in the repair
              operations but without the additional limit within clause 13. If underwriters
              wanted to delete standby charges we would have to specifically exclude,
              which they have not done. We do actually have a specific standby charge
              deductible of 48 hours on page 31 clause 5 vi which of course would be
              deleted if coverage was excluded. . . .” (Emphasis added). (SR 325, 2034,
              6187).

             On July 18, 2003, Lary wrote to Darell: “. . . The wording issued by
              underwriters has a clause for Stand-By charges that has been crossed out.
              This does not constitute an exclusion of coverage on our side of the pond.
              We were under the impression that by crossing out the clause the
              underwriters were removing the sub-limit created by the clause. If their
              intent was to exclude claims for stand-by charges, they should have
              provided a specific exclusion to the wording. Also, we have included
              contract amounts in every declaration to the policy and premium has been
              paid on these contract amounts. . . . There is actually a hefty surcharge for
              jobs that are initiated during hurricane season. . . .” (Emphasis added). (SR
              158-59, 6352-53).

       Later, after John Hodgett (at the Lead Underwriter, Wellington) learned that

Tysers’ Darell had taken the position cited above (that these standby costs were covered),

Hodgett was “upset” and chastised Tysers’ Darell in the strongest and most crude




                                            20
language imaginable14 for taking that position. (SR 322). Aware that his position (that

standby costs were covered) might cause Tysers to risk its membership in the “club” of

those limited parties who are admitted to do business with Underwriters’ London market,

Darell changed his story when guided by the leading questions of counsel (see

Underwriters’ Post-Submission Brief, p. 6), as did Lary, the local broker. (SR 234-35,

349-51). It is on the slim reed of Darell and Lary’s subsequent and inconsistent testimony

that all of Underwriters’ theory now hangs.

        Further, OSFI’s Jay Henderson testified that OSFI never authorized anyone to

reduce coverage for this project.              (SR 4474).        As a result, Underwriters have not

established that THEC’s agents agreed to eliminate standby coverage “as a matter of

law.”

                 4.       The “sophisticated insured” theory has never been used by a
                          Texas state court, but even if it had, the theory does not apply
                          here.

        In an attempt to avoid construction of the Policy in favor of THEC, Underwriters

argue—for the first time—that THEC is a “sophisticated insured” and is therefore not

entitled to have the policy interpreted in its favor. (Underwriters’ Post-Submission Brief,

p. 14). Even if Underwriters were able to raise this issue for the first time on appeal,

there are at least two reasons that it is invalid.




14
  Specifically, Tysers’ Darell testified that Wellington’s Hodgett told him “Gui [using a French pronunciation of
Tysers’ Guy Darell’s first name], you’re a f***ing c***. If you think I intended to roll back weather downtime
because I deleted the sublimit [for standby coverage], you’re mad. See you in f***ing court.” (SR 322).




                                                       21
         First, as a case cited by Underwriters actually holds, the “sophisticated insured”

doctrine is not really based on the sophistication of the insured; instead, it only applies

when an insured has fully negotiated the terms of a policy in its entirety. (Underwriters’

Post-Submission Brief at p. 14); Stryker Corp. v. XL Insurance, 2006 WL 1997142 at *12

(W.D. Mich. 2006, 14-15).

         As is shown below, neither OSFI nor THEC fully negotiated this Policy. In fact,

Underwriters mischaracterize the drafting of this Policy in their attempt to apply the

“sophisticated insured” doctrine here. This Policy was not a fully negotiated manuscript15

policy where THEC actively bargained for the entirety of the policy provisions and,

therefore, knew, prior to the binding of coverage, of Underwriters’ alleged intent to

exclude standby coverage. Instead, this Policy was created by Tysers for Underwriters in

its role as Wellington’s administrative staff. (SR 377). Tysers, at Wellington’s direction,

merely marked through form provisions on a Wellington proprietary form. (Id.). Neither

THEC nor OSFI participated in this mark-up process. (SR 376-77).

         The Court should also recall that this policy was an existing “floater”16 policy

between OSFI and Underwriters onto which OSFI added construction projects as they

arose.    (SR 276).       When this offshore construction project arose, THEC’s contract

required OSFI to obtain all risk coverage for the project. (SR 49-65 at 55-57). OSFI


15
   Manuscript policies do not come from a printed form. Instead, they are policies “containing non-standard
provisions that have been negotiated between the insurer and the insured.” Black’s Law Dictionary, 821 (8th ed.
2004).
16
   A floater policy means that the base policy comes into being, but does not cover anything until specific
construction projects are declared onto the policy. (SR 276).




                                                      22
added this jacket installation project to its existing floater policy and never instructed

Tysers to eliminate standby coverage in doing so. (SR 3038-39). Thus, this was not a

negotiated manuscript Policy uniquely created for THEC. As the record shows, the

“sophisticated insurer” doctrine does not apply under these circumstances and the Policy

must be interpreted in favor of THEC.

       More importantly, Underwriters mislead the Court by erroneously arguing that the

“majority” of jurisdictions apply the “sophisticated insured” doctrine and in failing to

mention the fact that one of the cases they cite specifically acknowledges that Texas state

courts have never used the “sophisticated insured” theory. Vought Aircraft Indus. Inc.

v. Falvey Cargo Underwriting, Ltd., 2010 WL 2573214 at *5 (N.D. Tex. 2010).

Certainly, this case should not be the first case in which a Texas court employs the

“sophisticated insured” doctrine since the agency issue is irrelevant to resolution of the

dispositive question and since the evidence on which Underwriters rely for the application

of the doctrine is so hotly disputed and lacking in credibility.

              5.     Underwriters attempt to mislead the Court into believing that
                     THEC saw a copy of the Policy before the loss.

       Underwriters also attempt to mislead the Court into believing that THEC saw a

copy of the actual Policy prior to the loss. In fact, Underwriters erroneously assert in

three places in their brief (Underwriters Post-Submission Brief, pp. 1, 4, 8) that the local

broker hand-delivered a copy of the proposed policy to OSFI, all before the loss occurred.

Underwriters’ story is not consistent because they refer to three different dates in their




                                              23
Brief for the same alleged act.17 More importantly, Underwriters’ claim is completely

contrary to the evidence which shows that neither OSFI nor THEC received any draft of

the policy from which Paragraph 13 was stricken, until after the loss. (See, e.g., SR 3773-

75, 4034-35, 4049, 5263, 7151). The record is clear—neither THEC or OSFI saw the

Policy until after this litigation had been filed.

         Specifically, the record actually shows that the local broker only sent OSFI a copy

of the “general wording” of the form of the policy before the loss. (SR 119). This form

gave no indication of what the final policy would look like because there were “no strike-

throughs, modifications, deletions, [or] additions” made to the version later delivered in

August 2002. (SR 119).               Importantly, Paragraph 13 was fully intact in this “general

wording” version of the Policy. (Id.).

         Underwriters also rely on the local broker who testified that, in August 2002, he

delivered a copy of the incomplete policy form to OSFI when he traveled to meet with

OSFI in Louisiana. (SR 124). Underwriters use this testimony to give the Court the

impression that the assured saw the proposed Policy before the loss. (Underwriters’ Post-

Submission Brief, pp. 1, 4, 8). (SR 185). However, the local broker’s own travel records

reveal that his trip to Louisiana—where he gave OSFI a version18 of the policy—did not


17
   July 22, 2002 (Underwriters’ Post-Submission Brief, p. 1), a few days after July 22 (Underwriters’ Post-
Submission Brief, p. 4), and on or about July 27 or 29 (Underwriters’ Post-Submission Brief, p. 8).
18
   What Underwriters refer to as a “draft Policy” can hardly be considered that. (SR 1451-86). Instead, what the
London broker faxed to the local broker on July 22, 2002, and what the local broker delivered to OSFI in Louisiana
after the loss, is a copy of the form policy, marked-up by hand, which contained numerous blanks and was missing
the following key information:
        names of the Principal Assureds (par. 1, page 4, SR 1456);




                                                        24
take place before the loss; rather, it occurred 6 days after the loss, on August 30, 2002.

(SR 7599-7604, at 7604). Furthermore, this draft was missing major elements. (SR 456-

85). Thus, contrary to Underwriters’ contention, neither THEC nor OSFI had a copy of

even a proposed version of this policy prior to the loss at issue. The only version of the

Policy which was shown to OSFI/THEC prior to the loss still included Paragraph 13. (SR

119).

          B.       The Record Shows Standby Coverage Was Not A Supplemental
                   Coverage Option.

        Aware that their position is not supported by either the law or the facts,

Underwriters next attempt to avoid coverage by erroneously arguing that standby

coverage was a supplemental coverage which THEC declined. There are several flaws in

this argument as well.




       Scope of Insurance, which references Item 2 in the Declarations, left blank (page 4, SR 1456, 1483);
       names of the Loss Payees (par. 3, page 5, SR 1457);
       Policy Period, which references blank Item 3 in the Declarations (par. 4, page 5, SR 1457, 1483);
       Law and Jurisdiction clause which chooses English law and English or Welsh courts, later changed by
        insertion of USA choice of forum and choice of law clause (par. 6, page 6, SR 1458, compare with SR 66-
        101 at 71);
       identity of the Underwriter to receive notice (par. 17, page 8, SR 1461);
       name of the Assured (par. 1, page 30, SR 1483);
       name of the insured Project (par. 2, page 30, SR 1483);
       Policy Period (par. 3, page 30, SR 1483);
       Deductibles, all blank, with the exception of “48 hours each and every Occurrence in respect of stand-by
        charges” (par. 5, page 31, SR 1484);
       Premium (par. 6, page 32, SR 1485);
       Notice of Cancellation (par. 7, page 32, SR 1485);
       Claims Representative (par. 8, page 32, SR 1485);
       Initial Estimated Final Contract Value (par. 6, page 32, SR 1485).




                                                        25
      First, that theory is logically inconsistent with Underwriters’ theory that standby

coverage was a standard part of this policy which was intentionally stricken when

paragraph 13 was deleted.

      Second, Underwriters’ supplemental coverage argument is undermined by the fact

that neither assured ever saw the policy’s language prior to litigation, so even if standby

coverage had been offered to it as a supplemental coverage option, THEC was not given

the opportunity to take it. (SR 3773-75, 4034-35, 4049). This is consistent with the fact

that Underwriters have no documentary evidence to show that such an election was

actually offered or made.

      Third, on August 27, 2002, three days after the loss, Tysers sent a Cover Note—

not the Policy—to Lary, the local broker. (SR 6342-47). That Cover Note described

coverage elections in a “Conditions” section. (Id. at 6342). Those “Conditions” do not

state that standby coverage was declined, despite the fact that supplemental, but declined,

coverage for terrorism was specifically referenced in the Cover Note (i.e., for terrorism).

(SR 6342-47).

      Fourth, Underwriters’ argument is easily refuted by the wording of this Policy

itself, which, ironically, was chosen by Underwriters. Standby coverage is not identified

in the Policy as a coverage that was available as a supplemental or “buy-back” coverage.

(SR 81). The fact that standby coverage was not supplemental coverage is obvious when

the Court compares paragraph 13 to other coverages which were clearly marked as “buy-

back” coverages in this Policy. (SR 81, 82, 98). For example, terrorism coverage and



                                            26
defective parts coverage were available as supplemental options and were clearly marked

as such in this Policy. (SR 82, 98).

        C.       THEC Did Not Eliminate Standby Coverage To Reduce The
                 Premium.

       Further, the record shows that THEC was not cost sensitive as to the amount of the

premium; thus, Underwriters’ insinuation that standby coverage was eliminated or

rejected in exchange for a reduced premium, is simply false. In fact, THEC paid an extra

premium ($21,790) for coverage during hurricane season—when storms (and therefore

standby costs) are most likely to arise. (SR 290, 6279, 6342). Importantly, there is not a

single e-mail, letter, note, memorandum or other document to support Underwriters’

position.    Instead, the contemporaneous communications all support the opposite

conclusion,19 that standby coverage was not excluded from the Policy.

       Based on the foregoing, it becomes clear that Underwriters’ agency theory has no

foundation in the contemporaneous communications of those involved. Certainly it has

not been established as a matter of law. At best, Underwriters’ argument raises a factual

19

    On June 28, 2002, in an exchange between OSFI’s Henderson and Lary, the local broker, there is a discussion
     of reducing the premium by deleting coverage during construction of the jacket while in the yard, but this
     deletion was because such coverage is not needed (since OSFI did not build the platform). Elimination of
     standby coverage is not mentioned at all. (SR 111-13, 6274).
    On July 8, 2002, Henderson e-mailed Lary suggesting that Lary negotiate a higher rate in exchange for a
     lower deductible since OSFI’s client [e.g., THEC] would be paying the premium, while OSFI would be
     paying the deductible. (SR 6276).
    Rather than a discussion of a reduction in costs, the exchanges between Tysers and Lary actually discussed an
     increase in costs—specifically the assessment of an additional .25% premium for projects during hurricane
     season. This resulted in an additional premium of $21,790 on the THEC jacket installation project. (See SR
     6279, 6280-82, 6342-47; .0025% for hurricane project cost of $8,716,000 = $21,790).
    OSFI’s Henderson testified that he never told Greg Lary that in the context of securing the policy that he
     “wanted him to get less coverage in order to lower the premium or the deductible.” (SR 3039).




                                                      27
dispute on the agency issue, which, even if it could affect the outcome of the coverage

question, cannot change the fact that, when a policy is ambiguous, this Court must

construe the policy in favor of the insured—here THEC. This is especially true when, as

here, the assured’s interpretation of the policy language is reasonable. The foregoing

shows that THEC’s interpretation of the Policy’s language is reasonable. Further, Tysers’

Darell even admitted that THEC’s interpretation is reasonable. (SR 327 at 255:4-16); see,

e.g., Grain Dealers, 943 S.W.2d 9458.

       For these reasons and for all the reasons previously briefed and argued by THEC,

this Court should reverse the decision of the court below and render a decision in favor of

THEC, holding that the unambiguous language of the Policy covers these standby repair

costs. Alternatively, if the Court finds the Policy susceptible to more than one meaning, it

must still reverse and render a decision in favor of THEC because THEC’s interpretation

of the Policy is reasonable.

                                               Respectfully submitted,
                                               /s/ S. Shawn Stephens
                                               _______________________________
                                               S. Shawn Stephens
                                               Texas State Bar No. 19160060
                                               Farrell A. Hochmuth
                                               Texas State Bar No. 24041107
                                               BAKER & HOSTETLER LLP
                                               1000 Louisiana, Suite 2000
                                               Houston, Texas 77002
                                               Telephone: (713) 751-1600
                                               Facsimile: (713) 751-1717

                                               ATTORNEYS FOR PETITIONER
                                               THE HOUSTON EXPLORATION
                                               COMPANY


                                            28
                             CERTIFICATE OF SERVICE

        I hereby certify that a true and correct copy of The Houston Exploration

Company’s Response to Underwriters’ Post-Submission Brief and Appendix has been

served in accordance with the Texas Rules of Appellate Procedure on the counsel of

record listed below via certified mail/return receipt requested on this the 20th day of

December, 2010.

Glenn Legge
Karen Conticello
Legge, Farrow, Kimmitt, McGrath & Brown, L.L.P.
6363 Woodway, Suite 400
Houston, Texas 77057
Attorneys for Respondents

Francis I. Spagnoletti
Marc Evan Kutner
Spagnoletti & Co.
401 Louisiana Street, 8th Floor
Houston, Texas 77002
Attorneys for Greg Lary and Lary Insurance Services, Inc.

Harry Scarborough
Faubus & Scarborough LLP
1010 Lamar Street, Suite 1020
Houston, Texas 77002
Attorneys for Petitioner Offshore Specialty Fabricator, Inc.

Judge Reese Rondon
234th District Court of Harris County
201 Caroline, 13th Floor
Houston, Texas 77002


                                           /s/ S. Shawn Stephens
                                          ______________________________________
                                          S. Shawn Stephens

503162890




                                             29
                  NO. 08-0890


                 IN THE
         SUPREME COURT OF TEXAS


THE HOUSTON EXPLORATION COMPANY, ET AL.

                                            Petitioners
                       v.
  WELLINGTON UNDERWRITING AGENCIES
           LIMITED, ET AL.,

                                           Respondents.

          On Petition/or Review from the
   Fourteenth Court 0/Appeals at Houston, Texas
               No. 14-07-00970-CV


                  APPENDIX
/.



                                                                                           FiLED"·
                                                                                    ,CHARLES SAGA.RlSSE'
                                                                                       DISTHICT CLERK
                                          CAUSE NO. 2004-61582                     HARRIS CDU~!TY. TEXAS

     THE HOUSTON EXPLORATION,                            §            INTHED~oVk,*,:~
     COMPANY,                                            §
                                                         §
          Plaintiff,                                     §                                    CEPUlY
                                                         §
     v,                                                  §             HARRIS COUNTY, TEXAS
                                                         §
     LARY INSURANCE SERVICES, INC.,                      §.
     ET AL.,                                             §
                                                         §
          Defendants.                                    §             234TH JUDICIAL DISTRICT



            UNDERWRITERS' MOTION FOR SUMMARY JUDGMENT



                                                     G1~DD R. Legge
                                                     Stale Bar No.: 12171330
                                                     Alexander C. Pap,aadreou
                                                     State Bar No,: 00791401
                                                     Karen A. ConticelJo
                                                     sti!.te Bar No.: 24083046
                                                     6363 Woodway, Suite 400
                                                     Houston, Texas 77057
                                                     Telephone: 713·917-0888
                                                     Facsimile: 713·953·9470

                                                     ATTORNEYS FOR DEFENDANTS,
                                                     UNDERWRITERS'


     •    "Underwriters" i•• collective reference to !be following ..mnd Defendants: I. Wellington Undetwriting
          Agencies Lhnlted; 2. Syndicate 2020; 3. A,nton Private Capital Lhnlted; 4. CBS Private Capital limited; 5.
          Argenta Private Capital limited; 6. Syndicate. 3030; 7. Amlin Underwriting Ltd.; 8, Syndicate 2001: 9.
          Navigator> Underwriting Agency Ltd.; 10. Syndicate 1221; II. Marlborough Underwriting Agency' Ltd.:
          12. Syndi<:ale 1861; 13. Managing AgeMy ~ Ltd.: 14. Syl1!licate 2791: 15. Hardy (Underwriting
          Agencies) Ltd.; 16. Syndi.cate 382; 17. Beazlcy Furlong. Ltd.: 18. Syndicate 623: 19. HOuston Casualty
          Company; 20. Navigators Insurance Company: 21. AXA corporate Solndons Reassurance-Paris; 22. AXA
          Corpolllte Solutions rnA; 23. AXA Corporate SolutioDS lnsutallCC Company: 24. AXA Corporate
          Solutions ReiDSurance; 25. AXA Corporate Solutions Lloyd's Insurance Company of To...: 26..
          Commonwealth Insurance Company: 27. Intemational)n:;urilllCC Company of Hannover Limited: and 28.
          American Offshore International Syndicate.




                                                                                                           SR-000001
                                                                                      FILED
                                                                            CH~RLe:S BACARISSE
                                                                               IJ/STRlCT CLERK
                                                        .   H"-fiRIS GaUIiTt. T~XAS
                                       CAUSE NO. 2004-61582                    "
                                                                          23D6,~AR 24 PI1~: 51
THE HOUSTON EXPLORATION,                               §             IN THE DISTRICT COURT OF
COMPANY,                                               §
                                                       §                 6Y..----;~;:;-;--_
                                                                                   Dc-Pury
       Plaintiff,                                      §
                                                       §
v.                                                     §             HARlUS COUNTY, TEXAS
                                                       §
LARY INSURANCE SERVICES,INC.,                          §
ET AL.,              .                                 §
                                                       §
       Defendants.                                     §             234m JUDICIAL DISTRICT


               UNDERWRITERS' MOTION FOR SUMMARY JUDGMENT

To THE HONORABLE COURT:
     . Pursuant to Texas Rules of Civil Procedure 166a and 166a(i), Upderwriters l move for

summary judgment and ask the Court to dismiss all the claims of Plaintiffs, The Houston

Exploration Company (''THEe'') and Offshore Specialty Fabricators, Inc. ("OSFI") (collectively

"Plaintiffs"), against Underwriters and in support thereof will show the Court the following:

                                                  I.
                                            INTRODUCTION

       The issue at the core of this coverage dispute is whether Stand By charges were covered

under a marine insurance policy, Pursuant to the ell<press and unambiguous tertns of the Policy at
.                        .
issue in this matter, there is no coverage for Stand By charges. In fact, bSFl; the principal

        '·'Underwriters" is a collective reference to the following named Defendants; I. Wellington Und<:twriting
      . AgericiC$ Limited: 2. Syndicate 2020: .3. Anton Private Capilal Limited: 4. CBS Private Capital Limited; S.
        Argenta Private Capital Umited: 6. Syndicate 3030; 7. Amlin Underwriting Ltd.; 8. Syndicate 2001; 9.
        NavlgatOlll Underwrking Agency Ltd.; 10. Syndicate q21; II. Marlborough Underwriting Aj:ency Ltd.;
         12. Syndicate 1861: 13. Managing Agency Partners Ltd.: 14. Syndicate 2791; 15. lhrdy (Und..wriling
        Agencies) Ltd.; 16. Syndicate 382: 17. Beazley FUrionge Ltd.: 18. Syndicate 623: 19. Houston Caaualty
        Company; 20. Navigato,. Insur.... Company: 21. AXA Corporate Solutions ~UI1IIlCe·l'aris; 22. AXA
        Cdrporate Solutio.. IDA: 23. AXA Corporate Solutions Ins\U1lllCe COmpany; 24. AXA Corporate
        Solutio.. Reinsurance; 25. AXA Cnrpo..to Solutions lloyd's Insur..... Company of T....; 26.
        COmmonwealth Insur.... Company: 27. International Insurance COmpany of Hannover Lknited; and 28.
        American Offshore International Syndicate.




                                                                                                         SR-000005
       The express wording in the Policy staleS that "Subject to the terms, conditions and

exclusions herein, this Policy provides coverage for certain physical damage and liabilities

incUrred by the Assureds. ,,26      N;   the only tenn of the Policy devoted to "Stand By charges" is

deleted from the Policy, Stand By charges were clearly and unambiguously Dot covered by the

Policy wording.27 Therefore, summary judgment is proper as to Plaintiffs' breach of contmct

claims as well as the extra-contractual claims, all of which rely on the breach of contract ~laim.


       In the alternative, even if the Policy were to be considered latei!t1y ambigUOUS, parol

evidence can only be introduced by the parties who negotiated the Policy, i.e., Underwriters and

Tysers (the London broker on behalf of the assured), as to the intent of the parties at the time of
the negotiation and placement of the Policy.2S


       Even if the Policy were to be declared ambigoous (which is denied), it is undisputed thai                        .
TIlEC was never involved in the negotiation and placement of the Policf9 and according to

well-established Texas law cannot offer its interpretition of the Policy post-placement to create

        S•• Pelicy, Ex. B, first paragraph at p. 4.

        Pelicy, Ex. B; Clause 13 "Stand By Charges" at p. [6. See au" Daton Pep., Ex. D, 327:11-2$, 328-336,
        337:[·24,  34S:~I4, 347:7-12, 350:2-2$, and 351:[-11; Allan Pep., Ex. E, at 236:2-2$,237:1-16, 245:17-
        2$,246, and 247:1·17; Lary Pep., Ex. C. at 395:2$, 396:1-23, 402:[4-2$, 403:[-23, 429:22-2$. 43Q:I-6,
        431:7-2$,432,433:[.24,508:9-2$,509:1-16,513:8-2$, SI4-S16,.and 517:1-22. Se. al.ro Print..,ut (S
        pages) of SequenCe of E-man CommllJlicatiOllS ·between Greg Lary and MlIce Simon of TIIEC from
        September II, 2003 until October 3, 2003, . _ as Exhibit Q. In two .,.mal\a (lin.. Greg Lary to Mike
      . Simon) of October 2, 2003 (pago 2 of Ex; Q) and or October 3, 2003 (pago I of.Ex. Q), Gteg Lary confirms
        that Stand By ~ges WtIe not covered by the Pelicy.

        Whether. contract is ambiguous i. a qu.$llon or law for the ""urt to decide. NatioIuJJ Union Fire Ins, CQ.
        of Pitt,burgh. Penn. v. CBllndus. Inc., 907 S.W.2d 517, 520 (Tex. 1995) (pc< curianI), The ract that the
        parties disagree .. to coverago docs not.creatJl an ambigUity, nor may exlrlnsic evidence be admitted for the
        purpose of creating an ambiguity. Id. Argu....ts regarding lb. Pelicy's intent based on Ibe OSFTs
        broker.;' "advocacy" in favor of co_age for tbelr principal, lb. "",umI-OSFI, after the actual policy was
        negotiated and ploced cannot be used to create en ambiguity. S.. /d. It is only parol evideJJCe regarding
        the intent of Ibe negotiating parties. Underwriters and Tyaers on behalf of the muml OSFI, prior to the
        issuance Dflbe Policy that are admissible to resolve any ambiguity .. to the Welcar 2001. S•• itt. at 521.

"       See r..,yPep., Ex. C. 01416:21-2$,417,418:1, and 444:4-6.



                                                       -9-
                                                                                                          SR-000013
UndetWriters and Ty:sers, the agent of the principal assUred (OSFl) during the Policy negotiation

and placemen~ was clear and unambiguous.33


                (b)     Under WeD-Establisbed Texas Law, Crqssed-Out Proyjsjons In A.
                        Form Contract Are Considered To Be Deleted FrO!!) The Agree!!)ent.

      . Texas crnms have consistently held that crossed-out provisions in a fOl'!!) contract, like

the Welcar 2001 Policy at issue in this case, unambiguQusly have the. effect of deleting those

provisions from the agreement. Cadle Co. v. Harvey, 46 S.W3d 282; 286 (Tex. App.-Fort

Worth 2001, pet. denied) (no security deposit was required under lease contracl because parties

had crossed on! the entire provision requiring security deposit); Go~ales County Woter Supply

Corp. v. larzambek, 918 S.W.2d 57, 60 (Tex. App.-COrpus Cbristi 1996,                        110 writ)   (conltact

"ullaIDhignously provided" that i!ldividual was liabl.e only ill his coIpOrate capacity aud not in his

individual noncorporate capacity where the desigp.ation "an individual" was crossed out on the

conltact fonn, leaving only the designation "it corporation"); Grossman v. Air Seal Fllier

Housings, Inc., No. 01-92-00203-CV, 1993 WL 291340, *2 0.1 (Tex. App.-Houston [1" Dist.)

Aug. 5, 1993, no writ} (nol designated for publication) (crossed-out provision was considered
                               .            .
deleted); see also Nugget Oi~ Inc. v. Universal Sire. 1m. Co., 584 So. 2d 1068, 1070 (Fla. Ct

App. 1991) (horizontal lines drawn through printed text are "commonly used to convey the

message that the material struck through has·been purposef'ully deleted'?-




        See Policy, Ex. B, Clause 13 "Stand By Charges" at p. 16. See aJ.ro DareU Dep., Ex. D. 327:11-2.5. 328-
        336. 3:17:1-24. 345:6-14, 347:7-12, 350:2-2.5. iIIld 351:1-11; AIIm Dep.. !lx•. E, at 236:2-2.5, 237:1-16.
        245:17·2.5. 246, iIIld 247:1·17. Se. also Lary Diep.. Ex. C. at 395:25. :196:1-23. 402:14-2.5, 403:1·23.
        429:22·2.5.430:1-6, 431:7-2.5. 432, 433:1-24, 508:9-25. 509:1-16, 513:8-2.5. SI4-516, iIIld .'H7:I-22; iIIld
        Print,oul (5 pages) of Sequence orE-mall Communlctitlollll between Greg Lary and MU", Simon of TllEC
        from September 11. 2003 Wltil Octo~ 3. 2003.!lx. Q. In two ..maU. (Iiom Grog Lary to Mike Simon) of
        October 2. 2003 (p. 2 of!lx. Q) and of October j, 2003 (p. r of!lx. Q), Greg Lary confirms thaI Stand By
        charges were not covered by tbe Policy.



                                                     -13 -
                                                                                                         SR-000017
                 (c)     Stand By Charges Were Crossed Qut or The Policy,

       Plaintiffs seek "$846,419.30 in weather-related Standby charges."'" The Policy issued,

however, did not include "Stand By Charges." Stand By Charges had been stricken from the

Policy form at the outset as follows:



       8\1bjeet Ie a IlIIlllimit efYS$ (AMQtJNO aey eRe QeeIBT_ aggregated III YS$
       (AMQUNB ever II!e Pelley PeFied; Yadefl'..mefS sIlali iBd ..... ify 1M AsSl1<ed!l
       fer II!e eest af slimll, ey lime eft ·,essels eadler I!fBft Bftdier eqllipaleat &eI¥.'eiy
       eagaged iB the eeurse af :repaif f'ellewHtg as Oeeuf!eeee eEWere6 liIlder Beedes. I,
       where 1M .~ Bfe pre'leated fiem 'W 'efk:ing iIt; .....aaQ er aeaut 1M damaged '
       pretJeay 'hy 'hae'weat:her, iBe~)djl3g HmeE:l httrfieees.15          .


Moreover, "Stand By Charges" were eliminated from the IndexlTable of Contents on page 2 of

the Policy.)6

        By crossing out the "Stand By Charges"               term.,   the Policy deleted coverage for such

charges. see Cadle Co., 46 S.W.3d at 286-87; Jarzombek, 918 S.W.2d at 60. In the altemative,
                                                                                      ,                '

such charges were Il'\Opressly excluded by the deletion. See Cadle Co., 46 S.W.3d at 286;

Jan:tJmbek, 918 S.W.2d at 60. Because the Policy did not Jl\"Ovide coverage for Stand By

charges, Underwriters were under no obligation to provide an indenmificatioll for those charges.

Therefore, as a matter of law, Underwriters did not breach the contract, and smnmary judgment

 is wsnanted on    ail of Plaintiffs' claims.   See TEx. R. eIV. P. 166a:

        2.      The Policy Is Clear And Unambiguous.
                                                 ,


        THEe attempts to inject ambiguity into the Policy based on arguments presented by Lary
 and Tysers, OSFI's Houston and London brokers respectively,37 as they 3.dvocated their client's


        See PIalntiff-THEC's Response to Request for Admissions, !lJ<hibit R, No.6.

 "      S.e Policy, Ex. B, Clause 13 "Stand By,Charges" at p. 16.


 "       Set Policy, Ex. B. "Indcx" at p. 2.



                                                     -14 '
                                                                                                   SR-000018
                ,-

"
"




                 LUMP suM CONTR.ACT


                          between



         OFFSHORE SPECIAL1Y FABRICATORS, INC.



                            and
    '.               .'
         TIm HOUSTON EXPLORATION COMPANY




                                                . 00170




                                                 SR-000049
      ..

                                           LUMP SUM CONTRACT
                     .'                ....            .                                        tJ..     .
                  ~ LUMP SUM CONl1lACT (the "Contract") is made this the /'7 ~ day
           ~ .2002 Py and between The Houston &ploratiott Company
                ~MPANY"}. a Delaware eo!pOl'3tion with its principal offic;e at Houston,
           Texas and Otmhore Specialty Fabricators, Inc. (hereinafter "CONl'RACTOR"l. a
           Louisiana cotpOI3!ion with it.! plincipaI offic;e at 115 Meuard Road, Houma, Louisilllla
           '70363 (coUcctiwly COMPlINY and CONTRACTOR are iefem:d to as.the "Parties" and
           individually as "Party").                                            .

                                                WITNl1:'SSETB

                  WlIEREAS. COMPANY ~ the amiability ofmarine construction
           equipment and/or petSOt1llci for pcrfotmiDg construction, repair, and/or maintenance
  .
.',
 ,         wad: in the ofllshorc oil fields located in the territorial waters ofth. United States; and

                     WBEREAB. CONTRACTOR is willi:ng and capable of providing the marine
           ~on equipment (the "Equipment") iDcIuding. but not limited to               the Equipment
            descnoed on Exlnoit A, attached hereto and· made a part hereof and/or pe!'SOllI1el (the
           '1'orsolll1el") needed to perfOllll such construction. repair,lUld/or mahltenance as required
           by COMPANY in the oflilhore oil nelda located in the territorial wate.s ofth. United
           States.
                  NOW, THEREFORE,.fur and in consideration of the premise:; and mutual
           covenants contained herein and for other good and Valuable consideration the adequacy
           and sulliciency of which are bereby acknowledged, the Parties agree as follows:

               I.       WORK TO BE PERFORMED:
                        CONl'RACTOR Shall provide to CaMPlINY. the Equipment and Personnel
                        in orderto perform the wolle or services as described in Exluoit B. attached
                        hereto and made a part hereof (the "Work").

               2.       PERIOD OF CONTRACT:
                        This Contract shall commence on a date to be mutually agreed by the Parties
                        but DC) later than August 1.2002 and comoe until the Worlc; is either
                        c=pleted or CON'I'RACTOR IS instructed to cease by COMPANY. which
                        instruction maybe given lIIlytimc when CONTRACTOR has liIiled to remedy
                        a default under this Conb:acl within five (5) daye following COMPANY's
                        wriUen notice to CONTRACTOR advising of the defitult.             .

               3.       CON'IRACT PRICE:
                        The contract price is as per the attached Exhibit D - Payment Summary,
                        attached hereto and made a part h=f..




                                                                                                         00171




                                                                                                             SR-000050
    '''.'   .,-"~   .•.   '   ~   .....--.,.
                                               -.                   ,.



                      4.               Payment:·
                                       Forpe:rfolllling.lbe.Worlc (exCluding ExIm Worlc md changes in Worlc
                                       affeaing COII1pc1lSaliOll and delays). COMPANY shall pay CONTRACTOR
                                       the Contract Price.
,
1
¥                                      4.1      PllymeJIt for COlltract Sum Work:

                                                4.1.1 . COMPANY $baIJ P"y CONrnACroR' the Conttact Price for
                                                        Ibe Worlcwithin tIrlrty(30) calendar days afterrecclpt ofan
                                                        invoice in the amount ofthc COIII:nIct Prico.

                                                4.1.2 The CONTRAcioR shall not deliver an invoice to
                                                      • COMPANY for til!' Contract Price uwil the work i. completed.

                                       4.2      Compensatioa for Extra Work:

                                                4.2.1       COMPANY $baIJ Dot c:ompcnsatc CONTRACTOR for any .
                                                            Extril Worlc for which i Chauge Order has IIOt been PIepared
                                                            and executed by both coM.?ANY and CONTRACTOR fully
                                                            describing such Extra Work.         .

                                                4.2.2 Uulcss otherwise mutually agreed to in the Change Order,
                                                      COMPANY sIiaIJ pay CONTRACTOR for all Exn:a'Work as
                                                      sct fortb in CON'l'RACTOR's propOsal dated March 19, 2002
                                                      ("COntractor's PtoposaI'')

                                                    4.2.3   Paymeut for Extra Worlc:

                                                            (i)          All Extra Work pcrfol1lled·tmder any Change Order,
                                                                         shall be inVOiced monthly for the immediately
                                                                         preceding'=til's walk or. at CONTRACTOR's sale
                                                                         option, upon completioD of lb. Wotk.

                                                            .(ii)        COMPANY $baIJ pay CONTRACTOR within tbitIy
                                                                         (30) calendar days ofth. dale oflbe invoice 100% of
                                                                         the 1Illdisputed amo1lllt invoiced for Extra Work
                                                                         perlOx:med 1Illder Ibe Change Order•

                                                            .(Ii)        All invoices for Extra Work shall be in accordance wilb
                                                                         Contractor's l'roposal.
                                                                                •
                                        4.3         Compensatiol1 for DOlay:

                                                    COMPANY shall compensate CONTRACTOR for all additional costs
                                                    inCl1ll'ed by CONTRACTOR or its subcontractorn arising out of or


                                                                                                                            00172




                                                                                                                                   SR-000051
                         ......   ,'   .
                                                                   ,-
                    .'

                                                       related to delays in the performance of the Woi:k ("Delays")
                                                       occasiOlled by my of the following:

                                                       4.3.1 Aay iDability of CONTRACTOR's or its subcontractor's
~,                                                           ; IIWine equipment to proceed with the Woric due to climatic
..                                                             and/or sea conditions occasioned by. named Tropical Storm in
                                                               aecordance with CONTRACTOR's proposal.
:.{
,! .                                                   4.32 Aay defect in, or delay in delivC!)' to CONTRACTOR ot; any
                                                              COMPANY-funUsbed matenals, includiDg bottOm snrvC)'S and
..~                                                           other site data wbjc;h maydclay is the fault of COMPANY and
"l
.;                                                          • within the reasOIIable control of the COMPANY.

                                                       4.3.3 Any tajlure by COMPANY to pcd"OlDl !lIlY ofilll obligations
                                                             UDder CONTRACTOR'S ~al in. tilDclylDllllller; and/or

                                                       SUbject to Pamgraph   4.3herein, COMPANY shall pay
                                                       CONTRACTOR for any of the above at CONTRACTOR's rates as set
                                                       forth in CONTRACTOR's Published Schedule of Rental Rates as set
                                                       forth in CONTRACTOR's proposal dated March 19, 2002 or at a price
                                                       to b. agreed upon prior to COllllllencement oft1le Delay P.eriod.

                                           5.   OBLIGATION OF THE COMPANY:

                                                5.1    COMPANY shall furnish all material. to be pennanently incorporated
                                                       in the WorIc, such as all structural materials, pipe, fittings and other
                                                       construction material required for the Woik. CONTRACTOR shall
                                                       not be responsible for my loss or damage to such material ..

                                                5.2    CONTRACTOR will supply fuel, lube oil. fresh water and gasoline for
                                                       CONTRACTOR's Equipment inperibtmance of the Worle.

                                                5.3    CONTRACTOR shall provide pro~ and accommodation for all
                                                       ofits personnel as well as all )r.!nsportation forits peISQXlIlcl between
                                                                                                                                     .   ,
                                                       COtn"RACTOR's hom~ base and the work-site.

                                           6.   OBUGATIONS OF CONTRACTOR:

                                                Except as othezwise expressly provided for in this Contract, CONTRACTOR
                                                shaJlliunish all of the PCIliOlIDel and/or the Eq1lipment reqWrCd to perform the
                                                Work, and will bear all costs and e:xp_ invoived in the maintenance of IhII
                                                Equipment The Pmotmel and the Equipment shaJI be in ace~ with the
                                                "pcx:ilications contained in Exhibit A and CONTRACTOR's ProposaL The
                                                Pmonnel shaJI be trained and c:fficient and qualified to perform the Wmk and
                                                the Equipment sbaJI be adeqnate, serviceable and maintained in firat-el1\SS
                    ,
                   .,                           operating condition and CON'I"RJ).CTOR shaJI diligently endeavor to cause
                   ...

                                                                                                                                   00113




       ., ......



                                                                                                                                   SR-000052
                                                  ,   -


                              the EqtUplllCllt to be seaworthy. to the exteIlt applicable., CONTRACI'OR
                              will perfOIllJ all WOIk in a,good and worlcman like lIIIIIlJler, COIlSistent with the
                              hi,gbcst standards afthe il:id.ustty.                        '

                        7.   . PRECEDENCE OF woRK:

                              7.1    The Werk schedule shall be as set on:! by written request by
"
                                     COMPANY. The Parties' representatives will meet if nc:c;OSSlII'Y to
"                                    discuss any cb2nges to the schedule required bec= of COMPANY's
                                     operations in the Werle area, material availability for the Worlc
                                     proposed, or any other l'Cl!Son.

                              7.2     CONTRACI'ORsballiUmish a detailed Worlcreport to COMPANY
                                      each day. Prior to any material, ~cnt, or assembled Worlc being'
                                      tested, CONTRACI'OR shall advise COMPANY sufficiently in
                                      advance so that COMPANY may witness SIlch test ifCOMPANY so
                                      desires.

                        8.    SAFETY, SECURITY AMI HEALTH:
                              Without prejudice to CONTRACTOR's responsibility to provide for the
                              safety, security and health of CONTRACTOR's persol1llel,lind to observe all
                              applicable laws and regulations pertaining thereto, CONTRACTOR shall
                              make sure its persOl1llel an: adequately trained in safety procedures as they
                              pertain to their'duties. CONTRAC'):OR shall familiarize itself with the
           ,

               '.   '         COMPANY's Safety Practices, and fullow the same where applicable.
                              CONTRACTOR shall fumish COMP.ANY a copy of its accident report
                              covering each accident involving its petSOl1lle1.occurring in coancctipn with,
                              or during the perfonnance oflbis CONTRACT within twenty-four (24) hours
                              after the accident 0CCUIlI. CONTRAC'rOR may contact COMPANY's
                              Accident Ptevcntion Representative at any time to discuss safety ptecantions.

    .: .                9.    INSPECTION AND ACCEi>TANCE OF WORK:
    ~;                        COMP.ANY will designate !Cpt'CiSentatives to CONTRACTOR for the pUIJlOse
                              of inspecting the Work. CONTRACTOR shall provide safe and proper
                              facilities fur the inspection oflbe Worle by COMPANY's repre$entatives and
    :~
                              shall at all times maintain in the Wolk are representatives with whom
                              COMPANY's representatives :may communicate in regard tbCreto.

                        10., . lNDEII.fNl1'mS:
                               For puzposes aflbis 'indemnification section, the term ''CONTRACI'OR
                               GROUP" is used as a reference indiVi<inally and collectively for
                               CONTRACTOR and its parent, subsidiar:Y and afliliatcd companies,
                               CONTRAcrOR's subcoDlrol:tor:; and its and all of their officers, directors,
                               emplo~, agents, assigns, representatives, contnwtOIll, and sub<iontraclOrs,
                               and the subrog_ afsaid parties. Similarly, the term "COMPANY GROUP·
                               is used as a reference individual.1yand collectively fur COMPANY and its

                                                                                                               00174




     ,'.
     ~
                                                                                                                      SR-000053
                                ,.



             parent, suJ,sidiary and affiIi8led companies, its co-VCIllntm, co-plirtners, joint
             wodd:ag inlerest Owners, Coatnctor (with the CXceptiOIi of CONTRACTOR),
             III!d Subcon1nctor and their officern, di=tom, employcocs, agents, assigns and
             n:presentatives oJ; and the subrogees of said parties.

"
~
;            10.1    CONTRACTORsha.II bcllablcin anycaseof!oss or damage to
                     CONTRACTOR GROUP's equipment, barges, and tugs, either owned
                     or med and operated by CONTRACTOR GROUP arising out of or
                    .relating to the ~ under the Agreement and REGARDLESS
                     OF WHETI!ER CAUSED OR BROUGHT ABOUT BY COMPANY
                     GROUP'S NllGUGENGE (INCLUDING SOLE, JQINr
                     CONc;uRREN1', ACTIVE OR PASSIVE NllGUGENCE) OR ANY
                     OTHER THEORY OF LEGAL UABILlTY, INCLUDING STRICT
                    .I.IA:Bn.ITY, TIlE UNSBAWORi1i:rN:BsS OF ANY VESSEL OR
                     THE UNAIRWORTHINESS OF ANY AIRCRAFT, and
                     CONTRACTOR sha.II release, defend, protect, indemnify and bold
                     harmless COMPANY GROUP from and against any loss, cost, claim,
                     obligation to indeamify another, suit, judgment, award or damage
:J.                  (UlCluding reasonable attorney's fees) all account of sucb loss or
!i
                     damage.

             10.2    CONTRACTOR shall be liable in any case ofillncss, injw:y or death,
                     suffered by CONTRACTOR GROUP's employees arising onl of or
                     relating to the perfonnancc under the Agreement AND
                     REGARDLESS OF WH.E1'HER CAUSED OR BROUGHT ABOUT
      . ..
       -"
                     BY COMPANY GROUP'S NEGUGENCE (INCLUDING SOLE,
                     JOINT, CONCURRENT, ACTIVE OR PASSIVE NllGI1GENCE) .
                     OR ANY 0THIiR mORY OF LEGAL UABJI.J::iy. INCLUDING
                     STRICT UABILlTY, THE UNSEAWORTl'f.lNESS OF ANY
                     VESSEL, OR THE UNAIRWORTIIINESS OF ANY AIRCRAFT•.
                     and CONTRACTOR shall release, defend, protect, indeamify and hold
                     harmless COMPANY GROUP from and against any loss, cost, claim,
                     obligation to indemnifY another, suit, judgmcot, award or damage
                     (including reasonable attorney's fees) on account'of any sucb illness,
                     injw:y or death.

             I0.3    COMPANY sball be Hable in any case oiloS! or damage to
                     COMPANY GROUP' $ PROPERTY, incinding the property which is
                     the sUbject of the Work, equipment, barges, and tugs, either owned or
                     rented ani! operated by COMPANY GRQUP. arising ont of orrelating
                     to.fue pexfO/lJlallCe under the Agreemenl.t\.ND REGARDLESS OF .
'.;
 "
                     Wl:IErHER CAUSED OR BROUGHT ABOUT BY CONTRACTOR.
                     GROUP'S NllGUGENCE (INCLUDING sqLE, JOINT,
                     CONCURRI!NT, ACTIVE OR PASSIVE NllGUGENCE) OR ANY
                     OTHER THEORY OF LEGALUABILlTY. INCLUDING STRICT
                     UABILITY OR THE UNSEAWORHI1NESS OF ANY VESSEL,

                                                                                             00175
                                    ,.
     ..

                        and COM!'.ANY sbaII mease, defend, protee~ indemni(y and hold
                        IumnIcss CONTRACTOR GROUP fu:nn and against any loss, cost;
                        claim, obligation to indcami1y another, suit, judgment, awaro or
                        dllItlllgO (including reasonable attomey's tees) on account of such loss
                        or damage.

                10.4    COM!'ANY shaIJ be Hable In any case of IDncss, iqjury or death,
                        suffered by COMPANY GROUP'S employ= arising out ofor
                        relating to the ped'onuancc under the ~ent AND
                        REGARDLESS OF WI:m'l1IER CAUSED OR BROUGHT ABOUl'
                        BY CONTRACfOR GROUP'S NEGLIGENCE'(lNCLUDING
                        'SO~ JOINT, CONCURR:EN1', AC1'lVB OR PASSIVE
                        NEGLIGENCE) OR ANY 0'l'HBR nmORY OF LEGAL
                        UABILlTY.INCLUDlNG STRICT LIABILrrY OR nm
                        UNsEAWORTHINESS OF ANY VESSEL, and COMPANY shall
                        mease, defend, protect, iudemnify and hold harmlesS CONTRACI'OR
                        GROUP from and against any loss, cost,..elaim, obligation to
                        indenmify.another. suit,judgmCDt, awazd or damage (mcluding
                        reasonable attomey's fees) on account of any such illness. injury or
                        death.                         .

                10.5     The indemnity obligations voluntarily assumed liy CONTRACI'OR
                         and COMPANY under this Clause shall be supported by available
                         liability insutance, in at least th~ amounts set forth below which shall
                       , be prlmaty to any other insuraD.cc:s provided by the Party being
                         indemmfied hcrei:iI. COMPANY and CONTRACfOR agree to have
                         their unde:writers name eacl;I o!hcr as additional assureds but only 10
                         the extent of the indemnity obligations as&IIIIled bmIunder and to
                         secure full and COIllplete waivers of subrogation In the policies
                         covering such illness, iqjury or death and.damage to or loss or
                         des1luction ofproperty to the extent orthe indemnity obligations
                         assmned hereunder,. additional assureds shall be ciititled to the full
                         limits of all policies actually obtained, incl1!ding excess or umbrella
                         insurances. The Iinlits and covetages of th~ said iDsuraoo:s sbaII in no
                         way limit the liabilities or obligatioQs assumed by the Parties III1der .
                         this'clause.· Ifit isjudicially~ thai the monetarylimits of
                         insutance required hereunder or the indemnities assumed under this
                         Clause excced.the ma,cmmn monetary limits or ~pCl ponnittcd under
                         applicable law. it is agreed thai Said insurance requirements or
                         indemnities shall automatically qe amended to confolUl 10 the
                         maximm;n.moDetary limits or scope pennitted under such law.

          11.   INSlJRANCE:

l.              11.1                              to
                         CONTFACTORagrees canyorlianseto becanied with an
,                        insutance company or companies satisfactory to COMPANY and


                                                                                               00176




                                                                                                     SR-000055
                                      .:. ~ .....
                .   ,



                        authOrized to do business in the mas of operation coVm:d under this
                        Contract, insmmce coverage with limits of not less th311 those setfurth
                        in this Article, snell coverage to include, but not be limited t,o, liability
                        =mcd undcrthe iDliemnily and bold haxmless provisions of this,
                        Contract.                                                 '

                        (i)     Wodcm' Compensation and ErnpIO}'lll"s Liability I'DsuIance
                                with Jimito; ofIiabilityofnot less than One MiIlionDoIlm
:1                              ($1,000.000.) covering all ofCONl'RACTOR's CIlI\lloyccs,
                                and all employees of 3IIY subcontractor engaged in the Worle to
                                be perfonnc:d hen:under,

                        (11)    -Cotnpn:hensive General Liability including Conlra<:tual
                                 Liability.
                                 Bodily Injury           SI,ooo,ooo. each person
                                                             SI.ooo.ooo.1lICh 0 = 0
                                 l'topcrtyDamage             $1,000,000. each OCCIIII'eIIce

                        (iii)    In addition, for all Work perfollDed in' auy navigable watm,
                                 including but not limited to 3IIy bay, lake, river or stream, the
                                 following illaurance-n:qul:emettts are applicable:

                                 &domemeots to the Worlcer's Compensation and Employer's
                                 Liability policy extending the policy to provide whel!
                ....,
                                 applicable:

                                 a)      Federal Longshoremeo's 3IId Harbor Workers
                                         Compensation insurance and extended to the Outer
                                         Continental Shelf:

                                 b)      Exteosion o!Coverage B to provide EmplO}'lll"s Liability
                                         under Admindty jurisdiction including the Jones Mt,
                                         with Marine and Vol1lniary Compensation endorsed for
                                         transportati<>o, maintenance, wages and cure with limits
     I, .                                of not less !ban U.S. $500,000 per person, U.s. SSOO,QOO
     ~                                   per oceurrence.



                                 d)      Exteosion ofierritoriallimits to include the areas of
                                         operalion UIlder this contnlct.
                                 EndorsemeotS to the Comptclleosive General Liability policy
                                 exteoding the policy to provide:
     .
     .~
            '


     ,
     "
      "



                                                                                           • 001 77




                                                                                                        SR-000056
                                          ,-
          '.
      ,    ..

                                     a)      Deletion ofwateromj'l; eXclusion provision to cover an
                                          .. vessels not insured under a Protection and Indemnity
                                           policy.

                                     b)    In Rem Endorsement

                                     c)    Extension or tenitorlallimits to include the areas of
.'.
.:                                         operation under this contract
:;
                      11.2   Subject to the limits of the Builder's All Risk fnsut1ncc, in the event
                             that any loss or damage QCCIUS to the Worle., COMPANY IgJ:eCS to
                             assunte all fiDancial RSpOll$ibility and reimburse CONTRACTOR for
                             an ofCON'l'RACTOR'S costs calculated in 3ccordance wi!h the
                             agreed Schedule ofRatcs for aU repairs, including. but not limited to,
                             the procurement, ttausportation and replacement of aU damascd
                             materials; any additional illspeetioil, and .any standby incuricd by
                             CONTItAcrOR. In the event 1bat any Builder's All Risk: InsuranCe is
                             procufc<i'forthe WodcbyCOMPANY, then COMPANY shall cause
                             CONTRAcrOR and its su1x:ontractors of an tiers to be muned as
                             additional insureds wi!h aU rights of subrogation by !he underwriters
                             waived again$t an illsurCds. Any dcduct!'blcs shan be for the account
                             of COMPANY. Likewise, in the event !hat any Builder's All Risk
                             l':IlsunulI:e is procured· for !he worle by CONTRAcroR.!hen .
                             CONTRAcrOR shali cause COMPANY to be named as additional
                             insureds with an rights of subrogation by the underwriters waivod
                             against an hlsureds. Any deductlblcs shall be for the account of
                             COMPANY.

                12.   FORCE ~URE:
                      Any dCIays in or failures ofpe:rformance by eI!her party shall not coustitute
                      de1iwlt hereunder or give rise. to any claims for damages, ifand to !he ·.ment
                      Such delays or tkiIurcs of performance are caused by 0CCUIrenCeS afForce
                      Majeure. For pmposcs of this Contract, Fon::e Majeare includes, but.is not
                      limited to, Acts of god, acts ofth. public enemy, Laws and Regulalions, wars
                      or warlike action (whether actual or impending) arrests and other restraints of
                      govemment (civil ormililm:y),. blocla!des, iDsumx:tioDS, ootil, epidemics,
                      Janaslides, lightning, earthquakes,. fires, sabotage, tropical storms and
                      hmricanes, civil ~ tida! waves, extllbiions, confiscation or~.
                      by any gov=ent or o!her public authOIity, and any other causes,. whether of
                      !he kind ~ enUmerated or otherwise, that are not ~Iy within the
                      control of the party claiming a suspension and that ¢auld not have been
                      oven:omo by !he exereise of ordinary diligence but sball not include
                      COMPANY's obligations to make payments to CONTRACTOR. The Party
                      experiencmg Force Majenre shall notify the o!her Party wi!h reasonable
                      promptness of !he tWslence of any such Force Maje1ll'e and the probable.
                      duration thereof; and sball provide the other Party wm time to tim. wi!h
                                                                                                              ,
                                                                                                      00178




                                                                                                         SR-000057
· ..
              comet iDfOI:mation CODceIIling same.   The    party experiencing Force M:geure
              shall take all reasoaable actions to renmve the cause afForce Majeure. In no
              event shall Foree MlgC1lfe excuse the failure to payamo1llJts due or to honOr
              indemnity obligatioQS under thi.s Conlr.lct. '                   '

       13.    NOTICES:
              All notice;, reqllClit3 and other =DDicatiODS between the Parties hereunder
              wiU be in writing, and shall be effective ,when delivered by hand or when
               telCJ!;ed to the party to which it is diiccted at the foUowing respeetivc '
              'addresses:

               COMPANY:
               The Houston Exploration Co.
               1100 Louisiana
               Sui!e2000
             , HoustoD, Texas 77002
               Attention: Mr. MJ. Simon
                         ,Operations Manager

              CONTRACfOR:
              Ofllihore Specialty Fabrlcators, Inc.
              115 Menard RoadJP.O. Box 1420
              HoWlla, Louisiana 10363n:036I
              Attention:     Jay HenderSon
                             V.~. and GenctlIl Manager - Ofllihore·DiVision

       14.    ARBrrRATION:
              All clai1ns, disputes or controvcraies arising out of. or in relation to the
              interpre.tatiOn, spplication or enforc_t of this Contract shaU be decided by
              resort of either party to arbitration utilizmg a single aibitrator in accordance
              with the ConstroetlOD J:odustiy Rules of the American Arbitration Association.
              The arbitration shall be held in Houston, Texas. The decision of the arbil!:1lior
              shall b. final, binding and cnfoIceable in any court of competent j)lrisdiction
              and the Parties ap that there shaI! be no sppcal ftom the arbitrator's
              decision. All statUtes of limitation that would otherwise be applicable shall
              spply to any arbitration proceeding.                                          '

       15.    LAW:
              AS THIS CONTRACT IS MABIl'IMEIN NATURE, THIS CONTRACT
              SRAIL BE INTERPRETED AND CONSTRUED IN ACCORDANCE
              WITH UNITED STATES 'GENERAL MAR1TlMB LAWEXCLUDlNG
              ANY CONFUCTS OF LAWS PRINClPLES WEICH WOULD DIRECT
              'I'HB SUBSTANTIVE LAW OF ANarnER JURISDICTION TO APPLY.




                                                                                         00179




                                                                                                  SR-000058
                  16.   ASSlGNAJIlLl'1,'Y:
                        Neither Party ohall.have the right to assign its obligaliOllS under this Contnc!
' 'i                    without the prior written conseut ofthc other Party.
 "

                  17.   W~:
                        Except as set fllrth in this Contract, CCJN'l.'RACTOR makes no warranties or
                        gu:mmtccs to COMPANY. either eJCpn:SS or Implied. The r=edies pro'l'ided
                        in the Contract between COMPANY and CONTRACTOR ohall be ~clusiv.
                        of any other I:CtOedies available to the Parties, except to the extent pc:nnitted
                        by law. and ANY IMPLIED OR STAnrI'ORY WARRANT1ES OF
                        FITNESS FOR PURPOSE. MERcHANrABlLlTY AND OTHER
                        STArorORYR1lMlID~WHicHAR£INCONSrsTENTwrrnnns
                        CONTRACT ARE EXPRESSLY WAIVED.

  "               18.   CONSEQUENTI.AL DAMAGES:
  ',f:                  Notwithstanding anything to the contrary contained els..wherc 'herein, neither
                        CONTRACTOR (including its $IlbcontractoIS) IIOr COMPANY (1/lCluding its
                        other CODtractol3) ohall be liable to the other for any cousOquential. incidental,
                        indlrcct or punitive damages of any Icind or ohantcter. ineluding, but not
                        limited to,loss of use, loss ofpront, loss of revenue, loss ofproduc! or
                        production, 11l$000oir damage, or loss ofholc damage due to blowout or
                        CIatering, whenever ammg under this Contract or as a result of, relating to or
                        in COllI1ection with the Wode hereunder, REGARDLESS OF WHETHER
                        SUCH CLAIM IS BASED OR CLAlMED TO llE BASED ON
                        NEGLIGENCE (INCLUDING SOLE. JOINT. ACTIVE. PASSIVE, •
                        CONCURRENT OR GROSS NEGLIGENCE), UNSEAWORT.HINilSS,
                        UNAlRWORTIllNESS, FAULT, BREACH OF WARRANTY, BREACH
                        OF CONTRACT. STA1VTE. STruCT LIABlLlTY OR OTHERWISE.

                  19.    ENTIR.E AGREEMENT:
                         This Contract is ttie entire agreement between the Parties and supersedes all
                         prior agreements, promises, couespondenc:e, discussions, representations and
                        ,understandings,except those expressly set forth herein. No other agreements,
                         promises,. com:spondence, ~OI!S, representations or understandings,
                         either express or Implied, unless express\y set forth herein, are binding
                         between the Parties.

                  20.   THIRD PARTIES:
                        Except as spccifically set forth eJs..wherc herein, this coutrac:t ohallllGt be
                        construed to confer any benefit on any third party I!ot a Party to this Conltacl
                        nor sbaIl it pro'l'ide any rights to sud! third' part)' to enforce its provisions.

                  21.   WAIVER:
                        No benefit or right accruing to either party under this Contract sball be waived,
                        unless, the waiver, is reduc;cd to writing and signed by both Parties to this
                        Contract. The failure of either Party to exercise any afits righj:S under this


                                                                                                      00180



         "   ,"




                                                                                                              SR-000059
     "   .

                   Contract shall in no way amstitutc a waiver of those rights,lIO!' shalf such
                   fall1ltl: excuse t,hc q!her Party nom anyafits obligatiOllll under this Contract
             22.   .POLLUTION:
                   With ~ to pollution control and mnoval, the distribution ofrisks shall be
                   as follows:

                   22.1   CONl'RACI'OR sbaIl exercise all reasonable diligence to condnct its
                          operations in a mlllll1CX" that will pxevent pollution cir eOmaminatiOIl
                          and CONTRACI'OR shall endeavor to comply "\'lith all applicable
                          1aws, ordiDanceS, peIlIIits, rules, regniatioDS and lease Of Contr.ICt
                          provisions tega.rtIing pollution. CON1'RACI'OR shall n~ pennit
                          trash, Waste oil, bilge water, ot other pollutants to be diseh.arged or to
                          <:SCape fiom CONTRACI'OR's equipment into the waterways Of sea,
                          except as ~caUy provided for in the Contr:act. CONl'RACI'OR
                          will take all reasonable m = 10 instxuct its porsonncI in such
                          matters and to prevent such pollution or contamination and will clean
                          up anypollutioo caused byil in the come ofopcrations undcrthe
                          Contr:aet The intent aflhis Clause is not to limit or cOIlflict with the
                          rcspollsibilities ofCONTRACI'OR or the COMPANY as further'
                           defined within the Contr:aet.                           '

                   n.i CONTRACI'OR's Respomibilities:
                            CONl'RACfOR shall assume all responsibility fur. including contr:ol
                            and removal ot; and release, defend, ,protect, indemnifY and hold
~;
 "
                            bamucss COMPANY Group from and against any loss, cost, suit,
                           judgment, aWllld, obligalion to lndetllIlifY another, or damage arising
                            oUI of or relating to poUutioll or COI!rtamination which originates 011 or
                            above the S1llface of the land or water from spills or 1eaIc! of fuel,
                            lubricants, motor oD, pipe dope, paints, soIve.nts, ballasts, bilge.
                            garbage, sewerage. S<n.p steel and other materials emanating from
                            CONTRACfOR's vessels or equijnnerrt, REGARDLESS OF
                          . WHETHER CAUSED BYCOMPANY'S NEGIlGENCE OF
                           OTHER FAULT.

                   22.3    COMPANY's RespoDSl'bilities:
                           COMPANY sbl!I1 assume all responsibility fur, iDcluding contr:ol and
                           removal 01; and reIease, defend, protect, lndemnif;< and hold baonless
                           CONTRACfOR GROUP from andagains\ any loss, CQSI, suit,
                           demand, judgment, amrd, obligation to lndemnif;< another, or damage
                           arising out of or relati.ng to poUution or contamlmilion which:

                           (i)     OrigiDatcs on or !Ibovc the surface of the land or water from
                                   spills or lea1a of fuel, lubricants, motor oil, pipe dope, paiDts,
                                   solvents, b81lasts, bilge. garbage. sewerage, scrap steel and,
     ,". '
                                   other materials ""'.oating from COMPANY's or

                                                                                                    00161
                                               ".
          "




                                           COMPANY's other WI11!1IdoIli' vessels or equipm.
:~
                                          "REGARDI..'ESS OF WHETHER. CAUSED BY
                                           CONrRACTOR'S NEGLIGENCE OF OTHERFAULT; or
                                  (iI)     Results from fire, blowout, cratering, seepage, or any other
                                           uucontrolled flow, from the surface or the subsurface o(oi1.
                                           gas, water, or i:rry combination thereot;from wells d1lring the
                                           conduct of operations betelmder AND REGAADLESS OF
                                           WHETHER CAUSED BY CONtRACTOR'S
                                           NGELGIGENCE OR OTHER FAULT; Of

                                  (iii)    Results from !~e or other llIICOntroUed fiow of oil, gas,
                                          •water, or any combination thereot; from pipelinc$, including
                                           lines OI! or in submctged lands, which are ruptured or damaged
                                           by COMPANY'. or COMPANY's other contracto..' rig,
                                           barge, anchOl> or other equipment, REOABPLESS OF
                                           WHEIRER CAUSED BY CONTRACTOR'S NEGLIGENCE
 c·   •                                    OF OTHERFAuLT•.
 ~
                      IN WITNESS WHEREOF, the parties nave executed this ColllIllct, as of the
              ,date herein above set forth.                                        '

              OFJ:SHORE SPECIALTY FABRICATORS, INC.:


              BY.Jay~
              TiUe: V.P. aoil Gerlf!l:a1 ~ - Offsbore Div:i3ion


              THE HOUSTON EXPLORATION COMPANY:


              By._________________________                                                            . ;



              TiU.:_ _ _--,,..-_ _ _ _ _ __




                                                                                                            00182




                                                                                                             . SR-000061
                                 ,   -

                                         EXBIBlTA

                          CON'r:RAcroR'S WORK EQUIPMENT
      CONTRACTOR will provide the ofli;hore equipment as foUows:

      DB-William Kallop
!     DB-Swmg Tho."son
1 .




                                                                   00183




                                                                           SR-000062
                                           EXHIBITS

                                       SCOPE OF WORK

     CON'IRACTORsball petform the fonawing scope ofworlc:

      . 1. Tl1IllSpOrt and insbll a 4-pilc jacket, piles, deck and helideck at South l11I1balier
       . 317 A.
           a. perfotm dive work including a 100' sweep of bottom and install stabbing
               bulleL
           b. Dual lift thejackct with our DS-8wing Thompson~d DS-Willillll1 Kallop
               and set in water.                   •
           c. Up-end jackcf and stab over 2 well stubs. (Ooly 1 stab in jacket)
           d Wta1l and drive piles (72"'0 P-5) with use ofMenck hammei.
           d. Install and weld boat landing.
           f. Leveljacket, Instal1 and weld sbi.ms.
           g. Single derrick baxge lift, set and weld deck.
           h. Imtall and weld helideck.
           i. Install and hook-up vent bOOIll.
           j..Imtall and weld appurteriances.
           k. Clean job site.    .
           1. Makc Nav-aids active.
           m. Demobilize entire marine spread.




(:




                                                                                                   00184




                                                                                                      SR-000063
                                                    .-                          '   .




                                                            EXHlBITC
                      !PUR lIiquuy No. 240Q.()43
                      OSFI's Proposal dated Mareh 19,2002
                      E-!l1lIil Clarificalion Summary dated 05121/02
                      OSFI's Letters dated OSI0:;JfY2. and 05110102
,.                    THEC P.O. # 61 BO"()38 Clari1icatiOll$:
 ,
"
                          I. Execution of a mtllWlUyogceable oonuact between THEe and OSFl
                          2. om obtaiuing· Builders rusk lnsunnce. .                     .
                          3. Certified weight of the jacket being Within OSFI'i;!Jmits.




 ~   -",.


 i




            •
                ..!

                                                                                             00185

                .,




                                                                                                SR-000064
                 .. -   .--.' '.
                ..
                            "




                                                                        FJ03lBlTD

                                                     PAYMENT SUMMARY AND QUALIFICATIONS

                                   Jacket InstaD.ation Ph.tse
                                   Description of Work                                          Itemized Lump Sum Price

                                   1.    MobilizatiilIl                                               $ 70,000.00
                                   2.     Transportation of Jacket and Pile      .                     225,000.00
                                          (1aclcet located at GMF's yard in Aransas Pass, TX)
                                   3.     Set Jacket                                                   396,000.00
                                   4.     Drive Piling                                                 300,000.00 .
                                   s.    lnstaIl BostLandlng                                             20,000.00
                                   6:    lnstaIl Tcmporazy Nav-Aids                                       5,000.00
                                   7.    .Demobilization                                                 50,000.00
                                   8.     Provide Mci.:k MHU-500T Hammer                                150,000.00
                                   9.     Cost for CONTRACTOR to as:mm.e all weather risk          See Qualifications
                                   10.    Cost for CONTRACTOR to provide Builders Risk •
                                          In=a.uce '(per e-mail dated 711 1102)                        479,380.00


                                   Subtotal·(ltems I - 10)                                            1,695,380.00

                                   neck Installation Phase
                                   Del!crlption oCWork                                          Itemized Lump Sum Price

                                   10.    Mobilization                                                    35,000.00
                                   11.    T~tionofDeck                                                    93,000.00
                                   12.    Install Deck                                                   265,800.00
                                   13.    Install He1ideck                                                20,000.00
,'.                                14.    Install Vent Boom                                               20,000.00
                                   IS.    Dcmobillutioa                                                   25,000.00
                                   16.    Cost for CONTRACTOR to assume all weather risk           See Qualifications
                                   17.    Cost for CONTRACTOR to provide Bwldcrs Risk              To be determined at a
                                          In:sura!l<:e                                             later date


'i
                                   Subtotal (Items 10- 16)                                              458,800.00
I~
                                   TOTAL LUMP SUMPRlCE(Items 1-17)                                    2.154.180.00

                                   Extra Work Rates
                                       I. $20,400Jday for cargo barge and tug beyond 7 dayo at AIransas Pass.
                                       2. $60Jman/day for Owner Representatives beyond 6.'                  _
                                       3. Hourly rate for entire spread during jacket install phase is $8,925.00.
                                       4. Hourly rate for d.en:ick barge spread during deck installation phase is $4,425.00.
                                       S. Hourly rate per man for non-critical path labQr is S60./hour.
                                    '. 6. All rigging cost will be invoiced at cost plus 20"10.      -
                                                                                                                          00186



      ',\..:.




                                                                                                                              SR-000065
,
.
 '.       /      .'..~..
                    \




                                                   WELCAR2001
              .'-------...,-.....----------------'---------_..
                                  Oll'FSHORE CONSTRUcnON PROJECT POLICY
                                                                                                    _-
                                                            INDEX

                                                                           PAGENO~

                        INDEX                                                    J -.3
                  . SCOPE OF INSURANCE                                            4
 ..   '
                           1.     ASStflRE[)S                                     4.
 )

                           2.     SPECIAL CONDI:fIONS FOR OnmR ASSUREDS'          ·5
                           3.     LOSS PAYEE                                       S
                         .4.,     POLICY PERIOD                                    5
                        GENERAL TERMs MID CONDl'1.10NS                             S
                           1.      PREMlUMS                                        S
                           2.      SUBROGATION                                     5
                           3.      WAlVE.R OF SUBROGATION                          5
                           4.     . PERCENTAGE lNTEREST CLAUSE                     6
                           5.      ORDER OF PRECEDENCE                             6
                         . 6.      LAW AND JURISDICTION                            6
                                                                           .
                                                                           .~:


                            7.     CLAIMS CURRENCY CLAUSE                           6
                           .8.     HELD COVERED CLAUSE                              6
                            9.-    DIVESTMENT CLAUSE                                  6
                            10.    DUE Dl4GENCE                                       '1
                            II.    PERMISSION TO OcCupy AND OPERATE                   7
                            t2.    AGREEMENT WITH CARlUERS, ETC.                       7
                            13.    INSOLVENCY                                          7
                            14.    INSPECTION AND AUDIT                                7
                            15.    CANCEllATION                                        7
                            16.    . CONFLICTING STATUTES                              8
                            17.    ASSIGNMENT OR MODTFICAIJON OF POLICY                8   . )}.
                                                                                              Mj"ll
                                                                                            ·41
                                                              ~1-                                   ,
                                                                                                    n~'
                                                                                                   SR-000066
·'::!.         (      ...   ."' ., •




                                                                                                                   PAGE NO.
                   ---'c....:Ht-----1\€C-£PFANGE-----·-····.:.····.· -.- ..-----.-..- ....- "--:"'''--' ............... ~-g---.- - - - . -
                                       19.        FORFEmJRE                                                          8
                                       20.        DISCOVERY CLAUSE                                                   9
                                SECl10N I .. PHYSICAL DAMAGE                                                        10
                                       I.         COVERED PERILS                                                    10
                                       2.     . COVERED PROPERTY                                                    10
                                       3..        POUCYLIMlT                                                        10

   .,                                  4.-        DEOUCI1BLES                                                       to
                                       S.         ESCALATION CLAUSE                                                  II
                                       TERMS AND CONDmONS rOR SECl10N 1                                              H
                                             1.     BASIS OF RECOVERY                                                11
                                             2      INCORPORATED CLAUSES                                             12
                                             3.     LOSS NOTIFICATION                                                13
                                             4.     ERRORS AND OMISSIONS                                             14 .
                                             5.     PROJECT ALTERATIONS AND AMENDlvIENTS                            .14
                                             6.     POLLUTION HAZ.ARo CLAUSE                                         14
                                             7.     DEFECTIV-E PARTS                                                 14
                                             8.     GENERAL AVERAOEAND SALVAGE CHARGES                               15
                                             9.     SUE AND LABOUR CLAUSE                                            15
                                             lQ. .'<DDmm!-:\l. v.roRK                                                 16
                                             11. REMOVAL OF WRECK. WRECKAGE AND/OR DEBJ..US                           16
                                              12. TBm,l.E.AK l,l'ID{QR Q.'"MM1S.sBl\RQU com                           1&
                                              13.   ~ID    BY CUAR4BS                                                 16'
          "
         ~!
         :;
         ",                                   14, CLAIMS SURVEYS/ADJUSTING CLAUSE                                     16
                                              IS. WARRANTY                                                               17
         -.'
                                              16. TIlRRQIUST "BUY B.-\cK!' CLAUSE                                     11
                                              11, FORWARDING GHARGl>S                                                    19
         ,",
          ~
         ..                                   18. PAYMENT OF CLAlMS                                                      19
                                              19.    MAINTENANCE                                                         19.
                                              20.    OTHER INSURANCE                                                     20




                                                                                                                                  SR-000067
              .......

                .'
                                                                                                        ..
                                                                                                         ,"


                                                                                              PAGENQ.
"
~                         DEFJNri10NS FOR SECl10N L          ___.____ ... __ ,:.... _ ".-........_... ~.,;_._. _____.
                                                                                     .......
                          EXCLUSlONS FOR SECllON 1                    .        .         ,       ·20          .
"
,,~                     SECTION n - LIABILITY·                                                    2~
.',..
   :
 .,
:;                            I.    CO\!BR.'\GB
                              2.    DIWUCTIBLB
                              3.    LIMIT OF UABlLIT¥                                             .23
 .:~
 ,:
                                                                                                  JJ
 .-:
 ,j.':
                              I.    NOTICB TO UNDERWRrl'!iRS                                       24
                              2..   ,\oMISSION OF w.au:.ITY                                        24
 ,,'                                                     .
  "                          , 3.   Q:rHBR lNSURMICS


  ,~
  5'.
  "

   :~:
   ".


                        DECLARATIONS                                                               30
                        SCHEDULE A                                                                 32
   .'
                         SCHEDULED                                                                 32
    ;.~
    ~:
   :-~
                         Coverage 10 attach upon load out at Assured's yard.

    ~:;

   "
    :.,\
        "



    "
        :;,
    ;,;




         .'
        j:;




                                                                . - 3 ..
                                                                                                                  SR-000068
                                '"




                                   OFFSHORE CONSTRUcnON PROJECI' POLICY
           ----' ---,,-_                    ~   --
                                 ...-_. , ..... ... ....... ... -.. ....... -............." .. - ... --"-- .....
                                                   ,
                                                             ~       -.~                   .~
                                                                                                                   '

                                                                                                                   ~                          --
                                                                                                                       ...... .......... -..-... ..
                                                                                                                           ~



                 Subjett to the terms, cnnditiollS and ,exclusions heHin, this Policy provides coverage,for,
                ,certain physical damage and liabilities inClln'ed by the Assureds. Seelton I-P~sical
                 1>amage and Seelion ll-LiabiJily are d,lslinet sec:tlons, with the excepllon that Ih'C' '
                 $cope of Insurance and Genez:al TenIII and CondllioDS below .hall apRIy to Sccti9n I
..:
 ','             and Section U•
,~     .
                 Please review this entire Polity care.fuDy and dlscnss the coverage hereunder with your
                     ,               Insurance agent, broker or other representative.


                                                            SCOPE OFJNSURANCE
                                                       (Applicable to Section I ane! Secdonll)

                 Subject to the insuring a~emenf3, apPli<:ablc tenns, conditions and' "l'c1~' this
                 illM'lll1ce coven; the foUO'Wir!g ~tivities undertakellln the cnui'sc of the project identl.t'ied il) ,
                 Item :2 of thc DccIarations (hcI1;inafter, the "Project"), provided such activities ,am witbln the
                 illSUl'cd values. Covered activities include: Pl'OC=cnt, coastmetion, fablication,load out,
                 load1ngluoloading, transpor!Jl!iou by land, sea or air (mcluding e8ll(s) atpolt(s) or place(s) as
                 may be req!1ircd), stOmge, towage, matlng.lrisIaIlatiOll, butying, book-up, connectiou and',lor
                 tie-in operations, testing end commissioumg, ,~ initilll opemtionS and imIln~
                 pmject stodies, engineering" design, project DllIII8gement, testing, trlaJs,' P!pcljJ.ylng,
                  t=thing, and collUlllssionmg. Covered activities Illll.y also iIIclwk diTect Consequences frc>m
                  drilling opemtions, but ooly whete dcclllted to and agtCell by Undc.rwrltern.                "

                 The Policy shaU be deemed to be a separate insurance, irI tllS[1tlCt of eaclI Principal Asswcd
                 hereunder without increasing Underwriten' limitsofli..biUty.

                  1.     ASSlJRll:l)S

                          Principal Azsureds

                                     o. S. F. I.
                                     Companyand/or joint YeDf:um's as they may now or subsequently exiSt.

                          Ii.         P=t lIDdIor subsidiary and/or affiliated a.udlor ~ted and/or inter-related
                                      compames of thc above as they arc now or may heteaftcr be constituted and
                                      !heir dilectors, offieet1l and o:mployees"whUe acting in their capacities-asiruch:

                          Other Azsureds'

                          iii.        Project managers.

                          jv.         ~y other company, finn,' pmou or party (including contractors endlor $Ill>-
                                      conlractorll andlor ~ and/or $Ilpplicrs) with whom the ~(lI)'
                                      named in I, ii, iii and Iv have entered 'into written .~lract(s) <tiredly' in" '
                                      co=tion with the Project.




                                                                           ·4- '
                                                                                                                                         SR-000069
              2.        SPECIAL CONDri10NS FOR OTlIERASSUREDS
      ---.,............._-"---,,
                        .
                                          ""-   _................ -.--_._..- ............_..... -.'. '--".'... "...,-'--,,""
                                                                                                                       .
                                                                                                                               '           -
                                                                                                                                   .........
              it is a condition precedent for any parry identified in Other ~ denmtloll'cJauSe iii.1II)d .
             . iv. above to benetit from the Othet A.ssIll'Cds status under tbe Policy that theY ~nn \hei1:' '
               operations according to Quality AssuamcelQuaiity Qlntrol syztem(s) which cOmply ,with ,the
               Quality Assuram:eIQua1ity Control provisiol1$ p;Issed on by the Principal Assureds Ihroug,h ,
               each and cvery wrilleu contract. awarded within the scope of Insured wol'kll as sdtedll1ed
               under the Policy.

              The interest oftlle Olber Ass\u'ed(s) shall be co~ throughout the entim Poliq Period far
              their direct partici~ in the ventuJe, UlI!ess specific conll'llCt(s) conlaln provisions totli.e
              contraQ'. The rillhts of ~ Assw:ed under this insimmce shall only be exercised'thiough !lie" '
              Principal Assureds. Where: the benefits of1hi3 hlsurance have been passed to lUi Assutl:d by
              contract, the benetits pessed to that Assur<::d sball be no greater Ihan such OOlltracNllloWs and
               in 110 <:aSI: greater than the benefits provided under the insuring agreements, Iem;lS, coridi,ti~,
               and exclusions in the Policy.

               3.           LOSS PAYEE

               Losses and retul'I1S ofprcwjums payable to O. S. F.I. in order.

               4.           POllCY PERIOD
               As detailed in Item 3 oitho Dec:lamtions.


                                           GENERAL TERMS AND CONDmONS
~.:
"j;                                              (Applicable to Section I)

               1.           PREMIllMS

               Pn:mium shall be payable as provided in Item 6 orthe Declarations.

               2.           SUBROGATION,

                   Underwr!t=sball be sub~ to all rights which!he.Assured may have aglIinst any perso!i'
                   or other entity, other than PrineIpal Assun:ds and Other Assureds, ill respect 'of III)' clilim.or
                   payment made under Section I or Section n of the Pollcy. The Ass=d sh$Il execute ",I
                   papers required by the U!ld~terS and shalt ,eo-opeme with the Underwriters to secure
                   their subrogation rights. .,,'                                             ' .

                   3"       WAIVER Oll'SUBROGATION

                 Underwriters agree to waive rights of subrogation agaimt any Principe! Assut1:d{s) indIoi                         '
               , Other .Assured(s). The Assureds shall not grant any waiver of subrogation to drlUlng
                 contractors andfoe ihelr SUlK:ontractoIS Without obtaining Undetwriters' agreement' a                 to
                 specific endoIliClllent to this Policy prior to the commencement of operations.

                   As a cooditioll precedent to their benefiting from the automatl~ waiver of subrogation' in this
                   clause, Other ~ must perfOIJII their opetatlons according to Quality AssutaneeIQuality
                   Control system(s)!hat comply with the Quality ASSUlllIlCeIQuality Qlntrol provisions passed

                                                                    -s-
                                                                                                                                       SR-000070
     4.     PERCEl'ITAGE tN'l:EREST CLAUSE

     All values, limit3, deductible, and premiums contalru:d in the Policy arc in respect of a 160%
     jntcml and shall be reduced in proportion to the individual Principal Assured(s} inten::st as
     declared or as may be subsequently declared and agreed by U1\de:rwrlters.

     s.      ORDER OF PRECEDENCE

     All clauses inCOlpol1ltcd into the Policy by refetence (hex1::inafter the "IncOlpOrated Clauses'')
     apply iDsofBr as they do not conflict with the wonllng of the Policy. In the event that the
     Iru:o!pOUted Clauses conflict with this Policy Wording, this WOIdlng shalJ take pleCedenco.

     6.      LAW AND JURlSDICI'ION

     It is understood and agreed tjlat th~ Policy. shall be governed by U.s.A. law and practice.
     Any dispute; controversy or claim arising out of or tdaI!ng to tho Policy shall be submitted to
     and determlned by the coudlI of U.S.A., which shail have exclusive jurlsdiction of aU such
     matters.

     7.      CLAIMs CUlUtENCY CLAUSE
s
..
 '   Wliereas the Policy is issued in US dollars, it is agreed that, if any Assured so elects after
     acceptance of a claim by Und~ters but before settlement of the claim, Underwriters may
     I'ffect payment in US dollars or sterling, at rate of exchange at the mid point of the closing
     rates between sterling and US dollars as published in the Financial Tunes two working day.s
     before payment is issued by Underwri~

.,    8•      HELD COVERED CLAUSE
      In the event the interest Is requisitioned for litle or use, confiscated, iialionalised, ptHJIlpted
      Or otherwise appropriated, wholly 01: in part, the Policy shall continue to cover the oontingent
      liabilitY of the Assured, subject to the inSuring agreements, t=. conditions and exclusions
      her<:in, for a period of fourteen dl\ys a&r sud!. event 1bercupoti. the Policy shall terminate
      unless there be prior agtee.ment by the Underwriters to continue Coverage.

      9.      DIVESTMENT CLAUSE
      Upon divesting a portion or all of its intmst In the· project, 11 Principal Assured shall
      immediately noti!;y Underwriters of the divestment. Und~ters 'agree to provide COVet
      hereon for the new owners of the divested intenist for a period of 14 dl\ys from the date of
      divestment on tho same terms and coI1ditiOllll. Coverage for the' divested portion will
      automaticnlly tennin41e 14 days after the divestmeot unless Underwriters and the new ownet
      reach agreement to continue the coverage.

      In the event the new owner elects not to continue coverago hereunder, Underwriters agree to
      adjust their acceptance of risk and premiums paylible from the. termination date.
      Furthermore, after covemge for the divested· portion lellninates, Underwriters shall have no
      obligation to make payments to or on behalf of the new ownCI(s) of the divested interest or


                                                      -6-
            ,.
           '.'



:~
;"


           their msw-ers. eVen if loss or dlunage fesults fronr an Occurrence or evtmt that takes place
           prior to the divestment date. _ _ _ _ _ _ •• _ _ _ ._....... _._•• ____ •• __ ..... -l- •• _ _ _ _
                                      _                                                          - h _ _ _ .• __ . _ _       _ __'''__
                                                                                                                         w




           ~o.         DUE DILIGENCE

            It is a cOllditjon of ihe Policy that the AssIueds sball cxereisc due care and diligence in the
            wnduct of aU dpcra!ions covered under the PoUcy, utilisi.llg all safety pracllce::s and
            ,equipment g<mmilly considered prudent for such opennions. In the event any ba%anlous
             condition develo,ps, including with respect to any well from which consequential damages
             cov~red by the Policy may arise, the AssIueds sball at their c:ocpense rnak<: all reasonable

 ..       , etlbrts to prevent the OCClIn':DCC of a loss insured agaiJlSt under the Polioy•
 :~
           11.         PERMISSION TO OCCtJl>Y AND OPERATE

           .PemtissiOll is granted to occupy and operate any portion or portions of Ib<; property iDSUred .
            and ~ occ':'l"'llcy or operation sbaII not CODStitutc acceptance of the property illSllred,
            subject to any adjustment ofpremium as appli<:able, and prior nolificatlon to Undern-ritets.

            12.        AGREEMENTwrnI CARRIERS, WAREHOUSEMAN & OTtJERBA.U:EES

           The Assmeds may waive their right(s) of recovery ,against private Or contract carriers ii1
     ~:
           writing prior to loss. and maY acx:ept bills of ilIding or teceipl$ from common                 .:emers,
           -warehousemen or other·bail... limiting their liability, but this illSUlllncc sball'not inuR to the
           benefit of any carrier, warehousemen or bailee.

            13.        INSOLVENCY

            The insolvency, balIbuptey, receivership or any refusal           Or   inabilitY to pay of the AssUIC<l •
            and/or.any other insurer sIuIll not operate to:                             '

                       II.. '   deplete the Deductible:! set 0\11 in Iteril5 of the Dechu:aIlons;
                       'b.      in""""", UnderwritCi'$' liability under the Policy; Or
                        e.      increase any Undexwrltel's share ofliabUity under the Policy.

             14.        INSPECTION AND AUDIT .

             llnderlVriters shall be pennitted but not obligated to inspect the Assured's properly and
             operations at ,mrj time. Neither the Underwriters' right to IlllIke inspections nor 1M maklng
              thereof nor any IqlOrt thereon $hall consti1lJte an undertaking on bebalf of or for the benc.fit
              of the Assured or other.;, to dctemlinc or wammt that such property or operations are safe.

                 Underwriters may cxlunillC and audit the AssIueds' books and records at any time dnring the
                 Policy Period end extensions thereof and within three years after the final tem)ination of the
                 Policy; as far as such books and records relate to the subject matter ofthls iosunulCe.

                 15.    CANCELLATION

                 The fitst Qamed Principal Assured set out in Item I of the Declarations may c:anceI the Policy
                 on behalf of all Moreds at any time prior to the filS! Oecummce that give:! rise or.D1lIY give
                 rise to a covered loss. Notice of cancellation shaU be sent to Underwri!eQ through the party
                 identified in Item 7 of the Declarations. Slith notice shall be Sell! by . registered mail,
                 facsinUle, .-mail or band-delivery, and shall state when. not Jess iban thirty (30) days

                                                                -7-
                                                                                                                              SR-000072
.,
>'        ~er. cancellation shall be effective. Notice of cancellallon shall not be cff'cctive 01\ lite
            datl'.specified.in ~C:_!l0ti~ nn11!:S!~ id~1ifi.".!!!.'!.!~~.~the Decl8rall'!.~ f'!rlvllllL __ ...•-.:._
"



          ,the notice to Und~tC13 within n hours after receiving it. A notice of C3l)CelliltioJl-
          . )<O.lllplying willt the requirements of. this clause shall terminate the coverage of all ~eds
            under this Policy on the effective dale stated in the notice. The first named Principal Assured
            shall be resppnsible for notifying all ASSIlI'Cd.! that Ihe Policy has been cancelled.

           If the first named Principal ~ cancels the Policy, Underwriters shall calculate the return
           pre.m~um in acwrdllllce with the level of exposure on,the date of cancelllllion. In any, eyent,
           Undtrwrlt= shaH retain at least lite short rate proportion of !be premium for the period the
           Policy has been ill force, in accordance with the atlaclled table.

          ·16.     CONFLlCI1NG STATUTES

           'Any and' all provisions of this Insurance that contlict with !be st.aMes of the state or counlly
            wherein this insumncc is'issued are understood, declared and aclaiowledged by Underwriters
            and the Assured(s) to be atnended to confonn to such statutes.

           17.     ASSIGNMENT OR. MODlFICAnON OP POLlCY

           This Policy is made and aceq>ted subject to the conditions, limitlllions. agreements and
           ~.ela:ndiollS and aH and=ents signed by UndetWIitets, and shaH' coostitutc the en~
           contract belwecn the UnderWriters and the Assured(s): No notice or assignment of 8I!Y'rigllt
           under the Policy nor any change, waiver or extension of its tenns shall be, valid unless
           endorsed hereon and signed by Underwriters.

           In the event of the death, bankruptcy or rcceiverslJip of an AiiS1lIC\I within the POlicy Period,
           the Policy shaH. except in lite event of cancellatioD., cover the legal r~presentative of the
     "'
     ':      Assured, ,provided tbiit notice in writing is given to the Underwriters· through
           , TYSERS .....................................................................within ~ days after the
             ~~ of such death, insolvency, bankruptcy Or receivership.                                  .

            i8.     ACCEl'TANCE

     "\     By acc:epting the POlicy, each As:rured declares that the sevem statements in the applicatlon.
     "      schedules and proposal are true and are hereby made a part of the Policy. Eecll Assured
            recognises that the Policy is issued by the Underwriters in reliance UP\lII such stateinents and
            1n CQnsideration of the premium to be paid by the Assured. .                                  . .

            19.     FORl!mTUI;tE

            If an Assured shall breach any provision of the Policy. there 'shall be no coverage for that
            Assured as to the particular claim in connection with whlch the breacb oc:cutred, provided
            that there is no statute to the contrary in the cb\mtty or state in whicli the insurance was made.

              If any Assured shall make any demand for indeRUlity under this. Policy that· is false or
            , fraudulent, as regsrds amOllllt or otherwise, this Policy shall become null and void, and, aU
              coverage bereun<ie:r shall be forfeited.




                                                             -8·
                                                                                                                   SR-000073
"

                        20.     DISCOVERY CLAUSE

              ____--'"'CIa.imumd=:.JhcJ'.QIicr..shllll..onJ;y.;.b.,.=.v.erable..hercllndcrclt:.the..Assured..haz.4'l$COveted--"-:-----'-
                 ". -and reported such loss, cIamage or Occwrencc to Unduwritcu within 12 months from eXpiry
                     'or the Project Period set Oll! in Item 3 of thi. Declllmlions ,and concurrent With ~lic
                      'maintenance period(s) set out in Item 3 of the Declarations and described in Section l, T~
                       and Conditions, C~aus<; 19 below.

                         This clause sIWJ no!, however. resllict the time o/lu::rwi:se allowed for establishing the ~ent
                         lmdIor effecting of repairs and/or presentation of a claim in respect of Such loss aadio.r
                         damage mscovcred and [eported in accordlillcc with the furegoiug paragraph.
    :!
~,




    , i




         .~

         "




                                                                          ·9·

                                                                                                                                  SR-000074
                        ·........ _.............~~·TJQ~'H:::-~!!X:;;:[G~.Xl.~.!l:l:i....... _......... "'-"-"""'--'-
             1.        COVERED PERILS

              Subje<:t to the terms, conditions and exclusions hetein, Section I insures against all risks of
              physical loss of and/or physical damage to Ihe property covered hereunder, provided such
            . loss or damage arises from an Occummcc within the Poncy Period S!'I out in'ltem 3 'of thll
              Declarations.

             2.        COVERED PROPERTY

             '!his insurance covers wow cxc:cutcd anywhere in 1he world in the perfonnance of all '
             conlnlcts relating to the PIoJect including (provided they ""' includ¢d in the contract values
             de<:larc<i 10 UndetWritets and insured herein) materials, components, paris, UIIl!lhincry,
             ,fixtures, equipment and any other. p~ destined to become a part of !be completed
              project, or used up or co.osumc<i in the completion of the project. This insurance sbaII also
          ., cover (provided they arc declared to and.c<i by UndctWrilets) all, )SI!lporary works.;p!anl.
              equipment, machinery, materials, outfits and aU property associated there:wilh, whether such
              items are iutended to fi:mn a pennanent part of the works or not, including silt pteparalOry
             work and subsequenl operational risks..
",
              It is undelSlood and agteCd that any insqled equipment andlor propexty that Is not for
              incorporation into the contract wow shall be covered whtl:st il i. bOing utilised In the Project
              and whilst in transit from the Project site(s) until the earlier of the date of arrlva1 at its final
              pestination or the 30th day after its removal from the Project site(s).

              3.        POLICY LlMlT
              Underwriters' total Uabilily under Section I for all claims arislng out of any one ~ee
              shall not exe<:ed 125% of the latest agreed Schedule "8" values, ineludiug payments made
              under the sue and labour c1ause, the additional work clause and the removal of ~e
, it
              andIor debris clause (eacb of which is seParately limited under the appropriate coverage
              <;Iauses).


              under Section .               arising out of any one Occw:renee ~lllOt ext;ced 150%           ofm.e
              initial ScheduIC "a" values, • .                  made lUlder the sue and Iahour ~ the



                 NOtwlth~Dg anything contained herein, UndClWritcrs' mllltimum limit of liability in
       ... , .," ~ct ofSeclion I ~ not exceeP, the Schedule "A:~ value in the aggregate.

                  4.     DEDUCTIBLES

                  Undexwrlters' liability under Section', of the Policy'shall be subject to the Deductiblcs'set out
                  in Item 5 of the Declaranons,                                       .

                                                                              .,~   ,




                                                                -10.
                                                                                                                      SR-000075
,i
.~
'J;




                     _ ... ilIltimaled G&iIlj!leled Value illllI at<:> tRefoil",. I'fO'Yisiamoi. iI' is egieed tile! Ih~ fina!
                           ~amilleled val~. aitho Pftllleft1 iBsuR'd herein shlllt be lIIe iMwed 'fame,




                                   IL
                                           a.elen 1'1 :tJil.deTwftterl; heeen the _uat e!Gueh eilGe&!I at!d Ie "Elf /lftlmium
                                           as ag<eed; aM Und.~s agre. I.e Beeopt lIIe1r prepafliel!8te s.hare af !he
                                           iBewease; ar

                                   h.      ba less thai! !he pffl'/isipnal '1a1ue i;~ed ill 8ehedllle B, the truIIl iAsuted by.
                                           tht4elWfiters shall 11. Meed prepel9oMa1e1y, &lid UII6mlJritefs lIgfee I.e
                                           FOtwB premiwn as agreed 011 the _ollll!B OJ' wIllehlheir reopeellw lilies fife
                                           MUGea.
                "'   ,",   Never-'Ie!ess. shaWd the iMwell ;,oI.u. ex_'"      12!>~~ af tile itIiIIa! a.almB ...aI~. as per
                           SGhedule D, !hom !he limilll of iaabeily 1lIIaeo SOOIoien I shell 'be 12594 ef til. illilialsefledale
                           vatu.... lIllY ana Goo_n••, but ..w....ya sul>jeot I.e the limils .f _6"I'''''Y as jlrevided fo,
                           elsewhere ie lIIe Pelley eM is aooardenoe with !he Bg<.ed "B" sshadaleil QiMuats as JlOf !he
                           j;)eelmaiial!S at lIIe lime .{Ieso.

      ~.                                                     TERMS AND CONDmONS
                                                                 (Sectionl only)

     .,'                    1.      BASIS 'OF RECOVERY

                            In the event of"" Occurrence coveted under Section 1 of the POlicy, Underwriters agree to
                            indemnify the Assured on the following basis:-

                                   a.      i!!!!l!1! repa!:rod or rep!aeed - 'New for Old' plus towage, installation and all other
                                           costs neee:'!S'lrlly ineurred and duly justified in'r.pair or "'Placement - as per
                                           latest agreed Schedule B•
       ,
       .
 . 'I                               b.      replacem~t wjth Items whleh !!l'" redesigned or ofllll!' design - provided such
           ..
                                            replacement is actUally commenced and no repairs or replaoemelits are carried
                                          . out on the item which sustained physical loss or PhYsical damage,
                                            indemnification beteunder shall be on the bssis of reasonably estimated figures
                                            in sccordance with paxagmph I a. abov.....

                                    c.      items got repaired or repJ!lCe'd:-

                                            (I)      for items which arc a total and/or constIUCtive total loss, the actual
                                                     ilems costs incw:red up to time of loss as per latest agreed Schedule B.

                                            (ii)     for partial physical loss of or physical damage to an insured item, the
                                                     reaso.nablc depreciation arising from the IUlrtpaired damage, deemed
                                                     to be the reasonable cost of repairing such damage on a new· for old
                                                     basis plus (in the event repairs arc nol undertaken for reasons entirely
                                                     outside the control of the Assured) towage, installation and other



                                                                                                                                     SR-000076
"
.;;                                                                                              "-,

                                             sitnilar c:osts directly incurred in mpe<:t of the item lost or damaged,
                                             up to the point of loss and, to the extent that such costs have been
:~:.
       ----------~d,or-tho-Assw:ed-i$'eomm.itted-to-paying_andis-1IDable1oWl'Oke;---­
                                        . .... botllot to eJCceed amoUD!S as per !he latest agreed Schedule B.

                    "d.          :use   gf!il'l!hired YSlS!::lstequipment - It is understood and agreed that if, ill the
                                  event of physical loss and/or physical damage to the property illSUled wbichis
                                  C9vered by SectiOn J. repairs and/or reinsta1en\ent and/or replac:emCllt and/or
                                . salvll8c "'" ..med out by vessels andfor craft andlor equipment aRdfor labour
                                   which the Assw:ed have on charter, hire or conllacted to them, the cost or the
                                   proportion thereof shall be based on the pre"'ll!fCed hire or contract rates for
                                 . such employment when used in or about the repair, reinstatement, replacement,
                                . or I$IIlvage of lossC$ covered by Section I and $hall be so recoverable as a claim
                                  ·hereon. In the event that the Ass~ utilises 11$ own vessels, will, equipment,
                                   lJI8Ierial or labour for any repair, reinstatement, replacement or olber worlc. in
                                 . respect of physical loss andlor physical damage covered by Section I, then,
                                   subject othenvise to the terms and conditions of the Policy, a reasonable charge
                                   in respeet of such worle.shaU· be recoverable as a claim hereo",. Provided
                                   always thai the recovernble coS1$ refemid Ie in thi" paragraph shaU not exceed

                                                                                   10=                      .
                                   the costs of employing approved vessels and/or CIafi and/or equipment and/or
                                    materials andlor labour from other availllble

               In respect of paragraphs a. and b. above, in no event shall Underwrite13 he liable for any
                incn:ased Cost or eJCpeIISC of-repair or construction by reason of law, ordinance., regulation,
                permit or licence regulating construction or repair or any in~ cost or e.xpensc incurred
                by reason ofbetlexment oralteratlon in design..
                  .                                                   .                                        .
              . Additional insurance costs 'and (re)certification costs attaching to damage repair or
            ... replacement worle arc covcn:d hereunder as part of the values lnsuI'ed'subjeet to inclusion of
                 the original insurance COS1$ in the initial Estimated P"toaI Completed Value oithe works.

              Provided always that where any of the afuresaid costs rclate to tClrieval of a damaged itCm
              andlor·subsequent (re)lnstallation of that r~ item or a replacement. and such COS1$ or
              part thereof would in any event have been incun'ed by the Assured irrespective of tho insured'
              physical damage,or otherwlse·benefit the Assured in respect of uninsured matters, then suQli
              costs shall be apportioned in a fair and reasonable lIllllIl1er between the Assured and
              UndelWriters.

               2.         INCORl'ORAntJ) CLAUSES

               The following clallSeS are incorporated into the Policy by refmace., with the amendments
               described below:

                          .a.        Institute Clauses for 'Builder's Risks (1st June 1988) amended as below,
                                     including the deletion of the Earthquake and Volcanic Eruption Exclusion
                                     Clause No.6, including cost of site preparaiory worle lust or expended as a
                                     result of insured perlls, and including modifications to Clause S, paragraph S·
                                        1, as hcreafu:r quotedlam.eI\ded:-

                                        s.     PERILS



                                                                       - 12-
                                                                                                                           SR-000077
    ·1

                                               SJ      SUBJECT ALWAYS TO ITS TERMS, CONDITIONS AND.
                                                       EXCLUSIONS this insutallCC covers all riSks of· physical loss Of or
                .-:.---------ph~eal-c!amago_tlHbHUbjfl:'lknatteNnS1lred-used-arul-disc:eveted----
                                                     . during the period of the insurance.                               .

                                               , AS SET FORTH IN EXCLUSION ·1.L HEREIN, IN NO CASE SHALL
                                                 THIS l'OlJCY COVER THE COST OF RENEWING FAULTY
      ,                                        WELDS.
    :,:
    f~
                                               Institute War Clauses Buildem Risk (lSI June 1988).

                                                lustitutc Strikes Clauses - BUIlders Risk (1st ]unt i 988).

                                          b.    The followillg COl)diIiODS shall apply to any     part, of the propcct)r insured
     .~
                                                hen:in that I\I'C in slomgc (ashore or afloat), loading, lJI1Ioadlng and in ~t
,    '.'                                        other than by means of their own buoyancy or by means of"fJoatation Ial1ks.
                                                These conditions shaU continue until midnight on the day on which otf-
                                                loading lit final offuhorc: site is compleled and shall include the Collision
                             ..... l ,.         Clause provisions of the lns1itllte Clauses for BuDders Risks (I st June 1988). . '.

                                                Subject as applicable to;-

                                                Institute Cargo Clauses (A) Ist January 1982

                                                Institute Classification <;:Iause 13th April 1992, wbere insured property is
                                                canied as catgo.

                                                Institute War Clauses 1st Januaxy 1982.

                                                 Institute War Clauses (Air) IstJanuary 1982.

                                                 Institute War Clauses (post) 1st January 1982.

                                                 Institute· S1rlk.es, Riots and Civil Commotion Clauses (Cargo) lSI J";'uruy
          ;:                                   . 1982.                 .
          :~
                                                 Institute Strikes, Riots and Civil Conunotlon Clauses (Air Cargo) lSI Januaxy
                                                 1982.

                                                 The MAR Form is deemed inco>:pOrated herein in respect of transits COv.ered
                                                 under the IstJanumy 1982 Clauses.

                             3.            LOSS NOTIFICATION

          :.:
                             The Assured Wl1l tender a signed and sworn proof of loss after lUI Occunencc as sOOll 8.'l may
                             be reasonably practicable thereafter (taking into consideration the liah.lrc of the Assured's
                             operation) staling the time, place and cause of )Q.'I$, the interest of the AsslUed and 'of all
                             others ill the property, the V1IIue thereof and the amount ofloss or daJlIage thereto.

                  '.;:   .



                                                                                 - 13·
           :~
                                                                                                                                       SR-000078
    ,
:~
,;




                          4.      ERRORS AND OMISSIONS

                          ·.Any Unintentional or inadvertent error or orniS$io~ in lUII'IIC or de:!cription undc:r--::Se<:I~ioc-n-i::-'-­
                           Wll not operate to the prejudice of the A.ssurI:d, provided that the error or omission is
,:;
                           'corrected when discovered by th~, Assured and advised to UnderwrilCni prior to any
                        " Occurrence giving rise to a claim hereunder.

                          5.      PROJECT ALTERATIONS AND AMENDMENTS

                           Underwriters agree to hold covered all amendments 8!ld alterations to Ibe Project
                           specification :oJbject to the tenns and conditions of the Policy      for
                                                                                               a period of 60 days ftoto
                           the date of:oJch amendments andIor alterations, subject to the Principal Assured notifYing
                           Underwriters of any material andIor significant alterations plOmplly within the 6Q.dayperiocl
,
    '.:                  , In order for coverage for such material and/or significant amendments and allI!rations 10
                           extend beyond 60 days, the Principal AssIm:ds and UnderwritCrs must agtee upon the,
                           ~dWtional premium to be appUcd.

                          '6.      POLI,l)TION lIAZARD CLAUSE

                          'Subject to the tenns and conditions of the Policy, this i!lSurancc covers physical loss of or
     ',:                   physical damage to the property insured hereunder d'treclly caused by any governmental
    :?                     authority acting under the powers vested in them to prevent or mitigate a pollution baz:ard,' or
                           threat thereof, pn)vided such act Of govomunental authority has DOt resulted from want of due
                           Uiligence by the opelBlor fol' the Principal A.ssW1:ds to prevent or mitigate such' lIazard or
                         , Ihreat•
             .   ....
                           Coverage provided by the above paragraph shall also extend to cover any other physicallpss
                           or physical damage CIwsed Or inflicted by order of any governmental body or agency after
                           (jOnsultation with officials and engineers of the Ass)Ired relating to the insured project but
                           only in t10spcct of interests covered by Section 1. and always subsequent to physical loss and
                           physical damage resulting from a peril illSUred against
        "
        ,<
                            7.     DEFECflVE PARIS

                            The- insurance afforded by Section I. co:ver.s physical loss andIor physical damage to the
                            property insured herein occurring' during the Policy ,Period end resulting '1i:om a Defective'.
                            Part., fuully des'tgn, faully materlals, faulty or defc:cUve· wotl;mauship or ialeD1 defect even
                            though the faull in design may have occwred prior 10, the attachment date of the Policy.

                            Section I. however, d!i!;s not provide coverage for loss or damage to ('mcluding tho cost of
                            modifYing. replacing or repairing) any Defective Part itself, unless all of the foUowing are
                            satisfied:

                                        $Uch Defective   I'iut has' ;~ffered   physical loss or physical damage duriug the
                                        Policy Pcdod;                   ,

                                        such physical loss or physical damage       WItS   caused by an insured peril external to
                                        that part; and                  .

                                        the defect did not caus~ or contribute 10 Ihe physical 10.. or physical, damage.



                                                                            - 14-
                                                                                                                                    SR-000079
""

                       In no case shall Sectioll I provide c:ovaage for any cost or exp= incumd by reason of
                       betterment Ot altenrtiODS in design."
~:
  ,
                        In the event ofUie [oW physicatloss Or toilll physical destruction of one or more of the it:ems
                        listed in the Schedule "B" attaChed to tbe Policy, then this exclusion sball only apply to an"
                       "identifiable part or parts of such scheduled item or items.
                        "    "                          .
                        For the pUrpOses of this clause a "Pefective Part" shallll)can any part of the subject matter
                        blsurcd which is or becomes defective and/or unfit or unsuitable for its a(:IuaI Of intended
                        pwposc. wbether by rcasQn of faulty design, tiloJtymalerjals. faulty worlunlll'lSl!ip. a
                       "combination of one or more lherenf or any other reaSon whatsoever. Tho tentt "Defective
                        Part" shall also include suob ancillary oornponenl:!, which arc oot themselves tiIulty. but
                        which would normally be removed and replaced by new components when the eol11PDru:at
                        that is faulty isrcctltied.
                        -This clause shall prevail in the event of any Conflict or inconsistency with any other clause
                         fanning part of the Policy. The terms of this clause sa: not in1eDded and shall not be
                         construed as providing coverage not otherwise provided IItIder tho Policy,           "

                            8.         GENERAL AVERAGE ANO SALVAGE CHARGES
                             Genetal Average and Salvage charges an: payable as provided in the eontnlCt of
                             affreightment, or iftherc be no ~ntnu:t of affreightment aeeoJding to Yor1c/A,ntwezp RlIIes
                             1990 amended. In the event the contributory value for the pIlXJlO$O of contribution to Oeneral
                             Average or Salvage charges exceed the insured value, it is egteed that such General Average
                             <:Ir Salvage .:barges shall nevertheless be paid in fuJI by Und~1eI'lI be_no provided always
                            "that the amount recoverable under Section I in .cspect o(paniaI losS arising fi:o.tn ~ one
                             <:asUa!ty shall not exceed the value applicable to the item.
                            Genetal Average deposits 8Ie payable on production of General Average Depositreoe!ptS.

                             Underwriters agree, ifrequircd, to provide Oene:ml Average guanmteesor Salvage security in
                             resp<:ct ofprope'lty insured by the Policy.

                             9,        SUE AND LABOUR CLAUSE
     f.:
                             It is further agreed that in the cs.sc of any imminent physical loss or physical damago to the "
                             property insured bereunder. which is the dIrect result of a peril insIued against, the A.:lsuRds.
                             their servants and their agents may sue, labour and travel for. lIt 811<1 about the defence.
                             safeguard and recovery of the subject matters insured without prejudice to this insmanee and
                             may incur reasonable expenses in efforts to avert or Il!inimise a loss which may fall undel'
                             Section r.
      '.'
                             The expense so incurred shall be borne by the Assurcds and Underwriters proportionately to·
                             the extent of their respective interests. No acts of Undetwriters or the Assureds in
                             recovering, saving Or preserving the proP!=<lY insured shall beconside.red as a: waiver or
                             acceptance of abandonment.

                                 Underwriters limit ofliability under this clause shall be 25% oCthe so;heduled value contained
      ..;                        in the latest agreed Schedule B at time of loss of the item o~ items that are the subject of sucb
                                 sue and labour.


            ..   ".'
                                                                               - 15-

                                                                                                                                     SR-000080
:-~




 ':;

                  lbe diEect .estill ef a peRI ias1Ifed agai-S", tlMewlfiW& sball ifldemaifi Ille .A,ssweds Ie. 1110
                  eosl of addili.aal werlE !hat is fe~d ifl fllSjleQI ef pesilielliag ef repesilielJing. siliklng.
                  SIlbmeoging ...d stabilising the l"epeft:f i_e4 lI_ifl i_far as l1li0" eest dees 1101 mil

                             .Ies.
                  withlll the oe','" a!ferded by the &\Ie QIld labalil' el_ He-,voYer \!odfllWfiteps' liabili!y
                  Il!lde.1IIi5         shall set ISIEe•• d \be I'l$eB\li&e amelll1ll1lal wauld be feGe'lefahl. lIRder III.
                   _ and laBelll' e!l1l15e ad !bell allly Ie the &!Gent IIHI! the Palill)' Limit is IlOt el\hal!llte~ by a
                   elai!n \Iflder !he sae and laba\lJ' el'lllSe.

                  11.     REMOVAL OF WRECK, WRECKAGE AND/OR DEBRIS

                   Following an OCC\lITencc covered by Section 1, Underwriter.; shall iDdemnify the Assu~
                    fOr all costs, of Of Incidental to the actual or attempted r.Wjn& removal or destruotion of the
      .',          '\iYreckage and/or debris of the insured property. ot the provision and maintenance of lights,
                   1lUId:lnl?,$. audible wiIinlngs for zooh wreckage and/or debris when the incurring of such costs
                    is compulSQl)' by any law, ordinance or regulation or when the Assured hereunder is liable
                  'for such costS under written contro<lt Of when such wreckage andIor debris lnterfm=s with the
                    Assurcd's nonnal opellltions.

                   Underwriter.;' limit of liability under this clause shall be 25"/0 of the scheduled. value
                   contained in the latest agreed Schedule B at time of loss of \he item or items whicli are the
                   sul:tiect of such removal ofwrecl<age and/or debtls. '

                   12.     TESTS, LEt.K ANDKlRIlAMJ.GE SEi.acH COm

                   {fit beeemes lleee5sa~ til repeat any -W aMkr trial(s) er Ie ~ &Ill s.wse~".Rt test(&)
                   lI!I<Iiel ~s) es eo le&1lIt era ~eallase efphysleal damage Ie the insefell jIl'ePeft:f .aeRlg.
                   hm an 0 ......_ 8 0._11 undll.l' Seedell I, lJMefVll'ilelS 'MU heM' tit. eelll of 11ft)' &\Ieh
                   l'Iljlealed awlIor sJI'e~elj;"l!lll te5$) an<Ikr trialW 9U~eoit til .. Stl8 limit ef (AMOUl'lT)
                   (lOI¥!IQ) my ell. OO_80e. hut Be'/ •• !e ."lEe.ell eftgiMI "lip_lUre lIS'identified ill tit.
                   latest ag<eod Selle""!. B.



                    811bjest Ie 11 5\11,) limit af U8!i (AMOuNT) 1lIIY ell. gas_ee aggregated at US$
                    (AMOUliI'l") e'!er!he Pe!iey Period; YnEleFWl'iter!; shall illdemailYlII ••>\s&welistelthe •• 1lI
                    (If _II by tim. e!I '181!SeIs tlHi!hJr araft andAlr ~iplnent ftetP~ly ellgageel iR the e ( ) _ ef
            :;
            ;.;     l'Iljleir fell&vidlg lIB OC.Wfel1U eO'l"''' \!fidei' SeeHen I.   v.wthIl.'\ssureds _ jlfOVen!ed
                    hm werlEing iH. lIl<l\!fla ar abaut Ih. damage" prejleft:f by bad well1hef, lfte\udil\g IIlIftIed
                    lmHi_"",

                    14.     CLAIM SURVEYS/ADJUSTING CLAUSE

                    In the event of physical 10$$ and/or physical damage to insored property arising from an
                    Occurrence covered under Section I. the AsSured may In casc of emergency lind' over
                    weekends illS\l1lCl one ofthc following loss a<ijusters to effect a dlll\l8ge survey: (I) Bateman
                    Chapman Limited for all cargo claims. and (2) Bateman Chaplllllll Limited. and/or Marthews
                     Q~.l and/or BrocklehlUSl Limited for all other claims. Such finns instructed on an
                    emergency basis shall ""t as loss adjustenl On bclialf of Underwriters: In any other·'


                                                                      ·16 -
                                                                                                                             SR-000081
                      cireumstancc:s, lollS adjustets shall be appointed by Underwritets upon loss/illCidCnt
                      notification from the Assured accon!ing 10 CIa~ 3 aOOve.
(! ... "
'" ,,,,,,,,·"--'-,,-:''''XS~.--',W"""ARRANTYm;'Cr.:;;;1'V7(EiFoXEMPVT.ii"iMLAR'-rn--;;FJN;n.:;;AL:-i'<,VERS=:;;I;;:O~N;-:;T::;;O:-;B~E~A.;-;G;;;B:';E:;;E~D);---~-'--:"---

                       Wammted London OffShore CQnsuItants andlor Global Maritime aIWlor NOble' Ddl!'
                      .Assaclate.s andlor London Salvage A,sso¢atlon approve and issue lis app!.i<;abl"i c:ertiticate$ on .
                      ille 'project as foUo~                                                         ,

                       Ccmf"'!llUal-Certifica1eil lobe issued prior to relcvanllo.d-outsrlllStallations.

                                 i.         Proccdn= for laying, bwying,jcttinll'.nd rock dwnping, trenching (all ifand
                                            as applicable) including the ti.,.ins of same and, instl!Ilation of spool pieces and
:.!                                       . rlsets..

                                 Ii.        l'osidoninS and orientation l'roccdw:es for jai:kets at offshore si1'l:(s).

                                 m.         Piling in procedures in respect ofii. above.

                                   Procedures in respect of the sequence of andlor scope and pattern ot'laying df
                                  iv.
                                   anchor patterns and temporary moorings for the positioning of HeavY Lift
                                   Vesscls/B.arges (If not dynamically positioned) and pipe laying batges in the'
                        " ,-_. -vicuuty Gr"'exThtIDg offil!iorc inSilillliliOiis.' ,-'"

                        f~·             Cerlificilte($} to be issued prior to commencement ofrelevsnt work.

                                  i.         Load-outs, tugs, lOWS. towages and stowage:; (mcluding sea' fhstenibg) in ..
                                             relation to barge movements from                                     ' to.
                                             andlorto ombore sites;

                                  ii.        Lifting and orientationfsetting down/securing procedures at ombore sites.

                        CoPceptua! • Certi.ficate(s) 10 be is:Sued prior to relevant load-outsf'lIlStallatiollS.

                              , Load-outs., stowage and sea·fast~ing on heavy lift vessel 10r transit.

                        PWsicaf. Certificate(s) to be issuCd prior to commencement of relevant work.
                        Ufting and oricntatioclsctting down/securiug ,procedures at offilhorc site, of jackets and/or.
                        topsides.                                  .                                               ' ,

                         1'.' 'I1Y'iru>lUST "BtJ¥ :St.a" CbA-YSE
                                                                          ,   ,.'.                                                                . .:         .•!   ,




      .";,,


      ,
      }                                       '\JadIlP,vritlils 6I!aIl iIlIIemnify !he AssaRes WIde!; !his olause fer Jlhysie8llass •
                                              .....v... I'hysieel !lam. lIIat 'Nellid lie ,..e·~ltte III!Wlr s.eliel\ 1 ef ~,
                                              Pelill)' bel: re. tlie e!Bsteaee at !he fe.llewmg elalJSe iii Seetlal1 I. Bl~e1W1ieft 2: '




                                                                                      ·17.

                                                                                                                                                                 SfH~000S2
                                                                               -,




                        motive.

             9.         ...y   aet f<lI'   l'e~ealllf ~.     p:es::,atwhelh:r !he physiDallafls,
                                                                       any '!l6l5011$; ani ·"'iM!IIlW
                        af 1l<It" ag_ Ei ... _
                        damage 1lF8HpOMO        W.';:,:"tB!71 lue.ideallll e. il>\e.tlle",IIi"•.
                                                          few......                     .

      iii.   ·Catleellaliea, A~aislie remu"lIIiea, $lI5jIeBsie" anr!


                        ~




                        Oi)        }leli••• CCOIIoellaliea




':
              D.




                  e•.




                                                    - 18-
 :1
 ;~                                                                                                     SR-000083
                                                                    ,   .



                          Ge-;_ent (whether aMI, tlIi1itary                 OF   de meta) afthe state in '....lIiah
                          the PI'OPeRf is _<I o. regist<!fed.

               ·d.        Pre'lided IhM th_    ba'.·.    bees Be elaims hereaB<ler, pA) lIIla relum 0'
                          Il~ sI!aIl be Jl&yallle 10 ilia t\s5Ured in the evant of eithet;
                          eill'loelllllioa l!y netiee a.,m I1m!efWfit<!fS or the ~omafie \emliaeUeD
                          or SIISjlell5iOB by "eSOIl afthe epemtiaft .(lBis Seetien afthe Pelley,

               HeldC."..""ed

               In the ....·ElRI of tho intel'll$! being reqslsitiolled fer tille or \lSe, or eemiseatef!,
               BIltleaallsed, pre empted or otherwise ef3jlfepRa£ed wholly af ill pOEt; e&".~
               uader!his eloose shall eel\tiBae to __Sf Ute OOIlOOgelltllallilky efllt6 Assured
               ill fl!SJlest of Uta eo·Jemge previded IIQd"" fer II period af ~ .!aye •
               !UGh 1I'_t. Therellpoll eave. aB<Ier !his &loose lIIe i _ a sl!all
               temtiep'e l!il!ese tlIefll l.e PHIliI' egr<IelflOllt 6y the IJlldefWHleI'lI to GelltiBue.



III respeel er~) illSllfed Iter_der, ifllS a _It aiM Oo_eo ea\'efCa sy tile tOfm9
of SeetleB I, \he iasllf"!i \roftSIt is ~ted nt-a peft or pla•• e1her tl!aIIthat to vAlielt!he
prepe!\)· insured is $I!'Ie'eQ ""de. !his ;85_", UntI....vritef$·wi11 Nimlourse the <'IossIIfea fer
11ft)' eJllta obafges p"lpeUy aDd fell$enallly ~ ed illl!il!aa<llllg, swrl!lg ana fe,,,,,,,;iiBg !he
propel\)' iBsur.d to tho eesliB&ti&ll to whielt it i, ~ Iter_der.

 UBEle.writel'S will b..., the east of 1111)' sueh      Ell!lfa   elIllfges ,!!bjeat      Ie   a   !lila limit <If YS.$
 ~AMO'JNT)     (1 90%) 1liiy elle Gea_ea.                                                                 .

 18.     PAYMENT OF CLAIMS

  It is agreed thaI all claim. co~ under Section I shall be payable to the Assured',
  representative identified in Item 8 of the DeclamiollS no later than thirty (30) days at\ct
. presentation and acceptaru:c of: proofs of loSs by Underwriters or their approved
 .representatives.

 Ill.    MAINTENANCE
 The cover provided Ile:reuOder shall be no wider than that contained elsewhere in the Policy•.
 Covelllge under Section I only 'Shall continue during the maintenance P,Criod($) specified in
 individual contracts hut nol exceeding a Nrther 12 rnonth$ from expiry date ofihc ~rojecl
 Period as set out in Item 3 of the Declarations. Doring sucb maintenance period(s), coverage
 is limited to physical loss or physical damage resulting from or attrib1llOblc to:

         a.          faulty or defective workn!ansbip, constructiOn, material Qr desilJll arising from
                     a cause occurring prior 10 the commencement of the ~ntenance period~ and

          b.      oPeratiollS carried out by orru:..: Assureds during the maintenance period(s)' for
                  the pUtpOse of complying with their obligations in respect of maintenance or
                  the making good of defects as may be referred to in the conditions of contract,
                   or by any other visits to the site necessarily incurred to comply with
                 . qualifications to the acceptance certificate.


                                                    -19 -

                                                                                                                          SR-0000S4
     20.    O~INSURANCE

     The lIISIIIOJICe alfordiid under SeCii'on I S!iliiI be primary to, and receive no contribution from.
     any other insu;.tnce maintained by or for the Principal Assured(s) andIo~ Other Assured(s).

                                               DEFlNlTJONS
                                               (Sec:tion I only)

     1.     The phrase "the property insund herculllier" :shall be S\lbstilUted for the word
,           ""esse.," as used in the IncOIporated Clauses, where the context of Section I of the
::          Policy allows.
"


     2.      The word "launcb" shall be deemed to include skidding onto and off Launch
             bargelvessel andlor mating andlor floating in dry dock andIor flooding thereof andlor
             transfer of the property insured into water andIor CIIlplao.cment and/or 'POsitioning in
             water at site.                                                                         '

     3.      The tem\" "O«urrence," wherever used in Section I of the Policy, shall mean one
             loss, accident, disaster or casualty or series of losses, accidcmts, disasters orcasuaJties
             arising out of one event;

             i.        as respects windsto=, all tomadoc:s, cyclones, h\lnicanes, similar storms and
                       systems of wind. of a violent and destructive ruiturc, arising out of the same
                       atmospheric disturbance within any period of _ty-two consecutive hours
                       ~ommencing dOOng the period of this ins=, shall be considered one
                       event;

              it       _h earthquake, shock or volcanic eruption, shall collSlitute one event
                       bcreund\lF, provided that if more than one earthquake, shock or volcanic
                       eruption ,shan occur within any period or seventy-two CO,nsecutive hours
                       commencing during the ,period of tbls insurance, such earthquake, shocks or ,
                       vol~c eruptions shall be deemed 10 be one event within tho meaning hereof.

                                                EXCLUSIONS
                                                (Sec:tion I only)

      1.      The covexage afforded by Section I shall not apply 10:

                        vessels or other watercraft, except for flo!llingmaterials that are destined tQ
                        become a permanent part of the completed Project and arc declared to and
                        accepted by Underwriters prior t~ loss;

               b.       aircraft andlor helicopters;

               c.       lempOl8ry  wOlks, site ptepallitOry works, property andIor equipment that are
                        not owned by the PrinCipal Assureds and are not for incorp<mllion'in llie
                        CODli:aCl work, unless Sepanuely ~cbcduled herC)lnder and agreed by
                        Underwriters at an additional premium prior to loss;

                  d.    penalties for non-completion of or delay in compl~lion of contract or part          or
                        non-eoinpliance with contract conditions;           ,


                                                       .20-,
                                                                                                                 SR-000085
,,'
"
,i.i
 !



                      any claim by reason of the platfonns and/or structlm:S being placed in the
                       e.
                      wrong locatioD3 unless caused by an Occurrence which is covered by' the
         ~------~---4t'~~Qn~~'rj--~------______' __________________----__




                       f.        , toss of use or delay in "start up" of the insured property howsoever caused;
                       g,         UabiUty assumed under contracts or otherwise for ·Performance: a_tees"
 .'                               given by suppliers;
 :J
                       h.         infidelity of a Principal Ass1=! or with the knowledge of a Principal Assured;

                       i.         costs of rcpa.iting. conccUng or rec1ifying W<:aI" and tear, tUSt and oxidisation
                                  and fluctuations in tempcmturc;

                       j,         any claim arising from or in coMecUon with the dumping of rocks andlor
                                  similar materials" where such rocks and/or similar materials have been placed
                                  in the wrong position or localion;
 "


                       Ie.          all opeiations,' tempomy or pellIllIIIeIlt wow, assets or equipment (whether
                                  . destined to be a pexmanent part of t)le project or' not) for which related
 ,.,                                budgeted costs are not included within the latest agreed Schedule B;

                        I.         the costs or expenses ofrepairing, renewing or replacing faulty welds;

     "
                        m.         loss, damage, liabiUty or expense direclly or indirectly caused. by or
                                   contributed to by or arising from:
                                   i.     ionising radiatiollll from or contamination by radioac1ivity from any
                                          nuclear fuel or from any nuclear waste or from the combustion of
                                          nuclear fuel;
                                   ii.     the radioactive, toxic, explosive or other hazardous or contaminating
                                           properties of any nuclear installation, reactor or other nuclear assembly
                                           or nuclear component thereof,
                                    iii    any weapon cifwat employing atomi.e or nuclear fissioD andlor fusion
                                           or other like reaction or IlIdi000000ve force or matter, or

                                    iv,    radioac1ive contamination however caused whenever or where;ver
                                           bappening;

                  2.        The following clauses i. and ii. are only 10 apply to property on land and/or ins!<UIed
                            at !he otl'shon: location. but they shall not be Oonsln1cd to exc:lude physical loss or
                            physical damage caused by mines. bombs, torpedoes, missiles or othcor weapoory
                            remaining from previoUs hostl1ities or military exerCis<!s.. '

                            i.      Notwithstanding anything \0 the contrary conwncd herein, this section does'
                                    not covcor 1<)$$ or damage directly or il)dircclly occasioned by. bappeniDg
                                    through, or in consequence of war (whether war be: declared or not), invasion,
                                    acts of foreign enemies:, hostilities, civil war, rebellion, r,,"alution,
                                    inswrcetion, military or usurped power' or coofiscatioo or nationalisation or
                                    requisition or destruction' of or damage 10 propexiy by or under the oroer of


                                                                    -21.

                                                                                                                       SR-000086
       any government Of public or local authority except as othexwise pwvided in
       Section t O(I~ Policy.

       There shall be no liability V(hatsoever for any claim caused by or n:sulting
       from, or incup:ed 8$ a consequence of

       a.     (1)    The detonation oian ~osivc.
.~
:i            (2)    Any weapou of war and caused by any                  pelllOD   acting
                     maliciously or from a political motive.

       b.    Any act for political or terrorist purposes of lIllY )ICfSOlIS, whether or
             not agents of a Sovc:n::igo Power, and whelhcr tho loss, damage or
              expense resulting Iherefrom is accidental or intentional.




 ,',
 <,'




                                       ·22·

                                                                                             SR-000087
.. ,
.,
 .,




                    SBGrION 11 UABILl'I'Y
                    . INJjURRIG MWFFA~_. ___-_.________




       DEDUCTIBLE




                              ·23 -

                                                   SR-000088
                                                                                            ,'-,




 c,
 "
"
,"
                                              TERMS ANn C9ND¥1l0NS ~. _ _"_ _ _ _...:-_ _
                                                       (Seelio..;J oR1Y)


            Ia the ""_ of ... 0."""""", .. iii. ~4(s) 6haII pre-Ade \Yritlea lIoliGB Ie tIlIdefWfiter,lllS
            sa Oil os is "",oIioable sla&lg the !'eU&V>'itigi                                            .

                     (I)    !lie SjI •• ifis O_oe: aB<I                                       Ii
                     (2l    Ih. Elamagos 'I\'h!<lh may resell e. has _ked fie.. !lie go_eel ~    iii
                     0)     the ...- - . 'by ",!HeI!., the .~d(s) fif$t be._ ,1\'.'" ~ e


            llI ....peet af C!ailllS Ie whlel!. Seeliollll, BiEOIu.siO& ~S 1Ij,l1l1ies; !he ",ssUtd(s) shell jlftl"Atie
            sueIi Ilotiee willIlIllhe lieiag req,lilfoeeals tlet !'eM i& that ellelusilla.

            2.      .YlMISSlON GFUABJUTY

            The \ssured(sl shalllloi i& an.y WB'j aekao';,\edge er admit ~ Iieh~ e~~.e: a!eaay
            bee~Me lief GeIIl. Her lIegeliate ~ seUl.OII!etll af.1III'J Blat.. Of 5U~
             Bf ··~ou* the eeBSe~ ef thod.eF.'ffi!en% mGlll' Mt ~~eD5Q ather
                                                                                                           :m:




      ~"




      ..,
        "
        :

      ,..




                                                                -24-
..:


                                                          llElZJNll'lONS
                                                          (8eeliea II enly)

            "1. ,




             3.




              4.
                    ""1"'...1), ..........<1 p..... Ie III\)' O.GUmlne. Be •ere     ~


                    B.
                    B,        11ft)'
                              all)'
                              agreed,-
                                              _.t.
                                       wl'il!e.ll e._ell ef
                                       em! ••         re<lueed     .. ••     ""!lH1i '7 days &ftor die •• ~ is erally
                                                                 Ie ,JfIlmg ,,'



              s.                                          .      . ~- diD' oa&mie\:lS 81l'e;P.eateti eUl'as~e te
                       "ocCUl.tRENCE" m••"s fift aeeulent; lIleMl g e [) se ftoith.. ellp ••ted eel'
                     ~ell!litiell$,
                                  '.vhlsh re5ults in Bedily lajul7' ar l'fepoay !IIIlII
                    , iatended frem lite slBftdpeint althe N:s\lfed.

                                         •   •    ."               ~Jsi$QllaS5 ef Of' difeal damage Ie Gr destrualiea




      .~
      :.-

                     as JlIllMg\lS, aM shall iMlllds Claims l£P_es
                     this Petie),.

                                                            E..~CLgSlQNS
                                                            (8eGtiea U Gilly)




                                                                     - 25-
                                                                                                                        SR-000090
            '2..                                                       ail    •. hiela (ether than hand prepolled), team,




::~
""~
        -

                            e.
                                     1 M flarwwe 9f Or no 1i~
                                     pefSOM whettlte.enpaases8"'enIs et: 'dteei'em is Beeid~MaI Sf mtenuew::,
                                                 L         1
                                                              lest
                                                                         B --                      •  .... _.1.

                                      e~. '"-r;t                                                              Ow
  ,:         4.                                               fe damage to at 185$ 8relt  ~ th· wew _            s e!'  .
                                                                                                                 1




  .';



              6.




                                                                              fed lIft6j.:r~e
                             t~ ,~. spo~:. •\soQred llfisirllg eul III the llo!lilymay _•. 1I!I1IIl1lJlltl1~er er ill
              1.
                             omp·eyee a-                           of         A




               8.

                             eei!lri6ulioa W lYe. III e       ~           ,
                                 .       OOled llBtler 00_1 er egreelllElilli

               9.
                             pantll$   ~           f     .   ~ed     with respe&t te Badlly ll!j~ to l1lielher emjlleyee af
                                                                                        _     '.



                   I9        "'hioll any aileeler, amoer, pauRer, II ...
                        •    meytm. Ie 811)' ampIaye e a~ IlIIY •
                             k  " ......                        4ssure",

                   It.       fer I05S efer ilamage Ie BfIj' w",11 Of hele.

                                       ....hi.h i. beiHg drilled e. "'<Irked ("'Or ej' or eft 1,ea.e1t' arlit. As......d, e.


                                                                          ·26·

                                                                                                                               SR-000091
".1

                                               ji.

                                               iiL




                                        13.




                                                ii.
 .,
 .:;.
                                                iii.      in    e&'BU   H    ..       v                        .

                                                          mol.fialsi                                                        ,   '.
                        .....   "   ,

                                               "fSf aasts      er el:£penses insURed iu



                                                ii.       elttiOglllsftmg '" IfI e        "                                               I         are
      :{                                                                                                   ' at liIe relief wells er he       lIS
              _......


                                         Hi.




                                                                       "
                                                           the .....mt "fGt eemm eoei!il Oil ,9fI I 0
                                                                                               ' IIIRIdeIlSl            '
                                                           PeRes set ~ ill 11m hflhe Dee                                                      f        b
                                                            IIIe e.    ,.
                                                                  "en! "'as fitsl wse_d: By the ,'\<100••,,1 withlo 14          Mrs       e         SIlG
                                                                                  j
                                                            •• _eemem                            •                                   the -'-d '
                                                                                          • en oelifienti9ll of '!be 'I'IODI hili         ,


                                                     e.




                                                                                              -27 -

         "
        :'.
"




                               £"'en iCte e.blY>'e eelllliriell5 a) Ie e) life satisfied; 1II1s pell!!)' !lees !!!!! apply Ie 'wry
:'
    i                          aelWll Sf all eged liabilHrt.

                                            Il'fYlolali<l<JQ~III\.,;lmfte0l8f!iJitetef;r,,.!eoeellll!lrlf<alllI,."rff!e$'lmlllaIYVe;e,"'BlIlllil!lIiji~¥-'..,orHlIlle.eflllllHuiJPHsleeOJop";'ifllIl8!!i"'IlJlO&ltllJ,ullrHtm.Iggo(li'or
                         ··"-·hi.---'11<3.0~'
                                        ee_illllliBg 6ubsIBIIG'MI1& the e!<Ieftt SIIeh IiahIliIy llfises selely .from 811)'
                                        ehliglllieM ilB'fIes~d b)o 811)' _ e , rull>; ordi_.... fCgulaliol1 Or illlpGsod by
                                                 ••nUneIj

                                ii.              18 a1Mlte or iwleotigate 1liiY lllreat ofseopage ante or pa!lBIioa sr oontamiildlioll
                                                 of Hoe I'fepOfly ph IiIW I'~

                                iii.             fl!r seep., pelllllien or sent_iulien of propelty ".-'hieh is or VI&!, at' IIIiy
                                                 limO; 0",)8.d, leased; renlOd er 0eeupied 'lly 811)' J\s5ured, Or wliieh is or wa!I at
                                                 en')' lime Ie. the OM!, I!IISt9dy ar een1rel of 811)' .'IllsIml1l flllslu4illg IiIe seil,
                                                 miuere ·,,-,tier' er ey other s:asstasee en. in ee lutEl. sa. eftmeds 'I,easeEi"
                                                                      7

                                                 _ 4 Elf oOGUpied pmpOfly SF propl!fly ill BUell GIll'I% Gli5ledy or "entre!):

                                                  llfisisg diEeelly ,eu! efllle 'm:>Sl'ortelieD by ilia Allsufed of"" (ether II,.a fuel
                                                  er ether . _ ..ed la ~e af Hoe A!lSu.eE1'6 epellllieas3 or etlHlr
                                                  similar sullstnaees IJ)' YA\\.. ~; '"
        .,
        ,,'

        ::1                     .~.                llfisiag dlfelllly ef Indifeeily foam seepage, pallutiea er eeotamialllioB wrue!! is
        ;~
                                                   iateaded KeHI the slalld~eint ef llIe ,~ er 811)' ether P<lI'IleR e.
                                                   etgeflio,eliea aelillg fer ef eD bew8€lIIe Allsufedi

                   ]G.           is!' Sf arising e\lt eftM ~ l'faeesmg. ~atI'aetlq storage, iispesal, dumping,
                                '_ilaffilg, oantrelliBg" t1lIBa'lOOI!i Of' ale'Dirg Ill' of MY WilSie materials or
                                 sueSlflllIl<!a, al arlsiBg a)'t arsueh Yi3Ste matllfials during 1il1IlSj!oHalitJIlj

                   .11.            furless af, damage ta, a.19sii ah•• at propOfly direelly er iadifeOlly NSIIIt!ag 1feil\
                                   saIlsidenee aawee IJ)' sub SUffeoe e~el'8lleBS altho ,".ssaudl
          .. ;
         .~
                   ~8.            .far less of Qf damage Ie sail S\Ufaee ell, ga&, l\'&IeI, or aihe. saIlSleaoe Of material; Or
                                   fer III. eG91 9r l!II1I<illso af relktoiBg to' I'ilysieei ,pass_iea abe,'. tho SlII'fiI.Ge of the
                                   earth 8'Nf ail, gas; 'll'aIe,. ei; Ii\her 5I!b/llllae. af matefial, Of for the aEilSt or 1IlIIi-
              "
                                   ine\ll'l'ell or _darod ae.ess!H3' te                                           ,,,,,,'oaI
                                                                                     or millimille sueIt lass or damage:           .

                                    fe, tiBes; peeellies, pllllilive er,Il1lIOlllJlIIH3' damages, isollldiBg ~bl. BlIIIl!IgbS                                                                                                 or any
                    19.
                                    allier        _ages
                                                    rl!Sltliiag KeHlIflWlipiieaINa of eo~eBS·'<!f)' ~

                    2\).            erisisg aIR sf gaeds or I',eoluets 1BOB1IfaGtll•• oI; salol, !landl.eI at _lIted b)o III.
              ::
                                    ,".sur.a ~. h)' ath.... !>WliBg 111M.. his _ , iMlOOiBg ""'1 rGBtl'ref lhetroet;
                    ;n.              faT d<>m.&g. Ie Sf Ie"" .r 0,10118 aC 1100 ef!

                                     i.               properly o~'med III oeeUpied lIy or foaled af leased to the " sSl'fedl



                                    'iii.             property in III. Bare, eustedy or sal!lrel af ilia t\ssllNd af                                                                                      Q'/Ilf       wrueh the
                                                      Assured. is fat aa~" ~asl! elteteismg p1:ly&ieal esatrell



                                                                                                                                                                                                                                           SR-000093
      ·   ,



              21 .




              .22.




              23.




               24.•




                      n.


                      iii.
                               ":0 ~Glioo e• .adieooliv<\ role.       <)f   malIeF, Of     ,                        •

                                                                                   d "'lienc"er or wlierever IlappeBWJ!I

               2S.
                      "'IIlf'Imt)'   that welk pflf'f!!ftlled   ~   e. en • a                     _                     ,
                      ~:Ie_alllll<e ftl9lIfler,                                .                      ..'




,;
~i
".:
                                                                                                                                 .,




                                                                     ·29.·

                                                                                                                            SR-000094
                                                                               '',


                  OFFSHORE ~ONSTn.UCTION PROJECf POLlCY

                                           DECLARATIONS


            1. ASSURED:      O. S. F. I.
                             other joint ventun:n (as their interests may appear) as Principal
                             Assureds and including Project Managem and/or Conlractms andlor
                             Sub-Contractors audlor MaoufllClufClS andIor Suppliers as other
                             Assureds for the Respective Rights and inlen:sts as per wotding.
            ,2. PROJECT:     AsDecJared

            3. :POLlCY
               PERIOD:       PROJECT PERIOD !Sectjon I aruJ Section m
.;;                           The POlicy aitaehes at commencement of Load-up openlioll$, and
;v
                              insures in ~ of caeh part, item or portion of the property insured'
                              hexein which is at the mk of an Assured at hwcption or wlUch b«:om.es
                              at mk of an AssIlrcd after inception and shall cover, continuously
                               \l:Ieteaf\er until eompletion of the last part, item or portion of the
                               property iDSuted herein, cxpccted not later than lUi dechu"ed. The
                             , Project Period may be cx:t<:ndcd at terms and premillm to be ~ by
                               the lead Underwriter.           '

                              Coverage shall attach nOm the time materials and/or parts come at risk
                              of an Assured including work camel! out at contx:aclors andIor sub-
                              contractors audlor IIIlIII1lfat:tu and/or suppliers premises and all
                              transits (on and oflilhore) and shall continue dwing all opctalions until
                              .xpiry as defined above.

                              Legal andlor Conlraclusl Liability Coverage shall aIIl1Ch from
                              conunencement of signing individual conlracts.

                             . MAIN1"ENAHCE PBlllOD (Section I only)

                              Coverage under SECTION l-PHYSICAL DAMAGE shall continue '
                              during the maintco.ance period(s) of specltlc contracts (subject to the
                              terms, conditions and exclusions in the wording), up to a period of 12
                              months aftcr expiry of the Project Period•
                         .
                         '



                              DISCOVERY PERIOD (Section D

  ..
  ','   .
                               The Discovery Period (subject to the terms and conditions in' the
                               wording) shall commence on the same date as and run concunendy
                               with the 12 month Maintenance Period.




                                                    ,-3Q-
                                                                                                          SR-000095
                                                                                                                 ~·t'....              .
                                                                                                                            ".......


                     4. INTERESTI
                        :POLICY L1MIT: SECTION! -PHYSICAL DAMAGE

                       --~-"-'--~""---Undcrwrite~'     total liability under SectlOll" for all cJllilllS'lnising1lllt
j
:.;                          ,         'of anyone Oclcummce sball not exceed 125% of the latest agreed
                                       Schedule "B" values, iticiuding payments made under the sue and
                                        labour cl-. the additional worle clause and the removal ofwrccl<age
                                      'and/or debris clause (each 'of ,which is sepan!1ely limited under 1I)e
                                        OJ>P<Opriate coverage olauses).


                                       Assured under the EsCalation Cbwse, UndetWri                      liability
                                       \IIIder Section I for all claims arising' out 0        e Occwren~e shall
                                       not exceed ISO% of the ini                     ole ,"B" values. hlcludIng
                                       payments made under               iIud 1abour elause, the additional werle
                                       clause and                aI of wrccbgo and/or debris clause, and the "
                                                    CIaIlSC (each of which is sepamtely limited under the "


                                       Notwithstanding anything contained hetein, Underlvritel1i' maximum
                                       limit of liability in respect of Sectlon I shall not exceed the Schedule
                                       •A" value in the aggregate.

                                      SBCfIQl':11l U ".Il!l2rrY
     "
    'tl
                                       US; (AMOUN'r) I>IliY efte Gee_ell'&'
                 "
      ...,           S. DEDUCI1BLES: SECTION I

                                       t US$ 250,000 eacb and every Occ:um:nco in respect of all caxgo
      ',.;
                                           sendings.

                                       ii. US$ 250,000 each and <iNC!)' Oceun:ence hi respect of OOShflIe
                                           Fabrication Risks.

                                       iii. US$ 250,000 each and every OcclJlle1lCC in respect oftoW3 within
                                            waters to final offahore site

                                           or,

                                           QS$ 250,000 each aDd cvel)' Occurrence in respect of ttansocc:an
                                           tows or heavy Jift movem~tsto final offshore site.

                                       iv;USS 250,000 each ,and every Oi:cuttence in respect of l>ffshore
                                          'works and associated S'IIbsequent mainlclUmce: but

                                       v, US$ 250,000 for up td 24" ,diameter pipes- or US$(Amount) for
                                          over 24" diameter pipes each and every Occurrence in respect, of
                                          instaUation ofpipelines, cables, tie-ins, risers, spool, pieces and any
                                          other subsea, and assciciatedsu1isequent maintenance.
                                                              ,           ,

                                        vi. 48 hollIS each and evC!)' Occurrencc in respect of stand-by charges.

             ,                                                  - 31 -
                                                                                                                                   SR-000096
                vii. USS 250,000 each end lIIIIery Occwrence in respeyt of all non-
                       !!p=fied bcrcunaer.

                SBC'lJQ}! H W.;sILID

                USS (l,MQYJlIT) fillY ella {)u_ee.


6. PREMIUM:     USS 100,000 MinImum and Deposit payable at inception adjustable'
                monthly.

7. NOTlCEOF
   CANCELLATION:       TyScrs, 12-20 camomile Street, London EClA 7PJ

~.   CLAIMS REPRESENTATIVE:

9. INITIAL ES'l'Il\1ATED ~AL CONTRACT VALUE (lOO%): USS_Various as
                       ...                          declared .




                                SCHEDULE A
uss __________________




                                SCHEDULER
 US$ _ _ _ _ _ _ __


 This schedule is provUrional and to be confumed by ___________
 on orbefore _ _ _ _ _ _ _ __




                                                                                      SR-000097
                 "




.,

     ~,~,.--'-"::.... ~ .... -¥...-: .. ~ , .•.. , ............ - •. ,
                                                                  ,..  ~.,. . . ..• .....                eftheattaehed
        ''         Net\',oi!hstoa4ieg 1110 pteYisiollS of ,lIIe IJefeell\,. plIft CISlISB IB se~tI:!\~ ~'" 1'1\11$ ";Weft
       '          ,Peli~·. this 1_ _ wiJl pay for \he 6051 afrepair OF ",pleeemBBl ee~Hhe                          W •• ' •

                   mWe ~o"'d phYslealless aatI or physieal demege durlDg III. Pelley Peried, \lilt III. reallY."
                   eflmllh oeslS Is subjee! 101

                             deauetihle $                   eaeh par ea_ aaeideftt or Qeeammec: aM:
                             a IOkII aggregate limit of S
                             illelliElillglllo Ma;illenoreo Peried; aDd

                             lb. p......isi""" "rille Basi••fR.e'8'.~ GIa~es iii SootieR 1 ~f\he PelillYl aae
                     d)      11ft aMilienai poemillm $                         beillgpaid ia filiI.

                      HO"'o"ev it is sp"eilielilly lWle>steed ... 0£ egl'!ed f!IlI! illiG erdorsemeet will-MC pt8'lid"
                      r<>.:'.;e'.y 'for eareellotloft ebarges, steM by oasis        ~! ~ollS.B8Ii~ ~eftilller;S=~f:
~:
                     'weu!dllOt be r<>eo"e.;e.ble wile. \he te.ms aatI OORWtlellS ofilia pone} is e
                     aIause, .




                           .;.,   .'                                     .. ....




                                                                          -33·
,   .                                                                          ,"   .......




        Policy No. ________ shall be modified as follows:

        Jacket/Module Coverage

        As a condition precedent to coverage for claims a;:ising from or in coMec:tion with ph)'3ical
      loss or physical damage to lhe jaeleets, decla, top~dcs, support modules andlor bridges where
      covCtllge for Ibe initial fabrication of the jackets, decIcs, topsides, support lII~ules aDdlor
      bridges is nol provided for in this Policy, the Assured must establish that snch ph)'3icalloss
      or ph)'3ical damage occurred after the altachmCllt of the risk'to this Policy, rcgaallcss of
    , whether SIIch physicallo$S or physical damage is discovel:ed dnring !he Policy Period.

        JacketIModule Fabrication!Mamtenauce Elclnsions

        Where coverage for the initial fabrication of the ja.:kets, declcs, topsides, support lll<XfuIes
        andlor bridges is !llllJm>vided fur in tIt.is Policy, the coverage provided under Sec:tion I and   I
        Section II of the attached Policy shan not apply 10 any claim arising ftoDl or mconnection
        wit!l:                            '

        a)      the design, manufactUre or the construction of the jackets, decks, topsides; support
                modules or bridges; or                                                           '

        b)      Maintenance as sct out in clause 19 of Tenn. and Conditions for Section I to the
                j .elects. decks, topsides, ,sup!l(irt modules or bridges,

         Subrogation

         Where coverage for the initial llIbrication of the jaCkets, decks, topsides, support modules
         andlor bridges is not provided for in thi& Policy, Underwril .... shall be subrogated to aU rights
         wlUch the Assured m.y have against any pernon or other entitY involved in the design,
         manufacture. construction o,r Maintenance of the ja.:kcts. decks, topsides, support modules or"'·"
         bridges. The AsmIred shlIII not grant any waiver of subrogation to such parties and shall C().
         operate with !he UndetwritC[$ to secure their Jllbrogationrightll.         '


         All other insuring agreements. terms, conditions, definitions. exclusions, notice zequirements,
         schedules and crulOlSeIIlCIIts ofthe Policy remain unchanged. '




                                                                                                               SR-000099
           '.




                              PREMIUM PAYMENT CLAUSE

     'The (Ro)lnsutod 1I1!<!.er\lIb'J that premium will be paid in 1iIlI1o t/ndotwriter$ wldUD 60
      ~ o{inceptlon .rllli. pofiey(or. in respect ofinstalm.", pnood...... wit"" due).

     ilftb. premium docUNI", this policy bullOl "'- SO paid 10 Uodorwri_ by the 60th day
     ftQm tho inception of'this poliey (3IId, ill respocl oCl.ustaImoDt prcmiumt, by tho d8lo thcy oro
     due) UnderwJitmlhaU hav.lIIe righllo""'" thio pofieybylJOtilYlDg 1ho(Ro)1mtucd "a
      !he brok... In wridq. In lb. CV<:IU of <:aIICdIa!iOll, pRIliium b doc 10 11~ OR • pro
     >:ala lnlsis fbr the period IIuIt Undezwrit... "'" 011 risk bul1ho filii policy p.nmium obaII bc
      payllblolo Und.......u ... in th. oven' ofal... or oa:om:n<:I> prior 10 1110 dale OftcmtinatiOD
     'Which gIv.. rise to. valid claim under thio poliey.

      It 10 ogreod that Undawril.... shall givonot J.a1hon IS pays prior. of ~alioa 10
      ;tho (Rc)luurod vi. 111. brok<:r. I f p _ duo is pold in IIJII to Und«Mit...bcfbrc th. .
     .nod... period expltto, nod"" of canocllalion obaIIaulOmalically be "";'kocl. Ifno~ 1110 policy
      -sh'!l1a.tomadClllly _ato '" the ODd oftho nod.. p«iod.
     Unless 0Ihc:Iwi.. agreed, lb. LoadiiIg IJcderwJitor (and Agme.nont P""'.. i£appn>priatc) aro
     .authorised 10 exetd:!o rights IIIldcr this clause on their own behoJfand on bcIIal£ of all
      Undorwrit'l'" participating in this eomrsct.                                .

      lfany provision .f!hi< cLWois     eo""d  by any court or admjnistraIi•• body of~
      jurisdiodon to bc o.v.ud or uoc:orot<:<oablc, such. invalidity Or~ty will not afIllct
      tho o1IIer proYioio.. of this clause which will remain iu.1iIlI fl>m aod otrca.

      WIwo lb. pr<mium is 10 bc paid 1IIrougb • Londo., Matkel B....... PI)I1I1"" to U..d«wrlt...
      willbc d<:omed 10 """"" OD. the day oCddivc<y of. premium advicol1Otc to 1110 Bw:c:an.


      11/01
      LSW3000




.,
j
        '0Jo:




.,
"


'(
    ,

                                            SEVERALLIAB~ NonCE


                The sulxicn"biog in:rurors' obligatiQIIS UIldCr c:ootnwts of imonmc:c: to which.tl\cy
                sul=11>e am scveraI and notjoiDt and anI.Ul1\itcd solely t!) the extent of their
                individual subscriptions. The subscribing insums ani DOt 1"C$pOIItibie for the
                .subscription of arrJ c:iHlubscribing insun:r who for any rca:soll does not salistl' aU .or
                 part of its obligations.                                        .


                LSW 1001 (IIlSUI1Il1CC)




o   ~




. !




                                                                                                              SR-000101
                                                    GREGORY G. lARY

                                                         Page "IT                                                      Page 39
1        Q. If you take a look at Exhibit 48, there is              1         ",. Correct.
 2 a .- 1 believe In Exhibit 48 Is a application form               2                (Exhibit 50 marked)
 3 towards the back.                                                3         Q. Exhibit 50 Is a doc:ument which you produced
 4     A. Maybe you can show me what you're referring               4    that is Bates numbered 0405. And as I Indicated at
 5 to In your document so J can ...                                 5    the lest deposition, the original production simply
 6     Q. Well, It's - there Is a request for quote                 6    had a number on tt and my' offICe has added the
 7 that Is part of the business insurance section.                  7    designation "tary Insurance,' Just so we can keep tt
 8     A. Okay.                                                     S    all straight
 9     Q. Thafs okay. lfs -Ifs a web page, like                      9                MR. PAPANDREOU: By the way, I think
10 we talked about before, that somebody would go onto              10   tt's Exhibit 51.
11 and could f1JI tt out and ask you to obtain a quote              11                MR. WINTON: Well, I tried to avoid
12 for a business, correct?                                         12   that. Are you saving that -
13     A. It would be the Initial contlct, maybe,                   13                MR. PAPANDREOU: I think Ifs Number
14 that some people would choose to •• to initiate a                14   51. You have marked already a Number 50, no?
15 quotation from OUf agency.                                       15                MR. WINTON: No. No. Oh, I thought
16.   Q. I take It, wIIh regard to this policy,                     16   you were saying It was already marked as an exhibit
17    that's not how the process started WIth OSfl?                 17                MR. PARRISH: Whafs the Bates label?
18        A. No.                                                    lS                MR. WINTON: 405. Ifs lary Insurance
19        Q. Old OSFI, wM regard to this policy, ever               19   405.
20    submit a spedfk: appllCiltlon1 And we'l get to It             20         Q. Which rm handing you. Do you !<!COgnl2ll
21    In a bft. TIlere was one In the doc:umenls that have          21   that as a printout of a series of email. that you
22    been produced here.                                           22    made here? 'Here' meaning ~t your office.
23                Its a multi-page form that goes Into              23                MR. PAPANDREOU: 1 thought the
24    a lot of detail with regard to the subject of the -           24   printout of appointments· was Number 50.
25    of the Insurance. Do you recall whether or not that           25                MR. WINTON: Huh·uh.

                                                         Page 38                                                       Page 40
 1 was done WIth regard to this policy?                              1Q. Initially, I'm Just goona ask you whether
 2         A. I don't recall.                                  2 or not 1llat appears to be a \rue and accurate copy of
 3        .Q. Is It typical fer underwriters to ask that       3 . the document that you produced from a sertes of
 4    a doc:ument be filled out or Information provided. that  4 emalls you've prtnted out here, so...
 5    describes the nature of the bUSiness, the·(1Sks and      5      A. Correct
 6    50 forth?                                                6       Q. Okay. TIlen we'll kind of get Into the
 7         A. Certain companies, that Is - that Is             7 documents. TIle oldest emaR appears to be a June 28,
 8    true. TIla~s a typical request                           8 '02, email from you to lay at OSFI. And I assume
 9         Q. With regard to dealing wM the Uoyds              9 thafs Jay Henderson?
10    market, when you're asking fOr insurance for projects .10        A. Correct.
11    or for a particular entity In business, 'don't they     11       Q. And you're talking about obtaining
12    always ask for a certain amount of Information with     12 Insurance, correct?
13    regard to the nature-of the business, the claims        13       A.· Correct
14    history, so that they can evaluate what the risks are 14         Q. TIle next email In this sequence i. from
15    that they are agreeing to undertake?                    15 Arlene Duplantis toJay Henderson. Do you know who
16                MR. JOSf: Objection, form.                  16 Arlene Is?
 17        A. TIley request Information. Whether or not       17       A. She worked at OSFl. I don't know that I
 18   I~s In an application form Is not always correct.       18 know her personally.
 19        Q. Sure. But they ask for the Information and      19       Q. In this email, th...o'$ a discussion about a
20    you provide It as part of going to •• Into the London   20 depostt of $100,000 thefs line two -line numbered
21     market to seek coverage?                               21· two. And then line flve, question coming I'rtlIi1 OSFl,
22         A. Correct.                                        22 "WIll 100 percent of the deposit be credited back
23         Q. And they often will come back and ask fOr       23 from each Job premium until paid bacI<?"
24     addltlonallnformatlon so they can kind of flesh out    24              Explain for me, if you would, because
 25    their evaluation of the riSks, correct?                25 I've been confused as I've looked thrqugh these

10 (Pages 37 to 40)
                                                Independent Reporting, Inc.
                                                           281.469,5580

                                                                                                                    SR-000111
                                                 GREGORY G. LARY

                                                   Page 41                                                       Page 43
 1 doCuments, the discussion of a depos~ premium and         1         A. No. I don't -- I doo~ know that I even
 2 the premium II>eW. What - what is the depostt             2    understood what - What - or maybe I didn't - maybe
 3 premium?                                                  3    1 thought he probablY didn't understand how this --
 ~     Po. The deposit is -- is the - is an amount of        4    the whole p'l'Ctdure worked.           '
 5 mOney that Underwriters wanted to - to set out as         5         Q. But it was your understanding that 100
 6 the - as lIle IQitial charge for the polity.               6   dedaratioos of spedftc projects that would be made
 7     Q. And Is It correct that this polity that             7   to this policy would be for a variety of customers?
 8 ultimately gets issued, after the date r:i this email,     8        A. Well, we were trying to got an aggregate on
 9 is • polity lIlat Is going to be In place for a period     9   the deductible.
10 of a year, but spedf1c contracts that 05Fl                10        Q. Right And I've gone on to a different
11 undfartal<es are going to be declared onto that poncy     11   question. You did understand, from your discussions
12 for periods of ~me and the coverage Is really going       12   with him, and specifically this email, that during' ,
13 to be sort of In Inqements of • period of time on         13   the year that this underlying policy was in effect,
14 one project and then another project and then another     14   OSFl would be doing projects for a number of
15 project?                                                  15   different custome.. and each project would be
16              MR., PAPANDREOU: Objection, form.            16   declared for inclusion will; this policy, correct?
17              MR. lOST: Objection, form.                   17                MR. PAPANDREOIJ: Objection, form.
18      A. They would add projects to the coverage If        18        A. Not each project. I mean, only when they
19 the -If their client requested them to do so.             19   requested It '.
20      Q. Okay. But the policy Itself doesn't really        20        Q. Sure. They might do projects that they
21 do anything. It doesn't provide any ooverage until        21    didn't need to have declared onto this coverage,
22 there's a declaration of a project to be' covered by      22    ri,9ht?
23 that policy, oorrect?                                     23         A. Correct.
24      A. Correct.                                          24         Q. But In order for a given project to be
25      Q, And what you're seylng is this depos~             25    COVt!red, under this policy that you were tlllldng

                                                    P'ge42                                                       Poge44
 1 premium Is -- $100,000- is goM. go to ~ Is goon" be       1 abeut getting for them, then! would be a sepamll!
 2 charged as " premium and then, depending on the           2 declaratlon relative to that project so Underwriters
 3 project, th.re will be additional premiums that are       3 would knOw that this spedfie project is being
 4 going to be added onto that and the $100,000 will be      4 declared under this policy and then they would set.         '
 5 credited against those projects as they come up?          5 premium, depending on what the risks were of that
 6             MR. lOST: Objeetlan, form.                    6 speclftc project, correct?,
 7     A. Correct.                                            7                MR.·JOST: Objection, foom,
 B     Q. If you look at the first page of exhibit            a       A. No.
 9 50, that is an email from Jay Henderson to you,            9       Q. Okay. Then where did I go wrong?
10 correct?                                                  10       Po. The premium - or the rate was established,
11     A. Correct.                                           11   so there was not a 'different premium on each
12     Q. And rt says, on number three - which I             12   project.
13 'assume Is referring beck to that prior email we just     13        Q. Well, the rate was established, but the
14 looked at, oorrect1                                       14   premium would be calculated by mulUplying Ille rate
15    A. Correct.                                            15   ~M"\I!S the value of the proj!'Ct, correct?
16    Q. It says, 'We need a per project deductible          16        A. Correct. But - I mean, that doesn' - I
17 because our custome.. are always different.' Is that      17   guess if you put it In a cerlaln way, then ~ would
18 oorrect? Th<irs whet that says?,                          18   mean that each one had a different premium, but the
19    A. Correct.                                            19   rate was always the same.
20    Q. Was It your understanding that what he's            20        Q, Well, the - that's not entlrely correct,
21 saying Is that he wants - he's asking for you to get      21   Is It, In that •• and tills Is a minor difference
22 a smaller d.!ductlble because each customer Is gOnn.      22   perhaps, but the rate would vary, depending on
23 be different and he wants to charge a separate            23   whether or not the risks would oa:ur during hurricane
24 deductible to each project?                               24   season and the customer was asking for toverage of
25            MR.lOST: Objection, form.'
                              "
                                                             2S    hurricanes?

                                                                                                       11 (Pages 41 to 44)
                                              Independent Reporting,Inc.
                                                    281.469.5580
                                                                                                          SR-000112
                                                  GREGORY G, LARY

                                                    P3ge4S                                                            Page'?
.1         A. Thars one of the things that could affect         1      Q. 00 you recall receiving this?
2     the rate.                                                 2      A. No.
3          Q. RIght. So the rate would vary slightly,           3      Q. If you look at the bottom,. "It is likely
4     but for each project you'd detetmhie .the premium to      4 that foreign market wPI give a max of 15% discount,
5     be charged for that project declaration by                5 so if squawking at a. 2.25% rate, then we can' cut our
G     multiplying thll,rate times the v.lue of the project?      6 discounts to a total of 15%: 00 you see that
7          A. Correct. Can we stop? I'm getting a                7 language?
8     terrible glare right here -                                8      A. Correct.
 9         Q. Oh, yeah.                                          9    . Q. Do you have an understanding of what that
10         A. -- and I don't want It--                          10 means?
11         Q. You 'Iook like you're fighting ~ a I~e            11             MR. PARRISH: Object to form.
12    bit.                                                      12             MR. JOST: Objection, form.
13         A. -- appear On the video as -                       13      A. To me It means the commission amounts.
14                THE VlDEOGRAPHER:' 9:50. Off the             .14      Q. fifteen percent would refer to Tyse(s
15    """,rd.                                                   15 commission?
16                (Recess from 9:50 til 10:00)                  16      A. Total--
17                THE VlDEOGRAPHER: The time's                  17             MR. PARRISH: Object to fOrm.
18     approximately 10:00 a.m. We're back on the record.       18      A. Total commisSion.
19         Q. Take a look at the email tha~s at the             19      Q. Sp your understanding of what they're
20     upper portion of exhibit 50, If you would. The very      20 saying is that the total commission )0 be taken out
21-    last paragraph, you'", telling Mr. Henderson about       21 by you and Tysers combined would be 15 pertent?
22     McDermott deciding not to buy a BR policy. I assume      22             MR. PARRISH: Object to form.
23     that means Builders RiSk, BR?                            23             MR. JOST: Objection, form.
24         A. Correct.                                          24      Q. Is that correct?
2S         Q. Then you say, "The best rate they could get       2S      A. No. That we could go to that If we had

                                                     Page 46                                                          Paqo48
 1 was $'\ w~ a $500,000 deductible.' What does tl\at           1 to.
 2    mean?                                                     2     Q. Could drop the total commission doWn to 15
 3         A. What I was being told by - by a London            3 pet(2nt?
 4    broker Is that thars what he was hearing In the           4            MR. PAAAlSH: Object to form.
 S    market, that thelr tale was around $4.                    5     Q. Is that what you uoderitnod thl. to mean?
 6         Q. Does that mean four percent?                      6     A. Tha~s what ~ looks like.
 7         A. Four dollars per $100 .of value.                  7     Q. Okay. And Is ~ the norm thet you and
 8         Q. Okay. So four percent?                            8 whoever the London broker I. wouhftake • commission
 9         A. Correct.                                          9 out of the premium to pay both of you for your
10                (Exhl~ 51 marked)                            10 services?
11:        Q. I've marked as Exhibit Sl a document that        11      A. Most of the time.
12    ·was produced by Tysers. It Is Tysers 238. And when i2           Q. And Is ~ rorrect that you and the London
13    we talk about a document having. number as being 13 _               would spUt whatever thet percentage
14     llLary," "Tysers," "Underwriters,'" "OSFl, II whatever, 14 .commission was between you, based on some agreement
15     tha~s • Bates number In the bottom right-hand .         15 between the two of you?
16     comer, generally, to help us Identify the document.     15     ·A. Thor. ". yes. Th.t~ ali - It's
17     00 you see   that?                                      17 negotiated on each one.
18         A. Okay.                                            18      Q. The document here that we're looking at,
19         Q. That means that Tysers produced this             19 Exhibit 51, indicates ifs part of a three-page fax.
20     particular piece of paper and It was number 238 In      20      A. Okay.
21     the series of their production.                         21      Q. You - If you had produced a COpy of thIS,
22         A. Okay.                                            22 I would have had your copy here for your depOsition,
 23        Q. this appears to be a fax from Tysers to          23 rather than a Tysers document, and I believe even
24     you. Do you see that?                                   24 Tysers has only produced a single page of this
25         A. Yes.                                             25 three-page fax. Do you have an understanding of why

12 (Pages 45 to 48)
                                               Independent Reportlng, Inc•
                                                     . 281.469.5580

                                                                                                                SR-000113
                                                    GREGORY G. LAAY

                                                     Pii19Q57                                                         page 59
1          Q. And you go back to him saying that tha rate          1 than tha premium for this project.
2     would be twcrand-a-half percent during hunicane              2     A. Correct.
3     season, deductible of 250 and then you say, "We f;Ould       3     Q. Okay. So th~ 217,000, whatever the number
4     actually use this as the first one.' What do yoU             4 Is, which we'll COme to In a minute, would be paid as
S     mean by that?                                                5 the premium on this project declared under tha
 6          A. We could use this as the first dedaratton           6 policy, and that number's high enough ~ takes care
 7    If they - ff they, in fact, did need It for this,            7 of the $100,000 minimum?
 8    under this policy.                                           S     A. Correct.
 9          Q. SO this would be tha first project declared         9     Q. Correct? Okay.
10    onto the policy?                                            10            (Exhibit 55 marl<ed)
11        . A. Well, at that point we had not - we had            11     Q. I've marl<ed as Exhibit 5S a dOcument
12    not declared anything to - any projects to the              12 designated Tysers 231. This Is an email from you to
13    policy.                                                     13 Guy Oarell. Do you. see that?
14          Q. Right. I understand that. And, In fact,            14     A. Correct.
15    as of the 11th of July, there Is no policy?                 15     Q. And your ern.1I1s d.ted 15/07/2002, which I
16          A. Conect.                                            16 assume means 15th July, 2002, correct?
17          Q. 50 what yo.u·r. saying Is that once there Is       17     A. Correct.
18    a pollty--                                                  18     Q. As I read the varIouS documents that you
19'         A. Well                                               19 created, It appearS to be that when you're
20          Q. •• the $8,716,000 project f;Ouid be the            20 communl",Ung with London, you do your dates In the
21     first one declared onto tIle'pollty, right?                21 English format of day, month, year, and then when
22          A. Well, there Is a polity, It's just --Irs           22 you're doing documents for domestic f;Onsumptton you
23     not fully subscribed to.                                   23 do It the way that we're uSed to seeing It here in
24          Q. Okay.                                              24 the States .of month, day, year; Is that f;Orrect?
25          A. Or I take that back. At this point there           25      A. That's f;Orrect.

                                                      Page   sa                                                       PIIg.6O
 1    probably would not have been a policy because ~              1     Q. And do you follow that practice
 2    doesnt appear that we had - I mean, I think that             2 f;Onslstentiy?             ,
 3    OSFI waited un~1 tIley had a project before we               3     A. Yes.
 4    actually went into full fo"", and effect.                    4     Q. Do you recognize this to be a true and
 5       Q. Okay. But what you're saying here Is this              S f;Orrect f;Opy of an email printed out off your system?
 6    $8,716,000 project f;Ould be the first one ded.red           6     A. It appears to be, yes.
 7    onto this policy, right?                                     7     Q. Okay. Here you say, to Guy Oarell at
 B        A. It could be, yes.                                     8 Tysers, the nrst Job Is 2.875 million and Is
 S        Q. And then you go on to say, "This would be             9 scheduled to leave later this week, f;Orrecti'
10    more than enough to f;Over the deposit: I aSsume            10      A. Correct.
11    what yollre doing is you''''; multiplying 2.5 percent       11      Q, Alid Is It corned that Guy Dareilis an
12    Umes $8,716,000, which is'$217,900 or some such             12 IndMdual who works for Tysers In the underwriting .
13    number like that, c:orrect?                                 13 side In london7
14        A. Correct.                                             14              MR. ~ARRlSH: Object to fenn.
15        Q. And the first 100,000 would be the                   15      A. No. Thar. no~ f;Orrec;t. He's not an
i6    premium .. I'm sorry, the deposit premium .requested        16 underwriter.
17    by TIjsers and t11en the rest would sit In this escrow      17      Q. fm sonY. He's on the - when I said
18    account, as we just discussed with regard to Exhibit        18 underwriting side of the bUSiness, that's
19    S2, I believe?                                              19 dlstlngillshed from the dalms side. He Is on the
ZO                MR.lOsr: Objection, form.                       20 side of Tysers business that Is pl~dng risks"
21        A. No. No. That - thilt never was done, that            21 f;Orre<:t/
22    idea Qf an escrow acrount and ...                           2+      A. Correct.
23        Q. You Indicate this would more - be more               23      Q. Procuring Insurance?
24    than enough to cover the deposit and if you never use       24      A. Correct.
2S    the policy again, you would not owe anything othar          2S      Q. What would you call him?

                                                                                                           15 (Pages 57 to 60)
                                                Independent Reporting, Inc.
                                                        281.469.5580
                                                                                                                SR-000116
                                                 GREGORY G. LARY

                                                   Page 69                                                       Page 71
 1        Q. And Is the 12.5 percent your commission?        1    so forth?'
 2        A. Yes.                                           2          A. It - tt could be. It says, "general
 3        Q. And I take tt down at the bottom, under        3     wording," so I would assume that would be what It
 4   "Information,' it says, "E<tima\e total contracts      4     was,                                     "
 5   this year U.S. dollar.; 40,000,000, thus around 15 to  5          Q. Do you know where the attachments to this
 6   20 jObs,' that's1nfurmaUon you provided'to             6     email went?
 7   Underwriters?                                          7          A. No. I mean, they're probably located In a
 8         A. Yes,                                          8     file with all' the other documents on a computer thet
 9         Q. And thars an IncenUve to encourage them       9     Is In a junk yard somewhere or In the...
10   to underwrite this policy because thers an            10          Q. Would you have hit the litHe paper dip
11   Indication to them of how -'It giWS them an Idea of   11     icon on your commuter and gone and attached a
12   how much money they're gonna make In premiums?        12     computer copy of the Welcar 2001 pOlicy form?
13         A. No. I don't think that was an Incentlve.     13          A. Correct.
14   I mean, it was a .- it was an estimate of what,       14          Q. SO I lake it you have a copy of that ba.ic
15   historically, 05FI had - had done.                    15     manuscript pOlicy on your computer here?
16         Q. But If there were $40,000,000 In contracts,  16          A. No. I probably had Ty••r send over a
17    then the premiums would be something dose to 2.25 or 17     copy. Maybe before we did all this. I don~ know
18    2.5 percent Hmes that, right?                        18     when,
19         A. Well, yeah. Sure.                            19          Q, Okay. Do you know whether or not you would,
20         Q, If you look at the next two pages, they're   20     still have a copy of what was attached to this?
21    494 and 495. Have you ever seen mar1<s like these    21          A. No. I doubt It
22    before?                                              22          Q. It says, "Attach WELCAR wording.eml.' Do
23         A. Yes,             , .                         23     you know what that means?
24         Q. Is It your understanding these are the       '24         A, No, I don't. I mean, apparently Irs the
25     variOUs underwriters signing onto the riSk?         2S      Welcar wording. I don't know what the file emlls.

                                                   Page 70                                                       Pagen
 1    A. Yes.                                                 1       Q. can you go back Into your computer and pull
 2    Q. And the first one there WEL 2020, WEL ~030,          2   that up?                                        '
 3 those are WeDlngton syndicateS? Is that your               3       A. No.
 4 understanding?                                             4       Q. Why not?                                   ,
 5           MR. PAPANoREOU: Objection, form.                 5       A. Irs -I mean, Irs gone. I mean, we had
 6       A. Yes.                                              6   • virus on OUr 'computer.; that we lost a bunch of
 7            (Exhibit 57 marked)                             7   stuff on, not Just this.
 8     Q. Exhibit 57 Is LIIry Insurance document 388.         8       Q. Okay.
 9 Do you recognize this as a printout that you mede of       9              (Exhibit 58 marked)
10 an email you sent to Mr. Henderson at OSFl?               10       Q. I marked as exhibit 58 a document eates
11     A. Yes,                                               11   labeled LIIry Insurance 374. Take a look at that if
12     Q. And the email was dated July 18th, '02?            12   you would, please.
13     A. Yes,'                                              13               00 you recognize this to be a true and
14     Q. The email says, "Here Is the general               14   accurate copy of a fax you received from Tysers?
15 wording and I will let you know any additions and         15       A. Yes.
16 deletions on Monday." And the rest of the page IS         16       Q. And there's an Indication on - In the
17 blank. 00 you see that?                                   17   middle there where ~ says, 'No. of pages 1 of 2."
18     A. Yes.                                               18   Do yoo know what happened to Page 2?
19     Q. What were you sending him as the general           19      A, No, I don',
20 wording?                                                  20      Q. this fax Is dated 19th July, '02, Do:you
21     A. Probebly just. copy of the Welcar form.            21   see that?                                  '
22     Q, A blank Welcar form.                               22      A, Yes.
23     A. Uh·huh. Yes.                                       23      Q. And It begins, "Greg. Thanks for facsimile
24     Q, Would Iilat be Itte Welcar form with no            24   17th July," We did not find, in the documents you
25 strike-through<, modifications, deletions, additions,     2S   produced, a ropy of a facsimile dated 17th July. 00

18 (Pages 69 to 72)
                                              Independent Reporting, Inc.
                                                     281.469.5580
                                                 GREGORY G. lARY
                                                                                                                       '.
                                                   page S9                                                       Page 91
1    make sure.                                                1 would have got - whenever I would have receIVed It
2         Q. No •.You wore right. That was technically         2 from - from Tyser.
3    correct. I appreciate it In the cover page, Tysers        3     Q.. Do you have any notes or travel expenses or
4    is sayong to you, "~ease see Welcar wording as            4 anything that·would Indicate that you were at OSFI on
S    agreed by Underwriters" Do you see that7                  5 or about the 29th of July?
6         A. Yes. ....                                         6     A. Oh, I'm sure I do. I'm sure - notes, I
7         Q. And the document that Tysers has sent to          7 don't know, but expenses, yes, I probably have·
8    you has various provisions with a slash marl( through     8 those.                                         •
9    them. Do you see that?                                    9      Q. And do you have anything that would
10        A. Correct:.                                        10 Indicate that you, In fact, handed a copy of the
11        Q. Is that the - that is the way that looked        11 policy to OSFI on that date?
12   when you got it on the 22nd of July, right?              12     A. No.
13        A. Yes, it is.                                     .13     Q. Now, OSFI Is located In Houma, louiSiana,
H         Q. It goes on to say, 'We are not covering the      14 right7
15    liability section, Which is SectIon 2" -                IS     A. They have an - thars their main office,
16        A. Uh-huh.                                          16 yes.
17        Q. - "or bits that don't need" -- "they don't       17      Q. Is that where you delivered a OJpy of the
18    need, like escalation clauses, as we are riot covering 18 policy?
19    the construction. n                                     19     A. Yes.
20                 What was your understanding, under         20      Q. Why were you in Houma" Louisiana, on or
21    this Builders All Risk policy, what they meant when     21 about the 27th of July?
22    they said tiley were not,Dovering the OJnsblJction? . 22        A. To visit with OSFI or the president, Rocky
23                 MR. PAAA!SH: Object to form.               23 Henderson.
24        A. The - the actual construction of tile            24    . Q. 'If you take a look at Bates Page 21, which
25    platform, whlchlnduded thejaeket and the legs that 25 is also Page 4 of the adual document --

                                                    page: 90                                                      Page 9'2.
 i was done onshore.                                           1       A. Uh-huh.
 2     Q. Okay. So Irs not Induding coverage of                2        Q.- you see where It says assureds,
 3 the construction of the jacket and the deck before          3    ptlndpel assureds and then names, correct?
 4 they:'. loaded on a ba'll" to be taken out for              4        A. COrrect.
 S InstaRaUon?                                                 5        Q. So ~ dO\lSnt say OSFI, com:.<:t?
 6     A. COrrect:.                                            6        A. COrrect.
 7     Q. Okay. Do you recall when was the first               7        Q. You're saying that what you delivered to
 8· time you ever sent this fax or forwarded this fax on       8    them is not this particul.r OJPY, but a different
 9 to either OSFl or Houston Exploration? .                     9   copy?
10 . A. OSFI, I probably would have delivered                  10       A. It would have been the original of this.
11 that                                                        11       Q. What do you mean, the original of this?
12      Q. What do you meanby probably would have              12       A. Well, this Is • - this Is a fax of the -
13 delivered ~7                                                13       Q. Right.
11      A. I probably would have gone over there and           14       A. - actual slip - or the actual form that
15 hand delivered it to them.                                  15   was signed off on, and they would have sent that to
16      Q. Do you recall, In fact, hand delivenng it           16 me, the original.
17 to OSFI?                                                    17      Q. Is that the one that has the smooth
18      A. I recall hand delivering a copy. I don't            18 Interllneations rather than just the handwritten
19 believe it was this one. I believe it was probably          19 strikes?
20 the original that I received from Tysers.                   20      A. No. No. It would have been the - It
21      Q. Later on?                                           21 would l1ave been this one.
22      A. A week or so, yeah.                                 22      Q. Okay. SO you·r. saying that what you
23      Q. And do you recall when it was that you did          23 delivered to OSFl on or about the 29th of July looked
24 that? Was It a week after the 22nd?                         24 like this In terms of the handwritten strikes?
25      A. It - somewhere around there. whenever I             25      A. Yes.

                                                                                                       23 (Pages 89 to 92)
                                              Independent Reporting, Inc.
                                                     281.469.5580
                                               GREGOI\Y G. LARY

                                                Page 113                                                         Page 115
 I to 'Mr. Glove(s resume tI1at I put aside before. IS        1    premium, if the rate charge was tI1e nonhurrlcane
 2 It your understanding that thars what the fax Is           2    coverage, would be two-and..~uarter peroent, right?
 3 referring to where It says Infonnatlon on Exhib~           3        A. Right.
 4 68?                                                        'I               MI\. PAPANDREOU: Objection, fonm.
 5     A. Yes. Yes.                                           S        Q. That times $8,716,000 is $196,110. On the
 6      Q. Okay~ Why don~ we mark that, then, as              6    other hand, Wwe had the extra quarter percent for
 7 exhibit 69.                                                7    the hUrriCane premlum, tI1en it's 2.5 percent times
 8             (exhibit 69 marked)                            8    $8,716,000, which works out b:l $217,900.
 9             MI\. PAPANDREOU: can you giVe us the           9        A. But I think you need b:l establish what you
10 Bates numbers for ti1at?                                  10    mean by hUrricane coverage. I mean -
II             MR. Wlm'ON: Yes. lory lnsuranc:e 357          11        Q. WeI~ what Is it that extra quarter percent
12 through 371, and Irs - you're free to look at It          12    bought?
13 Irs, baSically, Mr. GIoYe(s resume. ,                     13        A. In my Opinion, the hUrricane coverage was
14      Q. At the time you recelved this, was it your        .J4   intended If you were transportJng a - lers say a
15 understanding that Tysers had, In tact, added Houston     15    Jacket on a barge and a hurricane came and you
16 Exploratlon as loss payee and additional assured, as      16    couldn't -- you couldn't avoid It, you couldn't get
17 Indicated on your certlficate of insurance sent to        17    out of the way, you couldn't get back to port and you
16 them?                                                     16    were stranded out there and got caught' by the
19      A, Yes.                                              19    hUrricane and lost the jaCket, say, for example,
20             (E?<hlbit 70 marked)                          20    because of the hurricane, !hers what the hurrJcane
21      Q. I have marked as exhibit 70 OSFI Informal         21    coveralle was for.
22 production document 74.                                   22        Q. Okay. And It Indudes projects being done
23             MR. WIm'ON: Do you guys need to look.         23    during hurricane season, right?
24 at this since you've not seen them before?                24        A. Co01l(t. Correct.
2S              MR. SCARBOROUGH: Sure.                       2S        Q. Okay. 'Thars -- that's flne.

                                                 Page 11-4                                                       Page 116
 1             MR. PAPANDREOU: Okay.                          1         A. Okay.
 2             MR. PARRISH: Oh, fm sorry.                     2         Q. And the premium being charged here induded
 3             MR. WINTON: lewis, when you're                 3    that additional quarter percent for projects done
 4 finished, wO\Jld you just pass It to the wl\Oess?          4    during hurricane season?
 S             MR. JOST: Sure.                                5         A. Thor. correct. Thar. correct.
 6      A. Okay.                                              6         Q. And of this $217,900, is it correct that
 7      Q. Do you re,;ognize this document to be an           7    your commission was 12.5 percent of that?
 8 invoice submitted by lary Insurance Services to OSF!       8         A. Yes. I believe, yes.
 9 for the premium on the Houston Exploratlon project?        9         Q. Now, tilat commission of 12.5 percent I did
10      A. Yes.                                              10    not see any documents In anybody's production that
11      Q. It Indlq!tes, In the lower left-hand Side,        11    Indicated that you advised 0SFl that of the $217,900,
12 above the stamp, "Houston ~Ioratlon South 11mbaUer        12    you were taklng 12.5 percent. Old I miss something?
13 317,.' correct?                                           13         A. No.
14      A. Correct.                                          14         Q, So you did not disclose to OSF!, and you
15      Q. And the premium charged Is 2.5 percent of         15    normally wouldn't disclose to an Insured, wf)at your
16 project value of $8,716,000; Is that correct?             16    commission was on the placement of the coverage,
17      A. Correct.                                          17     right?
18      Q. SO, In other words, the quarter pen:ent for       18         A. Normally, I wouldn't, but I may have In
19 hurricane coverage was Induded In the premium,            19     this .Instance. I don't know. I mean, If they would
20 correct? I cheated. I did the matl1ln advence             20     have asked, I certainly would have told them.
21 because I cant do It In my head.                          21         Q. I didn't see anything that indicated you
22      A. No. l'iII not doing the math. I'm trying b:l      22     did tell them.
23 dissect your questlon because it's - ,to me I~s •         23         A. Not In writing, I don~ believe I did.
24 little misleading.                                        24         Q, And'you dldn~ tell Houston exploration?
2S       Q. Well, I don't'mean to mislead you. The           2S         A. At this point, I had not talked to HouSton

                                                                                                    29 (Pages 113 to 116)
                                            Independent Reporting, Inc.
                                                  281.'169.5580
                                                                                                          SR-000130
                                                    GREGORY G. lARY·

                                                     Paget37                                                         Page 139
1       A. In essence, it would have, yes. .                     1 know of.
2       Q. Sure. You just delete It when you're                  2     Q, No. A dedarations page.
3 prlnUng i~                                                     3     A. Oh, we were talking about a cover note.
4              MR. PAPANDREOU: Objection, form.                  4     Q. I know we are. I'm sony. You're right
5       Q. Right?                                                5' My question that was pending was whether or not there
6         A. I suppose. I mean, I dldn' -. I wasn' a             6 was a prior I:JJVef note puttlng .thls policy Into
7    party to the typing of this.                                7 effect?
8         Q. And the next page in Exhlblt 6, MatDan 07,          8     A. Not •• not a labeled tover note, no. 1here
9    is an example of the certificate of Insurance that          9 was a line slip.
10   you issued that's unsigned? .                              10     Q. Una slip meaning a do<:ument like exhibit
11        A. Yes, 1ha~s correct.                                11 687
12        Q. Tilat we talked about before?                      12      A. COrrect.
13        A. 1ha~s correct.                                     13      Q. aut relating to the Westport Resources
14        Q. And we don't need to go oVer that again, I         .14 project?
IS   assume.                                                     15     A. I'm sony. Not 68. It would· be the
16        A. 1hars correa.                                       16 exhibit - I just had It Fifty-six.
17               (Exhlb~ 74 marked)                              17     Q. exhibit 56 is • cover note tIl.t has tIie
18        Q. I'd like you to take a look at what I've            18 assured typed In, but sb1cken out, apparently?
19    marked as exhibit 74, which Is a document labeled          19      A. Yeah.
20    Lary Insuranl:e 483 through 489.                           20      Q. Is it your understanding that this Is the
21        A. Okay•.                                              21 first cover note that puts this policy Into effect,
22        Q. Do you recognize that to be a true and              22 Exhibit 56?
23    acOJrate copy of the Tysers ccver note tIlat relates       23      A. Thars what I relied on..
24    to the Houston exploraUon project? .I'm sony,              24      Q. What Is your understanding of tha reason
25    that-                                                      25 for issuing E:<t11b1t 747

                                                     Page I3S                                                         page 140
 1        A. I think rd rather you -                         1        . MR. PARlUSH: Object to form.
 2        Q. 1hat is not a correct statement                 2     A. Mortifannal. And, aC\Ually, I think the
 3        A.. Right.                                         3 enijre polIcy had been subscribed to at that point.
 4        Q. I apologize. I mlsstiited that.                 4     Q. By the 29th of I\Ugust?
 5        A. Right                                           5     A. Yeah.
 6        Q. Do you recognize this to' be a true and         6       ..
                                                                   Q I'm sony. 1he 27th of August. Yeah, the
 7   accurate copy of the cover'note Issued byTysers tIlat 7 date of the cover note is 27th of August?
 8   Is putting this .11 risk installaUon floater Into       8     A. Correct.
 9   effect?                                                 9     Q. I was lookIng at the fax date up on the
10        A. 1hars correct,                                 10 tOp.
11        Q. I'm S0rTY. And this}. dated tile 27th of       11     A. correct.
12   August, '027                                          '12.    Q. SO I~s your understanding that this is
13        A. Correct.·                                      13 really just a smooth copy of - what exhibit number
14        Q. Now, Is it your understanding that tillS       14 are we on?
15   policy actually came into effect before tIl~ 27th of   15     A. Fifty"!;lx.
16   August '02?                                            16     Q. Fifty"!;lx?
17        A. Yes.                                           17     A. Is that whatI said?                                        .
18        Q. And, In fact, there was a project dedared      18     Q. I think thor. right.
19    to this policy, that being tile Westport Resourt:eS   19     A. Yes.
20   project that is dated earlier than this, correct?      20     Q. SO this-
21        A. Correct.                                       21     A. I mean, in eS5eOOl, they're two
22        Q. Was there a separate toller note issued by     2Z different - two different documents. One's a slip
23   Tysers prior to that dedaraUon? If there was, I've     23 that's brought around the market to be signed. 1he
24    not seen it.                                          24 other one's a crwer note providing evidence of
25         A. Well, not a ccver note, no. Not that I        2S coverage for that polity.

                                                                                                         35 (Pages 137 to 140)
                                                Independent Reporting, Inc;.
                                                        281.469.5580
                                                                                                              SR-000136
                                                   GREGORY G. LAAY

                                                    page 149                                                      Page 151
1         Q. And he's saying that If the premium Isn't         1 this porlC)', that being the selling of the deck on
2     paid on time, then Underwnters can declare the           2    the jacket?
3     policy •• the underlying policy cancelled and            3         A. Correct.
4     everybody starts over?                                   4       . Q. And they're asking for confirmation. "No
5                 MR. PARRISH: Object til forrn.               S    problems that have not been sorted out on the jacket
6         A. He's saYIng that could happen.                    S    and plies for HoUSlxln Exploration.:'
7         Q. Right.                                            7         A. Thars correct.
S         A. Yes.                                              a         Q. Now, as of 11 of October '02, had you been
 9        Q. Not that they have done It or that they're        9    advised of the free-fall of the pilings?
10    goiilg 10, but they could?                               10        A. I had been - had been advised of the
11        A. Yes.                                              11   Inddent, yes.
12        Q. Okay.                                             u         Q. And had you passEid that Information on 10
13                (Exhibit eo marked)                          13   London?
14        Q. Exhibit 80 is a document Bates labeled L.ary      14        A. Apparently, yes.
15    Insurance 348, 3491                                      15        Q. Okay. And they're coming badv saying that
16        A. Allrlght                                          16   before they're gonna determine the rate for the new
17        Q. DO you recagnlze this to be a certificate         17   declaration, they want to know. Whether or not there
18    of Insurance that you Issued to Transworld               18   are any daims on the Jacket InstallaUon
19     Exploration and ProdUction, Inc.?                       19   declaration?
20        A. Yes.                                              20               MR. PARRISH: Object to form.
21        Q. And this Is a ded.ration of a project on          21        Q. Is that your understanding of what they're
22     that same policy that covered the Houston Exploration   22   asking?                        .
23     job?                                                    23               MR. PAPANDREOU: Objection, form.
24         A. Could you repeat that, please?                   24        A. My thought was that OSF! was - didn't feel
25         Q. Is this a project being dodared - I'm            2S    this was a dalm at that point, but I had notified

                                                    Pogo l~O                                                       Page 152
 1    sorry. This Is a certificate of Insurance, but It      1 Tysers that ~ was out there. And Underwriters are
 2    relates In another project that would become covered 2 wanting 10 know Is ~ a dalm or Is it I19t a claim.
 3    under the underlying policy that we've talking about?   3     Q. Because that would a(feCt the premium for
 4         A. Correct.                      .'                4 the next project, correct?
 5                (Exhibit 81 marked)                         5     A. Correct.
 6         Q. Exhibit 81 IS a document marked L.ary           6              (Exhibit 82 marked)
 7    Insurance 346 and 347. The first - do you recognize 7         Q. I have marked as Exhibit S?- Lliry Insurance
 8    this In be a ttue and accurate copy of • fax you        a . dOClJrnent 476.
 9    receiVed from Tysers on or about the 11th: of October, 9       A. Okay.
10    '027                                                   10      Q. DO you recognize this to be a true and
11         A. Yes.                                           11 accurate copy of the declaration that relates til the
12         Q. And this cover page Indicates - 0( the         12 settlng of the deck, the Installation of the deck on
13     first page of the letter Indicates that the total fax 13 the jacket that Is now sitting there at South 11m
14     Is four pages, but we only found two. DO we have      14 317-A.
15     here a complete and accurate copy of the actual       15      A. I'm not sure If this was done - this
16     letter?                                               16 appears 10 have been done before - before we filljd
17         A. Yes.                                           17 the claim or before we notified them that there
18          Q. Item one is an unrelated project, right?      18 possibly was a claim.
'19         A. Correct.                                      19      Q. okily. If you look In the lower right,hand
ZQ          Q. IS this project under the ,policy that we've  20 corner -
21     been ",Iking about?                                   21      A. Uh-huh.
22          A. No.                                           22      Q. - of the page as irs sitting now -
23          Q. Okay. So the second Item Is OSFl?             23 you'll have 10 tum It upside down In be able Ill. read
24          A. Correct.                                      24 it probably.
25          Q. And you're talking about a new project for    25      A. Yeah.

38 (Pages 14910 152)
                                                Independent Reporting, Inc.
                                                       281.469.5580

                                                                                                                SR-000139
                                                GREGORY G. LARY

                                                  Pog.1&5                                                           Pog.167
1 riser 171. This Is an email from you to Guy Daren,          1    Q. Well, the document I handed you before I've
2 dated 4th December, '027                                    2 now marked as exhibit 92 -
3    A. Yes.                                                  3    A. Okay.
4    Q. Do you recOgnize that to be a true and                4     Q. - whil:h Is Indicated to be a cover note
5 accurate copy of the email?                                 5 endorsement and a debit note sent by 'r;sersto you
~    A. Yes. ~                                                6 for the declaration of coverage under the policy
7    Q. And you're directing Mr. Dlser to -                   7 covering Installation of the deck, correct?
8 Mr. Daren, at'r;sers, to bind coverage for the deck         B             MR. PARRISH: What's ill. Bates number
 9 projeCt?                                                   9 on there?
10     A. Yes.                                               10             MR. WINTON: Tysers 167-168.
11           (Exhibit 91 marked)                             11             MR. PARRISH: t thought thai was 91.
12     Q. I've marked as Exhibit 91 Tysers 169, whk;h        12             MR. WINTON: No. Nlnety~ne was-
13 Is an emaD from Phillip otter to you, comlCt?             13             THE WITNESS: The email.
14      A.   correct.                                        14           . MR. WINTON: - the email, 169, and I
15      Q. Dated 6th December, '027                          15 handed him what !'v. marked now as 92.because I
16    A. correct.                                            16 thought they went together, but! realize<l my mistilke
17    Q. Do you recognl2e this to be a true and              17 when I looked at the dates ...
18 accurate copy of that eman?                               18             MR. PARRISH: All right. Thank you.
19     A. Yes.                                               19             MR. WINTON: - because 92 is dated
2<l    Q. It references Guy's telephone conversation         20 three days after 91 transmitted something. So,
21 with you. Do you see that?                                21 pres.umably, It wasn't this.             .
22     A. Yes.                                               22     A. Okay. What was your .question?
23     Q. And says that there's'an attached                  23     Q. Do you recogni2e this I2xhlbit 92 to be a
24 endorsement                                               24 correct and accurate copy of the      cover
                                                                                                         note
2S      A. O.kay.                                            2S endorsement and debit note Issued by Tysers to you

                                                  page 166                                                           Page 168
  1      Q. Is this the endorsement that _ attoched         1     covering the declaration of the Instillation althe
  2 to that email?                                          2     dod< project onto the policy?
  3      A- I don't know.                                   3          A- Yes.
  4      Q. That It appears to be - and what I've -         4          Q. And does the debit note. correctly state the
  5              MR. WINTON: fm.SQny. What I handed         5     cost of the InsurallCl! being charged by Tysets? .
  6 him was TYSers 167, 16B. I apologize.                   6          A- By Tysers or by -
  1      Q. Mr. Ottey Is saying to you, 'Please flnd        7                MR. PARRISH: Objection, form.
  a attad1ed endorsement agreed by Underwriters,' and       8          A- -- Underwriters?
  9. this Is dated 6 December, so, no, that ain't be It,    9                                     Iso'
                                                                       Q. Well, Irs - It's correct,     I~ that
 10 can it? Because that would be three days bernre the    10     It's a combination 01 Underwriters' premium, plus
 11 other document I gave you _ dated.                     11     Tyse~s -,          .
 12      A- Yeah. Yes.                                     12        A- Th.r. comlCt..
 13      Q. Okay. E>hlblt ~1 was not among the             13        Q. -- commission and then they've broKen out
 14. documents you produced,. nor _ the attachment among 14       your commission?
 IS the documents that Tysers produced. Do you have a      15        A. Correct.
 16 r:JJpy of the original in your files?                  16        Q. 50 the total cost of the Insurance was
 17      A- Na, I don't.                                   17     $374,125 and then your commissiOn was $46,765.63 and
 IB      Q. Do you have a recollection 01 what the         18     we don't know what Tyser's commIsSion was, but ~
 19 attachment was?                                        19     muld have bi\en something coming out.of tn"
 20      A- It _ probably a - something similar to         20     $327,359.37.
.21 that•                                                  21        A- .Correct.
 22      Q. Something ~milar to the other document I     '22         Q. Take a look In the white notebook, W  you
 23 handed you?                                            23     would, at Exhlblt 9.
 24      A. Correct.                                       24        A. Okay.
 25·             (E>hlblt 92 marked)                       2S        Q. Do you recognize that to be a lrI!e and

42 (Pages 165 to 168)
                                            Independent Report!~g, Inc.
                                                  281.469.5580

                                                                                                               SR-000143
                                                  GREGORY G. lARY

                                                   Page 169                                                        Page 171
 1 accurate, If not COOlplete, copy of the large notebook 1       Q. "The policy was procured by Offshore
 2 that was deliVered to you by the Ho~n Exploration ' Z Specialty fabricators (addltlonallnsured) on behalf
 3 Company contalnil19 Its dalm for the piling free-fall    3 of THEe, primary Insured, to cover the Builders RIsk
 4 and consequential expenses?                              4 InSurance for the transportation and Inst,lIation of
 S            And I'll tell you what 1 did is,              5 the THEe's South Tlmbal/e, 317-A jacket:
 6 rather than atIIich the entire dotument here, which     6      A. Yeah. Bu~ I mean, that whole sentence
 7 was severa,l hundred pages ~ engineering drawings 7 doesntjlbE:. I mean -
 8 and all sorts of stuff that I doubt Is particulariy      8     Q. Weil..,
 9 relevant to the dispute, 1 just took the first couple    9     A. - If ~ was procured by Offshore, It would
10 of sections.                                           10 have been Offshore being the primary insured.
11     A. Okay.                                           11      Q. And T1iEe as the ad~ldonallnsured?
iz     Q. Does that look like what was given to you       12      A. Th.rs correct.
13 by Houston Exploration on or about the 17th Of         13      Q. Okay. Did you ever write back to Mr. Simon
14 DecembE:11                                             14 and say, whoa, Mike, you got It - you got It
15      A. No. This was given to me by Ollis Morris;      15 backwards?
16      Q. On behalf of Houston exploration?              16      A. My - my Initial conversation was w~ Jay
17      p;, On behalf of Houston Exploration.             17 Henderson, who asked If I should .- If there was a
18      Q. And It's dearly on Houston, Exploration        18' problem If Houston Exploration dealt direct on the
19 let:temead, correct?                            ' 1 9 dalm.
20      A. Correct.                                       20      Q. Because it was their loss7
21      Q. Signed bY the operations manager offshore,     21      A. I WilSn~ real sure why they wanted to deal
22 Mike Simon?                                             22 that way.
23      A. COrrect.                                       23      Q. As of when?                                   ,
24      Q. And the Hrst sentence of the first             ,24     A. Be(ore !his. I mean, wh~n Jay IX>Id me that
25 paragraph says, '11le Houston Exploration Company, 25 they wanted IXl handle 1i1e claim direct.

                                                    Page 1'0                                                        Page 172
 1    loe. (1liEC) Is notllY1ng you by means' of this letter    1      Q. Well, why else would Houston f.xploration
 2    that THEC'is submitting. dalm against the suJ:tiect       2    want to handle tha dalm direct, other than It was
 3    Builders Risk Insurance policy,' correct?                 3    their - they were lile ones out lila money?
 4         A. Correct.                                          4        A. I'm not real sure that tI1at was tI1e
 5         Q. So upon receipt of tI1lS document, you knew       5    smartest move 10 lil. world on Houston Exploration's
 6    that lile dalm was being made by Houston Exploration,     6    part I've never seen a company give up what I refer
 7    correct?                                                  7    to as an equity position where they're holding money
 8         A. 1 knew It was being made before liliS             8    to pay IX> OSfl and agree to go ahead and pay It and
 9    dotument.                                                 ,9   try and recoup on lile Insurance.
10         Q. Sure. That~ was HouSlX>n Exploration's           10        Q., Wen, how. many offshore installation
11     loss?                                                   11    construC\!on-type contracts have you ever revlewi!d?
12         A. NO. That's a different question.                 12        A. Repeat that again.
13'        Q. Well-                                            13        Q. Yeah. How many'conslructioncontract5 or
14         A. Thar." totally different question.               14    offshore Inst;illation contracts, not Insurance, but
15         Q. Okay. Well, then, let me focus on that           15    the Contract itself, have you ever revIeWed?
16     one. By tI1e time you receIVed this dotument and upon   16        A. Wen, by this time I had reviewed tI1ls one.
17     reading that sentence that says, 'Houston exploration   17        Q. Okay. So by this time, you knew - this
18     Is submitting the dalm against subject Builders Risk    16    time being Oecember 17th, you knew that the contract
19     Insurance policy," you knew that irs HouSlX>n           19     provided tl;lat Houston Explora~on would pay these
20     exploration maidng the daim?                            20    costs up to the amount of Insurance coverage that was
21         '" Well, yeah, but 1 think you have IX> read,       21     available?
22     the seo:md - seoond Une, aiso. I mean, you - you        22                MR. lOST: Objection, fonm.
23     can't read one Une and leave the second one out, you    23        A. I dQn~t understand your question. 1
24      know, where you said It was procured by Offshore       24     mean...
25     Specialty FabricatXlrs on behalf of THEe.               ,25       Q. Sure. And I don't have the contract here·

                                                                                                       43 (Pages 169 to 172)
                                               Independent ~portIng, Inc.
                                                     281.469.5580
                                                                                                              SR-000144
                                                 GREGORY G. LARY

                                                  Page 225                                                         Page 2,7
1 paper dip or a stapler? Lewis, could - okay, thank          1         Q. Who was the operations manager, offshore,
2 you. Thank you. Okay. I have stapled the two                2    for Houston Exploration?
3 segments of 101 together. And the other one that I           3        A. Correct.
4 paper dipped was - and I'm substituting a staple             4        Q. As of the 18th of July, with regard to the
5 lilt the paper dip 011 Exhlbtt 99.                           5   undisputed portlon or the daim, that being the
6.            Elchibit 36, as I understand it, Is an           6   pilings and the repair and levelling of the jacket;
7 email from Stan Bayless to Joon Hodgett, Randall             7   In other words, everything except 1l1e standby claim,
8 Young,.Tony Maxwell, none of WMm are In your office,         B   Is It your recollection that Mike SImon was refusing
9 correct?                                                     9   to sign the proof of dalm as to the undlsputed
o      A. COrrect. COrrect.                                  10    portion?
1      Q. And then on it Is a handW1itlen note dated         11         A. No.
2 14 July, '03, correct?                                     12         Q. He was re/uslng to signa proof of claim as
3      A. Yes.                                               13    to the disputed portion, the standby claim?
4      Q. DO you recaR at any time receMnga copy             14         A. No. I mean, he Just didn't want to sign
5 of this email with handwritten note?                       15    It. He said it wasn't his to sign, It was OSfl's to
6      A. NO.                                                16    .slgn.
7             (Elchiblt 102 marl<ed)                         17         Q. And what dare did that occur?
B      Q. Elchibtt 102 Is Bates stamped Underwriters         18         A. Oh, where's those emalls back and fortl1?
9 0024 and 025.                                               19    It would have been t/le day before Cesare actually
\\      A. Okay.                                             '20   signed the proof of loss.
 1      Q. DO you recognize that as a true and                21       Q. Okay. Well, thaes almost a month frOm
 2 accurate copy of a email·that you sent to Guy DareR        22   now, so let's - lees stick with the c:hronology here
3 at Tysers on or about IS July, '03?                         23   ff we can.
 4      A. Okay.                          .                   24       A. Okay.
 5      Q. Do you recognize that to be a true and             25       Q. We'lI get to that.

                                                  Page 226                                                         Page: 22e
1    accurare copy of an email you sent on the 18th of        I        A. Okay.
2    July, '03, to Guy Oarell at Tysers? .                    2        Q. As of the 18th of July, Houston   Explora~on
3        A. Y e s . .                                         3    has authorized you to collect the approved amount of
4        Q. When you say, In the first paragraph, 'Tve        4    the dalm, which was $2,034,96l.l2, correct?
5    met with the assured" •• 'insured as wen as the          5         A. Yes.
6    operator and project; manager regarding the above        6         Q. SO, In other words, the amount that
7    dalm, they have authorlzed US to collect the             7    Matthews·Daniel JIst In their nnal report as
8    approved amount of the dalm on .an expedited basis,"     8    approved, less the standby dalm?
9    "they" and "the Insured' Is Houston El<ploration,        9         A. eolTed:.
o    right?                              .                   10.        Q. And you're'lndIcaUng they would like
 I       A. No. The Insured would tiave been OSFI In         11    payment In )he foom of a partial payment with the
2    this Instance, .5 well as the operator, Operator        12    file to remain open lilt the purpOses of dlsaJ$Slng
3    would have been Houston Exploration.                    13    the $850,000 In standby charges. They are not happy
4        Q. And ~ was Houston Exploration that               14    and are adamant thatthese charges should be Induded
 5   authorized you to collect the appr'oved amount of the   15    In the total dalm, correct?
6    dalm on an exped~ed baSiS, correct?                     16         A. COrrect.
 7       A. Both them and OSFl.                              17         Q. And thafs Elchlbtt 102?
 8       Q. But It was Houston Exploration's loss. It        18        A. COrrect.
 9   was their daim?                                         19        Q. We're back over here.
.0       A, Well, they·· they - they didn't agree to         20        A. Yeah. I was just •• I found the date•
.1   that. They wouldn' agree to sign the proof of loss,     21     Okay.
 Z   m.                                                      22        Q. YOU say, "The'lnsured has provided
:3    Q. Houston El<ploratlon refused to slg" the            23     extensive detail on this claim," at the bottom of the
.4 prOof of loss?                                            24     second paragraph. The entity that provided extensive
:5    A. Well, Mike Simon.                                   25     detail was Houston Exploration, ~ght?
                                                                            .

                                                                                                     57 (Pages 225 to 228)
                                             Independent Reportlng, Inc.
                                                     281.469.5580

                                                                                                            SR-000158
                                                   GReGORY G. LARY

                                                    Page 229                                                      Page 231
 1          A. COrrect.                                         1   demobilIZed and remobilized, correct?
 2          Q. So that's who you're refening III as the         2      A. COrrect.
 3     Insured?                                                 3      Q. "And the charges would have been 75 III 100
 4          A. Well, I also picked up a big file from           4   peta!l1t more ll'an the 850,000 and would have been
 5     05Fl. So, I mean, not with Invoices, but with the        5   approved, I' correct?
 6     contract and l!Ilerything else.                          6      A. COrrect.
 7          Q. Okay. But the claim was submitted by             7      Q. So you'rl! saytng that had they chosen to go
 8     Houston Exploration and it's Houston Exploration that    8   the more elqlensive route, the c:harges coold have been
 9     has documented, with extensive detail, the claim,       .9   a million seven and they would have been approved?
10     right?                                                  10      A. I dldn' see any reason they wouldnt be If
11          A. COrrect. COrrect.                               11   they would have gone that route.
12          Q. So the Insured is - Housllln ExpioraUon         12       Q. "The insured actually saved UndeMliters
13     has provided extensive detaR On this claim?             13   money and now Underwriters are penal~ng them by not
14          A. Okay. Yes.                                      14   paying this part afthe'dalm,' correct?
15          Q. And the next paragraph you note, 'The           15       A. COrrect.
16     wording issued by Underwriters has ,a clause lor        16       Q. "ThIs does not look good from any angle."
17      standby charges that has been crossed out This does    17   Sorry. "This does not look very good from any
18      not constltute an exclusion of coverage on our side    IB   angle. You also compound the problem with the fact
19      of the pond." COrrect?                                 19   that there Is actually • hefty surcharge for jobs
20          A. Yes.                                            20   that are Initiated dunng hun1cane season," correct?
21          Q. Thors what you're telling Mr. Daren?            21       A. COrrect.
 22         A. Yes.                                            22       Q. And that was $21,790 In surcharge on this
 23          Q. YOU go on, "that we were under the             23   premlum,correct? Half pen:ent times -
 24   ,Impression that by crossing Dut the clause, the         24       A. Okay. Yes.
 2S   . Underwriters were removing the sublim~ created by      2S       Q. - 8,716,OOO?

                                                    P09.230                                                        Page 232
   1 the dause," Correct?                                       1       A.   Or a quarter.
   2      A. Yes.                                               2       Q.   A quarter percent I'm sorry.
   3      Q. "11 their Intent, was to exclude dalms for         3       A.   Yeah.
   4 standby charges, they should have provided a specific      4       Q.   .25 per(;ent
   5 exclusion to the wording," c.orrect?                       5       A. Right.
   6      A. Correct.                                           6     Q. Quarter'pen:ent. And In the botlDm
   7      Q. And thars what we talked about earlier.            7 paragraph you'"1 urging Und\!IWr~rs. to reassess
   8, If you want to exdude something thors in a policy,        6 their position and you note, "The Insured will not
   9 in an aU risl< policy, what you're supposed III do is      9 let this just gD twI;,1f," correct?
  10 have an endorsement that excludes sametlling, correct?    10      A. Correct.
  11      A. COrrect.                                          11     Q. And the Insured you're talking about ,there
  12      Q. Also, we have Included contract amounts in        12 Is Houstoti Exploration?
, 13 every declaration to the policy and premium has been      13      A. 'Yes.
  14 paid on these contract amounts, correct?                  14      Q. Mike Simon made It very dear that they
  15      A. COrrect.                                          15 were not going togo away on the standby claim?
  16      Q. Then you go on to say, "111e fact that these      16      A. No. There's a point where he actually says
  17 charges were dasslfled as standby Is questionable,"       17 he was gonna leave me alone.
  18 light?                                                    18      Q. Weareat-
  19      A. COrrect.                                          19      A. Now, whether that says they're gonna - 1
  20      Q. "T11e charges are lor dernck barge and            20 mean, he doesn't address the standby charges, but he
  21 support vessels dunng two named slDnns. They could        21 said his dealings would be with OSF- OSFI,
  22 have demobed" - they meaning the - Houston                22      Q. As of the 18th of July, '03, Mike Simon has
  23 Exploration and OSFl?                                     23 made It yery clear to you that he will not just let
  24       A. COrrect.                                         24 this standby charge go away?
  25       Q. "Could have demobed and mobed," meaning          2S      A. Thars correct.

58 (Pages 229 to 232)
                                                Independent Reporting, Inc.
                                                       281.469.5580
                                                                                                                SR-000159
                                               GREGORY G. LARY

                                                Page 332                                                        Page 334
 1 exclude coverage under an all risk policy by simply      1 record.
 2 telfing the Insured, by the way, we're not gonna         2                (Recess from 9:54 to 9:55)
 3 Ct:Ner X, Y or Z7                                        3                THE VlDEOGRAPHER: 9:55. We're back
 4      A- Correct.                                         4    on the record.
 S      Q. You have to actually look at the insurance       5        Q. Please tum to Exhibit 61. This Is a fax
 6 policy, right?,                                          6    dated July 22nd, 2002, from Guy Darell, atTy.ers, to
 7      A. Correct.                                         7    you, forwarding a copy of theWelear policy. Do you
 8      Q. And, more specifically, you have to look         8    see that?
 9 for exclusionary language, right?                        9        A. Yes.
10             MR. PAPANDREOU: Objection, mrm.              10       Q. I couldn't find anywhere where you had sent
11             MR. JoST: ObjeCtJon, form.                   11   this fax to OSFl. 00 you have a recolJectlon of
12      Q. Is that right?                                   12   that?
13      A. Correct.                                         13       A. I do remember bringing it to them.
14      Q. I mean, because if there's not exduslonary       14       Q. Bringing tt to who?
15 language under an all risk policy, you assume that       15       A. To lay Henderson.
16 aU risks of direct physlc;a.lloss or damage are.         16       Q. And when did you do that?
17 covered, right?                                          17       A. Oh, It would have been shortly after J
18             MR. PAPANDREOU: Objection, form.             18   received it I don't knOw an exact date.
19      Q. Is that right(                                   19       Q. And when you say;"brought It to him," do
20      A. Yes.                                             20   you mean In person?
2i      Q. Okay. So with that understanding of an all       21       A. Yes.
22 risk policy, Is there an exclusion .. express written    22       Q. And do you have receipts or records of your
23 exclusion for weather standby under the Welcar policy    23   travel expenses from the July, 2002, ~me frame?
24 at issue In this 'case?                                  24       A. Yeah. I would have those, yes.
25       A. No.                                             25       Q. And Ifyou had travelled to Houma,
                                                 Page 333                                                        Page 335
 1      Q. And In your discussion with Mr. Henderson,      1     louiSiana, In or about July 22nd, 2002, would you
 2   you know, on or .round July 22nd, 2002, yall did net 2      expect to have records of thar?
 3   discuss a specific exclusion under this policy for    3         A- Yes.
 4   weather standby, right?                               4         Q. Now, In exhibit 61, there Is no express
 5       A. We did d~cuss standby, that underwriters       5     exdUSlon for weather standby, IS there?
 6   were not wan~ng to cover standby charlies.            6                 MR. PARRISH: ObJection, form •.
 7               MR. SCARBOROUGH: Objection,.              7         Q. Let me wtthdraw the question. Point me to
 8   nonresponslVe.                                        8     the - any language In Exhibit 61 that you think
 9       Q. In your conversation with Mr. Henderson on ·9        constitutes an exprOlis exclusion for weather standby
10   or about July 22od, 2002, yall did net discuss a     10     In this policy form.
11   spoeiRc written exclusion U~der this policy for      11         A. There Is no express •• or .pecit1c
12   weather standby. True?                               12     exdusion.
13       A- True.                                         13         Q. And what Is your understanding of Ill;'
14               MR. PARRISH: Objection, form.            14     significance of Ill. language In Exhibit 61 tha~s
15       Q. That would have been Impossible because       15     been crossed out?
16   there was no exclusion for weather standby In this   16                MR. PARRISH: Object to mnn.
17   policy, right?                                       17         A. Could you rephrase that?
18               MR. PAPANDREOU: Objection, form.         18         Q. Yeah. What -lool<1ng through Exhibit 61,
19       A. Correct.                                      19     you see that there _.re several places where language
20               MR. SCARBOROUGH: Do we need to deal 20          has been crossed through Wlill a pen.
21   with the l19ht again?                                21         A. Correct
22               THE WITNESS: Yeah. can we go -           22         Q. When you received exhibit 61, what was your
23               MR. SCARBOROUGH: Le~s go off the         23     understanding of what the Significance was of someone
24   record for a second?                                 21     mar1<Jng through parts of the policy language?
25               THE V10EOGRAPI;IER: 9:54. Off the        25         A. Well, that that part dldn~ apply to the

                                                                                                     9 (Pages 332 to 335)
                                            Independent Reporting, Inc.
                                                  281.469.5580
                                                                                                             SR-000185
                                                   GREGORY G. LAAY

                                                    PageS26                                                       Page 528
1     Q. Okay. "As to the extent of the said loss             1    a.m., 'On behalf of the Houston Exploration Company,
2 has, in any manner, been made: Right?                       2    1 acknowledge" •• I think he means here, added an
3     A. Correct.                                             3    extra "s" •• 'that \he statement below is true and
4     Q. "Any allier information that may be required         4    correct to the best of my knowledge." Right? '.
5 will be furnished on call and CDnSidered part of            5        A. Correct.
6 these proofs." "RIght?                                      6        Q. He didn't disagree with the statement you
7     A. Correct.                                             7,   asked him to sign -
8      Q. You donhay "proof." You say 'proofS;                8        A. Correct.
9 right?                                                      9        Q. ;. on behalf of THEe?
10      A. Correct-                                           10       A. Correct.
11     Q. "The Houston I:Jq>loration Company also '           11       Q. And then he says, "I will expect the funds
12 warrants that all invoices submitted for this portion      Ii   to be transferred to our acx:ount Immediately."
13 of the dalm have been paid.' RIght?                        13   Right?
14       A. Correct.                                          14       A. Correct.
15       Q. Have been paid by them, I presume?                15       Q. Old he ask you, at that point, Wa proof
16       A. Correct:                                          16   of loss was Issued by OSFl'?
17       Q. Why did you ask them to Issue that                17     A. No.'
18   statement?                                               18     Q. But he didn' want to deal With proofs of
19       A. Well, because al this point we haven' -           19 loss?
20   we hadn' sent any money to Houston Exploration and       20     A. Correct.
21   Mike Simon wasn' willing II> sign \he proof of loss.     21            MR. WINTON: Objection, form.
22       Q. So you're sending him this In lieu of a           22     Q. That was - It was not his to sign. He
23   proof of loss?                                           23 thought It was OSA's to sign, right?
24       A. Well, it was more for me.                         24            MR. SCARBOROUGH: ObJection, form.
25       Q. like a release statement?                         25            MR. WINTON: Objection, form.

                                                    Page~1                                                        PaoeS29
 1    A. Well, more jJst to say, you know, that I'm            1    A. Correct.                       "
 2 sending you this money and I need you to ad;noWledge        2    Q. Okey. Did he ever tell you, at that point,
 3 that you understand that this Is getting ready to           3 on August 15th, by the way, Lary - Mr.l.ary, and
 4 happen, and I JUSt felt I needed sOmething from Mike        4 your dlent, OSA, don't Issue - don't sign any
 5 Simon.                                                      5 proofs Of loss, did he?
 6    Q. Okay. The proof of loss .. the partlal                6    A. No.
 7 proof of.los5 has already been Signed by OSA, right?        7    Q. Nobody from THEe told you that?
 8    A. Correct.                                              B       A.   No.
 9     Q. And you told us before that THEe was not             9       Q.   Did they?
10 willing to sign that.                                      10       A.   No.
11     A. Correct.                                            11       Q.   They could have done that If they wantlld
12     Q. And Just to CO\Ier your>elf and your dlent,         12 to?
13 OSfl, you asked THEe basically to prl)'I\de you WIth a     13              MR. WINTON: Objection, fQrm.
14 statement confirming that there's nothing In               14       A. Yes, they could have.
15 Inappropnate abOUt this?                                   15       Q. But tIley dldn'?
16      A. Tha~s -                                            16       A. No, \hey didn't
17             MR. WINTON: Objection, form.                   17       Q. Ultimately, based upon your knowledge of
18      A. Thors correct.                                     18   the case - In this case, the $250,000, the ex gratia
19             MR. WINTON: leading.                           19   payment, was forwarded and received by WEC, right?
20      Q. so that you could forward them the funds           20       A. Yes.
21 from tI)e partial proof of loss?                           21       Q. Do you remember that you testified as to an
22              MR. WINTON: Objection, leading.               22   exhlbK, Exhlba Numb,.r 102. can you turn to that
23      A. Correct.                                           i3   for a second?
24      Q. Okay. And what happened Is'Mr. Simon came          24       A. Okay.
25 .bad< and he stated, on August 15th, 2003, at 9: 18        25       Q. Thafs the email that you sent to Guy

16 (Pages 526 to 529)
                                               Independent Reporting, Inc.
                                                     281.469.5580
                                                                                                              SR-000234
                                                   GREGORY G. lARY

                                                       PageS3D                                                           Page 532
1    o.rell, your london broker, right?                           1              MR. WINTON: Could you read the-
2       A. Yes.                                                   2              1l1E WITNESS: Do yoo want to see It
3       Q. In that one, you were advocaUng, you                   3 fiJSt?
4    remember, about the fact that, in your opinion,              4             MR. WINTON: Yean. If I "",Id. This
S    standby charges should be covered, light?                    5 is already an exhibit, bask:ally,
6         A- Yes.'                                                6             MR. PAPANOREOU: No.
7         Q. That was done In July of 2003, right?                7             MR. WINTON: Not that exact copy.
S         A- Yes.                                                 8          . MR. PAPANOREOU: There Is. version of
9         Q. Way after the actual policy was issued In            9 that that Is an exhlb~.
10   this case?                                                   10              MR. PAPANOREOU: I don't think so. I
11        A. Yes.                                                 11 think only the top email Is not -- I don't think so.
12        Q. Ayear, almost, later, right?                         12              MR. WINTON: I can show yoo what I'm
13        A. Yes.                                                 13 thlnidng of. It's not exactly like that, I agree.
14        Q. And what you did in that policy When you             14 Tha~s got a lot o(.saibbllng on it that the one
15   said that - you know, you advocated ab<;JJt'<:<>verage       15 that Is an exhibit does not have.
16   for the standby charges, was purely that, advocacy,          16            MR. PAPANDREOU: If you fmd It, Just
17   right?                                                       17 let me know, but I haven~ seen It as an exhibit.
18               MR. SCARBOROUGH: Objection, form.                18            MR. WINTON: Hold on just. second.
19               MR. WINTON: Objection, form,                     19 It's Exhibit 36 Is the one that's been marked.
20   leading.                                                     20             MR. PAPANDREOU: Okay.
21        A. What I was doing was doing what I said In            21             MR. 'WINTON: But It - Alexander, it's
22   my former email. I was attempting to get the most            22 not exactly fika what you've got. Yours has a lot
23    for my client.                                              23 more scribbling on it than this one does.
24        Q. Right You were -                                     24             MR.,PAPANDREQU: For clarity, let's
25        A- Pure and simple.                                     25 have ~ marked as 138, If you don't mind: Let me

                                                       Page 531                                                          Page 533
 1     Q. Right. You were basically arguing, trying                 1 maka sure that I have 36 wll!1 me as well. No, I
 2 to get best deal for your client you ""uld?                      2 don't bel""'" it's the same. I don't believe it's
 3     A. Thars correct,                                            3 l!1e same. It's a different - 36 Is a different
 4            MR. WINTON: Objection, form,                          4 email.
 5 leading.                                                         S             MR. WINTON: can I see It then? rm
 6     Q. aut tt didn't work?                                       6 sorry.
 7     A. No, It dldn~.                                             7             MR. PAPANOREOU: Thirty-sIX Is
 a Q. Because the entity that actually dedded                       8 different
 9 coverage disagreed with your Interpretation?                     9             MR. WINTON: Oh, I'm sony. You're
10     A. Tha~s correct.                                           10 right You're rtght. This one Is In there as Well. ,
11     Q. An InterpretaUon which waS your effort to                11             MR. PAPANOREOU: I didn't think so,
12 do the best you could for your principal, right?                12 but ..
13     A. Correct.                                                 13             MR. WINTON: Okay. Okay. I'll take
14            MR. JOST: Objection, form.                           14 ,yo~r worn for~. I know I've seen It before.
15     Q. In fact, jusno have the record dear,                     13      Q. 50 Exhibit 138 Is an ema/l from Tysers to
16 lers Introduce as the next exhibit an email - this              16 Underwriters. Do VOt! see that?
17 will be Number 138, I believe.                                  17      A. Yes.
lB            (exhibit 138 marked)                                 18      Q. And that email Is forwarnlng your email,
19     Q. An email which was sent by Tysers to John                19 which Is Exhibit 102, right? ,
20 Hodgett -                                                      ,20      A. Yes.
21      A. Okay.                                                   21      Q. Your ~ effort to argue on behalf of your
22     Q. - at Underwrtters. Take a look althat                    22 principal, right?
23 for One second.                                                 23      A. Correct.
24            MR. WINTON: Could we see ~?                          24      Q. To get the best deal for your,plindpal,
25            MR. PAPANDREOtl: Yes.                                25 right?        '

                                                                                                          17 (Pages 530 to 533)
                                              , Independent Reporting, Inc.
                                                         2111A69.5S80
                                                                                                               SR-000235
                                                GUY DAREI.I. (Volume 1)

                                                     Poge19                                                             Page 51
  1     A. I just call tnem A1<a-Re. The fact that             1    A. They're both insurance policies.
  2 they seem to be calling themselves dolen of different      2    Q. And the wayan all risk policy operates Is
  3 names, they're all tile same company.                      3 that It covers all 'risks wi\hln some defined context,
  4     Q, Commonwealth Insurance Company.                      4 except those tnlngs which are exduded?
  5     A. Canadians,                                           5       A.   CorreCt.
  6     Q. Underwriter?                                         6     Q. And the opposite tdnd of policy, a named
  7     A. UndelWriter.                                         7 perils poncy, only covets those risks, perils,
  8     Q. Then we have Inblmatlonallnsurance                   8 events that are specifically identlfied, correct?
  9 Company of Hannover umited.                                 9      A. That would be the norm, yes.
10      A. UndelWriter.                                        10      Q. Okay. And the policy that brings us here
11      Q. And tnen American - and I think Irs                 11 todaY Is of the all risk type, correct?
 12 American OITsflore Inbi!matlonal Syndicate Is the          12      A. As a generic term, yes.
,13 oirrect name.                                              13      Q. The policy that ~as Issued In this case,
 14     A. Yes, underwriter.                                   14 the reason It's refened to as • floater Is because
 15     Q. Okay. let me have that dOQJment back, It!           IS It Insures Offshore Specialty Fabricators, Inc..
 16 may.                                                       16 correct. and is designed to apply to specit1c JObs,
 17             All n9/lt, sir. So you went to                 17 .right?
 18 Uoyds, physically found people who were Wining to          18      A. Correct.
 19 Sign onto this poRc:y, plus some other, ftllks that are    19      Q. Irs not a general lIabmty pollc:y for
 20 In the intematlonal market and got 100 percent to          20 OSFI, light?
 21 sign onto the poIlc:y, correct?                            21      A. We excluded liability.
 22     A. Conrect.                                            22      Q. RIght. But it's - Irs not even JUst.
 23     Q. Okay. And you talked a moment ago about             23 general policy for OSFI, is It?
 2~ this policy, and I think the name that I have seen on      24      A. It Is • general policy for OSFi for jobs as
 2S tile documents calr. this an All Risk Installation         2S declared and accepted by Underwriters.

                                                     Pogo SO                                                            Page 52
 1 Floater. Is'that a fair description?                         1        Q. Specific. So ille pollc:y that was
 2     A. ,WeI~ nothing Is ever all risk because then           2    originally Issued sits out there, but It doesA'1
 3 i~s prefaced by whatever the conditions are attached         3    really cover anything untll there Is a job declared
 4 to It, so it would be a generic term though.                 4    onto the policy, right?
 5     Q. Sure. And there are policies that are                 5        A. Correct,
 6 known as all risk polldes, correct?                          6        Q. Thars really where I waS trying to get
 7     A. Again, a generic term all risk. Nothing Is            7    to. And thars why irs called a floater, right?
 8 ever all risk.                                               8    Its sitting there, but unUI a job Is declared to b!!
 9      Q. Sure. let me ask the question again.                 9    on the policy, I~s not really covering anything?
10 There are policies illat are known as all risk              10        A. No.
11' policies, right?                                           11        Q. And I, think the -- some of the
12      A. As a gerenc term, Yes.                              12    conrespondence that we've seen indicated that there
13      Q. Okay. And lillink what you're Indlcatlng            13    was a minimum premium of $100,000 for Issuance of
14 Is even a policy illars all risk Is not globel risk,        14    this floater, this all risk Installation floater,
15 Ir. all risk Within some context, light?                    15    correct?
16      A. There are always caveats In all policies            16        A. The premium of $100,000 was a minimum and
17 about what Is going to be covered and what Isn'             17    deposit premium, which if they had declare<j
18 covered. You always have a list of exclusions.              18    absolutely nothing to the poRcy at all In the caurse
19      Q. Sure. And thel1l are two principal types of          19   of tile year, they still would have paid $100,000.
20 policies In - in the arena we're dealing with here,          20        Q. Right
21 like this pollc:y that brings us here t:oday, which         '21        A. As a deposit.
22 we'll get to In a minute, there are polldes thet are         22        Q. Ifs. minimum of $100,000 for having the
23 called all risk and policies called named' perils,          23    neater. Thars Just sitting illere waiting for. Job
24 right? Those are, sort of, opposite ends of the             24    to be declared on It, and as you said, If no jobs are
2S spectrum.                                                   2S    declared, Underwriters get $100,000, but 05F1 then

                                                                                                             13 (Pages 49 to 52)
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                                                      281-46!1-5580


                                                                                                            SR-000276
                                                    GUY DARELL (Volume 1)

                                                        Pog.73                                                         Page 75
     1 gonna be an tile hook far the difference.                    1 you think of this risk?' to each ather, as a general
     2    Q. Something yau try to avoid, I take It?                 2 conversation, which the broker's not involved in.
     3    A. Something I definitely try to aVOid.                  3      Q. Sure. But 011Ce there's a pollq, the
     4    Q. Ail right. So, baslc:ally, unl/I - far                 4 fonnal communlcal/ans with regards to the policy
      5 example, In this case, Wellington, until you're able        5 appear to go through you?
      6 to find enough underwriters to take the rest of the         6,    A. Underwriters wouldn't'ever talk to us,
      7 risk, the polIq, you don~ have a poIlq?                     7 unless there's a dalm, other than us talking to the
      8      A. No.                                                 B leader. Underwriters, per 50, would not be talking
      9      Q. You're agreeing With me?                            9 to the brokers, other than the leaders.                     ,

     10      A. I am agreeing with you. YOu don't have a           10     Q. It doesn't look like Underwrtters talked.to
     11 poOq.                                                      11 each other, that I can see In the documents, once
     12      Q. Okay. And In terms of the process,                 12 there was a dalm either. That appears all to have
     13 undlllVl!iters set the premium. Thar. part of tills        13 fiowed through you - through your office, through
     14 proc:eso you were just describing where underwriters,      11 Tysers.
     15 Wellington, said they wanted a partlcuiar pen::ent,      , 15             MR. PAAAISH: Objection, tonn.
     16 ultimately Amlin had some different views, and once        16      Q. Is that typical?
     17 you got everybody together, you ended up WIth              17       A., Claims will be handled by the broker.
     IS two-and-a-quarter percent, plus another quarter            18   Tha~s   part of their job.
     19 percent far hun1cane season and a deductible of            19       Q. And In tenns of setting the discount,
     20 25O,000?                                                   20   Underwriters set the discount?
     21    A. COrrect.                                             21       A. COrrect.
     22     Q; And, so, If. the underwrtters who set               22       Q. That being the percentage tha~s gonna be
     23 those?                                                     23   paid to the produdng and pladng brokers?
     2~     A. The underwriters set all the conditions.            24       A. There are general Lon~on market nonnal
     25 We, as the brokers, can say, this Is what we'd like,       25   discounts, whith marine offshore placement Is


      1 and they tend to disagree.
                                                         Page 74
                                                                    1 normally 2b peraent. That ,can go up or down
                                                                                                                       "'II" 76
      2     Q. And then you directly or, In this case,              ;i depending an how underwriters feel.
      3 through e' ~ Lory Insurance ServICes, CIlliect the          3      Q. And with regard to the ponq Itself, I
,
;,
      4 premium, forward It up through Uayds to                     4 take It that the actual Issuance of the physical
      5 Underwrtters?                                               5 document Olmos out of your office?
      6     A. COrrect.                                             6      A. Correct.
      7     Q. From the documents that have been produced           7      Q. So underwriters are relYing on you to Issue
      8 In this case, It also looks like an aWful lot of the        e the "pollq?'
      9 QlfM1unlcations among underwr1ters, In fact, go             9             MR. PAAAISH: Objection, fonn.
     10 through you.                                               10      A. We are not issuing a policy. We are
     11     A. The underwriters wauldn~ be ,talking to             11 issuing. cover nate. The polley, if you're doing
     12 eaci1 other. They're each wrtllng on behalf of their       12 the L10yds thing, means Uoyds' got to put all Its
     13 own syndicate, so whatever they do 'Is up to them.         13 stamps on tt and we tend'not to issue those, because
     14     Q. In fact, they're c:ompetlng with e<ICh other        14 tt takes about a year later before IfII tum up.
     15 In the market, aren't they?                                15           . So what weJre actually Issuing Is a
     16     A. Yes.                                                16 document produced In our offk:e, refiectlng what the
     17     Q. And as a consequence, when they                     17 underwriters have put on the slip.
     18 communicate, they >yiI1 communicate with each other        18      Q. Well, the -
     19 through Tysers. Through you, In this case?                 19      A. Polley's, actually slightly the wrong word
     20             MR. PAPANDREOU: Objection, form:               20 to use, just being American and Engnsh jargon.
     21     A. Underwriters WOUldn't Olmmunlcate with each         21      Q. R/gh~ And thars - rm Iry/ng to
     22 other, other than talking to each other In general         22 translate and, obviously, s!:ruggOng.
     23 terms. Remember that they're only 20 foot away from        23             The process, as I understand It from
     24 eaci1 other, so they could easily - underwrit~             24 IooIdng at the documents here, Is you go to Llayds,
     25 frequehtly wander out to the box and say, 'What do         25 you go around with a discusSIon of a risk and looking

                                                                                                            19 (Pages 73 to 76)
                                                   Independent Reporting, Inc.
                                                         281-469·5580
                                                   GUY DAAEll (Volume 1)

                                                        hgeBS
   1 their agreement                                          1      A. Corrett.
   2      Q. RIght And th.rs what rm trying to                2      Q. And they do that through you?
   3 distinguish Is the piece of paper gets printed out In    3            MR. PARRlSH: Objection, fenn.
   4 your office and then you physically drculate it to       "      A. Not necessarily. Normally, they'd "" who
   5 get agreement?                                           5 they want on It and we can either Qlntad; them or
   6      A. Correct.                                         6 they wDl contact them. It varies.      .
   7      Q, Or drculate It by email or whal1!Ver to get      7      Q. So sometimes Wellington will contact the
  .8 agreement?                                               8 surveyor directly?
   9      A. Correct,                                         9      A. Correct. .You·1I have to ask ClIrls Sydenilam
  10      Q, And none of these pieces of paper, as I         10 exacIfy what happened on this because I don~ know,
  11 understand It, constitute an Insurance policy untH      11      Q. someUmes they would c:aII 'f\iserS and then
  12 Underwriters have all agreed to It?                     12 'f\iserS would appoint a surveyor?
  13              MR. PARRISH: Objection, fann.              13            MR. PARRISH: Objection, fonn.
  14      A. Not all the underwriters would have to          14      A. Tysers would only appoint a surveyor on the
  15 agree to everything, because they're normally bound 15 suggestion or whatever of Underwril;ers.·
  16 by the Illaders and this Is outside the parameter:s of. 16      Q•.1 understand-'                                           .,.'
  17 what ll1ey were told the cdver was going to be In the 17        A. They would have to be told who to appoint.
  18 first place.                                    .       18      Q. I understand that. 81lt Underwriters, on
  19      Q. All right. So anyll1ing within the original     19 leamlng of the dalm, may say, ·Okay. We want
  20 parameters you only have to get agreement from tho 20 MattheWs-Daniel to act as adjuster In this case,' and
  21 leaders, the four leaders you JdenUned In this          21 they may tell you, "Appoint Matthews-Daniel,' you
. 2::1 case, right?                                          22 beingTysers?
  23      A. On this partlcuJar document, you'd have         23             MR. PARRISH: Objection, form.
  24 to - agreement for the foUr leadors and the foreign     24      A. Yes.
  25 marl<et                                                 25      Q. And then either you'll contact

                                                        Page 86                                                Pog. as
  1       Q. Okay. Le~s talk about this document                 1 Matthews-Oanlel directly or go· through somebody In
  2    then. So you'd have to get evE!l)'b<!>dy'$ agreement, Iii2 Houston to appolnt them?
  3    this case, before that piece Of paper becomes an         3            MR. PARRISH: Objection, form.
  4    Insurance policy?                                         4    A. Yes.
  5                MR. PARRISH: Objection, fonn.             '. 5     Q... So In terms of the cialms side of It,
  6         A. Remember that you've got an existing            . 6 you're gonna defer to Mr. Sydenham, I guess?
  7    Insurance policy, which was the blank oovet, and then 7        A. Very much so.
   B   you've got various .dedaraUons that are attaching to      B    Q. Okay. With regard to the commission, the
   9    tt. And then depending on .what each deciaraUon was, 9 dlsoount In this case, I take It that you did not
  10    we'd either g~ all of them to agree or Just the        10 advise either OSFI or Houston ExploraUon .bout your
  11    leaders.                                               11 commissIOn on this?
  12        Q. Okay. The other thlngs.thet you do - that       12      A. I have never talked ·to either OSFl or
 '13   Tysers does, I take It, when a claim comes In, Ifll     13 Houston ExploraUon beaiuse I don~ think I'm ",lowed
  14    come In to you and then you distribute ~ .., the       14 to because I haven' gilt a surplus Un.. llcenseand
  15    InfonnaUon to the various underwr1ter:s, correct?      15 there's no reason why'! should because I'm dealing
  16        A. By 'you,' do you mean me personally or          16 with a broker over In the States.
  17    Tysers? .                                              17      Q. Okay. So the answer to my questlon Is, you
  18        Q. No, Tysers.                                     18 did not. at any tlme, disclose to either OSFI or
  19        A. The dalm will tome In to 'Tysers and they       19 Houston Exploratlon that 20 percent of the premium
  20    wiD then infonn Underwriter:s and Underwriters will    20 was being taken by 'Tysers as a dlsoount to pay
  21    put • surveyor generally on the daim.                  21 'f\iserS-
  22        Q. I'm sorry. WIll what?                           22             MR. PARRISH: ObJection.
  23        A. WID generally pllt a surveyor on the claim       23     Q. - or Lary?
  24    to act on their behaW and review the claim.            24             MR. PARRISH: Objection, fann.
  25        Q. So Underwriters will appoint a surveyor?        25      A. No, because I never had any conversaUon --

 22 (Pages 85 to 88)
                                                  Independent Reporting, Inc.
                                                                                                                          ,:.'
                                                        281"'169-5580

                                                                                                              SR-000285
,_......   -.~   ............   _-_   .........   _-_   •..   -'-"'~""               .,   ..   _.    __                         _
                                                                                                                        ...... ...............


                                                                          GUY DARELL (Volume 1)

                                                                                    Page 89                                                                                                                                   Page '1
                  1 con" any correspondence wllll OSFI or Houston                                      1 Bates number at the page tIlat you're famRiar With so
                  2 Exploration.                                                                       2 that we're clear?
                  3      Q. On the placing side of this policy, are you                                3     A. Only 0152 Is the only one I've eYer seen
                  4 aware of any communlcaUon between Underwriters                                     4 befon!.
                  5 directly and either 05FI or'Houston Exploration?                                   5     Q. Whilt about 0151, lIle cover page?
                  6      A. No. But I wouldn't know anyway.                                            6     A. Never seen It before.
                  7      Q. Wen, you might. If you were copied on an                                   7     Q. Okay. So the second page you are familiar
                  8 email that Underwriters sont directly to OSFl or                                   8 wllIl, correct7
                  9 Houston exploration, lIlen yOu would be aware that                                  9          A. Correct.
                 10 there was such communicatlon?                                                     10           Q. And what Is that?
                 11      A. Not necessarily. Depends If lIley told me                                 11           A. That Is the original slip which I took In
                 12 and copied me In on it.                                                           12        to Mike Allan with my thoughts of what we needed to
                 13      Q. Thar. what I said. If they copied you on                                  13        do and his first subsequent comments on It.


                 I.
                 14 an eman that they sent directly, then you would know                              14           Q. I'm going to IrnIfk one of the packets of
                 15 tIlat there had been such a communication?                                        15        documents that your attorney prodlJCl!d to us this
                       . A. Yes.                                                                      16        morning, the one we ke\!p kind of dancing around and
                 17      Q. And you're not aware of any communk:a!lons                                17        not actually talking about, as exhibit 145.
                 16 then between Underwriters and OSFl or Houston                                     18           A. Okay.
                 19 ExpJoraUon?                                                                       19                   (exhibit 145 marked)
                 20      A. On the pladng side, no. There might )tave                                 20           Q. Is Page 2 of 144 contained within that
                 21 been something on the dalms side.                                                 21        document?
                 22      Q. I understand that. And I'm gonna try to                                   22           A. That one, you're talking about?
                 23 rocus only on the pladng side.                                                    23           Q. Yes, sir. Is that part or 1457
                 24      A. Right.                                                                    24           A. No.
                 2S      Q. I'm gonna try til work up to this document                                2S           Q. Okay. So thiS Is kind of a working

                                                                                    Page 90                                                                                                                                   Page 9~
                  1. that you've Identified here and see If you can answer       1 document?
                  2 some of my questions.                                        2     A. Thars. working document at the quote
                   3               (exhibit 144 marked)                          3 stage, as opposed til • binding stage.
                   4        Q. I'm gonna hand you Exhlb~ 144 and ask you         4     Q. And as I understood what you said just a
                   5    to take a look at that                                   5 minute ago, this Is a document that you took around
             '6                    MR. PARRISH:. Ies exhibit 144.                6 to Mike Allan at.Uoyds - of Wellington over at the
                   7                MR. WINTON: Do you want to see it?           7 lloyd!! bulldlng1
                   8               MR. PAPANDREOU: Which one Is It?              8     A. Correct.
                  9                 MR. WINTON: It was produced this·            9      Q. So this Is a document that you created?
                 10     morning.                                                10      A. Correct. You are tal!<lng about this one?
                 11                 MR. PAPANDREOU: Oh, okay. This one.         11      Q. Yes, sir.
                 12     Yeah.                                                   12      A. Correct.
                 13                 MR. WINTON: I'm sorry. Thaes not            13      Q. I have my own copy that 1 have marked on


                  I.
                 14     144. I'm sony. 144, I'm sony, Is Underwrlbw.; 151       14 1Il1s, lIlafs why I'm looking down at something
                 15     through 155. rm sony.                                   15 different And the handwritten notal:lons on here are
                                    MR. PAPANOREOU: Okay.                       16 Mr. Allan's?
                  17        Q. Now, this may or may not be • document           17      A. Correct.
                  18    you're familiar with.                                   16      Q. So, for example, "Interest,' you had
                  19        A. I'm familiar with the first page. The            19 "Platronns as dodared,' and he's added "and agreed
                  20    second page has· notI1lng to do from us, It's something 20 leading Underwriters?"
                  21     from Marsh & Mclennan on a totally different risk,     21      A. I can't see where you're seeing that Oh,
                  22    and the third· and fourth pages are, I assume,          22 okay. Yes.
                 23      prodUCed by Unc:lerMiten; and I've never seen It       23               MR. WINTON: Mr. Papandreau, Is
                  24    before.                                                 24 Mr. Allan 900na be -
                  2S                MR. PARRISH: WOuld you just read the        2S               MR. PAPANOREOU: Yes.

                                                                                                                                                                                                       23 (Pages 89 til 92)
                                                                          Independent ReportIng, Inc.
                                                                                281-469-5580




                                                                                                                                                                                                                          .                    .
                                                                ..   ".    "'.. •   .1."       ,\ .. ,," .,....},..:,.... ~'""._",,, i' :'."   ~ • ~ ,~. ~ra.: H.~   ,;.):.,«-...::;.;.;.: ..'1 ....... ~   ' . . . . ..' •..•: ......... ,".' " '.', _,
y-'"




                                                        GUY OARELL (Volume 1)

                                                            Page lOS                                                   Page 107
         1    go ahead and put the coverage into eite<;t?            I notations on It.
         2         A. Correct.                                       2              I mean, there's one notation from one
         3         Q. And he's telling yoU that the first job on     l of the underwriters, rm not certain who It Is,
         4    this coverage Is going to be 2.875 miDion dollars?     4 talking about the humcane c:overage where you've got
         S         A. Correct.                                       5 1/7 to end of November, basically. So the hunicane
         6         Q. So tIlat tells you how to calc:ulate to        6 A.P. would be applicable In that perlod.
         7    premium?                                 '             7     Q. Okay. So what that note means Is 1st July
         8         A. YeS. The rate of that particular Job, as       a through 20th November?
         9    it's hunicane season, would be two-and'il-haW          9     A. Correct.
        10    percent on that 2.875.                                10     Q. SO any job that Is declared onto the policy
        11         Q. And that also allows you to determine what    11 that Is going to occur betwioen the ist of July and
        12    the deductlbles are and the policy limits and so      12 the 20th of November Is going Ix> require the extra
        13    forth?                          '.                    13 quarter pen:ent on the premium, betause I~s a Job
        14                MR. PARRISH: Objection, fonn.             14 occurring during humcane season?
       , 15        A. The deductibles and policy IImi'" were set    15     A. Correct.
        16    In the general noater; I.e., tIve mmion,fimlt-        16     Q. This document still has the 20 percent
        17     up to five million IImft and 250,000 deductible.     17 discount str1cken and 12'i1nd-a-half percent ~tten
        18                So unless something came outside the      18 In. Is that betause this particular version is going
        19     parameters, thars what we're to assume Irs going to 19 to Mr. Lary?
        20     be on each IndMdual declaration.                     20     A. Correct.
        21         Q. BUt on this coverage, the IImltll are not     21      Q. This document labeled Exhibit 56, Is this a
        22     gonna be five million, they're gonOl; be 2.875       22 final V<lfSlon of this declaration, meaning that this
        23     million, correct?                                    23 one Is Intended to be effective as compared to a
        24         A. Corre<:i"                                     24 draft being drculated?
        25         Q. , So yOu need to know what this Job Is'so you 25      A. rd'have to go back It) the original placing

                                                            Page 106                                                   ..... 108
          1 know what the policy Ilml'" are as to ihls job,             1 slip, see whether this was the final version or not
          2 correct7           '                                        2     Q. Okay. And If you would, keep that exhibit,
          3'    A. each policy QI' each dedmtion have                   j which Is 145-
          4 Individual limits, dependlniJ 011 what the dednUon          "     A. 145.
          5 was. But how the policy was set up would be - there         5     Q. - out beta .... rm gonna ask you to go heel<
          6 would be a maximum limit of $5,000,000.                     6 to that from time to time.
          7     Q. There's only going to be, du~ng the year             7     A. 'What was your questlon7
          8 that this policy Is floating, a single policy,              8      Q. Exhlb~ 56, Is that a final version of thl.
          9 cortl!Ct, With multiple job declarations and multiple       9 particular dOQJment that was - betame effeCtIve or
         10 jobs being declared onto the policy?                       10 I. this stili In a draft futm, 56?
         11     A. Com!ct.                                             11               MR. PARRISH: Objection, fonn.
         12     Q. And what fm trying' to get straight Is each         12      A. This looks like the version which I started
         13 declaration for a different job, In your mind, does        13 to take arournf unde!Wliters and they've then
         14 that <:reate a different policy or just a different        14 amended - sO,me of tha underWrtters wtio subsequenl1y
         15 job dedared onlt) the policy?                   ,          15 ~gned on put another amendment on here. ThIs would
         16     A. Different job dedaned onlt) the policy.             16 be the final form.
         17     Q. Tum It) l'xf1lblt 56 If you would .. Do you         17      Q. The one tha~s In exhibit 145?
         18 recognize this document?                                   IB      A. Correct.                               ,
         19     A. Yes.                                                19      Q. And what Is the change that was made7
         20     Q. This looks very much like the document we           20 Unfortunately, we dont have Bates numbers on ihls,
         21 looked at just a minute ago, although Irs obviously        21 so for purposes of the nimrd, you have tIlmed It) a
         22 different because I~s ~t different InltIals on It          22 dOCllment that' Is I.beled, "UMR Re\jstraUon Number
         23     A. This Is a deaned-up version of the                  23 MADi0031lYs 572, Page 1."· Is that the only version
         24 document we looked at • couple minutes ago where I~s       24 of that document thoes In l'xf1lblt 1457
         25 been retyped up In my offce WIth the underWr1ters'         25      A. Yes, It would be. It's from the slip.

                                                                                                           27 (Pages 105 to 108)
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                                                                                                                   SR-000290
                                         '.~--'""""---. . . , ..   _--
                                                GUY DAREU. (Volume 1)

                                                    Page Ui9                                                        Pall" 171
 1         Q. How about information such as loss, If any,      1       "estimated on or about August 10th, 2002,' which
 2    payable to assured or HOUston Exploration Company as 2           seems to be the handwritten note on the second page
 3    their Interest may appear'?                              3       of ISO. 00 you see that?
 4                 MR. PARIUSH: Objection, fonn.               4        . A. What am I looking at?
 5         A. Well-                                            5           Q. You See tnls handwritten Insertion here?
 6         Q. Well, tna! kind of Information, it would be      6           A. RIght
 7   • Important to know, CAlO'I'eCt?                          7           Q. 1'11.t appears to be piCked up here.
 8                 MR. PARlUSH: Object to form.                S           A. Okay. Yes.
 9         A. Only when there·s a loss.                        9           Q.' Agree? Okay. So my question to you was
10                 MR. Wli'IJ'ON: What are you whining        10       whetner or not the sewnd page of Exhlb~ ISO, which
11     about down there?                                      11       Is Underwribers 190, forms part of the placement slip
12                 MR. SCAABOROUGH: Lunch.                    12       or was ~ superseded bythJs Page 5 of Exhlb~ 145
13                 MR. PARlUSH:Don'     you know everyone     13
                                                            . 14
                                                                       and, therefore, we can Ignore tne second page of
14     ealS later.                                                     1507
15                 MR. SCAABOROUGH: It Is late.               15           A. You can Ignore thl•• It was superseded by
16                 MR. PARlUSH: Not for here.                 16       this.
17                 MR. LEGGe: it just seems like ~.           17           Q. 1'11en tne third page of Exhibit ISO,
18                 (Exhibit 150 marked)                       18       apparently, Is what the second page looked like
19         Q. Let me ask you to take a look at what we        19'      before It was dtaJlated to SOme of the underwriters
20     have marked as Exhibit ISO. I apologize for            20       who made notaUons?
21     snatthlng thet back from you. 1'111s Is Underwriters   21           A. I would have assumed this lot came from
22      189 through 191. Dont go far with those.              22       WeDlngton, so It's just the first draft before
23                 THE WITNESS; Are those yours?              23       they'd scribbled on It, yeah, so the whole thing was
24                 MR. PARIUSH: No. NO. No. I'll keep         24       superseded by the later de>;.
25      them.                                                 2S           Q. And Exhibit 73, In the notebook, 15 that

                                                    Page 170                                                         Page   172
  1     Q. ActlIally, they belong to the court reporter              1 'also a superseded version of what ultimately becomes
'2 and she WIll get very cranky If we lose them so...                2 Page 5 of Exhibit 145, dated the 27th of August?
  3     A. 1'11. second two pages are a copy of our                  3      A. Correct.
  4 placing sUp. 1'11e front page Is'frorn SOme                      4      Q. Okey. Take. look at Exhibit 74, In the
  5 underwriter.                                                     5 notebook, If you would. 1'111s Is a Tysers cover note
  6      Q. Okay. 1'11e second page Is a different                   6 dated 21th August, '02. Is lItere a version of that
  7 versIOn of Exhibit 145, Page 14, thee. numbered Page             7 Included In Exhibit 145'1
  8 5. 1'111s Is why I get so confused as I'm tryfng to              8      A. No.
  9 worl< through aU of these, there's versions and other            9      Q. Is this the flnal cover note iliat applies
 10 versions of stuff.                                              10 to this coverage, Exhibit 747
 11              Whafs the difference between the page              11      A. lfs the cover note that does the Initial
 12 number five that is part of Exhibit 145 and                    '12 wrapper, whatever you want to call It, for OSFl, but
 13 Underwriters 190, which Is part of Exhibit 1507                 13 thet c:aver note would not give any coverage to
 14      A. T11e one dated 27tn of August Is tn. later,             14 Houston Exploration or any other job because
 15 cleaned-up version of that                                      15 nothing's attached to It
 16      Q. Does the second page of exhibit 150, which              16      Q. Well, actually, there's nothing •• this
 17 Is labeled Underwriters 190, form part of the piadng            17 Is - there's nothing attached to Exhlblt74. 1'111s
 18 slip in this matter?                                            18 would Just be what creates the floater, correct?
 19      A. I don't know. I think this looks like a-               '19      A. Correct.
 20 our previous """,Ion.                                           20      Q. So there's no Jobs that are covered by
 21      Q. Yeeh. It looks lille part of the words have             21 exhibit 74?
 22 been Incorporated Into Page 5 of Exhibit 145. fQr               22      A. Correct.
 23 example, where It says, "Agree cover 40 days from               23      Q., But exhibit 74 and .11 of the documents
 24 Ioadout," Exhibit 45, which Is the 27th August                  24 attached to It, w~ the exception af the debit note,
 2S version, now has the words "on 'or about" -                     25, wouldthen constitute part of the terms of the

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                                              GUY DAREU. (Volume 1)

                                                  Page 173                                                    poge 17S
1 coverage?                                                 1 Who Is Barry Henshaw?
2    A. Correct.                                            2    A. He was our OffIce technician.
3    Q. And Is ~ correct that the deb~ note Is              3     Q. And Is this the transmittal fax ttl.t goes
1     not part of that, ies just accompilOying ~?           4 with Exhlb~ 75·- 74 that we were Just looking at?
5         A. The debit note Is part of the Wr.lpper         5 . A. I would have assumed so, looking at the
6     because that Was the premium for $100,000, was the 6 language. Without going back Into my file, I don't
7     premium for the settlng up the ctNet, which Is a      7 know quite what was attached to the back, because
8     working deposit, which they then deduct job by job    8 you've got an email attachment In there or a fax
9     from.                                                 9 attachmen~
10        Q. But this Is - Exhibit 74 Is the only cover    10    Q. Take a look at Exhibit 6 If you would.
11    note Issued that would rom; part of the coverage?    11 That's gonna be In this notebook here probably.
12        A. les the Initial cover note and then,          12    A. Thees Exhibit 8. .
1,3   obviously, as you have jobs, you would then get      13     Q. I'm sorry. Now, Is that the same as what
14    endorsements to It                                   14 we've marked as exhibit 149, the dQaJtl1ent that was
15        Q. RIght. But there's nothing elSE! called a     15 produced today?
16    cover note?                                          16            MR. PAAAlSH: 149 Is right here.
17        A. NO.                                           17     Q. Yeah.· fm telling you, don't put those
18        Q. And this cover note then, with Its various    18 away.
19    a~ pages, form, again, part of the ultimate          19    A. Without going through line by line, I would
20    coverage -                                           20 assume so, yes.
21        A. Correct.                                      21     Q. So What we can see from either exhibit 149
22        Q. - de$crlp~ori?                                22 or Exhibit 6 - why don't you just keep them both
23        A. Correct.                                      23 open -Is that In paragraph one, on Page 4, we now
24      . Q. Take a look at Exhibit 75 If you WOUld.       24 have assureds, principal assureds. OSFl has been
2S    Now, Is this another version of the document we were 2S substituted - has been Inserted.

                                                  Pag.174                                                     Pall" 176
 1 just looking ~ that Is marked Page 5 d exhibit             1 . A. correct.
 2 145? vou might as well leave that one out for.             2      Q. AMlor company - and/or joint venrur....
 3 while. .                                                   3 Do you have an undelS1:andlng of what that phrase
 4      A. This Is • photocopy from Underwriter's             4 means "and/or joint venturers," or Is that Just
 5 files because the notation on the right-hand side was      5 language off the fonn?
 6 not In our flle; I.e, premium charged at 2.75 not          6      A. Tharslanguage off the fonn.
 7 2.875. So thl' Is Undenvrlte(s flies; not from our         7      Q. Other assureds, under 'Iv," which I' part
 8 flies.                                                     s of the form polley, this Is not something thaes been
 9      Q. Does exhibit 75 constlrutll a part of th<i         9 changed, which reads, effectively, "Any other company
10 coverage descri~on or coverage terms or Is this           10 with whom the assureds named In "I"' have entered Into
11 moreof just sort of a memo copy and page 5 of             11 wl1tten contracts dlrectiy In oon~on with the
12 Exhlb~ 145 Is the actual dOCtJrllCint that fanns the      12 project.' DO you see that language?
13 declaratlons page providing part of the.terms of          13      .A. Yes, I do.
14 coverage?                                                 14       Q. 00 you have any queStIon In YO'" mind
15      A. Well, actually the same thing, apart from         15 whether or not Houston Explora~on was an other
16 the handwritten no1ation on the right-hand side.          16 assured under that paragraph?
17      Q. RIght. Where rm trying to get With all of         17       A. Providing OSFl entered Into a written
18 this Is to have a complete stack of pages that            18 contract with them, no.
19 constitute the   til""' of the ctNerage, which is why
20 I'm spending aD this ~me.
                                                             19
                                                             20
                                                                      Q. No question?
                                                                      A. If OSFl had a written contract w~ Houston
21             And what I take It you're saying Is           21 Exploration, which I do not know they did or not
22 that exhibit 7S Is not needed to be added to that         22       Q. There Is one thae, been marked as an
23 stack; Instead, we'd rely.on Page 50( ExhIbit 145?        23 . exhlbIt, but you've never seen ~ before, so fm not
24      A. Correct.                                          24 gonna waste the time asidng you questans about It
2S      Q. Take a look at Exhibit n W WOUld.
                                         you                 25       A. Ane.

44 (Pages 173 to 176)
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                                                    281-469-5580

                                                                                                            SR-000307
                                                                           '.




                                              GUY DAREll (Volume 1)

                                                 Page 217                                                     Page 219
 1 here?                                                      1 them?
 2      A. No. A Uoyd's policy was not issuoo on              2     A. The one In Exhlb~ 145 would be an update.
 3 this partkular placement '                                 3      Q. So did it completely ~ Exhibit 827
 4      Q. Instead, what We have Is a Welcar form th.t        4      A. Exhibit 82's Irrelevant now. If you're
 5 Is created by Wellington, apparently?                      5' looking at the dates on the thing, I~s SUper..doo
 6      A, No" What you have Is • Tyser cover note.           6 by - well, In 145.
 7      Q. say that again.                                    7      Q. Okay. If you look at Exhibit 84, this Is a
 8      A. What you have Is a Tyser CXlVer note, which        8 cover note on a different project:, t:erreCt?
 9 is not created by Welllngtcn. The only, thing created      ~      A. Correct.
10 by Wellington would be the WOrding, the Wek:ar            10      Q. And you are now listing thls,as a surplus
11 wording. 'The rest of It was created In oonjundjon        11 nnes policy?
12 with the pladng Slip by ryser.                            12      A. Correct.
13      Q. At the Insttuctlons of Welll~n?                   13      Q. To"" a look at Exhibit 4 If you woukl.
14             MR. PAPANDREOU: Objectl9n, form.              14 This appears to be an email from Philip Otley to
15      A. No. At the In- well, basfcally, base!l            15 several different people dated 29th of Nov$'nber,
16 upon our placement With various unde.twrlte/s,            16 '02. Do you remember seeing this at or about the
17 Remember, Wellington Is only a IS percent or 11           17 Ume It went out?
18 percent lead nne.                                         18      A. No.
19      Q. Okay. At thelnstruct10n of Underwnlers,           19      Q. Who are the Individuals lISted as the
20 you created these documents?                              ~O addressees on this email?
21      A. Not really. It's actually to tell aur             21      A. They're the foreign market. Joe laWton,
22 client what coverage we've got. The underwrlters          22 COmmonwealth; lars Hylander, I think, was Hannover•.
23 doo't say·go and produce a dlen~ If my client             23 Is Commonwealth again. Phillipe Will be f>XA and
24 didn't want a document, I dldnt produce anything at       2~ Jack D. Bruyd(er will be All ,M1erican Marine Slip.
2S ail.                                                      2S So tha~. the foreign mar1<et placemen~

                                                  Page 218                                                     PlIgellO
 1       Q. ,Well, you produced various documents that    1           Q. Okay. This document notes the Increase In
 2   we've looiood al that are part of the placing sDps   2       the premium from 50,000 to 157,500 In respect of the
 3   that get modlfloo or appl'O'l!!d by Underwriters,    3       nabihty to existing property nmils. So, In other
 4   cerred:?                                             4       words, thaI Is an Increase of the premium as ~
 5       A. Correct.                                      S       spedilcally relates IXlllability for damage to the
 6       Q. None of those were submitted For              6       Jacket In the event that OSFI dropped the deck onto
 7   modification or approval by OSFl.                    7       the jacket or otherwise damaged the jaCket, torrect?
 8       A. Correct.                                      8           A. Correct
 9       Q. Or Houston ExploraUon,                        9           Q. And It goes down and it talks .Iiout the
10       A. Remember, I'm - correct, I'm not dealing     10       claim belng'made On the Jacket Installation project.
11    with OSFl and Hooston ExpIoraUon. rm dealing with ·11           A. Correct.
12 Greg Lary.                                                12       Q. This indicates thet London Underwriters
13     Q. And Underwllters?                                  13   have agreE<l to this, referring to the dlilm on the
14     A. And UnderwJjters.                                  14   jacket In other words, they're gonna - London
15     Q. And the only one who approved those                IS   Unde.twrile- not that they've agreed to the dabn.
16 documents Is Underwriters?                                16               It says, 'london Underwljters have
17     A. Correct.                                           17   agreoo to this,' and what ies talking about IS to
18     Q. Take a look at exhibit 82 It you WOUld. Is         IB    going ahead and covering the deck InstallaUon,
19 thatdocumenl a - another version of Page 7 thers          19    despite the fact that there's a claim out there
20 in exhibit 1457                                           20    the~s coming in on the Jacket Instalil!tlon?
21     A, This would be a quote ver:;lon, presumably         21       A. Correct.
22 from Wellington's flies.                                  22       Q. Is that your understanding of what was
23     Q. And between the Page 7 thar. In exhibit            23    going on at that time?
24 145 and exhibit 18- excuse me, Exhib~ 82, which is        24       A. Correct.
25 the acUve controlling doCtJmeni:? 0, are both of          25        Q. And ~ says that Underwriters believe that
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                                                                                                       SR-000318
                                                                  '.
                                               GUY DAREU. (Volume 1)

       ,                                           Pago 221
1      the
     W 'nddent became a loss, that It would be in               1       A. Nat by us or Underwriters.
,2   the region of $4(lO,OOO to $500,000 alter deductible?      2       Q. If you look at ExhIbit 92 - 92. No, I'm
3        A. That wasIl't Underwriter's view, that was           3   sorry. You're rtght You're right NI~
4    probably Greg Lary's view for, I presume, OSFI and         "   You're right I.forgot that 140 was out of order,
 5 Houston EXploradon.                                          5 timewlse.
6     Q. It says, "We feel It would be.' So,                     6           That appears to be a oapy of the .:over
 7 apparently, there Is at least Mr. Otley saying that           1 note endorsement and deb~ note from TYsers regarding
 8 here at Tysers there was a belief that it would be            8 the deck project?
 9 400.000 to SOO,oo01                       .                   9    A. Correct
10           MR. PARRISH: Object to form.                     ' 10    Q. I'm looking back through ExhIbit 145 tQ'see
11    A. Correct.                                               11 whether or nofwe've already seen that Qlver nate
12      ••
       Q And then It goes on to note that the tQtal             12 endorsement. I don't recall seeing that In exhibit
13 premium for lllisJob, meaning the deckjob,ls gonna          13 145.
14 Increase to $398,150 which at least Mr. Otley               14     A. Well, exhibit 145 Is a pladng sUp, so you
15 apparently feels would cover most of,the claim on, the      15 wauldn~ have any cover note endorsements within
16 jaeket, correct?                                            16 that         .            '
17    A. CorTect                                               17     Q. Okay. Thor. right And attached to that
18    Q. And If you drop down to the last paragraph,           18 Is • debit nat!!, the next page?
19 "Relevant handWriting on agreement being On basis           19     A. You're talking about Exhibit 927                         "
20 potential outstanding claim from piling problem,            20     Q. Yes, sir. The next page.
21 amend additional premium to U.S. 157,500 from U.S.          21     A. Correct
22   50,000," right?                                           22     Q. Is that. true and ,!ICOJrai:e copy of the
23       A. Correct.                                           23 debit note sent from Tysers In Gnlg Uiry for the
24       Q. And that handwrltfng thars talking about           24 premium on the deck1nstallation project?
25   Is what we looked at on Page 7 of ExhlbU45?               25     A. ~

                                                   Pilge m                                                             page 224
 1    A. ~                                                   1     Q. And the Intal """mission on that was In be
 2    .Q. 50 at Ille ~me the decision was made to            2 $46,765.63?
'3 Increase Ille premium from SO,OOO III 151,SOO, the        3     A. Thor. Lary'. Intal commission.
 " belief was that the jacket dalm would be on the           4     Q. Yes. I'm sorry.
 5 order of four or five hundred thousand?                   5     A. Total commission would have been 20 percent
 6        A. ~                                               6 In total.
 7               MR. PAIIRlSH: Object to form.               7     Q. Another seven-and·a-h.~ percent of the
 8        Q. Take a look at exhibit 88 If you would.         8 $374,125 would have gone to Tysers?
 9   thiS appears III be an email from you to Gnlg Lary      9     A. Correct
10   dated Matdl - rm sorry. Dated 3rd of December,         10     Q, And thars the discount allowed by
11   2002?                                                  11 Underwriters In pay the vartcus brokers?
12        A. Correct                                        12     A. Total discounts       were
                                                                                               20 percen~ oarrect.
13         Q. AdvIsing him of the premium on the deck       13      Q. Right And I take ~ If an assured had
14   Inolalladan?'                                          14 come directly III you, as they could ha"", then you
15        A. Correct                                        15 would have goltan Ill. whole 20 percent? '
16        Q. Take a look at Exhibit 140, pie.... And        16      A. Market practice, we'wouldn't have taken the
17   I'll represent to yoU that that Is an Invoice sent by  17 whole 20 percent. The reason for that Is because
18    Lary Insurance 5eNIces to Houstlln ExPloration and    18 we're IDtaIly nice people and Ir. too much to work
19   It'. been Identlfted by Mr. l.ary. Do you see Illat?   19 for 20 percent and some other broker will come In and
20        A. ExhIbit HO, yeah.                              20 wori< for less .nd yoU'll lose the business.
21         Q. And the premium an that billed III Houston    21      Q. 50 what would you take, In a situation like
22    Explara~on Is $515,000. Do you see that?              22 this, where an assured oomes directly to you?
23         A. I~                                            23             MR. PARRISH: Object to form.
24         Q. Was Mr. Lary ever auti10rlzed to thallle      24      A. Tweive-and-a-half.
25    Houston Explara~on ,$515,000 pramlum an the deck Job? 25      Q. So In olller words, custom and practice or

56 (Pages 221 to 224)
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                                                         Page 233                                                             Page2.'JS
     1 meeting here In London with Mr. Bayle5s?                         1        Q. As I understand tt, Mr. Hodgett was on the
     2        A. Yes, I do.                                            l     claims side, not tlte underwritlng or placing side?
     3        Q. Was that OIl or about the 2511l of March;             3         A. Cor!ect. He waS OIl tile claims side.
     4        A. I can~ remember, but probably.                        4         Q. Do yOu know whetiler or not - or did
      5       Q. And he notes tIIat he dlscussed tills fax,            5     Mr. Hoogett tell you that he had a discussion With
      6   which Is atl'ad1ed. Well, it's the - this fax with           6     Mr. Allan about the whole placing process?
      7   the attached documents, and gave them, meaning Guy            7        A. He didn't" but I'm sure he did. Otherwise,
      8   OareJ/ and Davd Wiles, a copy of the same, and later          8    he wouldn~ hIM! known what to say to me: Mr. Allan
      9   they dlsaJssed with Underwriters. 00 yo~ recall               9    did ring me up and told me I was Incorrec;t In my
     10   discussing IIlls document wlill Mr. Bayless?                10     assertion thaI weather downHme was covered.
     11       A. No. I remember dlscussing willl Mr. Bayless          11         Q. And what was your response?
     12   the clrtlJl1lStan~ of the dalm, which was another dOC       12         A. Urn. Oh.
     13   which you have, tlta~s probably his opening history         13         Q. When did tI1at QlITversaUon occur?
     14   of the acbJai even~ which was saying what happened.         14          A. This would have been In June again. And
     15   So I think lIl.r. probably his preliminary report. I        15     tI1e only reason I know that, It was Just following
     16   don' remember ever hailing seen that - those                16     John Hodgeit's denial of coverage In respect of
     17   attachments before.                                         17     standby charges.
     18       Q. Well, he notes that he left them with you            18         Q. Was Mr. Hodgett upset?
     19   and Mr. Wiles.                                              19         A. No.
     20       A. Well, I probably WOUldn't have bothered to           20          Q. flOW about Mr. Allan?
     21   look at,tt and let David Wiles take It.                     21          A. Yes, he was more upset.
     22        Q. Do you know where Mr. Wiles Is today?               22          Q. And what did he say, spedficalJy?
     23       A. In London. Thaf. about as far as 1 can               23          A. !:xple!lves deleted?
     24    get. He's left Tysers' employment approximately two        24                 MR. PAAAISH: Please.
     25   or three years ago actually now. Tha~s what O1ris           2S          Q. No. Go ahead. ~s have the expletIves.

                                                         1'ilg.234                                                             Page 236
      1 sydenham's for, because he's in charge of dalms.                1        A. 'Gul, you're a f1.IcIcIng cunt. If you think
,
~.    2     Q, Okay. this note from Mr. Bayless goes On                 2    that I Intended to roll back weather downtime
      3 to say, 'later they discussed with Underwriters.'               3 coverage because I deleted the subllmit, you're mad.
      4 Were you part of a discussion With Underwriters of              4 See you In fucking court.' End of oonversaUon.
      5 the Houston Exploratlon claim7                                  5    Q. You had no response?
      6     A. Only In the sense that I talked to John                  6    A. I didn't bother. I Just laughed. I do
      7 Hodgell on the phone after he --                                7 know Mike qutte w.ell.
      S     Q. When did you -                                           a              MR. LEGGE: Thursday will be • fun
      9     A. -- after he put .n objection In to the                   9 day.
     10 weather downtime element.                                      10     A. He did call me "Gul.'
     11     Q. SO when would that.have baen? Sometime the              11     Q. What Is 'Gul''?
     12 summer of '031                                                 12     A. FtenCh for Guy.
     13     A. June, yeah. Certainly would not have been               13              MR. PAPANDREOU: HIs name.
     14 In March because that would have been a claims issue,          14     Q. SO that softened the rest of the message?
     15 so David WIles would have been doing that.                     15     A. With Mike, you get quite used to messages
     16     Q. And what was your discussion with                       16 like that, I can assure you, SO I was not emoUonally
     17 Mr. Hodgett?                                                  '17 traumatized.
     18     A. My discussion with Mr. Hodgett was pur.ly               18              MR. LEGGE: So, 11m, If Mike calls you
     19 he had - l11ere was -there will be a fax or an                 19 a name, ~ just means he likes you. Okay?
     20 email In the claims files where he denied coverage on          20              (exhibit 1'53 marlald)
     21 the standby chllrges, and my discussion with                   21     Q. I'd like you to take a look at Exhibit 153,
     22 Mr. Hodgett was purely on the respect because the              22 which appears to be an email from David Wiles to
     23 deductible had been left in,tlte standby chllrges had          23 laurie Sanders, copying you and Mr. Ottey. Do you.
     24 been rolled Into the overalilimi~ which he didn't              24 see that?
     2S agree with on the phone.                                       2S     A. Yes,

                                                                                                                 59 (Pages 233 to 236)
,.                                                   Independent Reporting, Inc.
 ;
                                                           261-469-5580

                                                                                                                      SR-000322
                                                                                     '.
                                                                                                               ,   -----'--.~-.~-




                                                      GUY OARELL (Volume 1)

                                                          Page :zJ3                                                      Page2JS
     I   rn.!etmg here In Loodon wlill Mr. Bayless?                   1        Q. As I understand i~ Mr. Hodgett Was on the
     Z       A. Yes, I do.                                            2 dalms Side, not the und,etwriUng or placing side?
     3       Q. Was that on or about Ill. 251ll of March?             3    A. Correct. He was on Ill. dalms side.
             A. I can' remember, but probably.                             Q. 00 yOu know whetl1.r or not - Or did
     4
     5       Q. And he notes that he discussed Illis fax,
      6 which Is altlched. Well, It's Ill. -Illis fax wIIl1
                                                                      "
                                                                      5 Mr. Hodgett tell you that he had a discussion with
                                                                      6 Mr. Allan about tha whole pladng process?
      7 the attBched doaJment5, and gave Illem, meaning Guy           7    A. He didn't, but rm sure he did. otherwise,
      8 DareU and David Wiles, a copy of Ill. same, and later          8 h. wouldn't have known what III say to me. Mr. Allan
      9 Il1ey dlsrussed WIIl1 Underwriters. 00 YOU recall              9 did ring rne up and told me I was Inoorrec;t In my
     10 discussing Illis document Wlill Mr. Bayless?                  10 asserUon that weather downume was covered.
     11     A. No. I remember discussing Wlill Mr. BayIe;s            11     Q. And what was your response?
     12 tha drcIJmstaflCell of Ill. dalrn, which was another dOc      12,    A. Urn.Oh.
     13 which YOIr have, thars probably his opening history           13     Q. When did that conversation oo::ur?
     14 of tha achJal event which was saying what happened.           14     A. This would have been In June agoln. And
     15 So Illllnk thars probably his preliminary report. I           15 Ill. only reason I know il1at, tt was Just folloWIng
     16 don' remember ever having seen il1at - those                  16 John Hodgeit's denial of coverage In respect of
,
i'
     17 attachments before.                                           17 standby charges.
     18     Q. Well, he notes Ill.t he left Illem with you            18     Q. Was Mr. Hodgett upset?
     19 and Mr. Wiles.                                                19     A. No.
     20     A, Wen,! probably wouldn't have boillered to              20     Q. H,ow about Mr. Allan?
     21 i0oi< at,~ and let David WOes \<Ike It.                       21     A, Yes, h. was more upset.
     22     Q. 00 you know where Mr. WII<!s Is today?                 22     Q. And what did he say, spedficaUy7
     23      A. In London. That's .bout as fur as I can               23     A. ExpletIveS deleted?
     24 get. He's left Tysers' employment approxlmat!!1y two          24             MR. PARRISH: Plea...
     2S or Ill,... years ago actually now. Thors what eMs             25      Q, No. Go ahead. Lers have tha expletives.

                                                          Pag.2:J4                                                       Pege :(:36
      1 sydenham's for, because he's in chal1le of dalms.              1         A. 'Gul, you're a fuddng cunt If YQu think
      2     Q, Okay, This not!! from Mr. Bayless goes on               2    Illa! I Intended to roll back weather downtlme
      3 to say, "Later Il1ey disaJSSed with Underwl1ters."             3    coverage because r deleted the subUml!:, you're mad.
      4 Were you part of a dIscUssIon with underwriters of             4    See you in fuddng court." End of conversation.
      5 tha Housto<ll:lcploratlon claim7                               5         Q. You hed no response?
      6     A. Only In ~ sense Illa! I \<lIked to John                 6         A. r didn't bothar, I just laughed. I do
      7 Hodgett on Ill. phone after he -                               7    know Mike q~ well.
      8     Q. When did you -                                          8             ' MR. LEGGE: Thwsday will be • fun
      9     A. - after he put an objection In to Ill.                  9    day.
     10 weather downnme element                                       10         A. He dkj cali me "Gul.'
     11     Q. SO whetl WOI.IId that,have been? sometlmeli1e          11         Q, What Is 'Gal"?
     12 summer 0( 103?                                                12         A. Fi"ench for Glty.
     13    A. June, yeah. Certainly would not have been               13                 MR. PAPANDREOU: His name:.
     14 In March because Ill.t would have been • dalms Issue,         14         Q. So that softened the rest of the message?
     15 so David Wiles would have been doing that.                    15         A. With Mike, you get qUite used to messages
     16     Q. And what was your discussion WIIl1                     16     like that I can assure you, $0 I was not emoUonally
     17 Mr. Hodgett?                                                  '17    traumatized,
     18    A. My discussion wlill Mr. Hodgett was purely              18                 MR. LEGGE: So, Jim, ~ Mike calls you
     19 he had - Ill... was - Ill.re will he a fax or an              19     a name, ~ just mea,lJS he likes you. Okay?
     20 email In Ille dalms flies where he denied ooverage on         20                 (exhlb~ 153 marked)
     21 the standby charges, and my discussion wlill                  21         Q. I'd like you In take a look at exhlbUS3,
     22 Mr. Hodgett was purely on the respect becaltse the            22     which appears to be an email from David WlI<!s III
     23 deductible had been left In, Ill. standby charges hed         23     Laune Sanders, copying you and Mr. Ottey. 00 you.
     24 been rolled Into !he _",II limit which he dldn~               24     see that?
     25 agree wIIl1 on Ill. phone.                                    25         A. 'Yes.

                                                                                                             59 (Pages 233 to 236)
                                                      Independent Reportlng,Inc.
                                                             281-469-5580

                                                                                                                   SR-000322
                                               GUY DARELL (Volume 1)

                                                  Page:MS                                                        Page 247
 1   every so often.                                           1 deleting standby coverage, but deleting the
2               MR. PAPANDREOU: Are we keeping It?             2 additional limit, so that if Stanley does not
3               MR. WINTON: I've marked it .,....dy,           3 consider that the platform was In Imminent danger SO
4    SO Irs not worth unmarklng It.                            4 that sue and labour is not applicable, then we are
5               MR. PAPANOREOU: Okay.                          S back to the basis of recovery In Cause leAl, Page 11
6               MR. WINTON: But it was one of my more          6   of tile wording that would pld< up SIllndby charges as
7    pointless ads, I will admit.                              7   tI1ey are duly Justified In the nepal, operations but
8              (ExhIbit 157 marked)                            S   without the additional limit within Cause 13.
9       Q. Exhibit 157 IS Tysers 98, which Just Ibr            9               If Underwriters wanted to delete
10              or
     the purpose completion, has the third aJjly of the       10   standby charges, we would have to specifically
11 Ilayfess email, but this one has something on top of       11   excIude,whlch they have not done. We do actually
12 It.                                                        12   have a specific standby charge dedudlble of 48 hours
13
14
       A. I   don'
                 remember that.
       Q. And thIS appears to be an email sent by you   14
                                                              13   on Page 31, Cause S vi' - ah, little sIX, I aSStJme,
                                                                   Is what that Is, little Roman siX - "which, of
15 to Mr. Sydenham on or about tile 17th of June, 2003. 15         course, would be deleted if coverage was excluded.'
16
17
        A. I don' remember thIS.
      Q. You're Indicating that you've answered tills
18 Inquiry fi'om Mr. IIayIess and YOU're genoa forward
19 your reply, which Is Exhibit 29, I believe.
                                                              16
                                                              17
                                                              18
                                                              19
                                                                               Now, I take ,It that you would not have
                                                                   sent that to Mr. Lary if that was not a true and
                                                                   aCQJrate statement of your understanding, benef and
                                                                   Interpretation of the policy as Issued.
                                                                                                                             ..
20             And this consists of two dllferent             20               MR. PARRISH: Object to Ibrm.
21 emalls, so lers start with the bottom one. This            21       Q. Correct:?
22 appears to be an email from you I!> Greg Lary, dated       22       A. That was a staiement where I was putting
23 17th of June, '03, correct;?                               23   the best face on a J)OI:entlallssue In the fact that
24    A. Correct.                                             24   standby charges subl/mlt had been deleted. funny
25    Q. And then, apparently, someone here                   25   enough, that doesn't really look like my phraseology,

                                                  Page 246                                                        page 248
 1 forwarded that emali I!> Mr. Bayless on June 11th,          1 SO somebody might have dictated that to me, but I
 2 20037                                                       2 can' remember who.
 3    A. Correct.                                              3      Q. If you did not believe that that was a
 4      Q. And, apparently, there had been a                    4 cnnrect SIlltl!ment, given the nature of your
 5 "lnversaHon between you and Mr. La/'{ because you            5 relatIOnShip with Uoyds, the need ,\I> maintain a good
 6 note, In the upper email, 'Greg asked me to forward          6 relationship with Underwrtters, you would not have
 7 this to you as he couldnt be bothered to do ~                7 sent this, would you?
 8 himself. Will gIVe you a ""II later to clarify W             8             MR. PARRISH: Object to fonn.'
 9 any problems. Regards, Guy Darell.'                          9             MR. PAPANDREOU: ObJectton, Ibnn.
10     A. Com!d:.                                              10     A. It could be my Interptetatlon of an
11     Q. Do you recall forwarding the botlom email            11 existing situation, which Is what this Is.
12, to Mr. Bayless?                                            12     Q. I understand. And tha~s what I mean.
13     A. No, I don't,                                         13 This was your good faith benet of how you reed that
14     Q. 00 you remember talking to him as •                  14 policy?
15 follow-up, as Indicated in the email?                       15             MR. PARRISH: Object to fonn.
16     A. The only Ume I remember talking to him was           16     A. Irs how ~ CI)U/d be read.
17 In my meeting In the office here In the spring.             17      Q. Wel4 it doesn't say you could Interpret
18     Q. All right. Let's talk about the email                18 this I!> mean. It says this In an outright,
19 below. 00 you recall sending that emal/I!> Mr. lary?        19 stralghtlbrward, unequivocal fashion, that this Is
20     A. I don' recall sending It, but I must have            20 what that means, doesn't It?
21 done It because that's what It says.                        21             MR. PARRISH: Object to fonn.
22     Q. In this email you say - you reference back           22      A. What It actually says Is that, and the
23 to Mr. Bayless' email of the 16th, that being' hIS          23 reason Ibr that would be because we are trying to be
24 Inquiry that Wftve looked at three times now.             ' 24 as aggressive as we can In looking after our dienrs
25             'If you dalete cause 13,you are not             25 Interest, in getting him some coverage, with our

62 (Pages 245 to 248)
                                             Independent Reporting, Inc.
                                                 , 281-169-5580

                                                                                                             SR-000325
                                                 GUY DARELL (Volwne 1)

                                                     Page 249                                                      Page 2S1
   1 interpretation of the poBcy fonn.                          I        A. Correct.
   2     Q. Not up to the point where Y9u would make a          2        Q. And you kl10w there's an Issue about whether
   3 raise statement with regard to • /11lItter thafs           3    or not there's coverage for st>ndby, correc!/
   ~ pending WIth UndernrltBrs as part of • daim, though,       4        A. Correct.
   5 W¢II1d you?                                                5        Q. And you kl10w that this email is gonna have
   6     A. ll'rnot a false st>rement What It's                 6    an impact on the positions that .. Wnobody else,
   7 st>Ung Is a way you can read the fonn.                     7    the position that the assured Is taking, correct?
   8     Q. n .. ~ doesn' say you CIlIIld read this to          8               MR. PARRISH: Object to lonn.
   9 mean. It says, 'If you delere" .. you are not              9        A. Correct
  10 deleting st>ndby coverage, but deleting the                10       Q. And you k11cw that this coold vey welcome
  11 additional "mit, correct?                                  11   back to the attentlon of UndeJWJiters, correCt?
  12             M~ PARRISH: Object to form.                    12       A. CoI'I'!!!'t.
  13     Q. That's what It Says?                                13       Q. In I~ apparently, based on tile call you
  14             MR. PARRISH: Object to form.                   14   got t'rom Mr. Allan, your position did get made known
  15     A. That's what It says, but ..                         15   to him.
  16     Q. There's no but there.                               16       A. Well, that would be because Stanley
  17     A. fm da~fying what I'm actually saying.               17   Bayless •• this was going to Stanley. Bayless, who's
  18 And what t actually means Is they can read It this         18   actually on behalf 01 Und~ters In adjusting tha
  19 way and that .. to make a strong a case as possible        19   dalm, and this Was following the conversation I had
  20 as we can, tha~s how 1 would have phrased It.              20   had With him In the sprtng which Is where the
  21             And the reason for that Is, If I had           21   .pedn. question he asked me was, could Und8!WJ'iters
, 22 shilly-shallied around the point and saying you could      22   have Intended, by striking the weather dOwntime, to
  23 read It like this, you needn' read It hke thiS,            23   have rolled tt back Into the overnll Uml? '.
  24 there's no way that Stanley Bayless would have             24               And, bence, my anSwer to the question
  25 thought there could possibly be some covel'!lge In         25   was, could they have Intended? Yes, they could have

                                                     Page 250                                                      Poge 25:1
  1 that                                                        1 Intended anylhlng. Irs not my job to guess what
  2     Q. If you are acting on behalf of an assured,           2 UndeJWrtters intend to do.
  3 don' you IJ1lnk you also have an obllgaHon to IntQrm        3             But I was Intilrpretlng It In as broad
  4 tile assured whather or not you really believe tills "      4 a way as possible, Now, bearing In mind what I
  5                Mil. PARRISH: .O!>jectlon -                  5 actually said In the sprtng meeting, I'd be
  6        Q. - whether or not you IJ1lnk that you could        6 contradicting myself If I Illen went back to a text,
  7    stretch It to this, but maybe n0t7 l'hars If you're      7 emaR, whaillVer, to Bayless, tour months later,
  a.   acting on behalf of the assured.                         S saying, well, actually they probably didn't.
  9                MR. PARRISH: Object to tonn.                 9     Q. And answer my question, if you would.
 10        A. Well, Ill~ was sent to Greg Llny. He was         10 Knowing that this Is a document thars gonna afleet a
 11    my assured's agent,to that stage. So, therefore, the    11 dalm for covetage under the policy; knowing that
 12    fact he wanted me to forwaid this to Stanley Bayless,   12 this Is out there, that Irs genna affect the
 13    by the look of that top thing, I would have put this    13 assured, If ~ gets back to Underwriters, tt could
 14    In a language to him In the most dlent ft1endly way     14 sertously Irritate tIlem as, appaAlntly, It did when
  15   1could, the most faVIlrabie to my dlen!, who was        15 Mr. Bayless fOlWllrded It to Mr. Allan;, you would not
  16   Houston Exploratlon and OSFL                            16· have made a statement that you did not believe to be
  17       Q. 1 tilke tt you would agree WltIl me that you     11 a fair and aCllJrate st>J:ement, would you?
  18   would not, under any dtaJlllStanc:es, have made a false 18              MR. PARRISH: Object to 'form.
  19   statement In thl>.                                      19              MR. PAPANDREOU: Objection, fonn.
  20       A. I~s In .. Illis Is a statement of how a          20     A. Yes, If It's In my assured's Interest.
  21   policy could be read,                                   21     Q. So you're saying that If you thought It
  22                Mil. WINTON: Move to strike. ObJect.       22 would benefit the assured, you would make a false
  23   nonresponsive,                                          23 statement?
  24        Q. LIs!en to the question. You know there's a      24             .MR. PARRISH: Object to·form,
  25   dalm pendlng, correct?                                  25     A. The actual _ment Irs concerning Is an

                                                                                                      ,63 (Pages 249 to 252)
                                                Independent Reportlrig, Inc.
                                                      281-469-5580

                                                                                                           SR-000326

                                                                                                                    .,.',   "
                                                                                   -~"   .. ,----" ,--.   ...-.~.---,.~     .. ....... .
                                                                                                                             ~




                                              GUY DARELL (Volume 2)

                                                  Pogell8                                                      P'!/<!,40
  1 Number 36. Exhibit Number 36 Is an eman dlat was         1     Q. You do that when you negotlate premiums,
  2 sent from Mr. Bayless to John Hodgett. See that?         2 right?
  3     A. ldo.                                              l            ·I';1R. WINTDN: Objection, leading.
  4     Q. And at the very - two paragraphs before           4     A. CorTl!Cl ,
  $ tl1e end, ~ says, "It Is the contentlon of the           S     Q. You try III negotiate tl1e lowest premium
  6 placing bro'l:e~ - who's the placing broker, sir?        6 available for your dlent, right?
  7      A. lam.                     '                       7             MR. WINTON: Objectlon, leading.
  S      Q. Tysers, right?                                   8     A. Not necessarily. Basically, premium's
  9      A. Tysers.                                          9 always a !'aclDr of <X>'/eJ'age.
 10     Q. -"that Clause 13, deleted, Is utDlzed In         10     Q. But you try and negotiate the best deal for
 11 the event the ass""", were III request. separate        11 your client, right?     "               ,
 12 additional sublim~ for weather standby costs In         12             MR. WINTON: ,ObJection, leading, form.
 13 addltlon to those Induded In project values declared    13     A. As. combination of premium and coverage,
 14 to the open COler.' Right? See that?                    14   yes.
 15      A. I do.                                           15     Q. Okay. And as a combination of premium and
 16      Q. That was what we discussed before when          16 coverage, ~ a dalm arises, you try and tend III
 17 after tl1e fact, after the poIk:y WOIdIng was agreed    17 Interpret the policy In the most - the broadest way
 18 upon and conflnned back In JIlIy, AUgust of 2002 --     18 possible 50 tl1at you can advocate In favor of
'19 now we are in lune of 2003.                             19 coverage, right?
 20      A. Correct.                                        20             MR. WINTON: Objection, leading.
 21      Q. That Is one Interpretation that you             21     A. Correct.
 22 provided at the time, correct?                          22     Q. Because thars In the best Interest of your
 23      A. At the time, you mean 2003?                     23 'dlent, the assured, correct?
 24      Q. Yes. Jun••                                      24             MR. WINTON: Objectlon, ieadlng, form.
 2S      A. June.                                           2S     A. Correct.

                                                   Pagem                                                       Puge.3<111
 1      Q. Way alter the policy wording was agreed           ' 1      Q. That was the case he... In this case. The
 2 upon, corre«?                                               2 best interest of your client, OSFl, ultimately, was
 3     A. I would nat actually agree w~ what                    3 to advocate - advocate In favor of coverage of the
 4 Stanley Bayless,has said there because my argument           4' standby charges that Were dearly deleted In the
.5 was always that the Clause 13 was not an additional          5 policy wording, correct?
 6 limit, It was a subllmlt, and SO I don' actually             6           , MR. WiNTON: Obj~on, loading.
'7 ag...e w~ what h. said there.                                7             MR. PARRISH:' Objectlon, form.
 S     Q. Okay. But he's - he's trying to beslcally             8      A. The Idea behind what I wa. saying III
 9 refer III an argument tl1at you made at the time,            9 Stanley Bayless was to give the broadest possible
10 correct, in June of 2003?                                  10 Interpretation as possible, correct,
11                MR. WINTON: Objection, leading,             11       Q. You were not doing anything unusual. You
12 form.                                                      12 were advocating for the best Interest and the best
13     A. I'think he'. misquoting mo on tl1at                 13 deal for your clfent?
14     Q. Okay.                                               14              MR. WINTON: Objection, leading.
15     A. I mean, he's using a slightly different             15       A. Correct.
16 argument to mine. I mean, my argument, as you've 16                 Q. That argument actually was rejected.
17 already seen, is that by deleting the subllmit, ,          17 Whether It was your exact argument or the way
18 yo,u' ... roiling ~ back Inlll the overall limit, due III   18 Mr. Bayless beslcally reported your argument III be,
19 having a deductible down there.                             19 It was rejected by Unde!Wl'lters, correct? '
20     Q. As a good broker, you always try to                  20      A. It Was Initially, I believe, rejected by
21 advocate In favor of your client, the assured,             21 John Hodgett, but you'll have to ask Chris Sydenham
22 correct?                                                   22 exactly what happened on that
23                MR. WINTON: Objection, 'eading,              23 ' Q. Wh,o dodd .. cove",ge, sit?
24 form.                                                       24      A. Underwriters and courts.
2S     A. Correct                                              25      Q. Not the brokers, not the ~5Sureds, rtght?

                                                                                                  11 (Pages 338 to 341)
                                             Independent Reporting, Inc.
                                                   281-469-5580
                                                GUY DAREU. (Volume 2)

                                                    Plge342                                                     PageJ+f
 1         A. No.                                              1 0011)-
 2         Q. - And If you go to ExI1ib~ 138, sir. Exhlb~      2     A. So it starts, "You're Incorrect in the
 3    138 has Ilrst an emaR from you to John H«Igett and       3 fact.'
 4    that eman also attaches a previous email sent by        .4     Q. Yes. That email. If you go further down
 5    Guy - by - rrdon me, by Greg Darell to you. Do           5 In that email, the Mrst paragraph that starts after
 6    you see that                                             6 the ~Ildzed portion of the email, do you see that?
 7                MR. WINTON: Greg lory?                       7     A. 'The policy exdudes.' Is that right?
 8         A. Grag lary?                                       8     Q. Right. Right Con you read that for me?
 9         Q. Greg lory, yes.                                  9     A. "The policy exdudes any amount for standby
10         A. Yes, I do.                                      10 charges"
11         Q. And Greg lory had also made an attempt, In 11          Q. Th.r. what Mr. lory So\lld, right?
12    his email, to provide his Interpretatlon In favor of    12            MR. WINTON: ObjectIOn, fonn.
13    his dlent and coverage for his dJent, right?            13     A. I don't know. I have never """" this email
14                MR. WINTON: Objection, leading,           . 14 before.
15    fonn.                                                   15     Q. Okay. Well, I will represent to you that
16         A. Yes.                                            16 Mr. lory has Il!sI:ifIed already that that was an email
17         Q. He did tha exact same thing you did, right?     17 he con1posed and sent to Mr. SImon. Okay? Thars my        . ,..
18                MR. WINTON: ObJection, Jeadlng,             18 representa~on to yo~.
19    fonn.                                                   19     A. Fine.
20         A. He had • sllghUy different argument, but        20      Q. And he says - this is, an email that he
 21    the basis of what he was doing was the same, In        21 wrote, and h. says, ''The policy excludes any amounts
-22    trying to get the best possible deal fot his client.   22 for standby charges." Do you see that?
 23        Q. AS a broker, as well?                           23      A. I do.
 24        A. Correct.                                        24     Q. Thaes what you've testltiad to In this
 25               MR. WINTON: ObJectJon, leading,             25 deposition so far, right?

                                                    Page 343                                                    Page 14S
  1 form.                                                      1                 MR. WINTON: ObjectIOn, form.
   2     Q. So, basically, both you and Mr. lory, both,        2        A. What I've test/fl«lls the policy Intended
   3 Tysers and Mr. lary, both of you, after - way after       3-   to exdude standby charges, but by leaVing the
   4 this policy wording was agreed, after some problems       4    deductible In, the... was an argiJment that standby
 -5 oi:c:urred, despite the fact that I\tlndby charges were    S    charges could be Induded.
   6 clearly deleted In the policy, were trying to make an     s        Q. Right But you've also testified that at
   7 argument to say lI1at standby charges Were covered,       7    the time of the placement of the - at the time of
   8 right?                                                    8    the, wording - the time when you Were agreeing ~h        -     ,
   9             MR. WINTON: ObJ~on, leading.                  9    your counterparts, Underwriters, about the wording,
 10      A. Correct.                                           10   there was no doubt In your mind that standby charges
 11      Q. Basically Is what we call a spin, right?           11   were deleted, correct?
 12 You were p~g • spin on the policy, right?                  12                MR. WINTON: ObjecUon, leading,
  13             MR. SCARBOROUGH: obj~on, fonn.                13   form.
  14             MR. WINTON: ObJection, leading.               14       A. Correct.
  15     A. I was interpreting the policy In the best          15        Q. Okay. Then Mr. lory, a bIoker like you
  16 possible way I could for my dlent.                        16   are, and actually he was working with you In this
  17     Q. RJght And If you look at ExhlbU22,                 17   matter, says, "We convinced the adjuster" - thars
  18 exhibit 122 Is series of emalls, sir, and I will ask      18   Matthews-Daniel, correct?
  19 you to look at an email which Is dated Thursday,          19               'MR. WINTON: Objection, form.
  20 October 2nd, 2003, and tl1e Ume is 3:34 p.m.              20        A. Correct.
  21             Con yeo get to that? Irs from Greg            21        Q. "We convinced the adjuster" - and then
  22 lary to Mike Simon. Irs a few pages further down.         22    parenthesis - 'as any good agent tries to do In
  23 Irs, again, froin Greg lary to Mike SImon, Thursday,      23   order to recover the most for his cnerrt' Do you
  24 October 2nd, 2003.                                        24    see tl1at?
  25             MR. PARRISH: Page 2 of S, Sates /abel         25        A. I do.

12 (Pages 342 to 345)
                                               Independent ReporUng, Inc.
                                                     281-469-5580
                                              GUY DARELl. (Volume 2)

                                                  hge3i6                                                           ""'0318
1       Q. Thafs ~y what you testlfled • few                  1    Q. The next year, standby charges were
2 minutes ago, right?                                         2 Induded7
3           MR. WINTON: Objection, leading,                   3      A. correct.
4  form.                                                      4      Q. So Il"s -- this polley, this .Ii floater
 5     A. correct.                                            5 poney, the one we've discussed, was an annUal
 6     Q. Thudv<lalcy In fiMlr of the broadest                6 polley, right?
 7 InterpretaDon of the polity In order to aC!lJa11y get      7     A. correct.
 B the bestdeal for your dient, right?                        8     Q. So It was renewed the' following year,
 9             MR. WINTON: Object.1on, leading,              .9   right?
10 form.                                                     10     A- It was renewed, but not takl!n up by the
11     A. correct.                                           11 eIlent.
12     Q. That these charges should be ooosldered.           12     Q. Okay. And when ~ was renewed, a
13 Thafs what he did. He said the same thing that you        13 negoDation occurred again at the renewal time?
14 did, right?                                               14       A. COrrect.
15             MR. WINTON: Objection, form,                  IS              MR. WINTON: ObJection, leading.
16 leading.                                                  16       Q. And during that negotlaUan of the renewal,
17     A- correct.                                           17   that Urn., the seoond time around, which has nothing
18     Q. And then he says, "We made It past the             18   to do with this case, Dut it was a negotfatlon of a
19 adjuster. However, the Lead Underwriters strongly         19   policy exactly the same as the one we're dealing
20 disagree." 00 you see that?                               20   with?
21     A. Ido.                                               21       A. The Intent behind the polity .;..
22     Q. th.fs what happened In this case, dldnt            22              MR. WINTON: Objection, leading.
23 It?                                                       23       A. - would have been the same.
24     A- You'II have to talk to Mr. Sydenham.               24       Q. Right. So dUring the negoHaUon, standby
25 Sorry, the Lead Underwriter. Yes, Mike AlI.n              2S   charges were not deleted, right?

                                                  Page 347                                                         PolIo3'!9
 1 strongly disagreed. If th.es who he meant, by              1              MR. WINToN: Objection, leading.
 2 Underwriter, as opposed to John Hodgett. I'm nat           2       A. COrrect.
 3 certain who he meant by that.                              3       Q. That -- did that have any slgnlftcance on
 4     Q. Or Wellington, yes?                                 4   the premium?                .
 5             MR. WINTON: Objection to sidebar               5        .     MR. WINTON: Objection, leading.
 6 oomment. Leading, fOl'f11.                                 6       A- The premium was actually affected by the
 7     Q. During the placement - the negotlaUon and           7   dalm that had happened, rather than the actual
 B placement of this paney wording, you've already            8   standby charges.                    '.
 9 testlfled, you, personally, on behaWof Greg Lary,          9       Q. Okay. But In that seoond year, the
10 Tysers, or anybody else never asl<ed Underwriters to      10   renewal, standby charges were not deleted?
11 reinsert standby charges, correct?                        11       A. COrrect.
12     A. COrrect.                                           12              MR. WINTON: Objection, Ieadlng.
13             MR. WINTON: Objection, form,                  13       Q. Okay. Mr. Carell, iryou look at ExhIbit
14 leading.                                                  14   Number 149. As you looked at It at the time - yeah,
15     Q. You never asked Underwrlters to reinsert           15   thaes "- thars the pollc;y wording. I apologize.
16 them, even suggesting that even the premium may           16              looking at the Exhibit 149 today, you
17 Increase, did you?                                        17   see a number Of terms, conditions and exclusions - a
18             MR. WINTON: Object.1on, leading.              18    number of terms of that policy deleted, oorrect?
19     A. Not on this year's policy. On the next             19       A. Correct.
20 year's policy, we did actually put In standby             20       Q. And deletlons, In your mind, mean what?
21 charges.                                                  21       A. It would depend whether irs a buyback of
22     Q. Oh, okay. Tell meabout that                        22    addltion.h,nverage nr whether les an ~dUsion. If
23     A. I cant remember very much about It,                23   you're deletlng an exclusion, you are putUng the
24 actually, other th"n the fact I saw In the wording        24    coverage back. If you're deleting a buyback. you're
25 that standby charges were Induded.                        25    probably Intending to exclude that edditlonal

                                                                                                      13 (Pages 346 bl349)
                                             Independent Reportlng, Inc.
                                                   281-469-5580

                                                                                                              SR-000351
                                                                                 '.

                                                GUY DAREU.(VoIume 2)

                                                    !'>g. 350                                                       P>ge 352
1 cxwerage.                                                       1   I don't need him, but rn be happy to do that on the
2    Q. Ol<lly. So for any tl!nn whldlls not an                   2   record.
3 exclusion, any other lenn In the policy which I.                3             MR. PARRISH: Okay. So It's all
4 deleted, what does that mean to you when you see them           4   agreed bV evayone that we can release Mr. Spratt
 5   _out?                                                        5   from his deposition today?
 6      A. The Intenlloo would nennally be to not                 6             Mil PAPANDREOU: We're off the
 7   provide COIIerage ror that stuff.                            7   record,
 S     Q. Thars the same for the whole Sedfon                     8             MR. WINTON: W<!re off the record.
 9 Number 2 <I this policy, right?                                9             THE VIDEOGRAPHER: Off the record
10     A. Cmrect.                                                10 9:54.
11     Q, Thar. the same thing about aause Number                11             (Recess from 9:54 to 10:04)
~2 12, for example; on Page 16?                                  12             THE VlDEOGRAPHER: 8adc on the record
13     A. Cmrect.                                                13 at 10:04.
14     Q. aause Number 13 on Page 16, correct?                   14             MR. PARRISH: Reserve our questions.
15            MR. WINTON: ObjecUon, leading.                     15             MR. WINTON: Mr. Parrfsll asked a
16     A. Coni:ct.                                               16 question while we were off the record, of me, With
17     Q. calise Number 10 on Page 16, correct?                  17 regaro to Mr. Spratrs deposition because we had
18            Mil WINTON: ObJection, leading.                    18 originally noticed him up.
19     A. Cmrect.                                                19             Based on Mr. Darelts testimony
20     Q. And any other clauses which.", deleted In             ,20 yesterday regarding Mr. Spratrs role 10 this matter,
21 this matter?                                                  21 we have agreed to release Mr. Spratt. I don~ think
22            Mil WINTON: Objection, leading.                    22 his deposition Will be ne<:essary, given his limit
23     A. Correct.                                               23 conl1!ct.
24     Q. Thars your understanding tpday, as you                 24            ,MR. PARRISH: Thank yoU. He's
25 _ed?                                                          25 offended that his Input won't be necessary.

                                                    !'>gem                                                          P>ge3S3
  1             MR. WlNTO(>j: Objection, leading.                 1              MR. WINTON: Well, we can have him
,2      A. Going back to the original thing about                 2 rome and testify.
'3 sl1!ndby, charges and deductible, yes.                         3              MR. PARRlSH: Oh, he doesn't want It
  1     Q. And th.rs the way you thought about this               4 on his 01 that badly.
  5 when you were negotiating WIth your counterpart,              5              MR. WINTON: Okay.
  6 Undel'Wl1tl!rs, on behalf qf the assured. You were            6              RJlmtER EXAMINATION
  7 negotiating on behalf of the a5S1Jred with vour,              7 BY MR. WINTON:
  8 rounlerpart, Underwriters, and trying to agree on the         8      Q. Mr. Darell, I have just a few more
  9 policy wording, rght?                                         9 questions for you and then, hopefully, you'lI be
10              MR. WINTON: Objection, leading, form.            10 finished.                                                  .   -~

11      A. Correct.                                              11      A. Thank you.                           ,
12              MI\. PAPANDREOU: Thank ydu, sir. I'll            12      Q. Take a look at Exhibit 74 If you would. On
13: pass the witness.                                            13 tile first page of exhibit 74, which I understand to
14              MI\. PAAAlSH: Break Ume. Did we put              14 be lI1e COYer note that Tysets Issued that relates to
 15 on the record, yesterday, an agreement to release            15 the all risk InsllIllation floater, correct?
16 Mr. Spratt from this deposition? I don't recall               16      A. Correct.
 17 whether we did or not. The rourt rePQfber Is shaking         17      Q. Mr. Papandreau asked you to read the first
 18 her head that we didn't                                      18 line, plus • WOrd under conditions, and I thlnk that
 19             Mil WINTON: I don't think that we                19 he was pointing ID the language that indicates that
20 did, which I'll be glad ID.                                   20 full wording subject to agreement of leading
 21             MR. PAPANDREOU: I think you sl1!tted             21 Underwriters, do ,you see that?
22 l1!lking about it, but you -                                  ,22    A. I do.
23            ' MR. WINTON: Yeah. I - I asked                     23     Q. And what I wanted to point ID you Is the
24 Mr. Darell about what Mr. Spratt knew, and I can't             24 language that Indicates that on the 27th of AugUst,
 2S remember If I dosed the loop by saylng, thafs nne,            25 2002, you issUed a cover note that says, 'full

14 (Pages 350 to 353)
                                               Independent Reporting, Inc.
                                                     281-'159-5580

                                                                                                                 SR-000352
    ,.,"'"   ' . . " ' " '·',r·,.';,)""",'                                                                            ',''1t''·'''''''''   J.-,~':-. "~.',   ...

                                                                                 '.




                                                     ""'.29                                                             Page 31
1    A., this, as I have said, Is the skeleton, but      1              Q. Okay.
2 ~ does $t<f, "fUn wording ID be agreed,' which meant   2               A. So we do limit It. yes.
3 that the wording had to CIlm. bad( to be agreed by the 3               Q. Page - Jet's go on to the next page. And
 4 leading underwriter.                                         4    I think what Y'?U're looking at now, Page 5, Is on. of
 5     .Q. I need a yes or no to that questJon.                 5    about three pages In a row that are essentially the
 6      A. I can'l9We you • yes or no. It 1$0' the              6    same?
 7 full wording.                                                7        A. Yes. ThIs was the market ·Thirs
a       Q. No. I understand that I understand this              B    WelUngton and my scratches, called Initials, with •
 9 policy Is gonna be c:x>mposed of things from a lot of        9    15 percent line. We led the slip and then various -
10 different sources. My question Is, I've got two              10   the broker then would have wandered around the market
11 stai:l<s that I'm creating. One is going to be various       11   and got va~ous people to agree ID follow on from
12 pieces of paper tha~ all taken together, cxmstitute          12   there and write whatever they cf10se to write.
13 the terms and ·conditions of coverage and rm gonna           13       Q. And I lake It that Pages 5, 6 and 7, then,
14 have another stael< of everything else In the world.         14   we would Indode In our stlIcI< of .documents 1l'Iot taken
15 Which stael< does that one go In?                            15   together cx>nstltute the b!nns and conditions of
16      A. Well, th~ Is part of the constltutlon of         . 16     coverage In the sense that that tells us who each of
17 the policy wording.                                          17   the underwrlle!s are and what percentage of the
18       Q. Thank you.                                          IS   coverage they have undertaken?                                                                .,
19      A. Goes rowards It.                                     19        A. That speclfles wi» the underwriters are and
20      Q. So I would Indude that In my stael<?                 20   what proportion they have. yes.
21      A. I would, W was me, yes.
                        It                                      21       Q. Okay. Go on ID Page Blfyou would. What
22       Q. Okay. Thanks. That's really all I'm                 22   Is that?
23 asking. this Is really very simple, Okay. And you            23        A. That Is the :.. I ..wId suggest Is not part
24 referred to • discount IndlI:.ab!d on that document          24   of the placing slip. This Is a part of the brokeJ's
25              As I understand that, a dlsoount is             25   dOCllmenlatlon whId1 sets out the va~aus

                                                     Page 30                                                             "",.32
 1 a -- Is something allowed by und~ters to the                  1 underwriters' lines, and I would suggest it's been
 2 various brokers that Is tlI.ken out of the premium that       2 signed down slightly. Wpuld you like m. III explain
 3 otherwise would have been paid to und~ters and ~              3 slgned·down?
 4 basically Is what compensab!s the brokers,. correct?          4      Q. Please.
 S             MR. PAPANOREOU: Objection, fann.                  5      A. W.e write 15 percent, and I presume there
 6     A. .The commission, as Irs called on this                 6 was 100 percent order on ·here that the assured gave
 7 slip, discount commission counts as ..me thing, Is            7 us, and the broker would have plaCild slightly more
 B something that underwrib!rs would not ba ""JlE!cting to       B than 100 peroent
 9 receive,                                                      9              So we wrote 15 over thelwo WellinglIln
10             It goes toward the broke1's                      10 lines and that oomes to 12.6, so it would sign just
                                                                                                                                                        {
11 remuneration. And In some cases. it Is gIVen -
12 brokers mey choose to give it back ID the eIlent as
13 well.
                                                                11 aver 80 percent, so that Is a signed line. So tha~s
                                                                12 the ac:tual proportion which we are getting premium on
                                                                13 and what proportlon of loss we would pey.
                                                                                                                                                        ~
                                                                                                                                                        {,
                                                                                                                                                                      ,
                                                                                                                                                                      I
                                                                                                                                                                   ....:
14      Q. And the dMslon of the commlsslpn between             14      Q. And Is that because it's.been                                                 ~,
15 placing and producing broker is something that's             15 ilVersubsciibed and, ils a oonsequenc:e, you go bad( -
                                                                                                                                                         i·           ,
16 decided between the two of them?               .
                                                           ..   16 somebody goes back and ~ the percentages
17     A. Yeah. Has nothing ID do with me.                      17 that each of .theun~~ters agree -                                                     t~
18      Q. All you do is set how much discount you're           18      A. Yes.
19 going to allow to them?                                      19      Q. - to sign onto coverage?                                                      .,
20              MR. PAPANDREOU: Objectlof1, fonn.               20      A. Jr. tradltlonalln the London marl<et for                                      ,.
21      A. I am Inb!resb!d In the net premium. fm               21 . brokers. to oversIJI>saibe the sOp and to sign It down                              '::':.
                                                                                                                                                         ';
22 going to achieve and I wouldn~ - we wouldn't reaDy           22 Is the b!nnlnology.
23 want to put too mucf1 discount onlD it becaus.e              23       Q. So Page 8 Is really not nec....rily part of
24 somebody's getting more than his fair share of the           24 the poliCy, thor. just a subsequent document that
2S cake, I guess, Is the ~ght way ID 1091< at It                25 summaril(es and shows the CIlO5eqUenoos of the

8 (Pages 29 to 32)
                                               Independent Reporting, Inc.
                                                     281-469-5580


                                                                                                                     SR-000368
                                                                             '.


                                                    Page 51
                                                             ·1 get paid the premium.
                                                                                                                Page 63
                                                                                                                           I
                                                                                                                           t
 1     bui: with sorne -
 2          A. It does appear, yes.                           2      Q. And If underwriters don't get paid the
 3          Q. - but with scratches on It So we would         3 . premium, then theY're gonna <:antel the policy or
 4     use the severalitability notice that Is part of 149?   4 they're stuck with the policy 8rrywrrf?
 5          A. We/I, nonna! proo!dure, when you do a          5 . A. We woUld expect the broker to pay us the
 6     policy wordlng,ls to top and 1iI1l"lt, so we Signed    6 premium. As I said, under the Uoyd's act of 1906,
 7     at the front and !he back. W. wouldn' have signed      7 the broker remains responSible. And so, therefore,
 8     all the P"Iles In between. So that Is what we would    8 ~ Is a dedSfon he has to make on his behalf.
 9     consider iIle policy doaJment .. the poliCY wording.   9             On his - well, to protect his own
 10         Q. All right. The second page of 74 Is •         10 interest, If he doesn' got paid, because
 11    premium pay1l1el\t douse, wHch appears In Exhlblt149? 11 underwr~ would still expect him III pay the
 12         A. Mine's a brokilts cancellaUon dause, but      12 premium.
 13    the third page Is premium payment dause, which        13      Q. Okay. So lot me go beck to the Original
 14    appears to be there, yes.                             14 quesUon. Is the broke~s cancellation dause part
 15         Q. Okay. So we would use the document tha~s      15 of the set of documents that we're goIng tn, all of
 16.   In-                                                   16 us, want tn be able III .represent tn the judge and -
 17         A. Yes.                                          17      A. I think ~ would fonn part of the document,
 16         Q. - 1497 And then the brok~s canCT!llation      18 yes, but It's something that the brokers Incorporate,
 19    daUse, I do not see that In Eldllbit 149.             19 ratlter than underwriters.
 20         A. That Is something that worked - Is between    20      Q. But the complaints procedure would or would
 21    the - It Is somethlng that the broker puts on         21 not?
 22    automatically onto moOlt things. It doesn' form,      22      A. I have never seen that In my life before.
 23     necessanly, part of the policy wording, which is the 23      Q. So You would or would not Include It?
·24    terms and enndUlons of the enverage gIVen.            24      A. I would have no requirement for It to be
 25         Q. And EldlI~ 74, the next one, Is the           25 there.
                                                     Pog.6'.l                                                   Page ...
  1 premium payment clause?                                     1     Q. Tum tn·Exhlbit 114 If you would. First
  2    A. Yejl. l~s In there.                                   2 page 15 labeled "Cover Note.' Is that something that
  3    Q. And I don't see that In exhibit 149.                   3 we would include as part of this policy?
  4    A. There It ~.                                            4    A. It Is not part of the poliCY, no.
  5    Q. There It Is. Okay. So - and then the                  5      Q. All right. Next page is labeled L.ary
  6 next page In 1- excuse me. The next page In 7415             6 Insurance 533. Is this document something that would
  7    the complain'" procedure?                                 7 be part of the policy?
  8        A. I belIeve th.rs a Tyser document.                  8     A. This Is not part of the policy, no.
  9        Q. So is It correct that neither the                  9     Q. Okay. The next page of Exhl~ 114 Is "" I
 10    enmplalnts procedure, nor the broker's cancellation     10 beneve that thars a.cover note from a renewed                   .   ,
 11    d.use fann part of the terms and condUlons of           11 version of the policy, which I think Mr. Darell .                   i
 12    enverage from underwrlbe(s perspective?                 12 indicated was. never actually taken up by OSfI. But
 13        A. I think the brokers would Rke the                13 that:, clearly, would not be part of the policy that
 14    cantellation daose In there. I think It goes lolll      14 we're talking about?
 15    the slip, because It gIVes them a c:hante tn cancel     15      A. No, It wouldn' be.
 15    the policy If they don't get paid the premium, but      16      Q•. It wouldn't be part of the policy we're
 17    they are not really of tnncem be underwriters, no.      17 here to talk about?
 18        Q. Well, If It allows cancellation of.the           18      A. We muldn'! be IIlI/OI\Ied in anything tn do
 19    policy for nonpayment of the premium, then It would . 19 with the rmer note. We would rely on the policy
 20    be of concern?                                          20 wording and the policy .wordlng would be on a Uoyd's
 21        A. Under the Marine InS\lrance Ad: of 1906, the 21 PaRcy jacket that would be \\tamped by the Uoyd's
 22    brokers are responsible tor the payment of premIUm, 22 underwriting - Lloyd's policy signIng offlce and
 23    w~etI1er they get paid or not.                         ·23 that would form the policy - complete policy.
 24                So, therefore. they are very concerned       24     Q. 00 you know whether or not that was done In
        that they are able tn cancel the policy If they don't  l5 tl11. case? .                                             .
 ~5                                                                                                                         ."'


 16 (Pages 61 tn 64)
                                               Independent Reporting, Inc.
                                                     281-459-5580


                                                                                                                SR-000376
                                                                                "




                                                    MICHAEL PETER ALLAN

                                                         POgO 65                                                       Pago 51
      1      A. 1 am cert;lin It was done, but I have no           I    149, was physically printed out by them, along will1
      2 evidence to support it                                     2    all tile papern we've looked .~ and then thar. what
      3      Q. How do we get a copy of thaf/                      3    undeIwt1ters sign off onl
      4      A. Broker would have It                               if        A. That would have been - this looks lilola
      5      Q. Why would the broker have It, rather than          5    coPY of our'standard wordlnil, which we would have
      6 Underwri\!!rs or Uoyd's7                                   6    gIVen In them, they would have made the deletlons
      7      A. Thi! broken! prepare the policy documents,         7    thereon, and we would have signed ft when we approved
      8 they present lIJem to the Uoyd's policy signing            8    It
      9 offl<:e, who, once they agree It, will put on the           9        Q. And when you say you gave It to them, \'Ou
     10 offidal Uoyds stamp and they then return k to tile         10   either gave them a copy of ~ that they retyped or
     11 brokers, the brokers usually retain tile policy In         11   you gave them an eleclronlc veislon that they wOl1<ed
     12 London. In tile event of collecting dalms, they have       12   !\'om; Is that COIreCI:?
     13 to present the policy. SO, thereI\lre, ~ Is retained       13        A. 6ther of those, yes.
     14 In london, generally speaking.                             14        Q. today, more probably, an electroniC
     15      Q. How c:ome the broker prepares the policy,          15   version?
     16 rather than undeIwrlters Or, particularly, leader?         16      A. Yes.
     17 Why wouldn' leader be the one that prepares tho            17      Q. Does - do tile various undetwr1ters at
     18 policy documents?                                          18 'lloyd's have the abUily to aeate their own
     19             MR. PARRISH: Objection, form.                  19 dOOJments? '
     20      A, That Is a procedure whlcl1ls -,Ueyd's has          20      A. 1- I don't think any of them try to., I
     21 always worked on. Irs one of !he reasons they get          21 think we dralt up wordings where we want to provide a
     22 paid some of their discounts/commissions Is that they      22 certain coverage or cI1ange tho coverage, whatever, we
     23 do the preparatlon,                                        23 would dralt those wordings,
     24             There are a number of wordings which           24             The brokers would then produce all' the
     25 are standard, such as the Builders clauses, as we          ~5 dOQJmentation which ,,",uld go _,rtIs making the

                                                         _66                                                           PiJge 68
      1   have there, which the bureau Is familiar w~ and           1 IJOlicy. We would have to sign off, as a mark of
      2   they are entitled to sign off on.                         2 approval, of the documents. ,They would then be
      3               If they are dealing wllIJ a wording           3 presented to the bureau, In the officl~1 Uoyds
      4   which they are not allowed to sign off on, they have      4 cover, and that will then be signed by the policy
      5   to get an underwriter to sign them off, And then          5 signing office, Which goes bya different name now,
      6   they put the doctJrnentatlon together and •• the '        6 Wh.t Is It called? Xchanglng.
      7   brokers put lI1e dOOJmentation together, they present     7     Q. SO would it be fair to say that Wellington
      8   It to the Uoyd's policy signing oIIIce, and that Is       8 could, if they chose to, have people who would
      9   the way ~ has always been.                                9 perform this function of pI1ntlng these out and
     10        Q, SO in terms of !he various dOOJrnenlll wo've     10 conforming the doc:ulnenlll and so forth, bu~ rather
     11    looked at, those were .11 physically prjnted and        11 than dolng th~ WeiRngton, and ~ sounds like
     12   created by Tysers and then'droulated to                  12 eve.ybedy else at Uoyd's, relies on tile brololrs to
     13   underwritersl                                            13 do that 'for them and then they ctrculate It and
     14        A. We dralted the Weicar wording, they would        14 follow the, process yot!'ve outlined?        ,
     15   have had a CtJpy, they would have presented this to      15             MR.. PAPANOREOU: Obje<:tlon, form.
     16    us, they would have made the deletlons on here, !\'om   16      A. They'd have to hire a whole bunch more
     17    tho standard wordlflg, and we would have agnied to -    17 staff and everything else. So we couldn' actually
     18   wo will sign k to Indicate our approval, thereof, of     18 do It today, but, yes, tilere's no reason why re
     19    the policy wording.                                     19 couldn't be done.
     20        Q. And my qlJOSllon was that the doctJmerils        20      Q, Okay. Fair enough, Look at the next page
     21   we're looking at were physically printed out by          21 In Elchib~ 114 If you would.
     22   Tysers, even though they may have gotten the wording     22      A. 114. Next page. Yeah,
     23    from you for the Welcar 2001?                           23      Q. Is this just more of the cover note that
     24        A. Yes.                                             24 was the preceding page?
               Q. The document that we're lOOking ~ Exhibit                A. It appears to be Page 2 of cover note.
I
     25                                                            25

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!                                                                                                            SR-000377
                                                                                         "I




                                                                                              '-
                                                  M1CHAa PETER Al!-AN


 1
       .
   him a provision of the poRcy and pointing to It
                                                     """.181     1
                                                                                     ,                              Page 183
                                                                     contract, exhibit 149, that Underwriters contend
 2 while he's answering Mr. Scarborough's questinns Is           2 excludes standby charges?
.3 totally lnapproprtate.                                        3     A. There is nothing in the basic coverage
 4             MR. PAPANDREOU: I did not.                        4 which provides coverage for standby charges •. It was
 5             MR. WINTON: You    sure  did.                     5 discussed with the broker at the time and he made It
 6             Mit PAPANDREOU: I went like this with             6 very dear that he did not want that coverage.
 7 my finger on the policy, whk:h says I'm lOOking at            7             MR. WI1'iTON: Objection,
 8 the policy and rm looking at th~ wording.                     8 nonresponSiVe.
 9             MR. WINTON: You showed It to him and              9     Q. Okay. I got that. Healing that loud and
10 pointed to It.                                               10 dear. If the answer to my queStion IS no, Just tell
11             MR. PAPANDREOU: That's your                      11 me no. Is there a sentence In the policy, Exhibit
12 Interpretation, Counsel.                                     12 149, that Underwl1tets contend excludes standby
13
14
       Q. Mr. Allan, looking at the Insurance .
   contract between the partles, Exhlblt 149, please
                                                                13
                                                                14
                                                                   charges?
                                                                       A. There Is no covO!l1lge for standby charges In
                                                                                                                                    ...,
                                                                                                                                    . '.:
15 point me to the provision, paragraph or sentence that        15 the policy, therefore, there is no exclusion needed.
16 Underwl1ters contend represents an exclusion for             16     Q. Whether or not one Is needed, Is there a
17 standby charges.                                             17 sentence In exhibit 149 that Underwriters contend
18     A. There Is - I believe standby charges Is an            18 constitutes an exclusion for standby charges?
19 addltlonal cost. There's nothing which excludes it,          19     A. There Is no -
20 other than the terms that we w11l pay for an other           20             MR. PAPANOREOU: ObJecUon, form.
21 costs necessarily Incurred and juStified In the              21     A. There Is no exclusion of standby charges
22  repa~ or replacement.                    .                  22 because there's no coverage for standby charges.
23             Slandby charges, by definition, means            23     Q. Is there a paragraph, In exhibit 149, that
24  they are not actually engaged In repair at .                24 Underwriters contend 1$ an exclusion for standby
25 replacement Therefore, there was • hole, which Is·           25 charges?             •

                                                     Page 182                                                       Page 184
 1 why Underwriters, when they drafted up this wording, 1                       MR. PAPANDREOU: Objection, form.
 2 provided the pos/llon of adding. on standby chargeS,    2             A. I don' know what more - what else to say.
 3 because It Is something that our clients generally   I· 3             Q. I think the answer ls no, but I .. for some
 4 want.                                                   4         reason -
 5             However, On thiS case, it was -                   5       Po. I said there's no coverage. There's no
 6 the •• ~ was represented to us that OSFJ did not             6    exclusion because thafs no coverage.
 7 want that coverage arid would ~ Interested In                7        Q. You've said that.
 8 redudng the p~lum accordingly.                                8       A. I know.
 9             MR. WI1'iTDN: Objection,                          9       Q. But this Is a different question. 15 there
10 non(eSponslve.           .                                   10   a paragraph, In exhibit 149, that Underwriters
11     Q. This wiU requlre no.great.leap of                     11   CDntendexcludes standby charges?
12 lmaglnaHon, but pretend that I am a C(\Illplete do~          12       A. Okay. There's no cover- there's no                       .      ;
13 and direct me to the paragraph, sentence or provision        13   exclusion.
14 that Underwriters contend Is an excluSion for weather        14       Q. There Is no paragraph?
15 slandby charges.                                             15       A. .There Is no exclusion because there's no
16     A. There is no exclusion of weather standby              16   coverage.
17 charges because It Is an additional coverage.                17       Q. is there a gnoup of words or phrases, in
18     Q. So there Is no paragraph, sentence or                 18   Exhibit 119, that Underwrjters CDntend excludes           ~.
19 provision In the Insurance conln)ct, Exhib~ 149,             19   coverage for weather standby charges?                     )!


20 that, by Its terms, acxordlng to Underwriter.;,              20       A. The coverage which Is given is spelled out         ii
                                                                                                                                .
21 operates as an ~c1uslon for weather standby; Is that         21   under the "Basis Of Recoveri" Is that it is "Costs
                                                                                                                               .,
                                                                                                                               "




22 correct?                                                     22   necessar11y Incurred and duly justified in the repa~      I
23             MR. PAPANOREOU: Object1on, form.                 23   or replacement'                                           i
24     Q. A1ll1ght. let me withdraw and rephraSe.               24               50, therefore, when they are actively         r.
25             Is there any sentence In the Insuran~            25   wor1<lng, they are covered. When they are not             ,
                                                                                                                               g

46 (Pages 181 to 184)
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                                                       281-469-5580


                                                                                                                 SR-000406
                                                                                '.

                                                    MICHAEL PETER AllAN

                                                       page 18S                                                      Page 187
       1 ~rldng, then they are not """"'ed. There Is -              1            MR. SCARBOROUGH: Thank you,
       2 there was a provision fOr and an add 00 of standby         2 Mr. Allan. Pass the witness.
       3  charges, which Is an extra ~e, and tha~                   3            MR. PAPANDREOU: HoW are we doing,
        4 coverage was deleted.                                     4 tlmewise7.                                 .
        5            Because it is an add on coverage, you          5            MR. PARR.lSH: I have about 20, is
        6 don' neeq to delete It You don~ need to exclude           6 minutes.
        7 I~ spedfically, because the deletion, In my view,         7            MR. PAPANDREOU: Is that good for
        6 excludes the coverage. Excludes the add on.               S everybody?
        9     Q. So there Is no exclusion In the Insurance          9            MR. WINTON: I ClI1 go 20,'25 minutes.
       10 contract for weather standby charges. TIIIil?            10 How mUch are you gonna have?
       11            MR. PAPANOREOU: ObJection, form.              11            MR. PAPANOREOU: Not mUch. But I
       12     A. There Is no exclusion for standby charges.        12 think we should probably break because Irs getting
       13     Q. Does your scratch appear on Exhibit 149?          13 to be 1:05. I mean, do you want to do yours Vrst
       14     A. Vep. Top and ",n. Bottom and top page.            14 and then we break? Up to you.
       15     Q. fm-                                               15            MR. SCARBOROUGH: You know my feelings
       16     A. Sony. Thae. me, M. A. 31/7/2002, and              16 on the subject
       17 then fm on the beck page as well.                        17            MR. PAPANDREOU: I know your reellngs
       18     Q. Old you review this document befOre you pit       18 about this. fm just trying to nnd a consensus on
       19 your - your scratc:h on It7                              19 this.
       20     A. Yes.                                              20            MR. PARRISH: Why don't we "'ke a
       21     Q. Did you review tt carefully?                      21 quick lunch break.
       22     A. I thought! had.                                   22            MR. WINTON: We have not yet achieved
       23     Q. You reviewed it thoroughly?                                                                       to
                                                                   23 that, but how long do you think you're goltig be,
       24     A. ! thought I did.                                  24 because we've got 25 minutes here?
       25     Q. 00 you have some doubt In your mind today         25 .          MR. PAPANDREOU: Yeah. About that

                                                        Page 186                                                        Pig< 188
        1 whether or not you, In fact, revlewed It """,fully?       1           MR. PARRISH: He's the one who
        2    A. There are things that I would Qke to have           2 sugge;ted golng ahead and laking a break; did you
        3 changed if I had picked up on them.                       3 not?
        4    Q. Nevertheless, whatever those changes were,          4           MR. PAPANDREOU: Yeah.
        5 they're not part of the contract?                         5           MR. WINTON: Yeah". I'm not bttehing
        6    A. Whatever -                                          6 at anybody.
        7            MR. PAPANDREOU: Objection, form.               7           MR. PARRISH: l.el's go off the record.
        8    A. - Is In that poUcy doaJml!nt Is the policy          8           MR. WINTON: Yeah, lors get ••
        9 document and .11 the term$·whlcf1 apply.                  9           MR. PAPANOREOU: Are we off the
       10    Q. But whatever ~ Is In your mind today -             10 r=rd7
       11    A. Yes.                                               11           l'HE REPORTER: No; YOU'I"\! on.
       12    Q. - that you wish you had done back In               12           MR. PAPANOREOU: Let's get off the
       13 2002-                                                    13 record.
       14               MR. PAPANDREOU: Let him "nlsh.             14           l'HE VlDEOGRAPHER: 0fI' the record,
       15       Q. - wasn't done and, therefore, Irs not            15 1:04.
      . 16   part of the Insurance contract, right?      .          16              (Recess from 1:04 to 2:11)
       17               MR. PAPANDREOU: Objection, rorm•.           17              THE VlDEOGRAPHER: BacI< on the record
       18       A. Conect                                           18   at 11 minutes past 2:00.
       19               MR. PAPANDREOU: Let him finish his          19                  EXAMINATION
       20    question. Irs very hard ror her.                      20    BY MR. PARRISH:
       21             l'HE WITNESS: I apologiZe.                   21        Q. Mr. Allan, my name Is Ashley Parrish. I
       22     Q. Old you ever have any dealings wtth anyone        22    represent Tysers In this case. Do you understand I'm
       23 Ii'om .OSFI?                                             '23   tholr attomey?
       24     A. I have never met anybody from OSFl, as far        24       A. Ido.
       25 as I'm aware.                                             2S      Q. You were a broker, beginning In 1975; Is

                                                                                                         47 (Pages 185 to 188)
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'""
i                                                         281-'169-5580
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1
                                                                                                             SR-000407
                                                    JOHN HOOGETT

                                                     P;age 2S                                                           page 2'1
1    now both Wellington witnesses have said they don't         1    preliminary -- very preliminary report Issued by
2    re<:ognlze it?                                             2    Matthews-Daniel to the best of my recollection.
3                MR. PAPANDREOU: To be very honest              3        Q. Take a look, If you would, at Exhibit 4,
4    with you, I did not .. when I looked at this               4    which will be in the notebooks.
5    document, I had no Idea .. I mean, I asked. Irs not        5                MR. WINTON: Whars the last number
6    their document, but It was In their file.                  6    thars In tne notebook?
7                It.was my understanding, prior !Xl the  7                       MR. PAPANOREOU: In the not..... in the
8    start of this deposition, so all the depositions here
                                                         8           notebooks?
9    In London, that It was a lysers documen~ but I _.   9                       MR. WINTON: Yeah.
10   but I am, apparently, wrong.                       10                      'THE WITNESS: In this one, It's 45.
11               MR. WINTON: Well, I thought that,      11                      MR. WlNJON: Okay. 145. I was trying
12   too ..                                             12           to remember where we shift from the notebooks to the
13               MR. PAPANDREOU: Apparently, I'm        13           stad< of new ""hlbits.
14   wrong.                                             14                       Mi\, PAPANDREOU:. Yeah. Well, I don't
15               MR. WINTON: •• because it has the      15           know, because the first one on the stack is.142.
16   lysers name on It But it says "Broker Contact,"    16                       MR. WINTON: Old we mess up on our
17   which makes it iook like irs an undelWriter        17           numbering?
18   documen~ but now both undelWl1l:1!r witnesses have 18                      'THE WITNESS: The last one in here Is
19   said they don't recognize i~ so...                 19           141.
20               MR. PAPANDREOU: As I said, apparen~y   20                       'THE REPORTfR, Irs 45 in that
21   I was wrong.                                       21           notebook.
22               MR. WINTON: We both were.              22                      'THE WITNESS: Irs 45 In here; 141 in
23               MR. PAPANDREOU: 00 you want me to put 23            there.
24   it back In the stack or ..                         24                       MR. WINTON, Okay.      Sony.
25               MR. WINTON: Yeah. That was aliI was    2S               Q. Exhibit 4 Is an .. appeal1ii to b. im email

                                                     P~e26                                                               Page 28
 1 gonn. ask about it. Since nobody recognizes it,              1     from Philip Ottey to a number of people. Do you
 2 there's not much more I can do with It                       2     recognize Philip Otley as an IndiVIdual who worked at
 3      Q. Mr. Hodgett, my understanding is that your           3    lYsers?
 4 first contact with this policy of insurance that is          4         A. I don't know Philip Ottey.
 S at Issue In thIs matter first occurred during the            S         Q. Have you ever had any dealings with him?
 6 darm handling process; is that -                             6         A. No.
 7      A. Yes.                                                 7         Q. Do you recognize any of the people who are
 8      Q. - correct? NeWt tha~s an example where               8     identified on the "to" side of this dQCument?
 9 you've got to walt and let me finish.                        9         A. No.
10     ·A. I'm sony.                                            10        Q. There's a notation in this email; down
11             MR. PAPANDREOU: We have to stick to              11    towards the bottom of the first p"mgraph, Indicating
IZ that. She's going to be much happier and things wiU          12    that it was IniHal1y understood that the dalm would
13 go much faster. I'm not to orchestrate things                13    be four hundred to $500,000 after deductible. 00 you
14 today.                                                       14    see that?
15      Q. Do you recall when you first became aware            15        A. Yes.
16 ofthis claim?                                                16        Q. Is it your recollection that tha~s what
17      A. Not precisely, but I.te in 2002.                     17     the original understanding was in London that - of
18      Q. I think we've seen a reFerence to a notice           18     the size of the claim?
19 coming in/ in j(lte November - mid to late November          19         A. Yes.
20 of '02. Does that sound. about right?                        20                MR. WINTON: He can put that away,
21      A. Sounds about right.                                  21     yes.
22      Q. And do you recall what the first                     22        Q. Look, if you WOUld, at FJ<hlbit 152. Now,
23 documentation or written notice of the daim was that         23     my understanding Is that In .. sometime In December
24 you saw?                                                     24    of '02, Matthews·Daniel was appointed to act as
2S      A. The first notice I saw of a claim was a              25     adjusters on this matter. Is that accurate?

                                                                                                              7 (Pages 25 to 28)
                                               Independent Reporting, Inc.
                                                     281-469-5580
                                                                                                              SR-000S00
                                                                                           · :.:.'., ..




                                                   JOHN HODGETr

                                                    page 45                                                       Page '11
 1      A. The "Pair of the physical damage to the             1 underwriters. Okay?
 2 pilings was subject to a 1.7 million cap.                   2     A- Yes.
 3      Q. Right But ather costs incurred, for                 3     Q. We know specit1cally that Guy Monk, on
 4 example, releveiling the jacket and "PaIring the leg        4 behalf of WellinglDn', dalms, received thiS,
 5 of the Jaci<et would notbe subject ID that 1.7              5 carre«?
 6 million cap or policy limit, cariect?                       6     A. I Imagine so.
 7             MR. PAPANDREOU: Objection, form.                7     Q. Well, It was produced by Underwriters. You
 a A. At the tlrrie I saw this, I don't IllCaIl                B can see that from the U/W 49 unW the lower
 9 considering ar>f of that                                    9 right·hand corner, right?
10      Q. And, in fact, your note only asks about .the       10     A. I imagine so.
11 piling cap, correct?                                       11     Q. And you can see at Number 4 there, on
12      A. Yes.                                               12 Exhibit 172, it states, "We understand that weather
13      Q. All Mght. Let me go back to my question            13 delays from the hUrricanes may have added to costs
14 then. M. the time you received this, on or about the       14 significantiy." Do you see that?
15 27th of February, 20031 you were aware, were you not_      15     A. Yes.
16 that the dalm included a component tor standby?            16     Q. SO, again, hen,'s another notice to
17             MR. PAPANDREOU: Objection, fonn.               17 Wellington that the claim in this matter Is going ID
18      A. I don't retail being aware.                        18 contain a claim For standby costs, right?
19      Q. Well, let me direct your attentlon to the          19     A. It says that weather delays will have added
20 first paragraph on that last page that bea", your          20 to the costs significantly.
21 sIgnature .... or your Initials, where It says, liThe      21     Q. Rlght And in light of the preliminary
22 Assured's dai'" is expected ID comprise the expenses       22 report from Matthews-Daniel, you know tllat what
23 associated with englneerlng, accessing and diving tn.      23 thaes saying is tnat there's a standby component to
24 subject A-3 leg pile, grouting of the A-31eg,              24 this claim, right?
25 togetner with standby charges due to weather delays        25             MR. PAPANDREOU: ObJection, form.

                                                    Page 46                                                        Page 48
 1 and the attempts made to date by the Assured to             1        A- I know that the insureds will be submitting
 2 return the platfonn ID an even horizontal attitude:         2'   a camponent of standby.
 3 Do you see that?                                            3        Q. Rlght. And you knew that again - this is
 4      A. Yes.                                                4    tI1e 25th of February, '03, right?
 5      Q. And I take it you would agree with !1le that        S         A. Thars what It says.
 6 the document that you received and bears your               6         Q. this, in fact, precedes your scratch on the
 7 initiais tells you that the claim is going to contain       7    27th of February, doesn't it?
 6 a component that includes. standby, correct?                6         A- Yes.
 9               MR. PAPANOREOU: ObJection, form.              9         Q. TUm to Exhibit 174, please. NoW, this Is
10      A. It tells me the insured's daim is expected         10    an email dated 25th February, '03, from Mr. Wiles to
11 to Include tha~ yes.                                       11    you at--
12      Q. Yet, your note questions only the subllmlt         12         A. Yes.
13 with regard tn. pilings, correct?                          13         Q. _. Wellington, c:orrect?
14      A. Correct                                            14         A- Yes,
15      Q, Look at exhibit 172, piease. NOW, we were          15         Q. Do you recall receiving this?
16 told by the Tysers carpora\e representative that           16         A. No.
17 testified that this email from Mr. Wiles -- do you         17         Q. It references a visit by Mr. Wiles that
18 know Mr. Wiles?                                            18    day, apparently with you, do you see that?
19      A. I do.                                              19         A. Yes.
20      Q. He was at lyse"', correct?                         20         Q. Do you recall having a conversation with
21      A. Yes.                                               21     Mr. Wiles on or about that date?
22      Q. That was sent to Guy Monk at Wellington,           22         A. Not specifically.
23 correct?                                                   23         Q. Do you retail asking him for a copy of the
24      A. Yes.                                               24     policy wording?
2S      Q. Was taken around or mailed to variOus              2S         A. Not specifically.

12 (Pages 45 to 48)
                                              Independent Reporting, Inc.
                                                     261-469-5580
                                                  lOHNHODGm

                                                   Page 49                                                      Page Sl
I     Q. This Indicates, that there's a pdf                1 Mr. WIles, atlysers, regarding the subllmit
2 attachme!1t. Do you see that:l                           2 regarding the plies?
3        A. Yes.                                           3     A. No.
4        Q. Do you re<:all receiving a ccpy of the         4            THE WI1NESS: May I have some more
S    policy wording from him on or about the 25th of '     S water, please?
6    Febnuary?                                             6            MR. WINTON: Let me see the stack of
7        A. Not·speclfically.                              7 document>; ,that have been marked In the last ccuple of
6        Q. Do you have an understanding why you would 6 days, please.
9    ask Tysers for a copy of the policy, ",ther than      9            MR. PAPANDREOU: This?
10   going In your oWn underwriting department?           10            MR. WINTON: Yeah. We're having
11       A. 8ecause the brokers produce the policy with   11 trouble "ndlng our copy. Let me see if I've already
12   the file or the policy wording or slip or some other 12 mal1<ed it and just didn~ wrtte the number down. I
13   evldente of coverage.                                13 have left thes. broken where this goes back.
14       Q. Is your underwriting department In the same 14       Q. Mr. Hodgett, I'm handing you Exhibit 176.
15   building that the dalms department Is?               15            MR. WINTON: I apologize for the
16       A. Yes.                                          16 delay. I dldn't have that one noted. This appears
17       Q. How far from you Is the underwriting          17 to be an email from you to Mr. Wiles -
18   department?                                          18     A. Correct.
19       A. Twenty yards.                                 19     Q. - dated 11th March, 2003.
20       Q. Why not walk down the hall 20 yards and get 20       A. Correct.
21   a copy of the policy wording from underwri~n9,       21     Q. You state, "0avldt I'm bored with your file
22   rather than asking the broker to bring It over?      22 on my desk so I've written a brief (polite) comment
23       A. Because'thars not the way It's done.          23 on It and put It on the 'to be collected'plles In
24       Q. Does your underwriting department have a      24 our reception. It Do you see that?
25   ccmplete ccpy of the policy?                         2S     A. Yes.

                                                   Page SO                                                      Page S2
 1       A. I don't know.                                    1         Q. Do you have a recollection of what the
 2       Q. So you rely on the broker to produce a copy      2    brief polit. comment was?
 3   of the policy on which you can base your actions In     3         A. I Imagine les the one that I wrote on the
 4   responding to a claim?                                  4    file on the 27th of February or whatever It was.
 5       A. Yes.                                             5         Q. And I don't know that we've received a copy
 6       Q. Exhibit 175. Take a look at that one,            6    of that'.t 50 can you tell me -
 7   please.                                                 7         A. You just showed It to me.
 8               MR. WINTON: 175. It should be the           8         Q. I did? What was It that I showed you that
 9   next one, I th1nk.                                      9    had your comment?
10       Q. There's an email here dated 27th Febnuary,.      10        A. It was the end of a Mattnews-Oanlel repo~
11   103. 00 you see that where it says, "Dear stanley,"     11   In which I've written something about the piling
12   In the middle?                                          12   limit.
13       A. Oh, okay. Yes.                                   13        Q. Oh, your sc",tch Is what you're referring
14       Q. And this Is from David WIles at Ty.ers. Do       14   to that was--
IS   you see that?                                           15        A. Yes.
16       A. Yes.                                             16        Q. - on the bottom of 171?
17       Q. And he Is saying to Stanley Bayless -- he's      17                 MR. PAPANDREOU: Just In case, let me
18   reFerencing a telephone query from Leaders Wellington   18   show you the document
19   along the same line as a discussion with Dave           19                 MR. WINTON: Thars the preliminary
20   Shepherd regarding the 1.5 estimate for plies being     20   report.
21   within the 1.7 million .ubllmlt. Do ¥ou see that?       21                 MR. PAPANDREOU: Let me get it.
22       A. Yes.                                             22   That', 171.
23        Q. Do you know who Dave Shephe!1d Is?              23        A. Yes.
24       A. No. '                                            24        Q. And why are you telling him that you're
25        Q. Do you recall a telephone conversation with     25    bored with his file?

                                                                                                     13 (Pages 49 to 52)
                                              Independent Reporting, Inc.
                                                    281-469-5580

                                                                                                     SR-000606
                          ", ','




                                                   JOHN HODGm

                                                   Page 53                                                      Page 55
1          A. Because Ille !lin of March Was two weeks        1 looked at today, are notes and emalls that relate to
2    later and he hadn't been to collect It.                  2 the piling subllmtt. correct?
3          Q. So what you do Is, you will call or email       3              MR. PAPANDREDU: Objectton, form.
4    Tysers, in this example, and ask Inem to bring            4     A. At that time.
5    documents to you, and then you expect Illem to COme       S     Q. As of Ill. 13th of March, Illat's Ille only
6    back around and pick those up and take Illem back?        6 thing Illat we've seen where you have sent an inquiry
'7         A. I don't generally ask them to bring              7 to anyone, correct?
 8   documents to me. They - Illey bring their claim file      8     A. Correct.
 9   to present their cllenrs claim to me.                     9     Q. Are we missing sometl1lng? Was there any
10                I sometimes keep I~ I sometimes write       10 inquiry from you, olller than relating to Ill. piling
11   comments on It while Illey sit there, and Illen they     11 subllmlt?
12   Illke it away again.                                     12     A. I don't remember.
13         Q. SO do they basically malnlllin the dolms        13     Q. Are you aware of any Inquiry you raised, as
14    file on these matltlrs?                                 14 of March 13th, oln.r than as to the piling subllml!?
15         A. Yes.                                            15     A. I don't remember.
16         Q. And when you need access to the claims          16     Q. Would you have any notes, other than what's
17    file, you get them to bring it or Illey bring.it to     17 been produced In this matter, that would Indicate any
18   you?                                                     18 other Inquiry you've mad.?
19                MR. PAPANDREOU: Objection, form.            19     A, There are no notes that I've made In
20         A. Sometimes.                                      20 this - in anything to do with this that haven't been
21         Q. How else does It get to you? Eliher they        21 produced to my lawyer.
22    bring It or you ask for It. How e~. would it get to     22             MR. PAPANDREOU: That I
23    you?                                                    23 correspondingly produced to you, .Counsel.
24         A. If I consider it necessary, I'll keep my        24     Q. And up to March 13th, at least, the only
25    own.                                                    ;!5 notes that you had made were things made on the

                                                    Page 54                                                     Page SS
 1      Q. Old you keep your own file in this matter?     1 Tysers claim file, correct?
 2       A. Not at that time.                             2    A. ldon't remember.
 3       Q. Did you later start your own me?              3     Q. Is the", something In the flies that will
 4       A. Yes.                                          4 help you recall when you started your own file?
 5       Q. When did that occur?                          5     A. I don't know.
 S       A. I don't remember.                             6     Q. DO you .- if you start •• If you start
 7       Q. El<hlbit 16. thiS appears to be an email     '7 maintaining your own dalms me, Is there some
 8   from you to Sllln -. rm sorry. I said that wrong.    S opening document Or some file opening documenllltion
 9   From Stan Bayless to you, dated the 13th of March.   9 that you create?
10   Do you see that?                                    10     A. No.
11       A. Yes.                                         11     Q. Where Is your dalms file mainlllined?
12        Q. And Stan Bayless, as we've established, Is  12     A. In a nllng cabinet.
13   Ill. adjUster, acting on behalf of Underwriters?    13     Q. At Wellington?
14       A- Yes.                                         14     A. At Wellington.
15       Q. And Mr. Sayless says, "Further to your       15     Q. Is that file cabinet in your office?
16   reques~ we have requested a breakout of lost costs  16     A. Yes.
17   between the pile repair, platform engineering costs 17     Q. And when I say, "your office," I mean
18    and downtime expenses from project manager Technlp 18 specifically your personal office area.
19   Houston," so forth. Do you see that?                19     A. I don't have a personal office.
20        A. Yes.                                        20     Q. Well, describe for me the physical layout
21        Q. The only thing I've seen is your inquiry    21 of your office.
22    about the piling sublimit Right?                   22     A. Irs an open plan office with -.
23               MR. PAPANDRWU: Objection, form.         23     Q. What we call cubides?
24        A. I don't know what you've seen.              24     A. No.
25        Q. Well, the only thing we've seen, that we've 25     Q. Bays?

14 (Pages 53 to 56)
                                             Independent Reporting, Inc.
                                                   281-469·5580
                                    "J'_,.". .
                                                                                                                    "'''i'




                                                       JOHN HODGElT

                                                        Page 61                                                      Page: 63
 1               MR. WINTON: Well, we're not at the                I   behalf of COmmollW<lalth, ~ght7
 2    final report yet.                                            2       A. Mr. W1nttm, her email predates
 3        Q. Mr, Hodgelt, we've already been over the              3   Matthews-Daniel's report.
 4    fact that Matthews-Danlel's report to Underwriters,          4       Q. Her email Is the 18th of March.
 5    19 February, has already said that there's a standby         5       A. I be9 your pardon. I thought that was the
 6    component,to this claim, CIlnrect1                           6   18th of February. I still don't know what she knew.
 7               MR. PAPANDREOU: Objection, tonm.                  7       Q. Okay. My question was, you are here to
 8        A. From retollection, Matthews-Daniel said               8   answer questions on behalf of COmmonwealth, correct?
 9    there was a S1;Jndby CIlfllponent In the cost of repair.     9               MR. PAPANDREOU: ObJection, fann.
10        Q. Okay, Let's go back to the Exhlb~ 171,               10       A. It never oa:urred to me that I was.
11    Page 6.                                                     11       Q. It never oa:urred to you that-you were
12        A. Ale we finished with this one?                       12   going to be here an~ng questions on behalf of all
13        Q. Not yet You're finished with 116, yes. I             13   the underwriters?
14    don't think we even looked at 116.                          14       A. COrrect.
15        A. Sixteen.                                             15       Q. The only thing I can say In regard to that,
16        Q. Yes. You're finished wlth 16.                        16   and I'm not gonna beat this to death, Is we may be
17               MR. PAPANOREOU: There you go.                    17   ....Ing you In Houston to complete this depoSition,
18               MR. WINTON: You might want to leave              18   but we'll take that up With the COurt.
19    171 out for a while.                                        19               Exhibit 17, sir. Now, exhibit 17 --
20        Q. Page 5, we looked at this just a few                 20   take a look. The flrst page are some handWritten
21    minutes ago -                                               21   notes which I understand were made by stan Bayless.
22        A_ Yes.                                                 22 They're: not your notes, You agree, at least, that
23         Q- - where Matthews-Daniel says that - he              23 those are not your notes, I assume?
24     describes varlous aspects of the claim, expanses           24    A. Those are not my. notes,
25     associated With engineering, accessing and driving         25    Q. Okay. Take a look at the Whole document If

                                                        Page 62                                                       Page 64
 1    the subject A-31eg pile, grouUng of the A-3 leg              1   you would. NOW, Mr. Bayless notes, In hIS notes,
 2    together with standby charges due to weather delays          2   that he was here In London on March 25th, 2003, and
 3    and the attempts made to date by Assured to retum            3   met wIth you'and Ms, Fenner.
 4    the plattonn to an even, ho~zontal attitude, Do you          4             Is that a CDrrect statement, tn_t he
 5    see that?                                                    5   had meeting with you and Ms. Fenner he", In London on
 6        A. Yes.                                                  6   the 25th of March, 2003?
 7        Q. Total, 3.1 miJllon, correct?                          7      A. I dont remember.
 8        A. COrrect.                                              8       Q. Tal«! a look at the following tnree pages.
 9        Q. It's got you, Initials at the bottom?                 9   You see those?
10        A. COrrect.                                             10       A. Yes.
11        Q. So as of 27th February, '03, which Is the            11       Q. Mr. Sayless' note Indicates that he left a
12    date of your scratch, you're aware that this claim Is       12   copy of ttm.. pages with you and Ms. Fenner when he
13    going to have a S1;Jndby component, correct?                13   was he", for a meeting. Do you see that' notation?
 14       A. rm aware the assured's dalm Is stated to             14   "Also" _
15     have a standby element.                                    15       A. I see that
16        Q. COrrect. All right So would you agree                16       Q. - 'gave them a copy of this fax and list
17    with me that Exhibit 192, which Is the email from           17   of expenses (12/17/02).'
18     Ms. Dawson on behalf of one of the underwriters, Is        18       A. I .... that notation.
 19    asking about the change In value of the' claim from        19       Q. All ~ght Do you recall receiving a copy
20     the original four- to 500,000 to the new 3.1 million,      20   of these three pages from Mr. Bayess?
21     but in no way Is questioning tile standby component of     21       A. No.
22     the claim?                                                 22       Q. Do you know whether or not you have a copy
23                MR. PAPANDREOU: ObJection, fann.                23   of this dowment In your file?
24         A. I don't know what Ms. Dawson knew.                  24       A. I don't know.
2S         Q. Well, you're here to answer questions on            2S       Q. As of March 25th, '03, were you stHI

16 (Pages 61 to 64)
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                                                        281-469-5580

                                                                                                              SR-000S09
                                                                                              ', .. '   ';   .......



                                                    JOHN HOOGm

                                                     Page 85                                                             Page 87
 1    haOded you my copies, ratller than tile offidal           1 standby claim. Are you aware of any such challenge
 2    e>dliblt copies. But I take It, now having looked at      2 to hIS evaluation of tile claim in terms of the
 3    the official exhibit ooples, your answers are tile        3 numbers?
 4    same?                                                     4             MR. PAPANDREOU: ObJection, farm.
 5         A. Yes.                                              S     A- I have no reason to consider the numbers.
 6         Q. Okay.                                             6     Q. . Is it your position that his evaluation of
 7                THE WITNESS: DO you want to take that         7 the amount of the standby claim, other than his
 a    one?                                                      8 Induslon of It at all, Is In any respect erroneous?
  9               MR. PAPANDREOU: Yeah. Let me make             9             MR. PAPANDREOU: Objection, form.
 10   sure -- we're trying to keep everytl!ing in nne here,    10             MR. WINTON: What's the objection?
 11   in order.                                                11             .MR. PAPANOREOU: Thars vague and asks
 12        Q. Tum to exhibit 158.                              12 for speculation.
 13                MR. PAPANDREOU: You want exhibit's 145      13     Q. You can go ahead and answer.
 14    arid 149 In front of him?                               14   ' A. I have no way of knowing, one Y'Jay or the
 15                MR. WINTON: No. You can put those           15 other, whether that number is accurete because I
 16    back.                                                   16 didn't consider them at all.
 17                MR. PAPANDREOU: Okay.                       17     Q. Are you aware of any information tII.t would
 18                MR. WINTON: Thank you.                      18 cause you to question the number?
 19                MR. PAPANDREOU: No problem. One-            19     A. I had absolutely no reason to question tile
 20                MR. WINTON: 158.                            20 number and I made no oonslderetion of tIIem at all.
 21                MR. PAPANDREOU: 158. There you go.          21     Q. I tIIlnk wo're all aware that at some point
 22        Q. Have ytlu had a chance to look at exhibit        22 you denied tile dalm for standby, correct?
 23    158?                                                    23     A. Yes.
 24        A. Not today, but 1 have seen it before.            24     Q. When did you first determine that you were
 25        Q. Right. And you recognize tIIat to be the         25 going to deny the standby d.im?

                                                     page 86                                                             page   sa
  1 final report fr~m MattI!ews-Oanlel tIIat was Issued on      1      A. I don't remember.
   2 June 20tll, 2003?                                          2       Q. Was It before or after you received tile
   3     A. Yes.                                                3   Matthews-Daniel report? The final report, which is
   4     Q. And you recall that you received It on or           4   Exhlbtt 158.
   5 about that date?                                           5       A. I think the exhibit will show when I first
   6     A. 1 don't remember the ·d.te I received it.           6   questioned til.!. And I don't remember, as I sit
   7     Q. The email - tile i:r.3nsmlttal email on the         7   here, whether tIIat was -- what the date of tIIat was.
   8 top Indicates that it was fOrY/arded by                    8       Q. Look at Exhibit 179, please.
   9 Matthews·Danlel to Guy DareU at Tysers on the ZOtll        9               MR. PAPANDREOU: You want him to keep
  10 of June, '03. Do yoti see that?                           10   that?                                                            '. ,I
  11     A. Yes.                                               11                MR. WINTON: He probably should keep
  12     Q. 1 take It you have no reason to disagree           12   tIIat one somewhere handy.
  13 tIIat Mr. Darell or Mr. Sydenham would have brought it    13                MR. PAPANDREOU: 179, correct?
  14 to you shortly after !h.t date?                           14                MR. WINTON: Yep.
  15     A. J have no reason to disagree with that.            15                MR. PAPANDREOU: There you go.
  16      Q. On Page 7 of Exhlb~ 158, at the bottom, we        16       Q. We're sort of working our way through these
  17 see Mr. Bayless' evaluation of weatller standby           17   In order, so it probably would help you find those
  18 charges. 00 you see that?                                 18   faster If, rether than putting tIIem all back
  19      A. Yes.                                              19   tog.tller, If you kInd of sat tile - what we have
. 20      Q. And it continues over to Page 8 and then          20   already been through on a separete stack, face down,
  21 there's a recommended settlement•. Do you see that?       21    because I tIIlnk we'lI track fairly dose.
  22      A. Yes.                                              22                MR. PAPANDREOU:' Thars what I've been
  23      Q. I've not seen any dqcumentation from you or       23    doing.
  24 any underwriter questioning Mr. Bayless' evaluation       24                MR. WINTON: Oh, okay.
  25 of the figures that were submitted as part ri tile'       25        Q. Do you recognize exhibit 179, Mr. Hodgett,

22 (Pages 85 to 88)
                                               Independent Reporting, Inc.
                                                     281-469-5580
                                                                                                                       SR-000615
                                                  JOHN HODGm

                                                   Page 89                                                      Page 91
 1 as an email you sent to Ollis Sydenham at T\lSers on       1 claim on the 24th of June?
 2 or about 24th of June, '03?                                2     A. That standby charges are not covered by the.
 3     A. Yes.                                                3 policy.                                             .
 4     Q. And In this email, you're indicaUng that            4     Q. All right. Why did you believe that
 5 you have a problem with the claim that was lett for        5 st;mdby charges were not covered by the policy?
 6 you yesterday?                                             6     A. Because the section that covers standby
 7     A. Yes:-                                               7 charges has been deleted.
 8     Q. 50 does that Indicate to you that you               8     Q. And what did you base your decision that
 9 received the Matthews·Danlel report on or about the        9 the striking of paragraph 13 constituted an
lD 23rd of June, '03?                                        10 ellmlnaHon of a light to make a claim tor standby
11     A. Yes.                                               II charges In the circumstances ot this claim?
12     Q. And you Indicate that you've got a problem         12     A. I'm sorry. can you repeat that?
13 with the standby portion of the claim?                    13     Q. Yes, Sir. What - on what basis did you
14     A. Yes.                                               14 conclude that the striking of Clause 13, In exhibit
15     Q. What was the basis of your question of the         15 149, eliminated any claim for standby charges In the
16 standby claim as of the 24th of June, '03?                16 context of this claim?
17     A. Standby charges aren't covered by the              17     A. Because deleHon of cover from a policy Is
18 policy.                                                   18 a clear and express Indicatlon that the coverage no
19     Q. What did you base that statement on as of          19 longer exiSts.
20 the 23rd •• 24th of June, '03?               .            20     Q. Old you .. and when was the first Hme you
21     A. Because the portion of the policy that             21 looked at that policy with regard to drawing the
22 covers standby charges Is deieted.                        22 conclusion you just stated?
23     Q. And what WaS the basis of your conclusion          23     A. I don't remember•.
24 that the striking of paragraph 13 .. I assume ther.       24     Q. Old you look at the policy tenns before or
25 what you're talking about, right?                         25 after you reached that conclusion?

                                                   Page 90                                                      Page 92
 1       A. Yes.                                              1     A. I must have looked at them before J reached
 2       Q. And do we need to look at the policy for          2 the com::luslon or I wouldn't have known how to  MM




 3   you to refresh your recollection In this regard?         3 What I was talking about - have a conclusion, would
 4       A. No.                                               4 It.
 5        Q. Okay. res exhibit 149 If you need to look        5     Q. .Well, you could have relied on other bases
 6   at It.                                                   6 for Information, and thors really what I'm trying to
 7               MR. PAPANOREOU: Policy wording. You          7 Find out. You have no recollection, whatsoever, of
 8   went through a lot of tlme yesterday explaining What     8 when the first time was that you sew the terms and
 9   the policy is, which was the policy wording and the      9 conditions of the policy that are contained In
10   slip. Thar, why I'm trying to be precise.               10 exhibit 149. Is that a fair s"'tement?
11        Q. exhibit 149 has the teons and conditions        11     A. Yes.
12   that specifically relate to wfiat we're talking         12     Q. And you're assuming that you 'would have
13   about. So if you need to look at that, .t any Hme,      13 seen it prior to exhibit 179, dated 24th June?
14   please reel fr.. to do so.                              14     A. If I hadn't seen ~ before then, 1 wouldn't
lS               When was the first time you looked .t       15 have known It was deleted, would 17
16   the pOlicy wording In this matter?                      16      Q. Well, I don·t know, sir. Is that your
17        A. (dont remember.                                 17 testimony?
18        Q. Was it before or after the 24th of June?        18     A. Yes.
19        A. I don't remember.                               19      Q. Do you recall whether or not as of the 24th
20        Q. Your statament here to Mr. Sydenham Is that     20 of June, '03, you had seen the provision In the
21   you have a problem With tile claim for standby as of    21 policy that Included a separate deductible for
22   the 24th of June, correct?                              22 s"'ndby?
23        A. Correct.                                        23      A. No.
24        Q. And my question is, what was the basis of       24      Q. You don't recali whether or not you had
25   you, statement that you have a problem with that        25 seen that?

                                                                                                     23 (Pages 89 to 92)
                                             Independent Reporting, Inc.
                                                   281-469~5580
                                                                                                        SR-000616

                         "'.""" .....
                                  "',"   '




                                                       JOHN HODGElT

                                                       Page 141                                                     Page 143
 1   take an awful lot for me to look at and absorb.   I'm        1        A. No,! don't.
 2   not even sure which part of which claim of which             2        Q. Old you give any consideration to whether
 3   hypothesis I'm supposed to be considering anymore;           3    or not Mr. Darell's interpretation of the policy wa,
 4       Q. Are you gonna defer to the judgment of the            4    a reasonable way to read the policy?
 5   masters of the vessels about whether Or not those            5        A. Yes,
 6   vessels can stay on station or are you gonoo make            6                MR. PAPANDREOU: Objection, fonm.
 7   your own Judgment?                                           7        Q. And what was your detenmlnation?
 8               MR. PAPANDREOU: ObJection, fonm.                 S        A. It was unreasonable. Standby charges were
 9       A. I would, very likely, obtain an opinion.               9   excluded.
10       Q. From whom?                                            10       Q. And >:<hy did you believe that Mr. Darell's
11       A. Whomever I deemed appropMate.                         11   interpretation of the policy was unreasonable?
12       Q. I assume you wouldn't have lawyers second             12       A. Because Mr. Parell Is the insured's agent
13   guessing the judgment of master mariners?                    13   and it's his job to put the best light h. possibly
14               MR. PAPANOREOU: Objection, form.                 14   can on his -- on his clien~s circumstances and get
15       A. I don't know who I would choose In those -            15   the mc;st money he can for him. Irs not an opinion I
16   in these circumstances because irs so complicated            16   need to take into .account.
17   that, I mean, rye  lost track of the whole thing.            17       Q. Do you carj! what the assured's opinion Is
18               MR. PAPANDREOU: 50 have I.                       lB   and the assured's Interpretation and understanding of
19               MR. WINTON: Mr. Papandreau, the                  19   the pOlicy?
20   editorial remarks and sidebar comments over there are        20               MR. PAPANDREOU: Objection, form.
21   really not necessary.                                        21       A. I don't recaU ever having heard anything
22               MR. PAPANDREOU: Oounsel, I -                     22   from the insured.
23       Q. Take a look at Exhlb~ 34_ We looked at an             23       Q. Old you consider Mr. Darell's
24   email from you to Mr_ Sydenham asking fOr an                 24   Interpretation of the policy to represent the
25   explanation of the standby claim or an Instruction to        25   assured's interpretation?

                                                       Page 142                                                      Page 144
 1 Mr. Bayless at t1.tthews-Oanlel to re-a<jjust the dalm          1     A. I don't know.
 2 to delete the standby, correct?                                 2     Q. Is ~ f.lr to say you disregarded
 3     A. Yes.                                                     3 Mr. Darell's Interpretation because you thought that
 4     Q. And this Is an email from Mr. Sydenham,                  4 he was acting on behalf of the assured?
 5 forwarding your request to Mr. Bayless, correct?                5     A. No. It's fair to say I disregarded
 6     A. Yes.                                                     6 Mr. Oarell's Interpretations, assuming it waS
 7     Q. Were you aware that Mr. Sydenham had                     7 Mr. Dar.U·s Interpretations, and I don't remember
 8 forwarded your request to Mr. Bayless at or about the           8 whether It Is or not. I disregarded that
 9 time of this email, June 26th, '03?                             9 interpretation because I thought it was wrong,
10     A. [ don't remember.                                       10     Q. Old you make any effort to determine
11     Q. Exhibit 35, please•. 00 you recognize this              11 whether or not it was a - a reasonable way to read         .'   .~


12 to be a true and accurate copy of an email                     12 the policy?                                                      1
13 Mr. Bayless sent to you on about 27th of June, '03?            13             MR. PAPANDREOU: Objection, fonn.
14     A. Yes.                                                    14     A. I read tt, consldered It, determined that
15     Q. And in this he Is providing you the                     15 he was wrong_
16 explanation of the pl.,Ing broker?                             16     Q. I undenstand that. I understand that you
17     A. Yes.                                                    17 detenmlned that you disagreed with him. Okay?
18     Q.. And your undenstaniling that was Guy Darell?           18     A. Uh-huh.
19     A. I don't recall having any understanding of              19     Q. I'm asking you to make a distinc:tlon
20 who - of which Individual it was.                              20 between th.t and the question of whether or not hi.
21     Q. Do you recall whether or not you received               21 Interpretation of the policy, including the fact that
22 this email before or atter you saw Mr. Daroll's                22 the separate deductible for standby had been left In,
23 email, stating his InterpretaUon of the policy and             23 and there was no express exclusion of standby was •
24 why the standby claim was recoverable under the                24 reasonable way to read the policy?
25 policy?                                                        25             MR. PAPANDREDU: Objection, form.

36 (Pages 141 to 144)
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                                                                                                                SR-000629
                                                   JOHN HODGm

                                                   Page 145                                                    Page 147
1        A. I did not consider that to be a reasonable         I             In my opinion, this policy is clear
2    way to read - to read the policy.                         2 and unambiguous and tha~s all the Interpretatlon of
3        Q. I underlitllnd that. Thars not my                  3 Texan law in my understanding that this policy
4    questlon. l~s a little b~ -                               4 needs.
5        A. Sorry. I thought it was.                           5     Q. look at Exhibit 180, please. This appears
6        Q. No. Ir•• little bit different from                 6 to be an email from you to O1ris Sydenham, at lYsers,
7    that. My <westlon Is -                                    7 dated 30th June, '03. Do you see that?
8               MR. PAPANDREOU: Objection, form.               S     A. Yes.
9        Q. My questlon Is whether or not you gave any         9     Q. And there's some handwritten notes on the
10   consideration to whether or not a person reading         10 right·hand margin. Do you see that?
11   Exhibit H9 could reasonably come to the same             11     A. Yes.
12   conclusion that Mr. Darell did?                          12     Q. Those are not your notes, correct?
13              MR. PAPANDREOU: Objection, form.              13     A. No.
14       A. I considered what Mr. Darell had said. I          14     Q. In this email, you're aSKing Mr. Sydenham
15   considered It In accordance with the policy wording,     15 for his claim file, correct?
16   and I considered that It was not a reasonable            16     A. Yes.
17   Interpretabon of that wording.                           17     Q. A full copy of the slip and wording ••
18       Q. So I. it fair to say you gave no                  18     A. Yes.
19   conslderaoon to whether a third person reading R         19     Q. .. plus a full copy of the certificate of
20   cold could draw those same cone.luslons from looking     20 inSlJrahCe -
21   at Exhibit 1497                                          21     A. Yes.
22               MR. PAPANDREOU: ObJection, form.             22     Q. - that ~s given to the Insured, correct?
23       A. In my opinion, the policy Is dear and             23     A. Yes.
24    unambiguous. TIle way I read It I consider to ba the    24     Q. Why are you asking him for a full copy of
25    righ~ proper and reasonable Interpretlltion of the      25 the slip and wording on the 30th of lune?

                                                   Page 146                                                    Page H8
 1 policy. I considered Mr. Darell, if, indeed, it was         1      A. Sa I can consider the response,
 2 him, on behaW of his dlen~ to be wreng.                     2     Q. You're also asking for a oopy of the
 3      Q. Is It your underlitandlng of the law of             3 ceitiFicate Insurance given to Insured/ correct?
 4 r exas .. strike that.                                      4     A. Yes.
 S              Did you g.ve any consideration to the          5     Q. Why are you asking for that?
 Ii law of Texas or Louisiana with regard to how you           6     A. 50 I can consider it fully in light of the
 7 Interpret a policy?                                         7 response.
 S              MR. PAPANDREOU: ObJection, form.               8     Q. Look at Exhibit 101, please.
 9      A. I gave consideration to how a policy, which         9              MR. PAPANOREOU: Are you going back to
10 Is written In dear words and clearly does not cover        10 181 or can I put it back?
11 this, by the deletion of that clause should be             11              MR. WINTON: I have no Idea.
12 Interpreted, and I determined that the Insured's           12              MR. PAPANDREOU: Okay. Fair enough.
13 ' broker was wrong.                                        13     Q. I assume that Mr. 5ydenham provided you
14              MR. WINTON: Objection,                        14 with a copy of the slip and wording, correct, In
15 nonresponsive.                                             15 response to your Inquhy?
16      Q. Did you give any consideration to the law          16     A. I assume so.
17 of Texas or Louisiana which states how a policy Is to      17      Q. Ther'" another document we can look at If
18 be Interpreted?                                            18 it would refresh your recollection. I was trying to
19      A. Acons-                                             19 move along as quickly as I could, but -
20              MR. PAPANDREOU: Objection, form. Go           20      A. Well, assume he did.
21 ahead.                                                     21      Q. Okay. Exhibit 101 Is a fax from Greg lory
22      A. The consideration I gave to Texan law, as I        22 .to O1rts Sydenham. Do you see that?
23 understand it, not being a lawyer, in relation to          23     A. Yes.
2'1 this, Is that a policy must be clear and                  24      Q. Do you recall seeing this document?
25 unambiguous.                                               25      A. No.

                                                                                                   37 (Pages 145 to 148)
                                              Independent Reporting, Inc.
                                                    281-469-5580

                                                                                                  SR-000630
                                                JOHN HODGE"TT

                                                Page 153                                                                       Page 155
 1 It says message and then it says from John Hodgett -              I          SlJrry.
 2     A. Yes.                                                   Z                        MR. WINTON: 194, no.
 3     Q. - 10th July, '037                                      3                        MR. PAPANOREOU: Put It back In the
 4      A. Yes.                                                  4              stack.
 S     Q. Do you recall having called someone at                 5         So~ What number am 1 looking at nowl
                                                                                    A.
 6 Tysers and lelt th~ message on or about 111. lOth of          6     Q. Thl -SIX.
 7 JUly, '037                                                    7            MR. PAPANDREOU: I'm sure you will
 8      A. Th,i'text of 11115 seems to suggest l11at             8 recognize 36.
 9 somebody rang me.                                             9     Q. The Bates ckx:tJment here h"" been Identified
10      Q. Okay•. And whoever It was that rang you has          10 as an email from Stan Bayless to you and l11en there
11 noted, "He'll have finished with the" - llwith file          Ii is a handwritten nolaUon on it Do you see that?
12 tomorrow probably.'                                          12     A. Yes.
13      A. Yes.                                                 13     Q. Do you recognize that to be your noUce -
14      Q. And then It says, I believe, "NB," which             14 your notation?
15 would be note well, "liaise with Guy Darell when             15     A. The notatlon begins "Underwriters do not"
16 Wellington comments received before passing on.              16 Is my writlng, yes.
17 t-                                                           17     Q. And as 1 understand It, It says,
18            MR. PAPANOREOU; And.                              18 "Underwriters do not accept that l11ey provide
19            MR. WINTON: I'm sorry. You think It               19 coverage for standby charges. The dear and express
20 says what?                                                   20 deletion of the dause providing such cover Is the
2!            MR. PAPANOREOU: I think Irs an                    21 dearest .evldence of l11e parties' Intentlons that
22 "and."                                                       :a such charges should not be covered. Agree settle" '-
23      A. Yeah. I think Irs an "and."                          23 what Is that?
24            MR. PAPANOREOU: 'And rest."                       24     A. Proportion.
25      Q. Oh. "And rest of London market to be" --             25     Q. - "proportion of U.S, dollars 2;284,961

                                                 Page 154                                                                      Page 156
 1            MR. PAPANDREOU: "Seen now."                            1          less deductible U.S. 250,000, equals U.S.
 2     Q. 'To be seen now with MalDan report."                       2          $2,034,961.12 only," dated 14th July, '03. Old I
 3     A. Yes.                                                       3          read l11.t oor'rectly7
 4     Q. Do you remember receiving a message to that                4              A. Yes.
 S effect?                                                           5              Q. And "agree .ettleproportlon" means l11at
 6     A. I've seen this document before, but I don't                6          Wellington (s agreeing to pay Its percentage of that
 7 recall receiving l11at message.                                   7          number, correct'?
 8     Q. Well, probably since we've talked about It                 eA. Yes.
 9 so much, I need to mark it as an exhibit.                         9Q. And, apparently, I11ls note was made on this
10             MR. PAPANDREOU: Irs one what?                     10 email In the Tysers file, oorrect?
11             MR. WINTON: 194.                                  11                 A. Yes.
12             MR. PAPANDREOU; We're getting to 200.             12     Q. IS l11ere any other written documentation
13             (Exhlb~ 194 marked)                               13 that you Issued l11.t gives notice of your denial of
14             MR. WINTON; Well, when we hit 200,                14 the standby daim?
15 we've hit. cap and, SIJ, nobody else can mark                 15     A. Unless Irs In evlden"", no.
16 documents.                                                    16.    Q. Do you understand l11at underTexas and
17             MR. PARRlSH: I thought we could go                17 Loul.lana law, undeiwriters have an obligation
18 home for the day.                                             18 promptiy to advise an assured of the denial of l11e
19     Q. Exhibit 36, please.                                    19 claim and I11e grounds therefor?
20             MR. PAPANDREOU; You    get   36 from here         20     A. Yes.
21 and I will take 190 from you and put It In l11e pile.         21     Q. And did you, on behalf of Wellington, give
22 You don't need 190, do you, right now.                        22 notice of the denial and grounds to 111< assureds
23             MR. WINTON: 191 I'm probably not ever             23 directly?
24 gonna need again.                                             24             MR. PAPANDREOU: Objection, fonn.
25             MR. PAPANDREOU: 1 mean 194. I'm                   25     A, We gave notice to l11e Insured's agent The

                                                                                                                  39 (Pages 153 to 156)
                                            Independent Reporting, Inc.
                                                  281-469-5580
                                                                                                                       SR-000632

                                                    ''',   ., ....       ',,,
           :"',:   '                                                        ...,..


                                                      JOHN HODGm

                                                      Page 157                                                      Pa~e   159
  1   wir-t things are done.ln London, Counse!or/ I never        1    Mr. Papandreou would Put up quite a fuss. So 1 think
  2 spaak to the assured. 111e assured never speaks to           2    you are perfectly "'pable of answerlng the question
  3 me.                                                          3    asked and to rely on Mr. Papandreou to keep me honest
  4            All communlca~ons bet.veen me and the             4    about the context In which the qUestion was asked and
  5 Insured are done through the Insured's appointed             5    the answer given.
  6 agent, Tyser and Company. 111a~s exactly what 1 did          6                MR. PAPANDREOU: Objectlon, form.
  7 here. 111~"",actly what I always do. I never                 7        Q. So-
  S speak to Insureds.                                           a                MR. PAPANDREOU: Objectlon to sidebar,
  9     Q. So If the law In Texas and lJJuisiana places           9   too.
 10 an obligation on underwriters promptly to oommuniOlte        10       Q. So you did not ever communicate this denial
 11 denial and the grounds therefor to the assureds, then        11   and explanation directly to OSFI or THEe themselves?
 12 you are fulfilling your legal obligation by way of           12               MR. PAPANDREOU: Objectlon, form.
 13 Ty.e,,?                                                      13       A. I conveyed this to Ill. Insured's agen~
 14     A. Slnce thaes the way the IJJndon market has            14       Q. Only?
 15 done It for a very, very large number of years,              15       A. Only.
 16 probably hundreds or at least when that law was              16       Q. See. Wasn' thet easy?
 11 enacted, I would Imagine that the Texas courts have          11               MR. PAPANOREOU: If you asked that
 18 accepted th,at the way IJJndon does business complies        18   question.
 19 with that law.                                               19       Q. Is It true Ill.t each of the underwriters
 20     Q. Do you know whether or not tha~s true?                20   who signed onln this slip had a right to accept or
 21            MR. PAPANDREOU: Objectlon, form.                  21   reject this dalm Individually?
 22     A. I have no Idea.                                       22       A. Each of them have a right to accept or
 23     Q. Okay. So It Is fair to say that other Illan           23   reject Ill. dalm IndMdually, but In my expenence,
 24 this so-atch made on the Tyser. dalm file, you did           24   they very, very rarely ever "'erose Ill.t rlght
 25 not give any other no~ce directly to OSFI or Houston         25   111ey follow the leader and XCS.

                                                      Page 158                                                      PIlge 160
   1 Exploration, correct?                                        1       Q. 00 you know whelller or not In Illis case the
   Z             MR. PAPANDREOU: Objection, form.                 2   various companies and foreign market underwriter.;, In
   3      A. I repeat my earlier answer. I never speak            3   fact, separately accepted or rejected thl. dalm?
   4 to assureds. Insureds never speak to me. 111ey-              4       A. I Imagine Illey accepted It, or certainly
   5 all correspondence and all 'representations are done         S   the part of It Illat was paid, and rejected It In the
   6 by their agent and I'm absolutely certain that the           6   part that was not paid. And since - If anybody
   7 law of Texas accepts that Situation, since it has            1   disagreed with me, I'm sure they would have told me.
   B been going on forever.                                       B       Q.. Do you know how those IndMdual
   !i            And nobody has ever told me before,              9   underwnter.; conveyed,to OSFI and' Houston Exploratlon
  10 and nobody's actually telling me now either, that           10   the rejection and explan~on, If any?
  11 that In any way Is, ~t any time, ever In breach of          11               MR. PAPANOREOU: Objection, form.
  12 Texan law.                                                  12       A. No.
  13      Q. Ies really a much simpler question than             13       Q. EXhibit 102, please. EXhibit 102 has
  14 all that. I'm simply asking you - the short ver.;lon        14   previously been Identlfted as a copy of an email from
  15 of that speoch Is that the"l was no communlcatlon           15   Greg Lary to Guy Darell, dated 18th July, '03. Do
  16 direct from you to OSFl or Houston Exploratlon              16   you see that?
  17 themselves that denied the claim and explained the          17       A. Yes.
  18 denial, correct?                                            18       Q. Have you ever seen this email before?
, 19             MR. PAPANDREOU: Objection, form.                19       A. I don't remember.
  20      A. What I'm trying to avOid, Counselor, Is ••          20       Q. 111ere's a note at the bottom that says,
  21 • yes or no answer does not adequately answer the           21    'Guy seeing Wellington 21/7.' 00 you see that?
  22 question, because If I Just say no, you can take that       22       A. Yes.
  23 out of context and use it and make It appear to be          23       Q. 00 you recall Chris Sydenham brlnglng Illis
  24 something that it isn't.                                    24    around to you or Guy Darell brlnglng It .",und to you
  25      Q. Well, if I try to do that, I suspect                2S    on or about Ille 21st of July, 20031

40 (Pages 157 to 160)
                                                Independent Reporting, Inc.
                                                      281-469·5580
                                                       JOHN HODGrn-

                                                     Pagew                                                           Page 2.31
 1     A. No.                                                      1 and approve this amount as directly dalm related."
 2     Q. Do you know how long he's been adjusting                 2 Do you see that?
 3 losses?                                                         3     A. Yes.
 4     A, No,                                                      4     Q. Whether or not weather standby charges are
 5     Q•. Do you know what his posltlon is at                     5 covered under this Insurance contract, do you agree
 6 Matthews'Q,anlel?                                               6 that the charges are directly claim related?
 7     A. No.                                                      7     A. They are directly loss related,
 8     Q, Do you know whether or not he supervises                 8     Q. Are they directlY delm related?
 9 other loss adjusters?                                           9     A. No,
10     A- Na.                                                     10     Q, But they are directly related to the loss
11     Q. Have you ever met Mr. Bayless?                          11 at issue In this case, right?
12     A. Yes,                                                    12     A. Yes,
13     Q, In your dealings with Mr, Bayless, anything             13      Q. Do you have any reason to question the
14 about your interactions with him that lead you to              14 calculation of the weather standby charges, the total
15 question his competence in any way?                            15 sum?
16     A. My own personal opinion of Mr, Bayless'                 15      A. No.
17 prowess Is not of the highest                                  17     Q, And, so, the full amoun!, $846,419.30, as
18     Q. Is that tne opinion of Underwriters or your             18 set forth on Page 7, Exhibit 30, Is all directly loss
19 personal opinion?                                              19 related, right?
20     A. I think I characterized that as my personal             20      A. les all directly related to that
21 opinion.                                                       21 Inc:ldent. I have no reason to disagree with that.
22     Q. I know, But do the Underwriters, as a                   22      Q. All right. Only since now you've used the
23 corporate entity, share that view? You're here as a            23 term Inddent - we went from claim to loss to
24 corporate representative, tha~s why I ask.                     24 Incident. I Just want to make sure that we're dear
25     A. I've never asked any of them what their                 25 on this.

                                                       Page 230                                                      Page 232
 1   opinion of Mr. Bayless Is.                                    1       A. Okay.
 2       Q. Well, I can't Imagine why you'd need to.               2       Q, Is there any reason that you have to
 3   You're here as the corporate representative. I'm              3   questlon whether or not the full amount of
 4   asking you, as the corporate representatlve, Is that          4   $846,419.30 Is directly loss related?
 5   your view of Mr, Boyless?                                     5       A- It Is the - I have no reason to disbelieve
 6      A. My view of Mr. Bayless doesn't change.                  5   that les dire«ly related to the loss to the
 7       Q. You understand that when I ask you                     7   Insured.
 a   something and I specifically distinguish belYieen you         a       Q. Do you distinguish the loss to the assured
 9   Individually and you as the corporate representative,         9   from the loss to something else?
10   I'm asklng for the opinion of the Underwrllern. Is           10       A. I distinguish the loss related •• loss to
11   that cle.r to you?                                           11   the assured from the loss to me.
12       A. Yes.                                                  12       Q. Okay, Fair enough, So where Mr. Boyless,
13       Q. So your testimony Is that your personal               13   In his flnal report, Indicates that the Individual
14   opinion Is shared by the undef'Volrlters, that               14   rates charged are oommensurate witt! nannal vessel day
15   Mr. Boyless' prowess Is nat of the highest?                  15   rates being charged In the Gulf of Mexico at the time
16       A. I don't know.                                         16   of loss-
17       Q. Tum, please, to Page 7, the section that              17       A. Yes.
18   deals spedflcally with weather stamby charges.               IS       Q. ~~ you have no reason to question that,
19 You've read this before, light?                                19   right?
20      A. Yes.                                                   20       A. No.
21       Q. The sentence that begins at the bottom of             21       Q, Do you have any reason to question or doubt
22   page 7 reads, 'We have reviewed this documentabon In         22    the weather standby charges set forth In Exhibit 30,
23   detail, confirmad Illat Ill. Individual rates charged        23   other than the fact that les your contention that
24   are commensurate with normal vessel day rates being          24   they're not covered under the Insurance contract?
2S   charged In Ill. Gulf of Mexico at the bme of the loss        25                MR. PAPANDREOU: ObJectlon, form.

58 (Pages 229 to 232)
                                                Independent Reporting, Inc.
                                                      281-469'5580

                                                                                                                 SR-000651
                                                   JOHN HODGm

                                                   Page 237                                                      Page .(39
1    pladng side. The underwl1tl!r gets to set the rate,       1 it, but thaes also the date that you denied the
2    the premium, the tenns, conditions and can actually       2 weather standby portion of the claim, right?
3    set the policy up as he - he w~hes it to be.              3      A. Yes.
4                But the downside Is that I have to            4      Q. Well, lers do it this way, Mr. Hodgett.
5    spend a lot of my time and effort and, you know, In       5 When did )'Qu deny - first deny the weather standby
6    some cases money For whlcll I get - or For whlcll         6 portion of the claim In wrlUng?
7    Wellington get no remuneration.                           7      A. This would be tlle first In writing.
 8       Q. Another downside, of course, is you have to        8      Q. 14th July, Bastille Day, 2003, right?
 9   make sure that tlle policy that you negotiate and put     9      A. If you say so.
10   In place a:mfonns wltll your Intention and               10              MR. PAPANDREOU: He's an Englishman.
11   under;lllndlng of what the policy's going to be,         11      A. The Bastille bl!, I don't know.
12   right?                                                   12              MR. PAPANDREOU: He's an Englishman,
13               Mit PAPANOREOU: Objedion, fonn.              13 man.
14       A. I'm sorry. I dldnt understand tllat               14      Q, Fair enough. Just to be clear, 14th July,
15        Q, You said one of the benefits of being tlle       15 2003, is. the date that you denied the weatller standby
16   lead Is that you get to be - you know, )<lU get to       16 portion of the claim?
17    set the rate, you get to negotiate the terms'of tlle    17      A. Yeah.
18   policy, ~ght?                                            18              MR, PAPANDREOU: And French
19       A. I'm sorry, As regards Wellington, yes.            19 Independence Day, as you mentioned.
20        Q. Right And tllars -                               20      Q. And we see a scratch from Xchanglng CI,ims
21        A. As regards me, thafs -                           21 Services on the 51n of August, 2003, Inat you've
22        Q. No, I understood. But comes with tll,t the       22 testified is a - agreeing wlln you in denying tlle
23    responsibility of Insurlng Inat the final               23 weatller standby portion of Ine claim?
24    documentation conforms with, YQU know, what you Inlnk   24      A. Yes.
25    the policy I, going to be?                              25      Q, And xes would be representing tlle olner --

                                                   page :08                                                      P!lg~   Z40
 1         A. That's all the pladng side. You'd need to         1   the rest of tlle Uoyd's market that subscribed to
 2   ask tllem.                                                 2   this fadllty, rfght?
 3         Q, Take it up with Mr, Allan?                        3        A. Yes.
 4         A. Yes.                                              4        Q. Now, so we know tll.t Wellington denied 1M
 5         Q. Now, as to the denial of the claim, we saw        5   weatller standby dalm on July 14, 2003, we know the
 6   your handwritten marks on Exhibit 36.                      6   rest of the london market joined tllat denial on
 7                MR. PAPANDREOU: Th.f,36-A.                    7   August 35tll, 2003. What -- on what date did American
 8                THE WITNESS: If' different?                   8   Offshorelntematlonal deny Ine weather standby
 9                MR, PAPANDREOU: Yeah. Ifs snghW               9   claim?
10   different, sO take --                                     10        A. I don't know.
11                MR. WINTON: If you'll refer to 36-A,         11        Q. What date did Commonwealth deny tlle weather
12   if II cover it                                            12   standby portion of the dalm?
13         Q. We can look at 3G-A.                             13        A, I don't know.
14                MR. PAPANDREOU: Okay. Thank you.             14        Q. What date did International Insurance
15         Q. The - the handwriting - th.large                ·15    Company of Hannover deny the weather standby portion
16   paragraph here In the middle Is your denial of this       16    of the dalm?
17   weatller standby portion of the claim, right?             17        A. I don't know.
18         A. Yes.                                            18         Q. What date did fwJ deny the weather standby
19         Q, And the date th.rs indicated next to your       19    portion of the daim?
20   scratch there of 14th July, 2003, that is the date       20         A. I don't know.
21   that you denied the weather standby portion of the       21         Q. We see, in exhibit 36 and 3G-A, you set
22   rJaim, right?                                            22     forth In tlle first sentence -- I'm sony. The second
23         A. That Is the date that I would have written      23     sentence there, your handwriting, the basis for the
24   that, yes.                                               24     denial; Is that right?
25         Q. Well, I understand irs the date you wrote       25         A. Yes.

GO (Pages 237 to 240)                                                               -
                                              Independent Reporting, Inc.
                                                    281-469-5580
                                                                                                            SR-0C0653
                                                   JOHN HODGEn"

                                                   Page 2-49                                                    PagelS1
   1      A. I wrote those W<lrds on the paper and gave         1      A. The broker Is normally ~ttlng there
   2 them to your broker.                                       2 watching me do It But If he Isn't there watching me
   3      Q. And by the paPer, you're referring to              3 doing i~ Irs not a question of Hnding It It will
   4 Exhibit 36-A?                                              4 be obvious.
   5      A. 36-A, Y"f'. I handed them to your agent and        5             Thl~ Is not a -- not searching through
   6 he should pass them on to you.                             6 a pile of dOQJments because l'v<! hidden It
   7             MR. PAPANDREOU; And for darlty of              7 somewhere. It will be obvious.
   6 the record, It may be 36-A or 36, depending upon           6      Q, You denied the weather standby portion of
   9 which one Is - they both have the exact same date,         9 this dalm In July of 2003_ Has your custom and
  10 but they may not be the identical document                10 practice changed sfnce then as to how you communicate
  11             MR. WINTON; I think the only                  11 the denial and basis therefore?
  12 d',fference between the two Is who produced them.         12      A. NO.
  13             MR. PAPANDREOU:. Just being on the            13      Q. Still handwrltten on the dOQJment In the
  14 safe side. But we'll stimulate they are the same          14 broker flIe?
  15 document Basically, they have the -- they're              15      A. Yes.
  16 duplicate copies of the same document, but they're --     16      Q. Is that consistent with the standards and
  17             '!liE WITNESS: They're only --                17 p",ctlces of the SFA?
  18             MR, PAPANDREOU: - different                   18      A. I would very much doubt that the SFA has
  19 exhibits.                                                 19 any standards or p",ctlces regarding handwritlng on
  20      A. They're only the same document Inasmuch as        20 files.
  21 they have my writing, and 36-A does not have the xes      21      Q. There's no requirement that you, when you
. 22 stamp on it•                                              22 deny a claim, that you do so In a typewntten
  23             MR. PAPANDREOU: Exactly.                      23 dOQJment on letterhead tha~s sent to the broker or
  24      Q. SO, you notified the assured that you were        24 to the assured?
  25 denying the weather standby portion of the claim by       25      A. No. There's a - there Is a requirement

                                                   Page ZSO                                                     Page 252
   1 writing that on a pnnted email from Mr. Bayless to         I that the denial of a dalm must be transmitted
   2 you thars Exhibit 36?                                      2 dearly, condsely and timely, but It makes no
   3     A. Yes.                                                3 mention of what kind of paper or how It must be on
   4     Q. At the time that you denied this claim, was         4 there.
   5 It your custom and practice to do so by handwriting        5    Q. How did the other underwriters In the
   6 that on an email?                                          6 London markOi: noUfy the assured that they were
   7      A. It is the custom and practice of this              7 denying the weather standby portion of the claim?
   8 market to wrlte any denial of coverage on a document       8             MR. PAPANDREOU: Objection, fonn.
   9 in the brokers file. You will find the original of         9             MR. SCARBOROUGH: Whars the basis?
  10 this document In your agenrs file.                        10             MR. PAPANDREOU: Asked and answered,
  11      Q. At the Ume that you denied this claim, was        11             MR. SCARilDROUGH: No. I asked how
  12 there a custom and praCtice of writing the. a=ptance      12 Wellington notified the assured. Now I want to talk
  13 or denial on a particular piece of paper within the       13 about the other underwriters.
  14 file?                                                     14     Q. How did the other members of the london
  15      A. Not a particular piece of paper, but that         15 market, who were subscribing to this rtsk, notify the
  16 which whoevef, writing It conSiders the most              16 assured that they were den~ng the weather standby
  17 relevant, and frequently thar. the lab!s~                 17 portion of the dalm?
  18      Q. SO Irs up for the -- up to the broker             18     A. The rest of the Uoyd'. Underwriters would
  19 to -- when he gets the file ba<k, to go through It        19 be represented by xes who put a stamp and a Signature
  20 and find any acceptance or denial of any portion of       20 on that piece of paper, agreeing with me. That, tool
  21   the claim?                                              21 you will find the onglnal of In your agenrs file.
  22                MR. PAPANDREOU: Objectlon,fonn.            22 The rest of them Will have done something similar.
  23    Q. Let me rephrase the question. After you             23     Q. How long after receipt of a final report
  24 make your mark, denying a claim, what ~ your              24 from a loss adjuster does It nannally take the market
  25 understanding of how the broker is gonna find that?       2S to a=pt or reject the dalm?

                                                                                                    63 (Pages 249 to 252)
                                              Independent Reporting, Inc.
                                                    281-469-5560

                                                                                                           SR-000656
                                                                                                   " ' . -~"".'.~ ',-',< "   -,'h,' . ;; ,.




                                                   JOHN HOOGID

                                                   Page 2S3                                                                   Pllge 2SS
 1       A. It can be anything from 30 ·se<;Onds to 30         I        Q. What was - what were the rest of the
 2   days.                                                     2    London market - and, again, I'm referring now to the
.3       Q. All right Well, In this Instance, the              3'   other underwriters, besides Wellington, that
 4   final report Is dated June 20, 2003, and we see that      4    subscribed to this risk thIlt are In the London
 5   I~s over a month before the rest of the Londo.n           5    market '
 6   market aCCl!pte<ior rejected the claim, right?            6        A. Uh-huh,
 7              MR.PAPANDREOU: ObJection, form.                7·       Q, What were they doing from June 20, from the
 8              MR. SCAABOROUGH: Wha~s the basis?              8    date that Matthews-Daniel Issued Its final report,
 9              MR. PAPANOREOU: I think I~s vague.             9    unW 5th August to assess whether or not they were
10   Define what - rest of the market and then we'll go        10   gonna accept or reject the claim?
11   with the questJon.                                        11       A, Well, they were doing nothing until the
12       Q. Sir, when I use the term 'rest of the              12   14th of September when I rejected the claim.
13   market" In this Instance, I'm referrfng to the            13              MR. PAPANDREOU: Objection, form, I
14   underwriters that would be represented by XCS. Do         14   think you meant14th of July.
15   you understand that?                                      15              MR, SCARBOROUGH: Whars the basis for
16       A. Yes.                                               16   your objection In my question?
17       Q. Refer to Wellington as the lead and the            17              MR. PAPANDREOU: It was vague.
18   rest of the London market all fall under the XCS          18       Q, What was the rest of the London market
19   stamp, right?                                             19   doing from the date of MattheWS-Daniel report,
20       A. The rest of the Uoyd's market yes.                 20   Exhibit 30, until the date, 5th August, 2003, to
21       Q. Subscribing to this risk --                        21   assess whether they were going to accept or reject
22       A. Yes,                                               22   the claim?
23        Q, - represented by Xes? Okay, So please             23       A, The rest of the London market wouldn't have
24    answer my eariler question,                              24   seen tt until after I'd signed off on ~, so they
2S       A, I don't have a piece of paper With XCS's           25   WOUldn't have seen It unW al'ieast sometime after

                                                   Page 2S-i                                                                   PaQe 256
 1 stamp on~,                                                   1   the 14th ofluly,
 2            MR, SCARBOROUGH: can counsel there                2       Q. When did the rest of the London market get
 3 please provide the witness with a copy of                    3   the Matthews-Daniel report?
 4 Exhibit 36-A?                                                4        A. I don't know.
 5            MR, PAPANDREDU: He has 36-A,                      S        Q. How long from the time that they received
 6     A, That is 3S-A, It has no XCS stamp on it.              6   the Matthews-Daniel report until they accepted or
 7     Q, Howabout36?                                           7   rejected the weather standby portion of the claim?
 B            MR, PAPANDREOU: Thirty-six.                       8        A, By way of explanation, the Matthews-Daniel
 9      A. Okay,                                                9   report will have been taken to them·by your broker.
10      Q. Do you recognlzeXCS's stamp -                       10   I do not know the date on which your broker took it
11      A, Yes,                                                11   to them.
12      Q, -- on Exhibit 36?                                   12        Q,' Youre not referring to me personally,
13       A. Yes,                                               13   right? You keep - you're referring to OSF17
14       Q, And thIl date there Is 5th August, 2003?           14        A, Yes, I do refor to -- OSA's broker In
15       A. Yes,                                               15    London Is Tyser,
16       Q, Tha~s more than a month after                      16        Q. That wasn't my question, You keep saying
17   Matthews-Daniel issued their final report, right?         17   "you" and you're looking at me. You understand I'm
18     . A, Yes,                                               18    not a party to the laWSuit, right? Me, personally,
19       Q, Is that customarily how long it takes for          19        A, Well, you are, to me, OSA.
20   Underwriters to accept or reject a claim? More than       20        Q, Okay, That's what I want In be clear on
21   30 days?         .                                        21    the record. When you say 'you' to me, you're
22              MR, PAPANDREOU: Objection, form,               22    referrtng to OSF17
23       A, There is no custom as to how long It takes         23        A. Yes,
24   to accept or reject a dalm, It takes as long as It        24        Q, How did American Offshore International
25   takes.                                                    25    notify the assured that they were denying the weather

64 (Pages 253 to 256)
                                              Independent Reporting, Inc.
                                                    281-469-5580
                                                   lOHN HODGEIT

                                                  Page 289                                                           Page 291
1 here.                                                       1 36 or 36-A, right there in front of you, to the other             ,
2     Q. Okay. This is the Matthews-Daniel report             2 undetwriters?
3 that Mr. Scarborough was asking you quest/ons abou~         3    A. Yes.
4 right?                                                      4    Q. And would it be equally fair to say that
5     A. Yes.                                                 S the other unperwrtters are relying on Tysers to
6     Q. You Indicated that you were unhappy with             6 drculate leader's thoughts to them?
7 the report because it purported to take a pOSition on       7          A. Yes.
a     coverage.                                               8          Q. As we've gone through the various documents
 9               MR. PAPANDREOU: Objection, form.             9     today, have you seen any of them that refresh your
10        A. I believe I said that I objected to the          10    recolledlon as to having a separate dalm Hie at
11    report because it could be construed as having taken    11    Wellington?
12    a posltlon on coverage.                                 12               MR. PAPANDREOU: Objection, form.
13        Q. Okay. That'S fine. Which portions of the         13         A: I dont -- dont understand.
14    report did you abject to?                               14        .Q. HaVe you seen any document In any <i the
15        A. Those that relate to standby charges.            15    exhibits we've looked at today that you recognize as
16        Q. Is - is your objection that there Is any         16    having ""me from your separate dolin file?
17    discussion of standby charges?                          17               MR. PAPANDREOU: ObJection, form.
18             . MR. PAPANDREOU: ObJection, form.             18         A. To the best of my knowledge, the documents
19        A. My objectJon IS that this report could be        19    that constitute my claim file, up until the time of
20    construed as offering or discussing coverage            20    this lawsul~ came solely from Tysers' claim Hie.
21    regarding standby charges with which I disagreed.       21               Post that, ~ contains a lot of
22        Q. Okay. What fm re.lly trying to get to --         22    things, mainly which are conrespondence between me.
23    and all of us want to make this quick -- is can you     23    and my lawyer.
2'1   show me which portions of It you took to be             24         Q. Okay. And tha~s nne. So - and we're
25    discussing coverage of a standby claim? lust gIVe me    25    not here to talk to you about your file afulr .the

                                                   Page 290                                                           Page 292
 1 the paragraph and line references.                          1 lawsuit Was filed.
 2     A. The bit at the end where he Includes                2         A.. Huh.
 3 weather standby charges In the -- In the sum of money      3         Q. Okay? So'5 I understand what you just
   that -- where he's headed "Recommended Settlement."        4     said, your dalm file, up to that paint, was what was
 "
 5            MR. PAPANDREOU: For the record, could           5     maintained by TVselS.
 6 you explain by What you mean "he?"                         6         A. To the best of my recoUecIJon, yes.
 7     Q. Stanley Bayless had - irs his report,                7        Q. Okay. Thees flne. Do you know whether or
 B right?                                                      a    not any of the other underwriters ever saw the
 9     A. Yes.                                                 9.   Matthews-Danl~ report, Exhibit 31 -- 30? Sorry.
10     Q. And you1re looking at ~~ I can see, from            10        A. Ilm_glneln TVsera' nle that will be
11 your copy, you're looking at Page 8 in the column          11    evidenced. They Will they w/ll, undoubtedly, have
12 headed -- or the portion headed "Recommended               12    seen It In conJuneilon with later correspondence.
13 Settlement,"                                               13                MR. WINTON: ObJection,
14            And as I understood your testimony              14    nonresponsive.
15 Just now, your objection Is that he Includes standby       15        Q. Irs a do you know question. Okay? Do you
16 claim under that heading?                                  16 know, of your Own personal knowledge, whether or not
17     A. Yes.                                                17 any of the other underwriters ever saw the
18     Q. And th,e. your complaint With Mr. Bayless'          18 Matthews-Daniel report, which Is represented by
19 report that you said could be construed to constitute      19 Exhibit 30?
20 an opinion on coverage?                                    20            MR. PAPANDREOU: ObJection, form.
21     A. Yes.                                                21    A. No.
22     Q. Okay. As I understood the testimony you             22    Q. And would it be fair to say that in
23 gave In response to Mr. Scarborough's questions, you       23 preparing for today'. depoSition, you did not conduct
24 were saying that you, WelHngtonl rely on Tysers to         24 any Investiga~on by talking to any of the other
25 circulate your thoughts that are contained In Exhibit      25 underwriters to leam whether or not they ever saw

                                                                                                          73 (Pages 289 to 292)
                                              Independent Reportlngr Inc.
                                                    281-469-5560

                                                                                                               SR-000666

                                                                                    .. ,.... ,.. ,.....
                                                                              :;."'.,   . ,····.. ·.,':··i" .•··.·.·-




                                              OiRlSTOPHER SYDENHAM

                                                   Page 1S                                                                Pige 47
   1 the "N' for the company stamp there.                     1       Q. I have marked as Exhibit 173 Ty,ers 125.
   2     Q. Thank you.                                        2   This appears to be a responsive email from DaVid
   3            (exhibit 172 marked)                          3   Shephend, at HOUston Casualty, back to Mr. Wiles, on
   4     Q. I've marked as Exhlb~ 172 a document              4   the 25th of February, '03, correct?
   5 produced by Underwriters. Irs labeled Underwriters       5      A. Correct.
   6 049, whlch.;oppears to be an email from Mr. Wiles to     6       Q. And he also Is asking about the 1.7 million
   7 Guy Monk at Wellington, as well as R. Back at            7   sub/lmlt on pilings, correct?
   8 Navigators and DaVid 5hephend at Houston casualty.       8      A. Correct.
   9 Do you see that?                                         9       Q. And he notes that the preliminary estlmato
  10     A. I do.                                             10  contains a number of components, correct?
  11     Q. And ~ It correct that this email Is               11    A. Correct.
  12 updating the varlous underwriterS with negand to the     12     Q. No Indlca~on of any question about standby
  13 status of the claim?                                     13 dalm?
  14     A. Not qUito. I IIllnk what It Is saying Is          14            MR. PAPANOREOU: Objection, Form.
  15 the preliminary report Is here, It's being               15     Q, Corred.?
  16 transmitted as an email so you have It                   16     A. Correct. This explains why, subsequently
  17 electronically, and I will be In to see you later on     17 on the eartler exhlbl~ Number 172, lIlere Is.
, 18 for your comments.                                       18 comment by email under He, and David Shepherd ~
  19     Q. Okay, And paragraph four says what?               19 saying, no need to come In, Just email to tell me
  20     A. 'We understand that weather delays from the       20 when you've done It.
  21 hurricanes may have added to costs.'                     21            SO whilst that Is a London
  22     Q. SlgnlR""n~y?                                      22 underwriter, lIl.t has been dealt with through
  23     A. Sorry. Significantly, yes.                        23 corresp:mdence rather than face-terface visits and
  24     Q. And the scratches in the upper right-hand         24 there would be no scratch through Houston casualty on
  2S comer, are an Indication, again, that Mr. Wiles has      25 the file.

                                                    Page 45                                                                Page 48
  1 apparently already seen Wellington 2020, XC:S, and         1             (exhibit 174 marked)
  2 apperently Houston casualty still has to get to            2     Q. I've marked as exhibit 174, Tyse", Bates
  3 Navigators?                                                3 stamp 126, which appears to be a response from
  4     A. No. What th.~s saying Is lila! he has sent          4 Mr. Hodgett, at Wellington, dated the 25th of
  5 this email. He has then transmitted a copy of It           5 February.
  6 onto our file. The email Is addressed to Wellington,       6     A. No. Ifs a message to -
  7 to NaVigators and to Houston casualty. '                   7     Q. I'm sorry.
  8             He has then crossed out some of the            8     A. - Mr. Hodgett.
 '9 underwriters. I would Imagine that he WOuld cross          9     Q. Correct. This is Indicating that he Is
 10 those out after he had then seen them.                    10 forwarding a copy of the policy wondlng to
 11     Q. I think tha~s what I said, b~ okay,                11 Mr. Hodgett?
  12 1'11-                                                    12     A. Correct.                                                     .;
  13     A. I think you said that once he sent the            13     Q. So, apparently, Mr. Wiles had a copy of the
  14 email, he crossed them out                               14 policy, but Wellington did'not?
  15     Q. No. Okay. If I did -                              15           ' MR. PARRISH: Objed. to form.
  16     A. I was thinking that he would ti)en go and         16     A. No. Mr. Wiles had a copy of the policy,
  17 see them, and then when he'd finished the exercise,      17 but it wasn't in the claims file that Mr. Wiles took
  18 he would mark that file as haVing been done.             18 to Mr. Hodgett on the afternoon of the 25th February.
  19     Q. If I didn't say that, thar. what I tried          19     Q. Do you have an understanding of why
  20 to say. Okay. We're on same pege. And this is,           20 Mr. Hodgett would ask Mr. Wiles, at Ty.ers, for a
  21 apparently, the transmittal of - that goes with the      21 copy of the policy, Instead of asking his own
  22 prior exhibit, 171. No, I'm sorry. Yes, 171, which       22 underwriHng department for a copy of the policy?
  23 is the Matthews-Danlel preliminary report, correct?      23     A. That would be usual praCUce.
  24      A. Correct.                                         24     Q. I~s. usual practice for, Wellington to ask •
  2S            (Exhibit 173 marked),                         2S Tysers for the policy, rather than asking their own

 12 (Pages 45 to 48)
                                              Independent Reportlng, Inc.
                                                    281-469-5580


                                                                                                                        SR-000680
                                                                                                            -'-'-"--~



                                             OiRlSTOPHER SYDENHAM

                                                   Page 49                                                       Page S1
 1 people for their copy of the policy?                       1 believe. Is It In? No. No, Irs not
 2      A. The usual practJce Is for the broker               2     Q. 173, I think.
 3 presenting the claim to produce for the underwriter        3     A. 173. Yes, 173. David has then sent a
 4 the file, the slip and the policy wording. The             4 message on.the 27th of February to Stanley Bayless at
 5 unde!Writer can always verify that with his own OJPY,      5 Matthews'Danlel, reporting upon a telephone query
 6 If he so wIShes.                                           6 from Wellington raising similar Issues to those
 7      Q. With regard to the various documents that          7 raised by Oallld Shepherd of Houston casualty.
 8 . we've looked at that have come from Tys.",' Hie or       8 Remember, David Shepherd hadn't spoken directly to
 9 are communications to or from   lY"""     do.you           9 Stanley Bayless,
10 recogn~e all these to be true and accurate ""pies of      10            DavId Is asking, In his message of 27
11 the origina~ from your file?                              11 February, If an explanation OJwd be prolllded by the
12      A. To the best of my recollection. I                 12 adjuster direct to the underwriters, as he was due
B haven't - I didn't study and remember every                13 out of the oillce on the 28t1l of February.
14 document, so -- but they .11 look like they.would be      14            He 15 then sending a reminder on the
15 perfectly legit                                           15 10th of March, two weeks hailing passed, and I would
16      Q, can we agree that if any of the documents I       16 expect the telephone conversations that he's
17 hand you that are from Tysers' file or from someone       17 rei'emng to In there are probably the converoaUon
18 else's file, but represent a communication to or from     18 between Houston Casualty and Matthews-Daniel, on the
19 lYse"" that if that doesn't look like a true and          19 one hand, and then Wellington, with ou",eives, on the
20 accurate CtJ[ff, you'lIlet me know?                       20 a_hand.
21       A. I will.                                          21      Q. And, again, the total conv.",ation about
22              (Exhibit 175 marked)                         22 the dalm Is solely about tile limit for the pilings
23       Q. Take a look at Exhibit 175, which ~ Tyse",
24 121, Do you recognize that to be an email from David
25 Wiles to - back to Matthews-Daniel In Houston,
                                                             24      A. I wasn't party to
                                                             25 conversations.
                                                                                          eI_
                                                             23 dalm of a million seven, correctI
                                                                                                  of those


                                                   Page SO                                                       Page 52
   1 copied to John Hodgett, dated 10th of March, '03?        I         Q. Well, you've been designated to answer on
   2      A. Yes.                                             2    behalf of Mr. Wiles Is the problem we have, so yollre
   ~      Q. Do you know what the telephone conversation      3    the only witness I can talk to.
   4 is that that refers to?                                  4               MR, PARRlSH: Object to fonn.
   5      A.No.                                               5         A. But one of those conversations Is between
   6      Q. It refers to a discussion with David             6    an underwriter and an adjuster, so you1re asking me
   7 Shepherd _. or Dave Shepherd.                            7    What was said In th.t conversation.
   8      A. Are you talking about..                          8         Q. No. fm talking about what Is being
   9      Q. Yeah. Below that..                               9    conveyed on by Mr. Wiles that, so far, the only
  10      A. Okay,                                           10    Indication we have that Mr. Wiles Is aware of, the
. 11      Q. - it appears to be fo!Wardlng a .. I'm not      11    only issue raised by any of the unde!Writors relat..
  12 sure what that is below that. Irs from David Wiles      12    to tile subllmlt on the plies, correct?
  13 to Mr. Bayless, but it doesn't have the nonnal          13         A. Correct. By I can't state what other
  14 from/to date stamp that would Indicate a separate       14    conversations may have been part of the conversation
  15 email. Do you have an unde",tandlng of what that        15    there may have been between Houston Casualty and
  16 middle portion of that email Is?                         16    MatthewsMOanlel, for example.
  17      A. Yes.                                             17        Q. Sure, But the only documentation we've
  18      Q. Okay. What Is that?                              18   seen from Mr, Hodgett or from Mr. Shepherd relates to
  19      A. ThelnCtJmlng message at the bottom is from      .19    the same question, tIlat being tile subllmit on the
  20 David Shepherd, of Houston, to us, following David      20     plies?
  21 Wiles' submission of the report from Matthews-Daniel.   21         A. And the reseM!.
  22      Q. And tne bot.1nm portion Is • document we        22         Q. And there's no question thars been raised
  23 looked at as a separate exhibit just a moment ago,      23     about the standby claim.
  24 Isn't It?                                               24                MR. PAPANDREOU: Objection, form.
  25      A. E'Xactiy. It is E'Xhlbit Number 172, I          25         Q. Correct?

                                                                                                      13 (Pages 49 to 52)
                                             Independent Reporting, Inc.
                                                   281-469-5580

                                                                                                         SR-000681
                            .,,/-




                                                CHRISTOPHER SYDENHAM

                                                      Page: 53                                                       Page S5
1       A. Correct.                                              I     as of 11th of Marth, all that Underwlilars have
2       Q. That we've seen here In any dOCllmentatlon?           2     commented On Is a que<y with regard to the reserve.
3       A. Correct.                                              3          Q. And tIla~s a query to MattneWS-Danlel7
4                (Exhlb~ 176 mar1<ed)                            4          A. Through us, correct.
5        Q. I've mar1<ed as Exhlb~ I-                            S          Q. So no ""ponse to the dalm?
6        A. I'm ..,ny. I'm asking If I can have a -              6          A. No. But the claim hasn't been submitted at
7        Q. Oh, okay.                                            7     tIlat stage.
S        A. - another dMnk or something.                         8          Q. What does it taka to submit a claim beyond
9        Q. Okay. Sorry. Exhlb~ 176/$ Tysers Bates               9     the December 17th letter, which was submitted by
10   number 120. This appears to be an email from                10    Houston Exploration?
11   Mr. Hodgelt to David Wiles on the 11th of Marth '03;        11         A. Which Is Exhibit 8; Is that light?
12   Is that correct?                                            12         Q. H.
13      A. Yes.                                                  13         A. H.
14       Q. And Mr. Hodgett notes, 'I'm bored with your          14         Q. H in 142 Is one of the copies of that And
15   me an my desk, so I'v. wlitten a brief (polite)             15    rll represent to you that tIlat Is the nrst several
16   Clln"nent on it and put It an the to-be-collected plies     16    pages of twa volumes of notebooks of supporting
17   in our reception. 1t                                        17    dO<:\JmentaHon that were submitted an December 17th.
18       A. Correct.                                             18,        A. Yeah. This letter here on December 17
19       Q. What was the Issue between Mr. Wiles and             19    Illiks about the amount Of the claim, partial, as
20   Mr. Hodgett?                                                20    owHlned, Is 3.2 million. It requests a meeting to
21       A. What will have happened Is that tI1e file            21    review the claim and to IniH.te the dalm's
22   will have been left with Wellington at the time of          22    process.
23    the Initial quert being raised as to the reserve           23                 So the next sIllge Is for
24   around 25th to 27th Februart, 2003, In antidpation          24    Mattnews-Danlels, on behalf of the underwriter, to
25   of a prompt response from Mattnews·Danlel.                  25    Investigate the dalm, to report, and when

                                                       Page 54                                                       Page S6
 1             This message Is then from Wellington,              1    underwrite" consider the adju_ has fulfilled the
 2 telling us on the 11th of Marth, that rather than him          2    task for which he Is charged, they will make a
 3 retain our file until we get a response, could we go           3    comment on policy liability.
 4 and pick It up and could we resubmit It when we get            4        Q. Take a look at Exhibit 13, In the notebook,
 5 the response, which underwriters are waiting for.              5    If you WOUld. That Is • letter dated January 13th,
 6      Q. So as of 11th of March, on the claim that              6    '03, from Houston Exploration, submitting additional
 7 was submitted In late Novelllber of '02, stili no              7    Invoices. Do you see that?
 a response to the assureds from underwriters, correct?           a        A. I do.
 9      A. Underwriters don't respond to ass.ureds.               9         Q. 'SO Houston Exploration has submitted a
10 They ""pond through their adjuster.                           10    dalm on December 17th and then supplemented It with
11      Q. They don't respond through the adju_,                 11    some additional Information on January 13th. 00 you
12 they respond based on the adjusters evaluation,               12    see that?
13 don't they?                                                   13        A. I do.
14             MR. PAPANDREOU: Objectlon,form.                   14         Q. And as I recall the policy In this case,
15      A. No. I would suggest tI1ey actually respond            15    and you're free to look at It, It's Exhibit 149,
16 through the adjuster and that the adjuster                    16    tI1ere's a provision In It that Underwriters will
17 conresponds with the a..urad or a..ureds. The                 17    respond to a claim within 30 days.
18 undef'INriters do not.                                        18                 Mit PARRISH: Exhibit 149/
19      Q. As of the .lIth of March, '03, are you aware          19                 Mit WINTON: Yes. les eltl1er Exhibit
20 of any Instructions from Underwriters to                      20     149 Or one of the various Tysers forms that were
21 Mattnews·Daniel, directing them to respond to Houston         21    attached to the policy, basad On the testimony of
22 Exploration wi\h regard to this claim?                        22     Mr. D.rell.                  '
23      A. I believe there's an initial assignment               23                 MR. PARRISH: Be sure and give me that
24 which came In shortly after the dalm was notified.            24     beck. Is that your copy or mine?
25 The preliminary report Is dated 19th of February, and         25                 MS. GOEHRS: His.

14 (Pages S3 to 56)
                                                Independent Reporting, Inc.
                                                      281'469·5580

                                                                                                                 SR-000682
"Recommended Settlement" of the standby claim of $730,471.45. 88

           For the first time, on June 24, 200;3, months after having first been advised of the

inclusion of such in the claim by Houston Exploration, Underwriters questioned coverage of the

standby claim. 59 In an e-mail sent to Chris Sydenham, Hodgett stated that he "had a problem;'

with inclusion of the standby charges in the approved c1aim. 9o Hodgett directed Sydenham to

explain inclusion of standby charges or for Sydenham to have Bayless readjust the claim report

to exclude such. 91 Sydenham passed the inquiry on to Bayless. Bayless responded to Hodgett

that it was the contention of the placing broker that "Clause 13 (deleted), is utilized in the event

the Assured were to request a separate additional sub1imit for weather standby costs in addition
                                                                         92
to those included in project values declared to the open cover                In this instance, the placing

Broker has confmned that standby charges are included in the project values dec1ared.,,93

Bayless on that basis, declined to readjust the claim by deleting the standby charges.

           Shortly thereafter, on July 14, 2003, Hodgett denied the claim for standby charges but

approved the remaining claim as recommended by Bayless. 94 On July 18, 2003, the producing

broker, Lary, stated his understanding of the policy in an e-mail to Darell. 9l There he noted that:

                  The wording issued by underwriters has a clause for Stand-By
                  charges that has been crossed out. This does not constitute an
                  exclusion of coverage on our side of the pond. We were under the
                  impression that by crossing out the clause the underwriters were
                  removing the sub-limit created by the clause. If their intent was to
                  exclude claims for stand-by charges, they should have provided a
                  specific exclusion to the wording ....


"    Id.;scealsoHodgettat 100'.19.
..   Hodge1t at 88:25-89:7.
90   id.
"    Sydenham at 84:23-89: 10; Hodgett at 100: 19-1 02:5; Exhibit 179.
"    Bayless .1281:2-283:10; Hodgett at 142:11-17; Exhibit 35.
93   Bayless at 282:25-283:9.
"    Hodgett at 155:9-156:8; Exhibits 36,.36A, 181.
S5   E.hibit 102.




                                                         27
        number of Underwriters, including Xchanging Claims Services. have verbally
        intimated that Ihis is an excellent deal fOr Underwriters who could very easilv
        have been asked to pay the full amount instead by the Assured under the terms Q[
        their policy. 100

        Underwriters can hardly question the reasonableness of Houston Exploration's

interpretation of the policy when their own agents and members recognize the validity of

Houston Exploration's reading of the policy. 101

                          2.       Wellington Itself Remained Moot for Months After First Being
                                   Advised of Houston Exploration's Claim for Standby Charges

        Despite Underwriters' protestations that the striking of ~ 13 either deleted the only basis

for coverage of standby charges or constituted an exclusion of them, Underwriters themselves

said nothing for over six months after receiving notice that the claim by Houston Exploration

would include standby charges. 102

         On December 17, 2002, Houston Exploration submitted its claim documents to LIS, for

forwarding to Underwriters, including a claim for standby charges.'o; Lary forwarded the




100  Sydenharn at 116:7-14,16; Exhibit 185. (Emphasis added).
IDI For purposes of issuing the policy, Tysers acted as agent of Underwriters. Wellington relies entirely on brokers
to communicate with its assureds and to prepare the policy to be accepted by underwriters. (DareU 56;16-18;
Hodgett 156;21-157;8) In this case, that broker in London was Tysers. Wellington had no employees and no
license in Texas to sell insurance. The only way it could sell insurance would be to sell what is known as Surplus
Lines Insurance, that is insurance sold by underwriters not admitted to sell insurance in Texas. through
intermediaries. (Oa...1l56;10-18) Surplus Lines Insurance is regulated in Texas by Insurance Code §§ 901 et a!.
and Tex.. Admin, Code §§ 15 et a1. Here, that intermediary was Lary. LIS contacted Tysers in London to inquire
about insurance to cover OSFI construction contracts. Darell of Tysers walked across the street to Lloyd's to visit
with the various Underwriters in their boxes at Lloyd's. (Oarell 29:20-30:23, 70:16-72:13) Mike Allan of
Wellington, handed OareU a proposed fonn WELCAR 2001 policy and made certain strikes of paragraphs. OareU
then took the form policy back to his office whore he had a smooth copy run off by computer, incorporating the
changes in Ih. form directed by Allan. Oarell then brought the form back 10 Allan who made additional changes and
scratched his acceptance on the fonn. Darell then took the form around the rest of the Lloyd's market, to the various
companies in London and to the foreign market seeking underwriters willing to sign on to 100% of the coverage.
(Allan 66:14-24, 67;24-68;6, 88;12-89:21) Allan lestifled that thi' is the way it is always don. at Lloyd's, that
Lloyd's and the various underwriting syndicates could hire their own staff to create the policies but instead they
avoid those expenses by having Ihe brokers do the policy preparation for them. (Allan at 65;15-23)
10' HodgetJ at 88:25-89-7.
IOl Simon at ~ 13; Morris at 1 15; Exhibit 9.




                                                        29
                                                                                                               SR-000899
December 17, 2002, letter to MatthewsDaniel by c-mail that same day, December 17.104

        On February 19,2003, Matth.ewsDaniel submitted its Preliminary Report to "Interested

Underwriters" care of LIS. lOS There Bayless commented that "the claim is expected to comprise

the expenses associated with the engineering, accessing and driving the subject A3 leg, together

with standby charges due to weather delays and the attempts made to date by the Asssured to

return the platform to an even, horizontal attitude. ,,106 There is no evidence of any response from

Wellington or any underwriter questioning inclusion of standby charges in the claim in response

to the preliminary report.

        On March 13, 2003, MatthewsDaniel noted in an e-mail to Wellington's claims

representative, John Hodgett, that they had requested a further breakdown of costs between pile

repair, platform/engineering costs, and downtime expenses per Mr. Badgett's request. 107         On

March 25, 2003, Bayless of MatthewsDaniel in Houston, met with Darell and then in a separate

meeting with Badgett. During the meeting with DareU, coverage of the standby claims was

discussed,IO. but Bayless testified that no question was raised by underwriters regarding

coverage of the standby expenses at the meeting. 109

        The total claim resulting from the freefall of the piling was originally anticipated by

Underwriters to be in the range of $400,000 - $500,000. 110 When Underwriters received the first

indication from MatthewsDaniel that the claim would be roughly $3.1 Million, they questioned

the increase as well as application of the separate policy limit of $1.7 Million for the pilings but



'04 Exhibit 10.
I" Bayless aI121:18-122:8; Exhibil14.
106 Exhibit 14 (Emphasis added.)
107 Bayless .,134:18-135:17; Exhibil16.
108 Bayless .,426:17-427:2; DareU at 237:23-238:3, 257:25-258:21; Exhibit 154.
10, Bayless 190:21-191:2.
"' DaroU.t 219:1l-221:1I; Hodgetl at 27;25-28:19; Exhibit 4.



                                                     30
not coverage of the standby claim. I I I

        It was not until June 24, 2003, following receipt of MatthewsDaniel's fmal adjustment

report dated June 20, 2003, six months after frrst receiving notice that Houston Exploration was

making a claim that included standby charges, that Wellington or any Wlderwriter frrst rdised a

question regarding the claim.ll2 While Underwriters today claim that the striking ofV3 clearly

and expressly deleted or excluded coverage for standby charges, it apparently took them just

over six months to come to that conclusion. I I)

        VI.     IF THE COURT CANNOT RESOLVE AMBIGUITIES BY APPLICATION OF
                A RULE OF CONSTRUCTION. THEN THE AMBIGUITY MUST BE
                SUBMITTED TO THE JURY FOR RESOLUTION

        In his deposition, Allan conceded that the failure to delete the standby deductible could

cause confusion. 1l4 If after applying established rules of interpretation to the contract it remains

reasonably susceptible to more than one meaning, it is ambiguous. Universal C. I. T. Credit

Corp. v. Daniel, 243 S.W.2d 154, 157 (Tex. 1951). In that situation, the interpretation of the

instrument becomes a fact issue and should be submitted to the jury. Coker v. Coker, 650

S.W.2d 391, 394 (Tex. 1983). If this court cannot, after applying the rules of construction urged

by Houston Exploration, interpret the policy in this case, it should submit the language and

construction to a jury as a fact issue.

        vn.      DAMAGES

        MatthewsDaniel, as agent of Underwriters, adjusted the loss at issue. MatthewsDaniel

fOWld that the vessel rates that make up the standby charges 0[$846,419.30, "are commensurate

with normal vessel day rates being charged in the Gulf of Mexico at the time of the loss, and

III Sydenh.m at 47: 1.16, 49:23.50:2, 52:17·53:3; Exhibit 173, 175; Hodgett at 50:6·22.
112 Hodgett at 88:25.89:7.
113 Either the conclusion was not so clear or their delay constitutes a violation of then § 2L55U of the Tex.as
    Insurance Code requiring prompt notice of the denial of a claim and an explanation therefore.
"' AllariaI207:17·18.



                                                      31
                                 AFFIDAVIT OF CESARE DEL GRECO

STATE OF LOUISIANA                          §
                                            §       KNOW ALL PERSONS BY TIlESE PRESENTS:
PAruUSHOFTERRABONNE                         §

        BEFORE ME, the undersigned authority, on this day pe/'SQnally appeared Cesare Del

Greco who, being by me (Irst duly sworn, deposed and stated:

        I.      My name is Cesare nel Greco. I'lIM ~um;ntly OVer the ageoftwenry-one (21).

bave 'never been- convicted of a felony or a crime of moral turpitude. I 8lll under no legal

disability and I am fully   COlnP¢t~t       to uiake tbJs Affidavit I have personal knowledge of the

f~1$ state<) herein a/ld, they   are !rue.anl! C\lITeC!.

        2.      [ am the senior vice pn:side.nt or Off.hoteSpecialty Fabricatots, Inc. ("OSFl").

OSFl is a company baSed in Houma, Louisiana, engaged in the cOristruction, installation,and

removal of offshore oil and gas production faci).ltieli. At.1l times releviIn! to this lawsuit, OSI11

!!lao m.aintailll"l an office in HO)lSlon. T.xas and a construction yard I,oealed at Ingleside, Texas.

I joinedOSFIon December 7,2002: and have personal knowledge of the facts stated hereiil

based on my review of OSF!'. files lII1d my direct involvement after I joined the company.

        3.      In 2002, The Houston Exploratioil Company ("Houston          ExploratioD~')   contracted

with OSFI to, construct lII1d's<;t a jacket and deek fOf an offshore oil and gas production platfonn

in the Gulf of Mexico off the coast of Louisiana at South Timbalier Block 3 1.7-A. The contract

between Houston Exploration and OSFI contemplated that the parties would procure a Builder's

Risk Policy to cover the project. OSH. sought coverage through La'Y Insurance Services, Inc.

("US") of Houston, Texas. 1 have been shown a copy of Exhibit 61. marked in this case. I.

along with my staff, have made a diligent search of OSFI's files, We have found no record of

such a document ever having been provided to us prior to the filing of the lawsuit and arbitration




                                                                                                 SR-000910
herein. Instead, LIS provided OSFI with a copyof~ Certificaleof~ce. I have been shown

the document previously marked as Exh.ibit 66. That apP,e3rS       to   be a copy of the Certificate of

IOSUIllllce provided to us by LIS. I have beeo sho.Wn the documents previously marked as

Exhibits 6, 1 IlJld 149 in this matter, wh.ioh I undel'Stand have been identified as the terms and

conditions of the poticy at issue herein .. We have also made a diligent S!Oarcb. of OSF!'s files for

these· documents and can fiod no recotd of ever having received such until after the claim was

milde.

         4.   It is my understanding IhIlt Underwriters contend J,b;rt OSFI wanted a policy of

ill>Ulllllce that did Dot include Sbmdby ~oy~ge in ordlll" to IItl1lP the pFemiums ala minimUlil.

This project aOO others like it to be cQUduct<:d uncle. the Ali Risk Iiistallation Floater were known

to be· offshore construction and installation projects that Would be· schedUled to occur during

hurricane .seasoq. In each inst8llco, OSFl's custonler would be paying the premiums for !\'te

insurance. QSFI had no Incentive 10 reduce the cost of the insuranee where doin!! so saved it

nothing but put it and its customers at risk. of a known haiard.

         5.    In the performance of my dudes after I joint;d the company in December 2002 and

based on my review of OSF!' s files, I I)ave the following undersllmding, of the events related to

the claim at issue. On August 27, 20.02, while the pilings were being driven into the seabed, a

piling Ilnl:)(pectedly free reU into the seabed, leaving the top of the piling inSide the leg rather

than sticking out above the top of the leg and leaving the jacket several degrees off Ie"e!. As       ~

consequence of the free rail of the piling, additional engineering was undertaken to determine

how best to repair the damage and relevel the jacket. Tugs, barges and other vessels were hired

to perform the work of the repairs and the releveling. During the time the releveling was being

done, Tropical Stonn Hannah and Hurricanes [sidore and Lili came through the area in which




                                                                                                SR-000911
OSFI was working. I have been shown what have been previouslynwked as Exhi.bits 31. 32;

and n. and they are true and accllI'$: !'Opies of the invoi!;eS for standby clllirges for the vessels

P1Il on' sll!ndby. These bills ""ere SUbmitted to and paM directly by Houston Explomtion and

those payments credited again.st the amounts owed by Houston Exploration. The vessels and

personnel used and the rates charged were all at the contract rates that pre-existcd these stonns.

       6.      Following payment of the bills contained in Exhibits 31, 32 and 33. as well as the

payment of aU expenses for the repair ancj rejevelin1l.    ot the jacket,. an amount in excess of
$3 million, Houston Explortltion made> a claim on the Un<furwritecs. under thepoUcy of. insurance.

SiJ;lce Houston Exploration had suslilined the loS!i directly. OSP! d.id not m~ a olahl!. qSF! bad

no cOmmunicetions with anyone reg~ing \)l.e i.n:,uraoce cl~ for standby Of any of the (lther

amounts claimed by Houston Exploration undef the policy o.r any Qther c1.ain\'\'!hatsoever. At no

time, did Underwriters, Tysetil. LIS or ·MattbewsDruuelinform anyone at OSFlthatthe claims

herein could not be made by H9USi9U J:lxplorati.on or th~t they. had to be made p,y OSF!.

        7.     While OSF! WlII!.advi~ed that Unde.rwriters d""lined to· pal' for sl8Ddby expenses;

OSF! was not advised of any grounds therefor until· after suit had· been filed in this matter. OSFI

received no communication from Unqerwrirers, Mat\)l.cwsDaniel. Tysers or LIS regarding the

reasons for that decision.

        8.     In August 2003. OSF! w3$advis<;d that Tysershad instructed Matth~Oanjel to

prepare d<lCwnenlS for payment of S2,034;96Ll2, which is the costs of the engineering. repairs

and replacement and releveling of Ihe jacket, with tbe exception of the standby charges.

MatthewsDaniel forwarded to OSFI certain language to be put in a leller on OSFlletterhead and

a "Partial Proof of loss", both to be executed by OSFl. I have been shown a copy of a document

marked as Exhibit 45 in Ihis maLter. Exhibit 45 is. a true and correct copy of tl,e docLaneat!!




                                                                                              SR-000912
provided by MatthewsDaniel. Using the Cotri! provided         and as instructed by MatthewsDaniel,
we put the Payment Order on O\ll" own letterhead.    ()Q   August 7,2903, I execut"d.that do<:ument

and the Partial ProofofLoss provided by Matthe.wsDaniel on ~fof OSFI as· instructed and

returned both to MatthewsDaniel.

       9.     In September 2003, OSFI was advi~ed by I.,lS \Ii_t. it needed to execute additional

dooU1Tlonts in order 10 obtain an additional payment of $250,000 on the standby claim made by

Houston Expionltion. At no time did, Underwriters, MatthewsDaniel, Tysers, LIS· or Greg Lary

advise OSFl that Houston Explol1ltionhad unequivocally rejected the offer of $250,000 in

compromise and' settl,ement 9£ its claim for slaJIdby eharg~ ofS'M6,419.30. l' executed these.

dQCUInenlS on behalf of QSF! as instro<;ted by US. It was. never the unde.standing of OSF! that

clteauti<ln oftbese documents woUld be used t<l argue tlll1l tID:: remain.ing claim of $596,419.30

would thereby be waived. Prl.or to tili& Iitij¢tion, IiO one .ever informed me that Houston

l'Iiqliol'lluQn. had refused to' compromise the standby' ·Glaim.. Half I been infonned that my

execution of these do<:.uments could pOssibly prejudice; Houston Explo'nltiDn's claim for

reimbursement of its full claim far standby charges, ! would not have executed either documllnt

without fi.stconttm'ing witbl:loustan Exploration.

       I declare under !he penaityof pel'jury that the foregoing is true and correct

       Si·gned this   I1j!.day of March, 2006.
                                                       ~~/~
                                                      CESARE DEL GRECO




                                                                                           SR-000913
                                 AFFIDAVIT OF CHRlS MORRlS


STATE OF TEXAS                §
                              §         KNOW ALL PERSONS BY THESE PRESENTS:
COUNTY OF HARRIS              §

                BEFORE ME, the undersigned authority, on this day persoaally appeared Chris

Morris who, being by me first duly sworn. deposed and stated:

        1.      My name is Chris Moms. ! am cooeally over the age of twenty-one (2\). ! have

never been convicted of a felony or a crime of moral turpitude. ! am under no legal disability

and ! am fully competent to make this Affidavit ! have personal knowledge of Ihe facts stated

herein and they are true and correct.

        2.      Currently, ! am an Director of Engineering for M&H Energy Services. From

1999 to July of 2003,    r was    employed by Tecbnip-Cofiexip ("Tecbnip'') and worked as the

contract Project Manager for a project at South Timbalier, Block 317-A, in the Gulf of Mexico.

Technip was hired by The Houston Exploration Company ("Houston Exploration,,) to manage

the   projec~   which included working with the structural insta1lation con1Iactor, Offshore

Specialty Fabricators, Inc. ("OSFr').

        3.       In 2002, Houston Exploration contracted with OSF! to construct and set a jacket

and deck for an offshore oil and gas production platform in the Gulf of Mexico off the coast of

Louisiana at South Timbalier Block 317-A. I have been shown a copy of. document previously

marked as Elhibit 141 in this case. Exhihit 141 is. true and accurate copy of relevant portions

of the Lump Sum Contract between OSF! and Houston Exploration (the "Contract"). Under the

terms of the Contract, the costs of insurance and expenses of any standby charges were to be

billed to Houston Exploration. The costs of any standby charges Were to be reimbursed out of

the insurance purchased for this project.




                                                                                         SR-000919
       4.     Houston Exploration advised OSFI that a Builder's Risk Policy was needed to

cover the project. OSFI contacted Greg Lary of Lary Insurance Services, Inc. ("LIS") in

Houston, Texas, and requested that he locate coverage. ! was the principal point of contact

between OSFI and Houston Exploration with regard to the placement of the insurance herein.

began working with OSFI to place coverage for this project in Mayof2oo2.

       5.     It is my understanding that Underwriters contend that OSFl wanwd a policy of

insurance that did not include standby coverage in order to keep the premiums at a minimum. At

no time did I or anyone from Houston Exploration advise OSF! that Houston Exploration was

willing to accept less than full Builders All Risk coverage. OSFl would have had no incentive to

reduce the cost of premiums since these were paid by Houston Exploration, not OSF!.

Furthermore, it would not be my custom or practice 10 waive coverage for such an obvious risk

as standby charges during hurricane season on a construction project in the Gulf of Mexico.

       6.     I have been shown a copy of what I understand to have been previously marked in

this case as Exhibit 61, a rough draft of what purports to be the Terms and Conditions of

coverage in this matter. At no time did Greg Lary of LIS bring or otherwise show a copy of

Exhibit 61 or anything looking like it to me. Instead, LIS provided Houslon Exploration ouly

with a copy of a Certificate of Insurance. I have been shown the document marked as Exhibit

66. That appea:rs   to   be the same as the Certificate oflnsuranee provided 10   US   by LIS. I have

been shown the documents previously marked as Exbibits 6, 7 and 149 in this matter which I

understand have been identified as lbe Terms and Conditions of the pollcy at issue herein. At no

time prior to the filing of the lawsuit and arbitration herein were we provided with a copy of

these documents.




                                                  2

                                                                                              SR-000920
       7.     The project began as planned. The jacket was loaded onto a barge at OSFY's

Ingleside, Texas yard on or about July 30, 2002, from which the barge was towed to South

Timbalier 3l7-A. There, the jacket was lifted off the barge aod floated on the water, The jacket

legs were then flooded so that it sat upright in the water and then sunk to the seabed. I have been

shown E,hibit. 42 - 44 which have previously been marked in this case. Exhibits 42 - 44 are

true and accurate copies of drawings showing the process by which the jacket was lifted off the

barge, floated and then set in position on the seabed,

       8.      The jacket was then to have been secured to the seabed by driving pilings inside

the jacket legs approximately 330 feet into the seabed. Normally, the piling is expected to

penetIate the diaphragm Wider its own weight and then penetrate the seabed, leaving the top

portion of the piling accessible through the top of the jacket where additional segments can be set

on top of it and the entire column driven the remaining depth into the seabed, thereby pinning the

jacket to the seabed. Once this process is completed, a deck section is placed on top of the jacket

and finally the completed platform is connected to well heads under the jacket.

        9.     On August 27,2002, when the second piling was being driven into the seabed, the

piling unexpectedly free fell 121 reet into the seabed, leaving the top ofth. piling inside the leg

rather than sticking out aboye the top of the leg and causing the jacket to be several degrees off

 level. The free fall of the piling caused damage to the leg and made it impossible to complete the

task of pinning the jacket to the seabed without developing a new plan to repair the damage to

the leg, complete driving of the piling and then releveling the jacket, Without releveling the

jacket, the platfonn could not be installed on top of the jacket, the wellheads could not be

connected to the platform and the jacket would be rendered useless,




                                                  3

                                                                                              SR-000921
       10.     The instability of the jacket due to the legs not hemg properly pinned by the

pilmgs and the jacket being unlevel created an imminent risk of further damage or loss to the

jacket because there was a serious risk that it could not withstand a storm, particularly a tropical

stonn or hurricane, in its damaged condition. The risk was viewed as itiunment because the lead

time necessary to do the engi.tieering and develop an alternate plan to drive the pilings, and

actually to repair the leg and relevel the jacket, renderi.tig it stable, exceeded the notice time

before a stonn or hurricane could hit the jacket. Thus, emergency remedial measures were

undertaken immediately. These remedial measures were designed and employed to reduce              Or

eliminate the risk·ofhann presented by the threat of severe weather, and protect the project from

further damage. It took over two weeks to complete these emergency remedial measures, which

is considerably longer than the notice we would have been given in advance of an approaching

tropical stonn or hurricane.

        II.    Furthermore. had the jacket been knocked down in a storm, it may very well have

landed on top of one or both of the wellheads underneath it that it was intended to serve,

renderi.tig the wells useless as well as the jacket.       I believe the United States Minerals

Management Service would require that Houston Exploration take all reasonable precautions to

prevent the loss of the jacket, particularly where it could damage a well and possibly cause safety

and environmental hazards.

        12.    During the process of repairing and releveling the jacket, Tropical Stann Hannah

and Hurricanes Isidore and LiJi came through the area. Tropical Storm Hanna resulted in 35.5

houtS of downtime begi.tining On September 13, 2002 at 0600 hours and .nding on September 14,

2002 at 1800 hrs. Hurricane Isidore resulted in 192.5 total hours of downtime begi.tining on

September 20, 2002 at 2330 hours and ending on September 28, 2002 at 2400 houtS. Hurricane



                                                  4

                                                                                             SR-000922
Llii resulted in 263.5 total hours of downtime beginning September 30, 2002 at 2200 hours and

ending October 2, 2002 at 0330 hours. True and correct copies of the invoices reflecting the

downtime charges above are attached hereto as Exhibits 31, 32 and 33. The vessels and

personnel used and the rates charged were all at the contract rates that pre-existed these storms.

These invoices were submitted to and paid directly by Houston Exploration and those payments

credited against the amounts owed by and to OSFI for the vessels.

       13.    Rather than release the vessels performing the repair and releveling. they were put

on standby due to weather, thereby insuring thaI the vessels would be available to continue the

work as soon as the weather moderated.. Had OSH and Houston Exploration released the vessels

and then gone back into the charter market to put other vessels under contract immediately after

the storms, they would have been competing with many other offshore operators seeking to

perform already contracted work andlor make repairs to equipment damaged in the storm.

        14.    The total cost of placing the vessels on standby was $846,419.30. Had the vessels

been released and then rechartered after the storms, conservatively, the extra cost could have

been at least twice the cost of placing the vessels on standby during hurricane season.

        IS.    I assisted Houston Exploration with the claims process after the incident. By

letter dated December 17, 2002, Houston ElI'ploration submitted its claim documents to LIS for

forwarding to Underwriters. A bUe and correct copy of the first 10 pages of that claim are

attached hereto as Exhibit 9: The complete document consists of two binders and several

hundred pages of detailed claim submission. On January 7, 2003, 1 met with Stanley Bayless

and Greg Lary 10 discuss the claim being made by Houston Exploration under the policy. At that

meeting, I made it clear to all present that I was acting On behalf of Houston EXploration, that

Houston Exploration had sustained the losses at issue, that Houston Exploration was making the




                                                 5

                                                                                             SR-000923
claim, that the claim included standby expenses and that all invoices submitted with the

December 17, letter had been approved for and were in the process of being paid by Houston

Exploration. On January 13, 2003, Houston Exploration submitted a supplemental claim to LIS,

again noting that Houston Exploration was thereby submitting additional invoices that had been

approved for payment. True and correct copies of relevant portions of that supplemental claim

are attached hereto as Exhibit 12 and 13.

       16.     Houston Exploration made a claim on the Underwriters UIlder the policy of

insurance since il was the only assured that had sustained any loss. OSFI did not make a claim.

At no time, did Underwriters, Tysers, LIS or MatthewsDimiel infonn me or anyone al Houston

Exploration that the claims herein could not be made by Houston Exploration or that they had to

be made by OSP!.

       17.     The project was completed with the instailation of the deck on the jacket in

December of 2002. 1 was nol involved in any discussions involving the claim thereafter.

                       rtL
       Signed this ~ day of March, 2006.



                                                      CHRlSMO         S


        SUBSCRIBED and SWORN to before me on this            &     day of March, 2006, to certify

which witness my hand and official seal.


                                                      .&z4ill1l&fpv Jrt.~
               ~
                          """""",IN II. GIiIIlI
                         ~Nk. . . r:tllaol

               V{3J ... ~­    -'"   I~ 1))\
                                                      Notary Public in and for the
                                                      Slate ofTexas




                                                  6

                                                                                             SR-000924
                             AFFIDAvcr OF GREGG S. PERKIN. P.E.

STATE OF TEXAS                 §
                               §     KNOW ALL PERSONS BY TIlESE PRESENTS:
COUNTY OF HARRIS               §


              BEFORE ME, the undersigned authority, on this day personally appeared Gregg S.

       Perkin, P.E, of Engineering Partners International, Inc. who, being. by me first duly sworn,

       deposed and stated:

       1.     My name is Gregg S. Perldn. I am currently over the age of twenty-one (21). I

have never been convicted of a felony or a crime of moral turpitude. I am under no legal

disability and I am fully competent to make this Affidavit I am the Chief Executive Officer and

a principal mechanical engineer of Engineering Partners International, Inc. (''EPI''). I have been

retained by The Houston Exploration Company to provide my opinions and related services in

connection with the above-referenced lawsuit All of the facts and circumstances set forth in this

declaration are of my own personal knowledge and all of the conclusions and opinions set forth

herein are my own which are based upon my knowleQge, education, experience and expertise. If

called upon to testify thereto, I could and would competently do so.

       2.      I obtained a Bachelor of Science in Mechanical Engineering ("BSME") from

California State University at Long Beach in 1973. I also attended certain graduate level COUIlles

in Business Administration subsequent   to   obtaining my BSME. Over the course of my thirty

five (35) year career, I have attended courses and lectures sponsored by the University of Texas

at Austin, The Paul Munroe School of Hydraulics, The American Management Association, The

American Society of Mechanical Engineers and ALGOR.......          I am affiliated with or have

membership in the following organizations: AmeriCllll Petroleum Institute, Society of Petroleum

Engineers, Intemali.mal ASso<:ialion of Drilling Contractors, Americon Society of Mechanical




                                                                                                SR-000925
Engineers, National   &;   Texas Societies of Profc;ssional Engineers, National Fll'e Protection

Association, lns1rument Society of America and American Welding Society.

       3.      I am a Registered MechlUli<:alEngineer by examination in Texas, Louisiana,

California, North Carolina and Hawaii.

       4.      From 1995 to the p~sent, I have acted as Chief Executive Officer of EPI and I am
one of its principal mechani<:al engineers, during which time I developed and evaluatod the

design and application of mechanical and
                                     .'
                                                su,wtw:al engineei/ng .systems perta4U;ng to various
                                                   .        .          .

offilhore and' onshQl:e drilling, ~tioD;cOnStnictioll abd' refining op:ratiom, including
                                               ". . . .
                                                .

mechanical systeuis involvbrg toolS and' eq1iij:iJll~ ~ and press~ vesselS and rotating and
                                       ,   "   .'          . ,       .'


dynamic machinery.

       5.      I have worked in     th~    oil and gas exploration IjDd production, construction and
                                                    .,   .                    .
refining industries for over thirty (30) years and               r am familiar with the applicable industry
standards for oflShore design and constiuction'in the Ou\f of Mexico. I have worked as an
                           .                       ,          .           "




ai)field roughneck, derrlckman and s.erviccp1an in both offshore and onshore op:ratioos. I have

been personally involved in OUtf of M~c~ projects that. were adversely affected by tropical

storms and hurricanes.

       6.      1 have over nineteen (! 9) years expeJ;ience as an expert witness, giving legal
                                                                 .                .
testimony as a mechanical engineer, relative to the equipment and processes· used in the

OP'fations completion, production, and emergencies; onshore and offshore safety systems; coiled

tubing; artificial lift; subsurface safety valve,s;      !bread design; conneetiom; downhole tools and
equipment; pipeline design, use and application. including Department of Transportation pip:line

safety regulations; mechanical systems ,design, machinery, equipment and tools; onshore and

offshore cranes, rigging and other heavy lift equipment; power generation; power transmission

and power utilization; production refining and process safety management. I have personally

been involved in at least three incidents involving, offshore drilling and production platform
                                              2

                                                                                                      SR-000926
structures where I was both (1) consulted by the United States Minerals Management Service

("MMS'1; and (2) worked with the MMS in the course of conducting Ouf mutual investigations,

analysis and research. Over the course of. my car<ter, I have used MMS as a resource with

regards to the independent engineering consulting work that I have been retained to complete.

       7.     I have rendered numerous opinions on the .reasonableness and necessity of

speeific operations performed during offshore construction, drilling, exploration and production

operations. In .lIddition, I bave been retained in matters involving incidents and accidents

resuiting in damage, partiaJ and total loss to various offshore production assets. In such cases, I

rendered opinions on whether the contractors and subcontractors acted properly and within

accepted industry custom and practices. I have been accepted by both state and federal courts on

over twenty (20) occasions. A copy of my curriculum vitae is attached as Exhibit A.

        8.     Based upon my review of documents produced by the various parties in this

matter, I am familiar with the incident that caused tlte loss which lead to the claim filed under the

policy at issue. On August 27, 2002, during the constructinn phase of the project, an incident

occurred while driving the platform's jackets into the seabed, resulting in damage to, among

other things, the jacket and its deck. This incident placed the offshore assets in imminent harm

from adverse weather and sea states and placed the entire project's successful completion in

jeopardy. A piling's unexpected free fall into the seabed, left the top of the piling inside the leg

rather than protruding out and above the top of the leg, thus leaving the jacket several degrees off

 level. The free fall of the piling caused damage to the leg and made it irnpossible to complete the

task. of pinning the jacket to the seabed without developing an entirely new plan to repair the

damage to this leg, completing driving of this piling and the others and then releveling the jacket

Absent a level jacket, the platform's production module could not be installed on top of tbe

jacket, its production wells could not be connected to the platform modules and the installation
would be rendered useless. The fact that only one leg was fully pinneq and the jacket was not
                                              3

                                                                                                 SR-000927
properly leveled, meant that they could not pin the other legs until the jacket bad been leveled

and subsequently the remaining pilings driven in. Had they driven the remaining pilings before

the second leg, which bad sustained its piling's free fall, and bad it been properly pinned and the

jacket leveled, it would have created a significant risk that the remaining pilings could not be

driven in properly, making the risk to the jacket potentially permanent or only repairable at great

expense.

       9.      I understand that during the proces.s of repairing and releveling the jacket,

Tropical Storm Hannah and Hurricanes Isidore and Lili came through the area in the Gulf of

Mexico where the platform was located. I personally recall when Tropical Storm Hannah and

Hurricanes Isidore and LiJi came through the Gulf of Mexico and, in fact, I was engaged by

entities whose offshore assets were affected by those $torms.

        10.    I understand that rather than release the vessels assisting and performing the

repair and releveling the jacket, OSFI and Hou:rto;' Exploration placed them on standby, thereby

guaranteeing that the vessels would be available to continue their work as soon as the weather

moderated. It is my opinion that had OSFI and Houston Exploration released the vessels and

then gone back into the charter market to put other vessels under contract immediately after these

storms, that OSFI and Hou:rton Exploration would have been competing with many other

operators who also would be seeking to make repairs to their offshore assets damaged by these

storms. Based on my experience and investigation regarding charter rates following passage of

storms, it is not uncommon for the average cost of resecuring the services of these vessels to be

increased by 25-100%. In this case, had the vessels been released and then rechartered after

these storms, the extra cost could have been at least twice the cost of placing the vessels on

standby in the first place.

        11.     I understand that the incident caused an instability of the jacket due to the legs not

being properly pinned by its pilings, which in turn caused the jacket to become onlevel. In my
                                                4

                                                                                                SR-000928
opinion, those facts created an imminent risk of further damage or loss of the jacket because

there was a serious risk that the compromised structure in this state could oot withstand a severe

storm, particularly a tropical storm or hurricane, in this damaged condition. The risk was

imminent because the lead time necessary to do the engineering and develop an alternate plan to

drive the pilings, and actually to repair the leg and relevel the jacket, rendering it stable,

exceeded the time available from wheo a tropical storm entered the Gulf of Mexico and would

impact the jacket. In that regard, the expenses incurred and the efforts made to save the jacket,

including incurring the standby charges, were necessary and duly justified

       12.     I am of the opinion that the lead time necessary to do the engineering and develop

an alternate plan to drive the pilings, repair the leg and relevel the jacket would have .xceeded

the notice time that would have been available from any severe storms that potentially threatened

this jacket. As such, Houston Exploration's and OSFI's decision to proceed with repairs on their

own were reasonable and, in    fac~   necessary and likely saved the project's assets from further

damage. For example, had the jacket been knocked down in a storm, it may very well have

landed on top of one Or both of the wellheads benOllth it, and potentially rendering these wells

useless ag the jacket and possibly causing a severe environmental hazard. But for the actions and

decisions of OSFI. Houston Exploration and others, the claim submitted under the policy would

have been, to a reasonable degree of certainty, significantly greater than the one actually

submitted. In that regard, the expenses incuned, which significantly reduced the size of the

overall cost of cbartered vessels in responding to the damage caused by the free faU of the piling,

were necessary and duly justified.




                                                  5

                                                                                              SR-000929
        13.        Furthermore, the United Slates Minerals Management Service ("MMS") would

have required Houston Exploration andlor OSFl to take all reasonable precautions to prevent the

loss of the jacket, particularly when: it could damage one Or both of its wells and cause an

environmental incident. The MMS is a bureau within the United Slates Department of the

Interior.    [t   is the rederal agency that manages the nation's natural gas, oil and other mineral

resources on the Outer Continental Shelf ("OCS"). The MMS manages and oversees all OCS

acreage with regard to lease ""qw.itions, including all operators' drilling and production

activities. In this regard, the MMS requires that the operator(s) of an offshore installation in

these areas be competent and responsible with respect to the conservation and development of

available natural resources and, simultaneously. to protect life and the oes environment

        14.         In my opinion, I believe Houston Exploration satisfied the MMS's requirements

by exercising all necessary due diligence and taking all necessary precautions, including but not

limited to maintaining vessels on the project in the race of these multiple advancing storms. I

fiuther believe that all costs associated with those precautio                      y chaig    were

necessarily incurred and duly justified.

            Signed thi~ day of March. 2006.




            SUBSCRIBED and SWORN to bebe me on this J. 3 day of March, 2006, to certify

which wi1ncss my band and official seal.
                                                        ~tn.~
                                                        NOiaI'jIPUl)Iki for the
                                                        Stat. of Texas




                                                    6

                                                                                                 SR-000930
                             AFFIDAVIT OF MICHAEL I. SIMON

STATE OF TEXAS                §
                              §      KNOW ALL PERSONS BY THESE PRESENTS:
COUNTY OF HARRiS              §

          BEFORE ME, the undersigned authority, on this day personally appean:d Michael ].

Simon of The Houston Exploration Company who, being by me firsl         duly sworn, deposed and
Slated:

          I.    My name is Michael J. Simon. I am currently over the age of twenty·one (21). I

have never been convicted of a felony or a crime of moral turpitude. I am under no legal

disability and I am fully competent to make Ibis Affidavit.        I am an Offshore Operations

Manager for The Houston Exploration Company ("Houston Exploration"). As such, I have

personal knowledge of the facts stated herein and they are true and correct.

          2.    Attached hereto as Exhibit 103 through 110, 115, 116,122, 123, 127, 131 aDd

132 are true ""d complete copies of printed versions of certain .-mail correspondence I had with

Gregory Lory ofLary Insurance Services, Inc. ("LIS").

          3.    Houston Exploration is (and was at all times relevant) a Houston-based oil and

gas company engaged in, among other things, the production of oil and gas from offshore wells

in Texas and Louisiana.

          4.    In 2002, Houston Exploration was engagcd in an oil and gas exploration project in

the Gulf of Mexico off Ibe coast of Louisiana. Houston Explbration sought to install an offshore

oil and gas production platform at South Timbalier Block 3l7-A and contacted various

contractors to bid on the project. During the bid process for thaI project, Houston Exploration

advised OSFI that an appropriate Builder's Risk Policy would be a required component of any

contract.




                                                                                         SR-000940
       5.      Houston Exploration awarded the bid to OSFI, and contracted OSFJ to construct

and set a jacket and deck for an offshore oil and gas production platform at South Tunbalier

Block 317-A.

       6.      The contract between Houston Exploration and OSFI provided, among other

things, that OSFI would procure Builders' Risk Insurance ("BRJ") fot the project and that the

premiums for such insurance would be paid by Houston Exploration. 1 haVe been given a copy

of the Lump Sum Contract ("Contrac''') between OSFI and Houston Exploration. Attached

hereto as Exhibit 141, are lrue and correct copies of certain portions of that Contract. The

Contract provided, among other things, that Houston Exploration would pay for any standby

costs to the extent they were covered by insurance. /d. al 11.2.

       7.      A BRJ policy was procured by OSFI, and Houston ExploratiQn paid the premium

for that policy, as evidenced by the documents attached herelo as Exhibit 124.

       8.      Houston Exploration did not receive a copy of the policy that was issued at any

time prior to August 2003. Anached hereto as Exhibit 61 is a true and correct copy of one

version of the policy at issue in this case. Houston Exploration first received a copy of this

document on or after Augusl 2003.

       9.      I have been given and' asked to review the documents attached hereto as Exhibits

149.6 and 7. Those documents appear 10 be other versions ofwbat I have come to Wlderstand is

Ibe policy al issue in this c.... I had never seen the policy represented by Exhibits 149, 6 aDd 7

before they were given to me for the purposes of this affidavit.

        10.    Houston Exploration relied upon the "Certificate of Insurance" received from

Greg La:ry. a true and conect copy of which is attached hereto as Exhibit 60 and which was

received from Lary Insurance Services, Inc. on or about August 6, 2002.               It was my




                                                 2


                                                                                        SR-000941
understanding thai Houston Exploration was the primary insured on this policy, since we were

paying for it, and that OSFi was an additional insured.

       1L      On August 27, 2002, during the construction phase of the project, an i,:,cident

occurred while driving the piles into the seabed, resulting in damage la, among other things, the

jacket and deck and placing the offshore assets in imminent harm and the entire project in

jeopardy. A piling unexpected free fell into the seabed, leaving the top of the piling inside the

leg rather than sticking out above the top of the leg and leaving the jacket several degrees off

level. The free fall of the piling caused damage to the leg and made it impossible to complete the

task of pinning the jacket to the seabed without developing a new plan to repair the darnage to

the leg, complete driving of the piling and then releveling the jacket. Without releveling the

jacket, the deck could not be installed on top of the jacket, the wellheads could not be connected

to the platfonn and the jacket would be rendered useless. The fact that only one leg was fully

pinned and the jacket was off level, meant that they could not pin the other legs until the jacket

had been leveled and the remaining pilings driven in. Had they driven the remaining pilings

before the second leg (which had sustained the piling free fall) had been properly pinned and the

jacket leveled, it would have created a significant risk that the remaining pilings could not be

driven in properly, making the risk to the jacket potentially permanent or only repairable at great

expense.

        12.    Emergency remedial measures were taken to reduce or eliminate the risk of

further loss or damage to the jacket which was then unusable.           The emergency remedial

measures, including standby charges, were taken at substantial cost to Houston Exploration.

Attached hereto as Exblbits 31, 32 and 33 are invoices received from OSFI for the standby

charges incurred.    Houston Exploration paid those invoices to OSFI, as evidenced by the




                                                 3


                                                                                         SR-000942
documents attached hereto as Exhibits 124 and 125. Houston Exploration paid those invoices,

induding standby charges, believing that Houston Exploration would thereby be entitled to

reimbursement from UndClW1iters.

       13.     As a result of the incident that       OCCl1lTed      on August 27, 2002, and the emergency

remedial measures that were taken, Houston EXploration submitted a claim under the policy to

LIS. The claim submitted included standby charges that were incurred during the emergency

remedial measures taken and paid for by Houston Exploration. The claim was submitted, in

writing, On December 17,2002, as reflected by the docwnents attached as Exhibit 9. At the time

the claim was submitted, it was my understanding that Houston Exploration was the primary

insured on the policy and that OSFI was the additional insured.

       14.     On January 13, 2003, Houston Exploration submitted a supplemental claim to

LlS, again noting that Houston Exploration was thereby submitting additional invoices that had

been approved for payment. The supplemental claim is reflected by the documents attached as

Exhibits 12 and 13.

        15.    Houston Exploration became aware that Underwriters refused to reimburse

Houston Exploration for its standby ~OSIS on or about July 14,2003.

        16.    Knowing only that UnderwritelS had refused to reimburse Houston Exploration

for its standby costs, I ~ontinued to press LIS for payment of the claim. On or about July 22,

2003. LIS informed me that the UndClW1iters offered $250.000 on the standby claim, which I

rejected at th.t time and at all times thereafter.

        17.     At no time did anyone show me a copy of MatthewsDaniel's preliminary Or final

reports. At no time did MatthewsDaniel inform me of the substance of any discussions in

London between MatthewsDaniel. Tysers andlor the Underwriters. I was not included in any e-




                                                         4



                                                                                                   SR-000943
                                       ...................................-•.....
mail correspondence between LIS, Tysers and/or the Underwriters regarding the scope of

coverage, the claim submitted under the policy, and/or whether the Underwriters accepted all or

part of the claim.

        18.     At no time did Houston Exploration agree to settle, in whole or in part, the

disputed portion of the claims submitted under the policy.

        19.     Houston Exploration did receive an ex gralia payment in the sum of $250,000,

but Houston   E~ploration   did not agree to accept that sum in senlement of any claim it had or .

might have against the Underwriters. Further, I am not a lawyer and I am not in the insurance

business, and Greg Lary knew this. It was my understanding, based on conversations wHh Greg

Lary, that "ex gratia" meant simply an additional partial payment by the Underwriters of the

disputed portion of the claim.

        20.     At no time did Houston Exploration agree to execute, or authorize any other party

(ineluding OSFl) to execute on its behalf, a release or waiver of the disputed portion of the

claims submitted under the policy.

        21.     At no time did Houston Exploration direct LIS or anyone else to execute the Proof

of Loss documents attached as Exhibit 41. This is further evidenced by the fact that J continued

to vigorously pursue recovery of the entire disputed amount after the date   I first learned of the

existence of the Proof of Loss doerunents.

        22.     I advised Greg Lary in a lelephone call thai I would not agree to settle the claim

 for $250,000 and would not eKe<:Ute a proof of loss for such. At no lime did J advise him that he

 should have OSFI execute a proof of loss. I was never informed that OSFI was the primary

 assured or thaI any claims must be submitted by OSF!.




                                                 5

                                                                                          SR-000944
       23.      In any event, on or .bout August IS, 2003 Lary separately sought execution by

Houston Exploration of its own Proof of Loss form.

       24.      The first project performed by OSFl under its contract with Houston Exploration

was for the installation of the jacket at South Timbalier-317 A, which was eompleted on or about

October I, 2002. The work then turned to the installation oflbe deck on the jacket, also done by

OSPl for Houston Exploration. The deck installation required a new declaration of insurance

coverage.

       25.      L.rY sent an invoice to Houston Exploration advising that the premium for

installation of Ibe deck would be $575,000. Anached hereto as Exhibit 140 is a true and

.complete copy of an invoice from Greg L3rY ofLlS for the sum of$575,OOO.

       26.      Not knowing that the actual premium charged by Underwriters for coverage oflbe

deck installation project was in fact only $374,625, and in reliance on the invoice issued by L3rY,

Houston Exploration paid the invoice amount, $575,000 by wire transfer on or about December

23,2002. A true and correct copy of our wire transfer confirmation is anached as Exhibit A.



       Signed tlli~ day of March, 2006.



                                                                   SIMON


       SUBSCRIBED and SWORN to before me on this             ;t~ day of March, 2006, to certify
..".;.~""",.....mo,.,....                                   ~
               SAll.EIlIItZA
             MY «lIIIIIS!IOII_                       Notary Public in and for the
                .-It.3X1T
                                                     State of Texas




                                                 6



                                                                                           SR-000945
               • -- _111\1:-_'__
                 -          ....... ""........
                                 ......
                            ~15:2S
                                                       To:
                                                        ""
                                                             'OaW!_~"(YSI:It.c:o,U<>


                                                             •_        pIaIIono
                                                                                                        ""_1 _ .
                                                                                  :rr _200Z1 ry.... Rot 1m.


                Dand.
                l'b.omtw tor !:lrli. I ha""e jwst .:spolcen. to tbe ~'O$tn re scbG(toled. policy
                3'Ub--Uld.to bUt it would se_ at this stage that the pr9U.J..tULty estii:t.ate
                COUU1DB • JIUbe;c of ccapcmeAta Nitti tl:Ie physiCAl. tepair/npllCatI"t of the
                pl1ea (lbd.t«l to OSD1 .. 1II)QQ].y ~bbr.J ~Qt ~ l..s. of tho e..!It.t..to.
                ~            ,                                                      ,
                t:J:uIt b..l~ plea". .dd••• :,."qOO2 ~1lI c:tASS band OQ th••• t1l:late prorided.
                NO'Me4 to c:oae 1" l:eally, 1f you j'Ut e....a11 .. that .YQU'Y~ dob. 1t I'll.
                tal:. dotfQ C%oMS so::ordingly.
                RegardlJ
                David ShepMrd.
                - ... ~19:lO.a.t Hesa69 __- -



           •
                f':'OII,f DaYid _Uo (Q;Uto:n"vJdNil~f!1'T'S8R.CO.UJ()
                Sent: 25 i'ebnaal:Y,2003 14:19
                to; Slaep,berc;t, ·David
                SubjKt: ottaba:r:e Speciality J'abdcat!o»:.J Polley lU\ 020031 })a.ll\lule to
                ottoho~o pL&t£~ 21.A~9Q.t 2002 I ty,.~. Rat; l'Ja4




                Dfl'l'id 1I'1l61f
                                  Clabu VepartJlent
                )tarine , A"riaticm
                Uina 1'1S1a : 0201 391 f816
                HOWl., 0"/'71 501113
                .Fac::s.b:t11e ; 1)201 62l 9042
                        ft)rwarded by David        Wllu/~er       on 25/0ZIZO,03 1-«: 1,8



                                                                      "fOf         9'QY .. I:IQQ:tt..,e~11DCJtOlll. CD. uk~
                                          25/0212003                   dav1d.5h.pbGrd8hclo~dOn.oo.
                                          1-4:01                      cca
                                                                      Subject:            Otf3hor~      Speciality
                                                                       PaHcy'~ 020031                DMilIJe. to

                                                                       27 AUfWlt 2002 I Tyae:r:r             Ret,
                19324




               GentltUleh
               Please .Ubd attached prel.l.Jd.rlaxy report trOll' Kat DAn.
               lfope to :set! you lfith   tn.      htu tbJ,s   ~tterDOon      in order to obtain            )'Q'Il%'
               · acli:nOVledg:nMUlt.1 ruerv. nquire»ents.
               · Ple.Tlfe kltldly .bear itl mlnd tbe t'ollO'N1.ng when r:eadlnq thts report
               1.    OUr placUq teall i:tI.tOtll ae thot pt'1In'10UlS' to this orsr t:e?-,rd 'Wal$

,   ,'./
                                                                             EXHIBIT
                                                                                                                       TYSOOIZS

                                                                              113
                                                                                                                SR-001363
     -
     FII1hor_
      foiIowrng_ ....B:andIelej>/lcrle~LaadU~-~you·
     a t lOOn U proosR;lfe.




     ~   ...   ~~

     I)oac SI.1ordol<




•    rlt!m~@ 1!\iI.1.~ ~ ~ ~ IMI.X m IM!lm. 't!'lIlIOOIll!>. 'lIIlI1IIlM I!!!!\1!I.lm \It
     """,........,..,
     with o..e Shophe«I
     usn 1.7mOlb limit.
      _        \hoi t em _
                              ,_ID
                                     .
                        "",..,WI1h f1!gOI'ds!he usn 1.5m ootimole ~             1>'"
                                                                       bolr>gwllhlr1l1lo


                               from IIlo otIIco """"""", bUt n·...,"' ...111 ~ CCIJIct ....h _
     ~Io..-.                      .
     ......... _ ...'_I."'""""'up1he _ _.
     1IliIIIy.-

     !!o:d<I

     DevId'Mloo
     _       a A _ ciolino Ilep81menI
     0In0:I Tel:: 02llT 397 41)18
     _'lit: O7W1 501713.
     _           : 0201'1121 OO«Z



••   _     FI:ItWanSId I7t DrMd \fWuI'J'pW on 271Ofl1ZOO3 17:15 -


                                             _
                                                  To; "DJvId WII.s' ~VIMOTYSE.R.CO.U~
                                                  co: RE: _ _
                                                       • _pIoItonn
                                                                      F_ . .        MI\(O;()O:I, _
                                                                     21_2tlQ2/~RotI932"
                                                                                                       •




     Dadd,
     fb4ll.ts for tb.is. I hAva. jU$t spoken to. the ~ter re. scheduled po1.1cy.
     ~11llit:1I but J,I; woqld seeJII itt this stilge that the prelu.:ina~ e.stilute
     contains a nWllbe:: ut copotleAte with the phys1cal reJ».ir/r.iJli:lc~t of the
     p.ile.s (lbdted to US»1.7zQtonly cmprl.:sbg About USl) 1.5m. ot thtl uti_teo
     CD
     tha" 'bub p1"" aMM a :teqOO2· 0" a.ASS baaed on tbe ,,~l.w.a~ pruv4ded.
     No need to (ltlC9 1.0 r8i11ll1, if yPu jU.Jt .-mall ... tllat you've dorut it I'll
     \4lo! 4<1"     ~q ~c;tl<!""l.aqlX',
     h9il1rQa



                                                                                                 TYSOOJ2J



                                                                                                 SR-001364
 .'   ....
<..... :




                                                                 TYSER&CO
                                                                  ....
                                                                  ~Juclla...
                                                                  ......,. ..........
                                                                                    n   ..   ~




                                                                 1:1..20 eam...I10_
                                                                 Load.. EClA'1rJ
                                                                 lil!hph.tz tnG 7623 6i6:t
                                                                 .....JmIk;1I2lI1Ql !IOoIl
                                                                 I!: 1\1011: p~..,...."

                                 FACSIMILE MESSAGE
             ToGs<&Larr
             Jr.......   GwyDud1                                         Dom :12 J*.21Jd2
             Fox No.OIII $3Z m     WaS                                             N.. orhg""      4-0


             IU! OS.J
             Fie:I<e ... Wdcor woalI"8 os"ljtWl by WId<mrila>, """'"
             liabiliIy_wbldli:s_2<1fblblhattlloy ....·tncedliko_d<lc_
                                                                              ""1ItC .... 0IlW!ins "'"
             as we 1tC.not ~aa the c:on.UnIcti"" .....t mal~ de.
             AIoo ....., (Icorgc Howud'.IiobUity "I'!'Ii=oa wbldl .. st Paul .... bcIog_
             :slow .. pnIlO<:Id pIetao could you lI'" bod: .. me """"""" ... I' ........ Iu lI'" It 1ft
             tl'dr oyAem •                                         .




                                                                                                      00373



                                      UlI1lSU11t

                                                                    EXHIBIT
                                                                                             LARY INSURANCE




                                                                                                          SR-001451
PoUcyN<>.--,-~~_ _ _ obalI 110 modilicd ..                    fbltow.:
lask!tJMOdUIa Coverag"




Wbm: " " _ lOr the initial l2lniooJioo of Ibo jacltcta, dI:cb, hlpIride:s, slIpp<>d l!lQduk:o
.."y... bddau   I- !!!iJ..provldcd tor in thI. :I'oDey..... ""''''8'' pNVidod """"" s..u.~ I ond             I
Sccll"" n 'of the.u..bcid Policy '!hall a.1 'PP1Y to my dalm           ..wag _   or In _ o n
wllb:                                              '
.)      the d ..lgn. """,,uf..t= or the - . I i... of Ibo jack.... deW. t",,"dos. SUJ'I'Ort
        rnodulc:t. or'brWg=; or

b)      Malnl"""""" .. sCI OU! in _"""0 19 of          t=    lUId Conditio"" Ibr SecUon I 10 Ih.
        joci<.... doc.... topold... 'lIpport ",odul.. 0< b~dg...

 ..iubrngwtJ°n

 Wb ..., ......ras. for th. milial fabri""tion of the Jack.... dI:cb, lopsid.., """"'" modal..
 ;mdJOt bridsw h. no' Pl'Qvided (Or in. t.b.D:l'""UIIi1Y. thJdc:rwrittn rhalI " liu.brosa1W 10 ..11 risbt.
 which th. Assured ...y ....'" oplnat my p<:<>OP .... alba' cnUly ....,lvod In the design,
 manu_e, ""...m.<tion or "1';"1_ .ftho jaclttlll, ~ IQp<ldco, &UppOrt modal.. or
 brldgci 111. Asaurcd .....If nol gnrnt Illy waIv... or mbn>gatlon .. """" pam.. and .haIl co-
 operata wilb tho Ull<lcrwrilllR 10 , ...... their oUblOgaticn tigb18.


 ,','1011= illSllrU>g _"1#,1"""", .oll<lltl.... dtflllltiOb$, ""c:hlsl........ij.. ""Iuircncnts.
       '"I.. and cndol'llOlnenls of the Policy n:main W1C:bangcd.




           ,
          ;
                                                                                                  00017




                                                                LARY INSURANCE




                                                                                                             SR-001452
'-                                    WELCAR2001
               OFFSHORE CONSTRUCTION PRo.JECT POLICY

                                               INDEX

                                                                           PAIlENQ.
     INDEX                                                                   1·3
     SCOPE OF IN5I1RANC/i:                                                    4
       I.      i\SSUll.EDS                                                    4
       2.      SPI;C1AL CONDITIONS FOR 011-lP..R ~'1UREDS                     5'
       3.      LOSS PAY!!!!'                                                  5
       4.      POt.lCY PEIUOD                                                 5
     GENERAL TERMS />Nt) CONDITIONS                                           5
       I.      PREMIUMS                                                       5
       2.      SUBROOA1'ION                                                   5
       3.          WAIVER OFSuBROOATION                                       5
       4.          PllRCENTAGE (Nl1!RI'$f CLAUS!!                              6
       5.      ORDmt OF I'RECF.DF.NCE          .                              6
       6.          U WAND JURISOlcnON                                          6
       7,          CLAIMS CURRENCY CI.AUSP.                                    6

       8.          HeLD COV6R.EO CI.AUS!!                                      6
       9.          OiVIlSTMENT CUU31!                                          6
       .1U,        DUll DlLIO!!NCIl                                            1
        11.        PERMISSION TO occurv AND OPERATI!                           7'
        ll.        i\ORllIlMENT W1T1:l CARRlllRS.IITC.                         7
        13.        INSOLVENCY                                                     7
        14.        INSPECTION ANll AUDI'"
        IS.        CANCE1.l..A110N
        16.        r:QNFI.ICI1NO STATU'IeS
                    .SSIONMI3NT OR MODIl'ICf'-110N OF POLICY


              ,I
                                      71.A~
                                      ~        2,.1.
                                 ODlilUlllO+

                                                         Li\RY INSURANCE




                                                                                      SR-001453
                                                       ., < ..... <,-,




                                                      . ..
                                                     ".~ "
                                                        ~


                                                     " ..




                                                                                    PAGE NO.
    18.               ACCEPTANCl!                                                      8
     19.              fORI'llI'IUlUl                                                   8
    20.               DISCOVIlRY CLAUS!!                                               9
SECTION I· rliYSICAL DAMAGS                                                            10
     1.               COVIlRSD rERl1.S                                                 10
    2-                COVIlRlro PROPERTY                                               10
    3.                rOI.ICY I.llIoIrr                                                10
     4.               DWUCTIBLSS                                                       10
    ,.                £SCALATlON CI.AU5E                                               II           ~
    "tERMS AND CONDITIONS FOR SECTION I                                                \I
                I.            BASIS OF ltb"COVI!RY                                     1\
                2.             INCORPORATeD CI.AUl>"t;.~                               12
                1.             LOSS NOTIFICATION                                       13
                4.             ERRORS AND OMISSIONS                                    14
                S.             PROJI!CT AI.TllRATlONS /IN\) AMGNDMI!NTS                14
             . 6.              PQI.I.IITION \IAZARI) CI.AIJSI;                         14·
                7.             DHl'llCTlVE PARTS                                       14
                8.             OENllRAI. AVERAGE AND SAI.V Mlli Cl\/lRGliS             IS
                9.             SUE AND !.ABOUR C!.AU.'lI!                              IS
                 10.           /lD~ORI<                                                16
                 II.           RE\Io!OV AI. OP WRECI<. WR!;.CI<AOE ANI)/OR DEBRIS      16
                 12-           TESt'S.~OR O!t.M/lOll SEAR!:II COSTS                    16
                  13.          ST~ROES        .                                        16.
                  14. ClAIMS SIJRVEYSlADlllSTIN(\ (,IAUSE                              16
                  IS,           WARRANTY                                                17
                  16.           1'1'.RRO~~/lCK- ('I.AIIIIE                              17
                  17.           ~"ORWA~R(lP.~                                           19
                  lB.           P/IYM!:.NT OF CI.AIMS                                   19
                  19. MAINTENANCE                                                       19
                  20.           OTlIER INSURANCE                                        20

                 ,t
                                                                                            00019

I   ............ ' , ' ....... ,' ....   \UOI ....                       . ·1-



                                                                                    LARY INSURANCE




                                                                                             SR-001454
                               ,"                          ":'
r.·.



                                                                     PAGI!:NO.
          DEnNrMONSFORSECnONI                                           29
          tlCCLIJSIONS rokS&cnON I                                      2Q
       $1',CT10N 11- LlAllILlTY                                         23
         I1ISURING AGkEEMEN1' ro                                        2J
            I.                                                          23
            2.                                                           23
                         IT OF LIABILITY                                23
                  DEFENCE AND SIrrTUlMENT                               '+I
                                                                                         "
         TEl1M$ ANIl CQNDlTlONS                                          24
             J,   NOl1CETO                WRITERS                        24
            2-    AUMIS             OF UAI'IILITY                        24
            J,                                                           24
            4,                                                           24
         OEflN1TIONS 1'0                ON II                            2S
        , EXCLUSION          RSECTIONII                                  lS

        I)I«:LARATIONS                                                   30
       SClll;l)ULE A                                                     32
       SCIII!DIILI!: R                                                   32




                                                       '~ ...... ""J", 1i.....
                                                                                 00020



                                                    LARY INSURANCE




                                                                                  SR-001455
                                         "--:-'"
... '-

                          OFFSHORE CONSTRUcrlON PROJEct POLlCY

          SUbJut 10 Ib,    t~      coadiHOIla aDd        ex~Ju.stoftS   hl:r'dn, dab I"oller prO\'Id~ r:11Yt!t'age for
           <<11.1. pbyoical d_oae ...d IlablUII.. IraQlrnd by tbe ",,".tWo. 5..1Io!J 1-I'bywleal
           nama,_ .nd SeeIi.. II-Uablllrr ore dltllnd _'on.. ""Ik I•••,,,:cpdon C"I I ••
         - Swope or lrqunu,a !lind General T~mas aad COrldltlotl$ bdow sb.1I IIPP"," Cv SCdlfUJ I
           •• d SectIG. II.
           fl .... toTl"'" Ihl> ••11", roll., """,1Io11y ond disc... CIa. cov...:. b..... nd .. wllh your'
                                 I....sur-nlte: .eenc.. brv~ or .,CIICT ~t.tJyc.


                                                   soon OI1INSURA.NCIt
                                            (ApplIc.b'¢ k:I Scct10n 1 and Scc;tfon II)

          SUbJ ..1 10 Ihe IIISIlIin&       III!I='I.....   "l'l'llc:.oble - , CO<IcIIII.... and del ...I..... Ibl,
          in•.,....,. covo'" the rollowing '"'Ilvld.. undo....""" In the coUDC of 1hC proj.., Idcnlltkd I.
          Ue:m 2 or the ~taralion.s (bcmnal\cf. the ~Pf1:tjec'h provided such aeth'ida are whhla the
          insured 'Va1UC$. Cov~ activiti¢$ inch-Ide: procurement. ,;QMtnJ'(:;tion. fabricottlon. rod out..
          loal:llnglunloadinll. transportlllon by ","<I. sea 0< oir (1nctudiolg c:all(s) .t pon(.) or pl=:(.) ..
           m:t)' be required).. storage. lowag,C. mating. iMralJatfon. burytng, h<»ok-ul1. connc::cdvn andIur
          lic--in Dl)CratiOll$. Ic:sdqa and. commissiQh'ne. codslence. ,initial operatIons and maihtCh.ll~
           projca sttldla. englnc::wing. desicn. projoet ~nagomWll, testing, Inab.. pipclaying.
           trenching. IU\d eomrnlssionina.. CO"nl~ .~livhic$ ma)" Q,1:tQ include direct COmo.:tuoncC3 from
           drilling operations~ but only whc:r~ declared to and a,\r=d by U$1dcrwrilers.

           l1lC Policy chcdl be deemed to be • separutt:.ln:suranc:e in ,"peel or eacl\ Principal As.o;;ureai
           hw::u.ndcr wilboU1 irx:reasinB Undttrwrilcrz" limits oflia()iJhy.

           I.     ASBURJ!:DS



                  1.       (NAME(S»
                           Company and/or joint vC'nturc:~ as they may now ot sub:;cql,ltntly exist.

                   ii.     Puttl\ and/or IlUbdJdltu',. and/or .mllated IlII'Id/OIr II$$OCI~~ Nld/t)r InteN'.I.11#d
                           companI(;;1 of U.C aoo\'c 8.$ they arc: llOW or ma)' hcrca.ft.cr be 'QPstitutcd and
                           thcirdir'Cl;tOfS, offiCers and .:mpIQ)-«s,. while acting In their C4Iptlcitic,; as :Ii\Ich.

                   Other Auureds

                   iii.    PruJc.-c1 mllflUgt:~_

                   iv.     I\ny other cOlnpany, firm. pcl'$Qn Of pliny (incllJdil1& cunlrut:'I)~ antllur $ub.-
                           I;.onlraelun and/or frWhUracluRM\: a.nd/or supplicts) with wbom tht! J\ssurcd(s)
                           fII:lm(;d   in i. U. ill .n.... i." hl\"O: cntt::n::d inlu ..."..ii1t;11 cun~naei()I,) dil"CC.\ly il1
                           c:onncx:1ion with th~ ProjCC1.
                    !
                   r
                                                                                                                      00021

                                                                                                            LAllY INSURANCE
                                               lUflUWDt




                                                                                                                                   SR-001456
                                             -
                                             .
. :':'

         2..         SPECIAL CONDmONS FOR O'rIlf:R ASSURII.DN

         It ioa condition pnx:edent ror BIll' ponT 1""l1lincd in Il,"'" """_ clennilion cIause·liI • ..-.J
         Iv. above 10 benefit rram .he 0Ihcr ~ >lnll'" ....... II", "011.,. that IMy p<rlOnu IhcIr
         _ions """"!ding 10 Quality ~1I1)' (·,.""d ">"1,....(.) which comply ";110 "'"
         ~UI7 ~ity Connl piavlslano . . . - on h' lhe Ptladpol ~ thtoush
         ead1i lind cw:.ry ''''tiltert CORtracC awan:L:d wllhln 1t~ ~)pt.' "r Inwrtd works as sdtedulcd
         tlndcr UIc f'olicy~

         The I......... rthe Other AssurcdCS' shall hc              "",,,,'\I,Io••
                                                                             'I'I.'"llhe <nil.... Policy Period f.r
         &heir dln::Q pwUcipadon in Ihc venn." UhJCD' ~'C'fJk (nmra1(s) contain provisions to the
         cOntrary. The';ubt> or lUI)' Amnd undor d,;, io ..."._ """II unl, be .._                       ohrQugh lb.
         P';nd,..r Assutc:<lo. Wbore tit. b<:ncIils orlhi. I.........'''''' '"'''' boon ~ to on AssuI<:d by
         "'._. the I:.:nd'rl$ ".....t .., tbooi AssuI<:d ""''' "" n..            .,.,\le,
                                                                                   \han sucb oontnct all"'; """
         in no case greaccr than: the ben~nt.s proYiIb.l urMk'r Ih~ intOllrinlt .H~lllS, nmn::r. condiliorrs:
         tmd O:IC,d\lllon. hi the Policy.

         3.           (.055 I"AYEE

          LURes: and relurns or premiums payable til CNJ\MI") in 11flkl.

          4.          POLICY PERIOD

          As deloiled. in ltcm J of.he DedlJoraJ.iun!l;.


                                           GJ;:NJ;:RAI. n;RM:< ANI) ,·ONI>ITIONS
                                               (Applicable In ~~limll ;tpr! ...... 'Iii   Ii   II)

          1.           PREMIUMS



           2.         SV1IROGAnON

           Underwriters shod' be:. $ubrogate:d. to an rlah'" whh:', t1~ "~"IJt;d t'J\a)' ~..,o ;spltl:A an)' penon
           or Qthctendr.y, Q~hc:r t,han Prinolpal I\~$ an«1 «'''1I.:r I\"~n.-ds. in l"C$pCCI.·of an)' cl,im or
           pa:rment m.idc under Scc:.Uon I (It Sl:.c&h", II "r 11k" l'l,li~'\ l'he ASS'Ured :shllll cxt:l;:utl: aU
           paper$ requited b)' dle Uhderwritef1 and 31~1I ".. ,.uI1l:ntll" "nh the Underwriters (0 Kel,.lle
           their ~ubtosatlQn rights.
                                                                                                                  00022
           3.      WAIVER OF SUBRoGATION

               lJodc:rwri'cr:s OQf\."C to waive tir;hb or ~\lt.C\!r,:"ljUI' "l,tiw', nlly Pri-rw=itJru AMlINd(s) WKIIor
           Olher A:Slul1::t.f(:s). The A.s5un:d!\l .shall Illl1 l1f1lfll loin! ,"llh'Cl' of subrocation lO drilling
           c:onlnclor:s and/or their so~ntnaclnnc .wllb",.1 I1M:J;.ninlt l1mlttrwtilcnJ' ilSft:emCTl\ 10 •
           :s:rx:cit'ic c:nd<>~la1lI0 this I'olley pri(lr In the' ... ,~mm.·nC\·'llt'lIt t)f OPt'l"Dli()rls.

               1\$ III condy;i,'1" J""'Cwenl tv their hcrw::l1\ln~ tmn, tiN 4mC411U1lth: wui ...-.:r uf ;sub.N\,!plion in this
               clause. (J~r A,,~ured$ musl pcrronlllhtir I1rcf1ltl",,~ ;k:cv"lin!! III QUSlUlr J\$."luron.:,:IQUillilitr
               Cunlnl't li)'¥\Cn1(~) (hul compl)' wilh Ihe (}u .. ,jl) .i\""'I.\In"..,'1)lIillily l',mlr\l' provi:r;ioo.s plJ:$Xd



                                                 U"OIiIUW'.


                                                                                                                  LARY INSURANCE




                                                                                                                              SR-001457
on by !he Principal _
                                           _tho
                              thoo"&h <O<:h Mel '''''Y wrI.ten con"",,, .wanlo:d ";,hin Ill.
"""PO .fI...taI .... ""' .. _t.d             Polley.

4.        ttRCltNTACE IJ'ITEkEST CLAUSE
All ""I..... 1I1l1its. docIucdblcs IUId prtml..... «>nt:alno:.! in .he Polley .... in "'pool Qf. 1000"
'n_ """       sItaIl be red_In pn>portIon 10 Ibc individual Principi.! I\....,....j(.) in_, ..
dod..... or .. rnay be su~Ur dccIouod Mel "8Jl"'d by Und.<w.Il....

S.        OIU)ER 01' PRl!CtPI!I'ICt;;
"AII.I._ _ _ _ cd in...... Policy by _         ..... (hc,.I... o..lhc "In.orpor.rcd CI........,
am....,far .. they do not c:onf1i<l wlllllh. wonllna of lite Poliey. I. Ill.....1 "!hilI IIle
 Inc:ccponutd C1auoes cooDlot wllb dtb Policy Wordins. this wording shall cab: p~
4.         LAWANIlJURlSDICfION "
                                                                                                                ..
II Is UJldcnrO<>d IU1d .gt<ed that tho PoIii:)'   .han be ;ov.mod by Englbh I.w Dnd pIlI<';"".
All)' dispute. conth;m:r;sy or da.lm .ar1ddg ou( or or tclatlna to, the 'Policy shell be subtnine:d
:and determined by the couru of England and Wales. which shalJ have cXdusilf<: jurisdlttlon
                                                                                                       ,0
 of all suda matters.

 1.        CLAIMS CURRII:NCY CLAUSF:

 ~ lhe PQUC.Y bli issued in US doll:an. it is ~ that. ir Oln), As..o;urtd ~ clr.:cts Ilft~r
 aca;::cptanee. ora claim by Underwriters bul befon: settlemenl orthe claim. Undcrwrh~rs truly
 effc'a pl)'tne:nt in US dollan Qr :stI!rling., at rate of e:1CeNingc at the mid point or ,he. ~lo:liiug
 lOdes betweens~iny; and US dollars as publl"hed In the Financial Timc~              IWO   wurking daY'>
 bef.r<: p"ym<nt Is luued by UndCTWri......

 8.        HELD COVERED CLAUSE
 In the c~ the interest i$ rtqub:ition~ for dtlt:: ()" use. conftsc:sb:d, n,Uc>naJiscd. prc-..cmptcd
 or olherwisc eppropriat.cd. wbollr 01' In pan. the PolI~ :shalt whllnulI: 10 CO~ the eontintcl11
 Ii.hilil)' ortb. AtllIIUonId.,. embJeoI to tho Jnaurin,s aa,n:cmcmu, term", C:QndirJonc /lind cxelw.lorul:
 hem•• ror • period of r _ days after suc:~           """"t.      Th.",.pon ,h. Poll.,. sh.1I """,Ina'.
 un'a.->lhere be pri,,!, agre:e:m~t by the Undc:rwrflcfJ 10 continue ¢overage.

 9.         I1IYI!STMmr CLAUS&

  Upon di'l'Otillg    ;3   portion or ,II or its Inlcaut in the proj~ u Principal "As:sW'Cd shall
  i~cl1 notify Underwriters Qr ,he divestrnc:m. UndcrwritoC$ agrw 10 provide cover
  herQ~ut (Of UJq new O~           Qr
                         the di"~~ ink::rC$' for a period of 14 daY$ from ,he chile nf
  divclftw:tn on the same tcrm:s .Ad conda!Joh&. Cnverogc ror Lhe divesled portion will
  >AIUurnilllieoUy 'crmi~lc , .. map.ncr th.;: diVt.~nt vnlC$.S Undorwrltem IIr1d tho t\.W t'Jwncr
  ~ch G~mcnl lQ continue the tnvCflalC.

     I" the evcmlhc new Ownct clctls not to conlir1t'~ i:UVt!r.laC h~lJnder_ tJndtt"WritofS ..ltfe~ It)
     udjusl Iheir tlu:eptane~ or risk lind Jlt'Cmitilns puyabic: from the '~nt1inali(ln dale.
     Funhcrmqrc.. ancr oo~ge Ibr Ihc divc:;lw ptJrli\'»"t Icnnhuuc.s.. Undc:rwrUcnI .th,,11 h."tI no
     obligil"o~ hl make paynu:llls to Of on behalf of the rtCW ownc-r($' of the: dh't:.,'ted inleresl or


                                                                                                        00023

                                   ttllIiIUIWI+




                                                                                                              SR-001458
                               "~   ....•   ,.~.,.-   ..-.------. _..   _
                                                                        ............   ....... ....
                                                                                       ,      "       ~   ,




                                                  ':.
                                                                                                          ........
                                                                                                          "1, •


.
'   .,


         "" by the I'ri";pal I\ssI.1reds Ihmugh """" ond """'l' wr!u......""'" ~ wUhh> the
         _PCof&..\lred woW .. """,",uJed'" the 1'01107.
         4.      PERCENTAGE Ill iTE1UtST CLAOSE

         All valw:s. Urnll¥. dcduc::ltblc:s ahd premtums eoaAlncd In che Poliey an: in fcsp::ct or. 1()OIK,
         lot-.l lind sball be red"""" in "",pot1iOll 10 the Individual Pri";p;d Aosu.."d(s, fnt<:t<:lll ..
                                                                        .
         declared or ... may be ""boeq_tly dcdonooI lind "lltocd by tlndenm .....
                                                           ,
         So      ORDER OF PRECEDItNCE

         All d ....... ~...e4 Into th0l'<>\iq' br ",r.....,. (II_or the "In<orporal<d 00'"""'")
         apply """fir as they do hOI _met with th. wonlinl of the Poliey. I" the """"t ...... the
         ~ ClaIlSOo _tliel with Ihb Folley WOrdl~g, thb woroiRl o/Ialilakc ;~

         6.      LAW AND .1URfSDICT10N

         II b _<mood ond agrcc:d that the Polley shall be sovCC'll<:4 by en,li.h law ",,4 pri.ctl...
         Ant dl'PUtc.. evn~ or c.r..bn ,...qrn.c oUI of or ~hI to th. Pol$ay .hall bel $ubrnitkd ''1
         >lid determibc:<l by tho 00\IItS of england and Wales, whIch sball have "".1"';•• juriS<llctlon
         of an such matter.s. .
          7.      CI..AIMS CURRENCY CLAUS/;: .

          Wberoas the I'oliey ;. isoucd In US doll."" It is agreed that, Ir any                ~Iecu .fter
          lI«ep..... of. dalm by Ond.....n .... bill hefOre .. ~lc:m<III orlhe ".im, lJn®rwrilcl:s may
                                                                                                                     Ass""'" ""
          ttrce\ p3),ment in US dollm 01' sterllhg, 81 rate (It excl1Wlgc. ar the nlid poin1 or the damns.
          1'I.UCS betwc:cn   slenin,. and US dolJaa' 8J pubUshcd in fhl: Flnanei';aJ TImes ',,"'0 working                                  da~
          bef.", payment Is Issued by UrvI..-wr\,......

          8.      ItELl> CQVI!:REl) CI..AUSF.

          In tht evenl thc inte.tCSl b RquisiLl~ for title or \t:M:: confbcaled. naUorsaUKd. pr~mJ*d
          or <>'herwbo appll>prialcd; wholly or in pari, tho I'ollcy sI>a1I """tiuue /0 00 ..... the ""nting....
          liabiUIY of lb. ~..,~ to the Im;uI\lI.JI .............. .....,.. ""ndiU"", ...d ""cl...l _
          ......In. for. J>"lod of 10_" days _ """" ....... Thm:1IpOII tho Policy shalllennllllle
          ~nlC$S there be: prior -srocmcnt b:r the Uudc:rwn"l¢n lilt QOml..ue 00""''':-",

          9.       DIVESTMENT CLAUSE

          II""" dl....I"tI • portion or .II or i", Ill!"""" In tho pruj.....                                         ~rinclpal   '",,,,11:d shall
          Immed!ataty nod(}t Vndcfwrltc? 'C7r the dIVColllJn(::nt.                         UPd~'c.r.t ben::~ to 'provid~ ~
          """"'" for the now own....r!he div<::ll<d In,._ lOr .• perlnd of \4 day. fivn'I the da.e of
          diYeJtltlCIJ' on tllC' $4111(: reWu Md condllloM. Covcnlge fbr (he divCS1cd ponton will
          at.I1~ticaJl)r     k:nnin<llk 14 msyr anw \he divutment unless Undc:rwrlt~ and the new owner
          r~ agrcem~t 10 cofltit.uc                     the ~ve,,*ge.

          In the CYctll the new uwn-:r elCds not \0 C!OI1'inuc: covcrage hC:M.lnder. Underwriters agree \0
          a4iun \hr:ir ~(~4IlCe of ri$k and pn;miums P"Y'",bIc !tom 1M: tcnhitlalion d.:ltt!:.
          '....nbcrmotv. IIUer COYc:t:lP (or tho: Jiv«ct~d porthm torminales. U"derwrhcn s:h..U have nu
          nhHg.ttlion'to'm01ke: p;.IymenlS to' or on bdwlrorthc new ow~:s) oflh= divcl:I:"cd intCf'(:St Of
                     ~




                                                        nO$luuul+

                                                                                              LAKY [NSURANCE




                                                                                                                                                 SR-001459
tlM-·jr in.-mn::r.c.. """-:n il I.,,,,.. ur thuuot;t:        I"¢\ull~   ,",m   I.\q ~~              or (\"'forent (hat takes pW;.:
prj"t 10 the dlvc:dnh.'111 .):"t:.



  II'"'' t'",ldidun IJI' U~ "t<tli\') tllOll UW I\~Uf)."d!C lIhali                  "1.'1'1:_
                                                                            due crm:: and dJUg~ In the:
. "mduc:t or ,," u,1Cr.diu":c t"tl'irC'real """,,,,.,. Ihl: Policy.. utilising aU $1£"0' rmlcUccs and
  J.."tlIIII"lUCnl ~rull~' \."'nn:~M~Nd pnxflml Ihr :~,,('b opmu;ons. In the ~ any" hazardous
 "...---di11m1 dcv.::hl(". h,'l,tI",Unfe!. with h:s~t It. :.tty ~J (RHn """'kll cons.eqUCQdlll 48.nw.KC1I
 J;:c,,",'n.'\I hy 1he I·Hnc:~ IIUI) prt •.. 1he: I'\~un"l.bc Jd14Jl a. 1tadr c)Cpcnse make: all i'~n.abrc
                                            ....
 \·(l0In,... In JlI\''\I'\'nl n~· ,-"Tum"n"t: tit til Jet:tl« f,,:sun.'" . ._ undct the: P'otlq.

 II.         1·r.RMIS.~IIlN"I""             m'o/I'Y o\NII til'r.JtATI-!

                                                                                        .,f
 I'CTmt....mut\ b W'i\n\w ,~, '-':"'''UJ1), u.Pd up.:ol'lJh: ;my pmUun portion; or ,he prtllpet1y illS\lred
 ~Ik' .su..-h ,",C1:Ufl':l"ty n, uf",-rntion s ....n nul nmstfcure ~ or lhe pro.,crty insured,
 ~Hbil~d 10 nd), ~jll~qW"f (Ir (ltCllIium "'' 0 ilpr'it1thl.:-.. and prior ootific::ation lO Ul\derwrltcrs.




  111\·   A.~u","':; 11m)' W:lj,," UII:ir lip;hlll(J of n'~'uvl:l'Y ~.insl privatC' or t'ontl1le1 auricts in
 "\"hlili~   pri", lu h~, ill") 111=1)' IK'.t:cr« t>iIJ$ "r lad'l1!! ur feCClptJ from t;;omtnon «:arriers.
 ","urcllutISCQ1Cn ,., u,ha h:liJ\."\.'":;; Jimiting .m:ir liahilily. hul1hi$ {nsum~ shall nQt Inure Iq Che
 1."'Iwfll Ill'uny \"tlr(I~·(, \''1Ih:h~ll1l1\''l11r:n nr ~I"~i:.



   ,11,- i,,~\I"'''CIM:Y, htlltf..Wpl\'.', ft'l',"h't:'r:drl" lit :m~· rcr~1 tlr              inability   10 ~y   or ,he Assured
  '1lI,I'ur .my IIIJl\'r ilJ$t'l\'r 1111(1" 'ttllll~CllIIC' tn:

             :t,      oJ\"I,I("h" tilt     Ih..~llt'\i"'c~ 5\."   nut )h h,-'1T1 5 ur 1hc:"O.;chU"ations:
             h"        in.'f'\.'p'-t'   Iln.l'""t\YI"it.:",,·lill;hilhy under thl; I'ulioy' or
             c.        ill( rt'1S"<     1m,. "nd"·",,,·ritu!C shill\:' .,rUabifify urtdcf the PoUcy.


  1'1M:rwritCMI t'lud' I~ r..m1lhIL,,\1 hili m.l uhli~llC\I                         to' in!)~1    Ihe .t\$)Ylt-d"; pr'(I'ptHty and
  111"""",,",1"1118 uT IUI~- lim\.", Nl,,'ilhct lht." lJndc-f"Writcrs' riglu lu make ih$pcctions Rot lh~ nw.k.inlS
  11"'·n.'1lrIKlf IUlY n'Jldfllhl:'ttl\u )l;hQII C'Un.O(JillllC It" undcrtuking on bt:h#Jfofor ror the: benent
  ,.1 41","I\;:,,,,lt"tu 1" IIIIW"I·., 11' II~-h,-rmilt..•   It" \\lIrmn' I.,tlt.   ~lll:h propct'lY or openalic.lh5 are: safc.

   '·'Jlk·rw'r!(...·nc 1I1l1) I')'mllh", 11m' .utdil Ih,· I\"Nln,"\L-. bu,~:o Md l'I;Coi'd:w ., _1"1)" time durin; the:
   '"I'liC') i'.:ri,\d nlllll'X""'MI'U" Illl.'o:pr And ni1hill UtfCC: yt.·'IN ;Jner the final tcrm;RAI[ol1 of th~
                                                                                                     or
   I'•• fk)"~ oN rnr,.", '111,;h I"",k", ami n.",~,"ll'I n.'I:\'~·lt) 100 $\Ibjl'cl mutter this im\lf'U!lcc.

   I;;.       CANn:I.I.ATItIN

    J ,~, lit~r rufll1\.'t( "tit,..'t,:,1 ..\:';""11(1.",1 ~1 tllil ill hl'1It I of ahC' 1"k.-chua\ions ma), Qlnc:e' the Policy
   "II  1",,.h.:11( I1r;t1l '-\:;::<\w"\"h III .111)' lillle priur 11' 'hI: lifNi (li:curtr:s>CC lh:.d pivC'::> rise or may give
   rIO..: , .. " \:\I ....."t"~·,II ........ N,.tic .... ~,~ ClUh'.dl\lli,," )'I",n he ~Ullo U~rwtilA::.nl: tbrouQh cht: part)"
   ilt."lltitil.,1 !il1'lh"'1I 7 hi Ih," PL"d:I"lli,,"" S,I\'h IInlil;~' shaH be $~"I by registered midI.
   I,\< "'lInih-..'" l' Ilimt 1>1 h;HIII"~'lh ,-r!, ,11111 "'''1111 ~:It<: \AlhCII, nor It!$... ~hun Ihlrty (JtJ) ,Jal':'

                                                                                                                                      00025
                                                                                                      LARY INSURAl'ICE
                                             UOJlUIlIO*




                                                                                                                                     SR-001460
                                  .:   .                                      .. ,,



I _ r . "",,,,.notlo. _ ho cITOCIl...                 Non.,.
                                                      or......,Iation >Il0l1 nol "" oh"...t"" on !he .
dolo 'IlCdllcd In !he ac>IIoo       .w.s.
                                      !he I'OrtY Id.miliod in 1_ 7 or !he o..:ta.aII_ fol"Wlll"<b
Ih. noU.. to U""""-rltr:r:J willlin n. ho... aIIor ..           ,,,,,hing
                                                                    I~ I\. OOUce of ...""WI""
complytng With Ihc "'IuiIomcnl$ or!hi.              .I.....,.mu _1_  !he _                all
                                                                                    of A.-..Is
under thI_ Policy on !he dI!e<:ll"" dolo stilled In Ihc nod... The IihI noma! Pri>1<lpd         ..........s
.nail bo "",,,,,,,,1&1. (or _ll)/lnG _II "",_.lbat !he Pol"" .... bc= ~Iod.                   .


                                -I'"
  Iflh. flnt namcd Frin';pd """""'" -.15 ,h. 1'<>1..,. Unckrwri'.,..moll oaICIIlato!he o:\unl
  "....1"", In ......,d.....      the....." or       """"*"'" ""
                                                            Ihc dOlo or _10110 •• In.., ......, •
. Und............. IIhnI! _In 01 ..... Ihc ,hor\ ralo "",portion of !he _I"", ror Ihc period 'he
  Policy M> ..... In r"""" In _         ..... wllit Ihc      .,,,,,,h<d
                                                               tab!<.

 16.      CONP'J..ICTINGSTATIIT!:$

          .n proYlsiom of this 111$_ chat ..,.01.. wllb the .talU''''' or Ihc ..... o~ "'untry                  .,
 I\ny end
 whoRl. 'his t....."""'" is lsslldl .....- - .
 and th. A.uurod(.) '0 bo """,nded 10 . . ._ '0
                                                              _.!Cd
                                                       and acknowledged by UIldc:rWriI"'"
                                                              lIU<:h_.
 11.      ASSI"NMENT OR MODII'tCATION OF POLICY

 This Polic), i5 rmsde and accepted subjeel 10 ~ c:onditioot. limitllllons. egtecmcnt:s· W1d
 dec:l:m.tion, :and aU eoooncmcnt3 sinned by Undawri\¢r$, and shall coo3ti(u,c 111c. entire
 contract bctwccn the. Uod~tcn and th~ t\.::QURd(s). No nOllce: or assicnrneht of any right
 under tIu; roucy not' any ~b:mgc. wai'VCr or ~x~on or iu Ic:rm~ I$haJl tx: Vl:did urnCl:S
 .nd<:>l>O:d hen:on ODd .Ien<d by Underwri'.....
 In the (:Vent oC' tfw: del:rlh., bN\kruptcl)' or rocciVCf$hip Q(.1lll ~ withIn 'hI: PoJicy Pe:iQd+
 lhe Policy shall. cx:Ccpt in the CVeQt or cancellat.ion.. cavc;:r ili~ legal I1;p'J'OSI:IotaUvc; of Lhe
 A$SUI'td, provided that nollct:: il'l Wrltlnt is glyen to \he Und~~l(;r,\. tfu-o.uF
           ~
  •••••••••••                            ~.~
                ••••••••••••••••••••••••••••   ••••••••••••••••• hwtthln thirty ~)'s Ilfltr the date uf
                                                                     ••••••

  such dc:a.th, i1l$()l y mey, blmkrup&cy gr RcCivc:rsbip.

  18.       ACCEl'TANCE
  By.,,,,.,.,lIno the Pollcr...... ","urod d",lan:s thai tho .....raJ ~."..,.. in the "l'pU••lion.
  ..,hedul.. lUKI proposal "'" """ and .... h....by mod•• part of Ill. Pollc,.. I1<wh Assut<d
  n::c:ognbe# th:at lhc PuUIQY b·~\tCd hy Ihc Undarwritcn III ~1~1L'.: upon $uch t.:tatemonlf and
   In ",,""deration .rthe premium to bo psld by lb. As••rod.
  19.       FORFElTUllli:

  Ir an A$SUc'C:d shill! b~ an)" ptO'Vi$l(m or tho Policy. there ;,h_1I be no eOVct8gc for Chat
  I\.mn"<d as to lhe par1lcular clalm in <onucci/on wid! ""Ieh the blC.l.Oh ""clllTed. provided
  thai thCle is no st.:ltute to the contrary in Ibe country or !etallt In whlch'the hutJraJlt."e was maile.

  lr ..y A, ",cd ",.11 """" BOy Qcrnand ror Indomnily Wld..- \hi. Pol.., """ is ral .. or
            ..
  rl'3udulcnt. b I't'gBrtb' amount ur olhcrwiSll$~ thi!.: Policy IllhaU bec:ol1\'C null and void. and 1111
  coverage hereunder shall be fbtf'<eh.ed.


                ,I                                                                                     00026

                                                            -~-                                 LARY INS\fRANCE




                                                                                                               SR-001461
                                                                                                ·"%"651



                                        j : .                                   ""   -:
,   .~~~
           ,.
           '-   10.   DlSCOVltRYCLAUR
                CI~ms ""tier the Policy.ball oaIy be rocovdal>lo """"""'... Ir the ~ !lao di _ _
                and rq>ortod _ I.... daIl1o;e or ~ CO U~ ...hhin 12 _tls ftotn ••plry
                of the ~IV}"" PotIod lOt ....t In [Ian J or the DedonItIo.. and """""mol' with Spt:eIIk:.
                ",..lie......... pulod(s) m "UI in 110m J 01"110< 0ed....11ons _ _ bed I. Sei:l1.. I. Torm.
                and Conditi..... CI..... 19 below.                 .
                This claus;- shall nol, ho~. ~d abc dtztc alhctwbo .UoW'Od fur Cflt.blishinc the: cx.ttmt
                and/or effecting or R:pairs aodIor prtSIC1Italicio or It doim In .respect or svch 10$$ and/or
                da"",8" dj"""",,.,j """ report"" in _ _ willi lbe f""'l\Olng ",nagrapb.




                                                                                                            00027

                                                                                                      LAIW lNSUl\ANCE
                                                             .y.
:.,.'




                                               SECTlON I-PHYSICAL DAMAGE
        I.          COVEREDPEans
        Subjeet \0 "'" _      ;:;ondid""" and ",,01.,..,.,. bm:l.... Sedl.., I I.......... agal.... all ri>los of
        phy>1\<:>ll""" or and/or plty.k:od damage 10 the pn>pc:rty covcml """"""".... \:m>VI<I<d suclt
        1_ or <ltunqcc            ..u... nam an 0-........,.. within \toe Policy Period SCI 001 In Item l        of "'"
        Occlanllo....                                                     '

        2-           CQYI;:REb.PROJ'ERTY
        'I'hls blsun.r.<:e ""...... I>mIb        "'' ' '1110.1 ...yw",,", in   the world in !he pafOlTl1lllice of.1I
        eontncts ...laIIng .. the P/Vj<cI includlng (pIvvidod !hey on: fnoludcd '" lbe c:on_ val....
        dc:dM:d 10 Urxlotwritc:rs sad llI3IIt'C<l, hemn) maIeiiab.                  """'poncnIS.
                                                                        perU, 1NIdtI""""
        IixlUmi, "'Iwpm<OOl' """ any oIhu pn>perty """I/nod 10 ~ ;; pon of Ill<> completed
        i>"<li- '" ...., .... or eonoumod la ,n.. _I.d"" or ,.... pn>j...t. Thia 1"""""",,"1 .s.o
        c.,..,.. (l""\'idod tlJoy.", dod.....! 10 UK! oSJCod by UDdci-wrlt....) ;;II Icml>Of"ltt WQdor. plant,
        "'Iwpmc;oat. hlod\loery. III"""",," ovdI.. and oil pn>pm)' ...,sod.led Illen:Wfdl, whether SU<:li
        11_5 are Inl<!!ldcd I<> rann a permanent part of the wodts 0, no~ Includinll site prcparalOly
        worlc and subse.quenl openIlohal rislcs.
         rt is u.ndcmood fUKI agreed that any insured cquipmt:trl and/or' pl'Qpcrty that is T1Ql for
         in""rpor,won inlo the _ _ wvrk. shall b. co""",,, whilst It is being udliscd In the J'rojOd
         ond whU.. in II">t>sil rrom the Projeo' ..10(.) Unlit the ""fll... "r,he dale Dr arrival at i\ll Ii...,
         d..dnadon or the 31l11t day after i,. removal from the Project site('j.
         3.           roUev LlMrr


          undd" the 5U. and

         clauses).
                                         1_
         UndcJ"Wl.'itc;n" total liabi1lIY u.nd.v      ~tion    I fa ...11 cbtin..: ~si"8 oUi   or arty oM: Occ:~ncq
         .11.11 not oxoced 1Z5% of the lalest "8reed SchOOule "a" .alue.. Including pO),"""''' mad~
                                     clause; the add!11oQa! WOfk cIa,!" llnd the t"cI1'IO"'" or w.-..:kage
         and/or debris .,...... (..oh .r which is sc:ponstdy I;.idl<:<l _    the appropria.. cov.taIle


             In the evenl oC......t.'lon as provided ...- "I.""" S .rSteIiD. I, U~rilm' (0(0/ liability
             undu Section [ for all claims lIIising oUl of 1liiY 0IIc Occu_ shaU \1Qt ",,-.I ISO"Ao Qf the
             initiol soh,",u'" "h" values, includlll& pay....".. made und<t the s..., and labo... clause. the
             nddhional WQrk olo.... and Ihe r<lJI1oval oh""da'il" ....vor           ""bri. d.....,. and the F.,calatlon
             CI.use (",,<:Ii ofw!deb ;. ""J"ItOl"ly UmillXl ~nd.". the appropriale ""verug. clau._).

             NOlwilbshlndinll anything conwn<:<t herein. Undetwtl,ers' maximum Jjhl;r "r Ii.hilil)' in
             resptcl or So:tion I shall not t:::ccc::cd 1M Schedule -1\" value in (he .eCR':e:at<:~



             IJI'lc:k:rwtitcrs" H.t:ability under $cC:;::lilJh I urthe: Policy shall be subjcc( In the Ucductiblcs set out
             in (lenl S or the ~1:u';1.lioN.


                            •
                                                                                                                     00028
                           "
                                                                  • 10-                                             LARY INSURANCE
             . -........·II ......,I· .. ·~-
'.":"':


          5.     ESCALATION CLAUSE




                                                                    Cd In Schc;:dqk: B, the AHoU~ aaz- lu
                 B.
                         dc<,.,.. 10 V _ _ nallJ¢'
                         go;:ced lhe I'Nlvi:ilon.a1
                                                                   •_       .f ..... _ _ ond I<i PlY p!lIIIIllurn
                         . . .gm;d. and Undowri               _      10 """"1rt Ihc:ir ptOpodi.""'" ...... of the
                         t~~ 01'

                 b.      be I""" ...... the iuvI>i.noI valuo: 301lIIod in S<hcdulo B, rho" .um ins~ by
                         lJncknYritr"       I be ""'......I I"'>P"~, .00 U...s..wlllor> "'.... 10
                         rotW:II       wn as IfIII"Cd "n.lhv """".... by WhIch dldr ~... Ii.... "'.
                         rod
                                 d the In"""'" value _               l:l:l% or 1110 Iniliol dc:cloroil value . . p<r
          Schedule B.          ",.Umi.. oflndemni.y WIder 5<ction I shall be 175% oftholnirial ""'cdul.
          v:d'ues., an one ()(:wrr~ee, bul ....W8y:f S\lbjcct 10 Ihe IIfnlCs or reoowr)' as provided rot
          clHWh        In th.. Policy and" il\ ~oafdlll~ wilh \hoc.        .,1'OI:d
                                                                       "'B'" ~h.quL:::d lIfI1QW1ts as. POI' thllC
          ~1        tloru 41 tbl: rime of loss.
                                             TERMS ANI) CONDITIONS
                                             .   (SedIoR I only)

           I.     BASIS OF RECOVERY
           In 1he event or Mh    ~C'ummee        cawred' under ~on I of the Poliey. Undctwritcn; al!TC1: to
           ind"""lf;y .he A..U<td on the rollowing _ : -
                 II.     items mpMtsd or rtpl!# - 'Nj:w fbrOId" plus 1~l!e, in'):(;)IJ41IQn ot'ld 011 ,olhcr
                         <usb ~y 1 _ lind duly J""Ufind In ...poIr or                                    repl_" .... per
                         l..tul 116l"1'sd Schtdulo B.

                 b.       rt:p1~ with lwna Wh!ch 81"1::' redmJrm:d 9' o( nqw dgfsn - provlde4 such'
                          ",!>lacc:meu. Is •••.,.uy ",mm~ and "" n:pW> 01" rcpbc=mtnl..... ~cd
                          out on 1he itQ11 which 'WJt.drhed physical loss or ph)'1!licaJ damage..
                          fndcmninc:;uion hercundet sb.1l1x:: uti ,he bis!;, orl"CU:Klnahly estimated figures
                          ih aocordaltct: with rarauruph IQ. above.
                  e.      ilc;ms not rma1md or ttplom....

                          (i)       fOr   it~:$    whfoh   4ft:) • \OlO'   cmdlor     COl'utlf'Ucli"".   lOCO) lou. Iho r,tctual
                                    ilc:m' (;0$1$ incurred up to time of 10$$ as P':r b:h::slllgmcd Schedule B.

                          (iI)      t'br partial physical lo~ or or phnh::al datnuw: to an Insured item. "'c
                                    rCftsoru:blc derr«:ialion arising rrom Ute unrep;&it\."d dllmBg~. deemed
                                    to be the.' n-;uonublo oost of ropolriinC ::rttGh d"fl'I.tIItSoc 1)11 IS nc:w fbr old
                                    basis ph.l~ (in the: cv~nl ~p4ir.s an: hOt UndC1Uakcn [or ~a.son) I;n!irdy
                                    uUl$lde      tn.:
                                                   t.!OnlMJ Qf the::: t\$.$lJrcd) lovr.agc. inst.allallon IVld 01hc.'t

                                                                                                                             00029
                                                                  . I. -
                                           nOlllJll18t




                                                                                                                                   SR-001464
                                                                              : ',:~ .




                         similar ~ di~y incurred ill ~l~ of the htm 10Gl or damaged.
                         up 10 ..... ""Un of ' - and. 10 ..... <"on! !hot 0U<h con bavc "'"'"
                         prop.aId or the Assured I••"", ...lIIod ,.. po)'lng on4 i. INbk 10 m>Olc..
                         bul not 10 ox_ """,....... "or Ibelnles' ogrco:d Scbalul~ B;

     d.        Uk   of "Ired   vq:ts:WeJull!!JW!fl - It b U'~"DLQoood .nd -JS.f'CICd IMt if, in &he
               _     or phySical J... oodIor ph"';",,1 clomar.- II...... ptOporty imuRd which i.
               _ _ by Sccllott I. 1qIOi.. """"'" I<iPOl.C........1 ,"""or ",pla«mml aJtd/or
               ........... ~ 0111 by .....1. and/or .... n """'or "'Iul_ 'OIIdIor I"""",
               Which Iht: ~ """" OD cIou1.... hi... IIr .. ",InIc:tA:d 10 ......... Iht: ""'" or !he
               proponloh c.hCl::OrlMll be ~ tn' 11K- rn' n~,hf", or contnlot hilA                         rv..
               .uch empJol'm"RI when wed In nr ./>nUl ...., "",,'r. r<in_...~ "",,-,,,,,,,1.
               or RIval!" or to.... c:o-.:d by Sceliuu 1.,1d >hull be ... ~Ic·... ct.lm
               h<n:on. In Iht: """'" Ihollhc Msurod Ulill,.,. ils own .....b,ctlIt\, cqui~
               tmdcri•• or l.abour rOl' any tepUr,. r:dnslak.,,"W'IIt. ~l or olhcJ' work In
                _ l o r phy.s\<'.:ol I.... and/'Or ph)1acal dw...... " " _ by 5""''''' I, I"","
               ....It!... otItcrwl.. 10 "'" Iem!s on4 e<>ndilinns ..rClt. Poll.,., • ......,...,1. ~
                In ....pcocI or _h _             sIWI '" .....,."""'1 ••s • claim h....... Provided
                ..tw.y. th.c' tho f"I:.OO'Y..mttbla CQtIts tOIfol'ftM:1 II' itt lhi_ panlataph .hallhat t:)(~
                the CO$t$ of employing approved Vt:::l~!f; wuJ/l.)r c.:n:tft andfor equipmcm and/or
                materia's and/or labour from other tlVllilllbl..:. 'l41Ure.e:s.

'11 tdpcc:l or p$l'I'ar;aphs ~. and h. ahovc,. in no even, :;hun lJndcrwritet3 be Jiable f9r any
in~ ~, or ~pc:nM Df ~ir or 'I."OnMNction by rc.l!'ll" nr law, ordinance, teguhltiOn.
pcrmil OJ' Ucenco ri:gulatthg construction pr       ~f1nir   or uny illen:astd !;.WI or ttJepe:nse inc1Jl:"n:d
by rusDQ ofbelt~rmcnt or alteration in rj~igq.

Addi,lonal inslmtmCC CO.1Sl$ and (rw:)clcrdfic::utJnn CI'Sl~ nU"~ing 10 dQmo:g~ repair or
tt::pJaccnenr. 'WOrk ~ COVltn:d hc;n:UQd«.tC:i ~n: u(.,m: .,uhl..:3 it'Qul'Cd ~bJ<)ello incJu#lori. or
the ori~ 'insurance costs in th¢ initial l~illll:lC:d ~'nul ('urul"dcxI VAl\IQ oflhc worb.

Frovidod 18idW'a)"1; tha.. wbero:any ofdac :.rbR'$#id I:n#~ ~h"e lo relricv;d' of a dDlIU!IIgcd ltdn .
an<Vor sub"'ll""'" (re)......ll.iion of _     ...../W Item ur " n!j>_en~ and such ~..                       0,
~ Ih<n:of "",uld In any e"...lhave "'"'" i""u,"", by lb. """_ Irrespooll"" orlhc I..wed
                                                                         or
phy>lcaI damaEC, or othelwl.. """""" lb. A>.... mI in """'..... u.lnsurod matt"", Ib"" """h
costs shl11 be Bppor1loned in a fair and RU:'fCUlahlc IIhlllllCr becween the AssutW aOO
Uml.....nl....

2.        INCQRPORAT&1l Cl.AUS~~~

t'hc: (ollowing cl~ arc incorporated inln Ihl!' Illtlh:y h) rl!'ft;:1'l:JlCI:. with th~ fltncndmt:nts
dt:;M;ribcd below:

          a.       IhSli\utc CJ.\isa ror llui1do.:r.t Id~~ (I~ Jun~ 19M) amended as bc'u",'.
                   inciudillll. the dc:lcllOl'l or the 1~r\hqla;lkc .. ,,~ Volc:aflili: J:rupUon I!JI;C'U;S;Oh
                   Chsu.,e No. 6~ in.;:luulng QJ!d or she J'll't!r~l'a'ul')' work IO:A or cxp¢ndcd .$ "
                   r'l:Sult orifl$\l~d perils. and inc:lntlll1g 111I~blll:nli(J""'1II. t1ause 5. paragraph 5-
                   t .:.IS h~C&flar quolcdlam~nd~;.

                   5.       PERlts


                                                                                                        00030


                                  UG&I'Ulllllt




                                                                                                                 SR-001465
                                            ·..   -._-_.........._.-_ ... .. '--"
                                                                          "




                                                                                                             ,    .

                            .,                                                      . :~ .'




                5.1      SUBJECT Al.WAYS TO ITS TERMS, CONDmONS AND
                         EXCLUSIONS this """'""" ""'"" all                       n.a..
                                                                Qr pbyoil:ol lou or or
                         ph,-J domage 10 Iho .ubj= matt... In=d ~ and dl""".........
                         <Iurin& Iho p<tlod oflho 1 _
                1\$ 5ET rol\T8 IN I!::)tCLU'IIION 1.1. H"'MIN, IN NO CA8I;; IIH,,(./.
                TillS I'OLICY CQVJ;R THI!: COST 0'" REN&WINC VAULTY
                WU~                                                                                           .
                1rls1llulc W., CIa .... 8u1'd~ Risk (b./uM 1988).

                Irutit"Ic SIrilo:o Clau"," , Bull""'" RJsk (IsU_ 1918).

      b.        "", rollowins ..,oditioOo sba\I apply 10 ...y parts of ."" pmpcRY lllSUlOd
                IIetoillIl>al are In ...,"". (O$hore ... aft•••). 'oadinS, ..10lId1n&.,., I. Ira",l.
                otbc:l" thin by ~ ot lhdt own bUo)'1ltlCY Of by ~ or ttoal4t1oq umb.
                n... «>IOlilions >hall ...... aU<: until midnigh. on the dar bli wilich olr-
                loading at a..1 0\1$0011: slIe i. comple.ed and sMll loclud< the CoIUsr••
                Clu\l:lc provi~iONl onhc InlllitU\e CI.".cs far Builden; Ri5k. (Ise JlIrMlI (988),

                Subjt:'Cl as applleo.ble lo:~
                 tnstilutQ Cargo Clausc$ (A) Iln'January 1982

                 Institute: CtassitiClltion Cbu$t: 13th Aprlj 1992& whl!!Tt':' insured                    pro~rty       i$
                 ~ied Q      e.argo.

                 Institute:: Wu Clolluscs    1$1    JanlJN"y 1982.

                 Instilulc War Ciause$ (Air)           J:5(   JMU8r')' 1982.

                 In:Jlitult;l War C11lM5<lS (POd:) 1#\ J""u;uy 1981.

                 htstilUte Strikes. Rfots WId Civi1' Commotion CI~ (Cargo) 1st January
                 1982.
                 hulitute Slrikt:.:l, Riob on<! Civll Commotion                OllU;c.c       (Air Cargo) Is;t January
                 1982.

                 T\W. MAR Form is dctmcd lncurparntcd herein in I'C!5pect of ttB.Mits                         co~rc:d
                 und<rlh. I", Jan-r1982 CI_.

3.     LOSS NOTIFICATION
The. AU:urod will nutdftl":r.I sisnc:d.and ,"worn proof oflo::D uner:so Ocwm:ntc 0... soon Cl$ may
be:: fnSQn_bly rracticablc tbm:aner (taking intu conslde.ration the nalure or thll) Assured's
()pe'mdOh) sClJtrnu. t~ \bn~~ place. -and cal.tSC of loss., dM: inlcrest or the A!)sured aAd or "II
olhcn In 11m ptVptl1Y. the YI!dlie Ihc:reofnnd ~hc amount orr~:Jor wmq.e tbert(Q.


           ,!                                                                                                         00031

                                                              - 13   ~                                     LARY INSURANCE




                                                                                                                        SR-001466
                                               "   ..   _-------_ _._,.   .....




4.         ERRORS ANI) OMISSIONS

Ally u.lnl«llional or ioadv=t orror or "",1 ..10. In ....... or doa::ripdon u!lder s..:.lon I
shall DOl """"'0 10 1M prqu<Ii<o: of tho Al>urod, provi<k<l thai tho o:rror or omiilOlotl I.
corrected when dl"""V<red by 1M A.s.urod 0I1d advised 10 U.derwrit"", prior 10                                               '.Y
Oecwr\enrc.e Ching "seta .. c.laIm ~ndU'.
s,

                         _to
           rROJ&cr Al.TERATIONS AND AMENDMENTS

Ul>lo:rwrltm agn:c 10 ""Id cov.:ted .11                                 .",.00.......
                                                               nnd .It.rod_ 10 til<: Proj"'"
_m""don JUbjcc:' 10 Ibe lemu nnd """"IUons of tho Polloy f....' petiod of 60 days fi'om
'ho da... or ,uch              ondIOf a1._0"", ""blwIlO tho I'lihOll>'ll kstm:d ...UI)Ii.~
Und<n¥ril.... of _ _ eri.al .......... slSlll1Jeon1 ai_I""" .,......pI!y wllhln the I>o.d.y pcrlod,
In . - rut .......8j> for .udt material and/or oigalO_ ~ nnd IIltcratl"", 10
""f.eI1d ~d 60 da)'ll, the Prino:lpal Assured> .nd Vnderwrilc:r.s must ail"'" vflO'> Ill.
addldonlll pn:mlum 10 ll<:appJled.

6.         POl.LtrtloN HAZARD CLhIJ5E

Subject 10 the: te.l'l1\$ and condltions of th¢ Policy. this. Insunmce ()()vers phnica1 loss of Or'
phy,ical dOme&< 10 the property Insurod hereulld... dlroctl.Y ....... by ...y goverrtlQCltI.1
flulhorit)' acdng UIldJe£ lho> po~ """,bxi in tt.cm to prevent 01' mitJpw 111 polluUotf h:I.urd. or
lhreaJ ttKre.oC, provldc:d $\lch ac:t or &o~mml;,'!nUtI authority has not rosullcd     wan' or duo          rrom
diligc:nc:c by the ope.rarot ror the Princ:.lpaJ As:mtr:ds lO pl'W~t or D.fdlPScc: :JUch. haZafd 01:'
 threat;
 Covc:nge provido:d by the Bbove ~GfUph shalllllso extend tD ",vcr any otht::r physic.a.l loss
 or physlca.l d:,magc cau$ed or inflU;l.;:d by, order or tdly govctnn1ent.a1 body c:tr l8ellQY after
 col'lsultaUon wHb omc:iab and Cflpnct:.f'$ or the Assured ~laliog tD tbo lnsuRd .Pt0J~ bUt
 only in resp«:cl of intt:t'C3t$ covered by ~t1on I. tmd always $U~ucnt to ph)l$ieal loss and
 physical daIJUI,e ....hlng from • peril ins.rod again...                           .

 1.        D&FECTIVE PARTS

 The imw.nec .rrotd¢d b;y Seenon I ~ physical loss        and/or physical dsmaer: to the
 Jl<OpCrty iMUt<d httel. _urrlng during the Polioy Period ...d ....1'1n" r",1n • Der"",l••
 p ..... "ully d.slgn. (oullY 1I\01CrUds, f,ully or del<ollv~ _rlunomblp       defect """"               or 101m'
 ,""uah the fault In design may hove ....rml priOllo .Il<: ••""'_, dalc of 1M PoU'y.

 Secljon J, hQWCV<C:f, dug not provide <;OYCrat:.$ for 1051 or damag~ to (includinglM. ClOst of
 modifying. n.:p(:prdng Of n;"ptlIiring,) .;m:r Dcrttt:tivc Part ibeJf. un!=s aU of d~ following are
 satisfied:
            •. s'i'ih Defective Part has sufTe:rcd physicnl If.)a ur ph1!1re;d damdgc during Ihe .
                   (loIiG),   Jl'criud;

            b. liuch pf\}'$icalloss or                  ph)-~:deal   darn.. cc:   WiIS   caused by an   fl1$U~   pt:ril ttxtt:mal tu
                   th;a.t p:lti: and

            I:';   1~1: dvfuet -.lid      (lol c.oUi'\o¢ or cooulbul<r 10 IIw: phy.iea' tOb: nr phytic.:ul d::rmIJUI:I,
            ,
                                                                                                                              00032
                                                                        ,- 14 -




                                                                                                                                 SR-001467
                                                     ·.---'   .....   -.""'.~   ..   -'~   ......




In no r::a.se sba)J Sccllob , provide.          CC)YlImltp   for lIJtY co;1- or ex:pc.osc incu.tTCd by              ~         or
bd.~ or ~t'ions                 in <!c::dgn..                                                       .

I~ lhe   """"I.flbolo"" physi<.al,.,.. or lola! pby.1eoI d..                          """.1on
                                                                  of one or """".f the II""",
lista! In tbc S<:It«!uI. "B".uoobt<llo lhe Poli.y,,!hcn Illl~ ""elu,i'. sholl only apply'Co ""
I~nl.mable ~ or p.tU or.such ~liJc:d IIQ1I ur                          'lCnU.
 f'or lhe _              of this 01,,,,,. a 'O<:rCdlW 1'oT\" .sboll _                           ...r POll of the $Ubj",' matler
 i~ wbkh ..
 purpose.     _CO'       or bocomcw    d.r.ot'Y« ~ar            unfll ur un:Ctdwbk: fot lIS IIdlilJ or Intdl&:d
                      by ......,,, of 'ouIl¥ dcoillJl, rault,. ~ lIoully wot1cmaruhlp, •
 CfMIblnalion oronc or mOCll ~rcororw.n1 alhoT ~n YIhat$\tC"lv. The term ..Dt:fccdvc
 P....• ....11 oJ", include _      ....11aIy COIn"",,"'''' "'hlob ... 110' 1b<rnseI... Illulcy, but
 whlcb ......14 nonnoIl,. be removal aod nepiaocd by now compo"""'" when til. oomponcn'
 Ibatl, floul!)' 1.1<CIIr1Od.
 Thl$  ClIW~ shall pl'¢V8l1 in U\It 1I:'I.:n1 or any c::onQlct or Inc:onsfSlQ'M:)" Wllb any 01her elausa
 f.nnln: """ or lbe Pulley. n.. terms of lhI. cl......IC " ' " In.."",,,,, ond """"
 canslJ"ued;;l$ providing ~\'t:Ng. not oth~ provldw;d und.cI-1be Potwy.
                                                                                                      hc                no.
 8.        GENI!:RAL AVERACE AND SAI..VIIGF. CJlARGIi:S

,OenenJ A'\'1:mtUe and S.lvace: dwg.es arc- "a.Y2ablc 3S' provhk::d in tho::: c.onlraci of
 a~igh~nl,. or if 1.hc:tt: bo 1'10 oontrac' of afJl'ei,htmcn.t aCCOf'ding IU YorklAqtwctp Rule::"
  1990 amended.- In Ihe event tt.; II;;QQtnWiory v.lU<.: fQf the ptIIPOltO 'Of' eQl1ttibutioh to O~attIJ
  AVd'lIglir ot Salva". C~"i cx~ \be hmntd valut; ,I iJ aa~ thllt such GcuaaJ .A.verage
  or SaJW:iCe charges shall ncvt::t.1ltc:l<!SS be paid lra ruu by Underwtit~ hereon. provided always
  that the. amQunt ~ven\b(e under Seetion I in mpect ur part.iat lass prising fl-otn an)' One
  ta.'nb.lty.shan no, e?(cccd the v.lUo applicable to ~ ilem.

  Genecal AVd'Ilge deposillS are payable On prQdoctic.n ofOenCfaI A\i~ge Oepo$it T«cipts.
  Undotwtil~.r.J~. ifRquiTed.lo provide! OanernJ AVCfQlUe gulil,rltnlC!d ~r SJllv.:lSC: 101ccuiity fh
  resp«t ofpropctty I.su<cd by 'he Policy.     ,.            •

  9.        SUE AlIID LABOUR CLAUSE
              .~d tha.t i.ll th4: .;ax or en,)' imminent phys\=1 lot" or pbydea1 cbmago tgo the.
  II ilJ fUrchcr
  p"'p<rty l",oraI h."",.der, wlllch i. the di""" .....It of. pori! I",,,,,,,, .""in.~ lb_ A.surods,
  lhe:iT .servants ;rOO Ih:lr "s,cnts rna), sue:.. labour and lravcJ for, In and aboUt the derence.
  safc:J:P.nVd and recovery or the subjl:C' mallers insured without prejudic;e In 'hit in;unmee iitntl
  nw.,    i~r reasonable e:(~ In effotts 10 a'i'Vrt or rniflim.is~ a loss. which {MY faU under
  5,,,.,1.., I.

  11lc etl,)CnSC:tO ihL"tll"r'ed s:haU be borne by thl: A,;sQn.,-W; I\no Underwri\ers 'proportionately to
  the _1cc11 Qr lh4':ir '.~YC Inlt:r¢Sb. Ntt lictl or Underwriten or l~ A:s.urecb in
  Tl!('QVt.!fing, savitt: or prcRrving IhI:: pnl~y Insured shall be:: considered D.$ R .......ai~r ot
  3C:~ Qrab4ndo"h1ent.

  UI'ldcrwrllcrs Jimi1 .,fliuhilily und«r this ciaO$(' I"h.1.U he 2!i% ~Jrlhc SCJleduJc:d value conloined
  ill Uto; bkfl .1Jtl:cd Schedule lJ at time uf lass            vr
                                                          th.: it't'm Of' h~m:s (btll arc the sublett or $uch
  $l1C   3IId Ijibour.

       ._......,.. .. .... -
                                                                                                                           00033
  ,               ..",   ,                                    . ,s .
                                     ltUIIUWO+




                                                                                                                                   SR-001468
                                . '.

lB.     ADOmONAL WORK
In'a... evont tltal the .bud"", or insured ~y i. >CI                     """'sly posl_ wlJid> b
the dll'Cl:l .....1' of a ptrll Insured aso\.... UndctWtl            11ndc:mnI11 the .....un:do Ibr the
.~ of addiliObal _Ii< lhal Is ""IU1nd In                   of posIdoning or _,III..,Ins. >ihi<ln&
submcr;b1, end 5tJWll,.,lrtg \he ~                       ht:n:ln in:wrar u :tUeh oc:Ml dl>e)' not Call
wilhln the ..,.... .fllHded by the                 J."""r "'...... H.,."..", U . -....• liability
under this clau..   """11   nOl <>«=6       ".....taae amount !hoi would be .",,,,,,,..w. under the
... """ lobo", .1 ...... IUd
daim under th"e! SUO: IlJliIil
                                         Y ... the
                                  or clause.
                                                       """",!hat
                                                              !he I'.>IIcy rlm~ is not i:xrn.u.led by •
                                                                                        '
II.     REMOVAL OF Wru;;CK, '!VRECKAGE ANDIOR DEIIRIS

 I'ollowina an Oocurtcno. eov_ by Seedo. I, Underwriters .dtaIllndcmniljl the Assun:d.
 for all"""," or or IncidCQtal 10 the OCIuaJ or D,tempted raI>ins, ~ or _ " , I... or the
 ~ ondI"" detm, of lho 1="", pR>p«ty, or !Ito pooVb/on IIIId malnt_ or 111Iftt>.
 ltIlUid.... IUdIbI. womIng.lbr sud> wte<UP and/or debri. whc>n \he incuniJtll ofsucb ",sis
 I. <ompulsory by any law, O<dl_ or rqullllion or whon Ibc Assured ~r I. noble
'IOr JUCh ctr.tt:J un:dGt' writtcrs ICOh1.n:l.ot or when.$t.!dJ w~a' and/or' debrl' int~rfet"Cl" with the
  AmRd's nonnel DVCf2'UOfU.

Utidcrwtitcn' limit of Uztbllitr undct this r::Iause shalt be ZS% or Ihli sct1cdulcd vaJuC'
cootaiocd in th~ latest agreed Schedule B at Jitne: of loss or tbe ilem Qr i~ms which an': thl!
 $wJecl or such ftimQva! of ~krsgc".I'1d1Qr dcbri:l.

 1;1.    TESTS. LEAK AND/OR DAMAGII SI!:AR.C!,lu-;t:m1'S

 Ir ri bcwftlct MCCS5:lIry '0 RlP9t any                          or irial(S) 0"101 cart)' out sU6;equcnIIC$t($)
 andJQr \oal($) as a R::$1Jll Or 3; ph)l:li         O!Di. or ph.)I'$h:m dam_Go Iv tbe jna:urw:d (fropcrty ,u-{;ting
 froID an (kCUtrellCt coY                     r S~cl.ion   r.   Underwriters will benr (he     wSi   or any such
 reP!"'<<:<l Mdior ,ub       I 1<>1(.) andio, llial(o) .ul!j.... Ie • sub-limil of (AMOUNT)
 (100%) ony OM            aGec, but never iu ex.ceiltd oriaioa' cxpcnditUI"1t aJ: i~"tific:d in Ihe:
    ""Iogrccd        ule a.

 13.      STANI)..BY CHARCIIS
 SubjQQ;' to " lJul>-lilJJll of VS.s: (AMOUNT) an                                 f'tC.t\I;e llasN:a,atr:d at USS
 (IIMOllNT) over the Polloy F<riod. U                  .dtaIllnd....nil}' !he Assurtd. for the cost
 of SWJd.by time on ........ oodlor       iindIor equipmen, IICIlvciy _~"" Ih tho ......., of
 n:pai~ roJlo~inc lUI Oceu          vmd under Section 1. w~ lk Assureds arc pfT.:'VCtI\cd
                           or ~b<rUI the d:u'lt.q,cd prop;rt;y by bad W(t8ther. 'ineJ\JCIing nauncd


          CLAIM S\1RVEYSlADJ\JSTING CLAUBI!:

  In '00 ItYeOt or physkal loss atld/o( phyma' 4uma,p: IQ                   imured    pro~rtr   ari:linu. from an
  ~ce euv~l1:Xf under Seclion I. the 1\.$3iutc:d f'I"\:J)'        in ease of c:mct"gCnc:,r 8hd I')Yer
  wcek('Ods im;lMlei aile untie rollowing IQl:CS ddjusu:rs \0 cffecllt damuge ~ul"\"¢ (1) Bat~"
  Chapman Umittrd far aU 1Caf&\J ctaims. and (2) B:;a\m.an Chopmnn Limited. and/or MaltheW$
  Danicl Jlnd!Ol' B~lchuN;' limhcd "or ;aU other claims. Such Orll'l:-> ;:n.(rtj(Ztcd on al\
  1!m(::r~(::n~r 'busis shall net n$ IOSlf lldjuslers on behalr of Undc~·'Mil¢r.$,    ;1/ ,~o(her
           r
                                                                                                           00034
                                                           • 16·
                                   1l'IISIUIJ.Ulf

                                                       LARY INSURANCE




                                                                                                                      SR-001469
     cl""""""", I..... odj_ shall be 'ppointed by UndetWnlers upon l...tincid<enl
     IIQ1Illcalio. from the A.OiIUn<I """"relin, to Clawco J above.

     15.    W ArotAI'ITY (BXf;MI'LAR-FINAI. Vl!:RSION TO BE I\GREI!.U)
     Wam1I1ted \..ol1<Ion Ollilllon> COI1>UIIMIS lI1dIor Global Marillme ondI.,.. Noble Omton
     A.S..x:1a1.. llhdlor I..oDden Salv.se A.ss<>cioIl9"
     Ihe pn>j<:ct as follows.                        .
                                                            "9"""'"
                                                            and I""", "" applloab/c ccnlll"'l" on

     Coneeprual- CettJflc:a1e:s to be bsuaJ prior io n::h::vanl loa.d-oul.slif1$n~

            i.           ProcccI""", r~r layln!!. bu.,Jn... JtUlnc IUId rod< dumping. .......h1n. (_ulrand
                         os appllcabl.) inclUdl-.,M II....... .". """. and inslall,lion of.poel plttt.$ and
                         rbe($.                    .

             ii.         Posflioni,ng and orientation proced4Jrts (ur jadc.et::s at omhQR'. $Ilt(s).

             iii.        pm.S .. pro<tdura in ftSJ>""1 or iI. abow.
             iv.         'Proc:cdure:s In f'CSpc:d. oflhe stqUe/}Cc: orand/or scope and p4Uetn of layi.ng of
                         '3.Mhor paUcms Md lcmporaty moorings (or Ille. pD3:itioning of' Heavy Un.
                         VcaoWaarsa Ot not: dTNlmictllly po5litianed) and pipe layin: barcc:dn the
                          vklnity of c;M;i:stlng orr$ho~ lhStall~UOO$..

      ~ " Ccrtificu:ttt(s)         10 be issual prior to "comrncncemren.t (If relevant 'NQrit..

             i.          Load-oul3,. t~ lo~. \O"NIIga and. s10wI:ll;(::$ (includinG ~a fastening) in
                         tehdioh to barge mo....ements from                                       (,0
.,                       andlor to offshore sites .

              n.          Umng and oricnLationlsctling. down/securing proecdUR'3 all Qffshotc sires.

      Cano;p\ua! ~ CC!tttficate(s) 10 be: ls$1Ied prior to relevlUll JODtl-o~bIi"$laU8lions.

              Lexad..ow.s.. stowage and sea~fa:stc:nlpe on heavy lift vessel for transit.
      ~ Cc:nJneate(s) CQ be J..'SSued prior tv wrnnu.';.t1ccm~ of rc:'ovont work.
                     p




      Wrung and orfcnWtioru'settil1g downlscc:urinC proct:durcs at ofTshoto she. of Jackel$ and/or
      topsides.

      16.     l"~ltI\ORl$T        "PUY-UActt..       <:l"i\U~l::
                                         .
                 L        C.,.,....g.
                                                        c:onditiotQ 1(1 whidl rercrenC'¢ Is made below.
                          UndcrwritQ~    ..,      rollifr the I\ssurC'd$ under Ihis el.,,:IC fnr phy.sic:ollos5
                          undlor ph'       dUINJ&C:: that \lll\)uld be. recoyerabh: under Sccli~ I      or  d1C
                          I'olie: t for Ihe exislence oflhe following claus<: in St<:.tion I. Hx.clus:ion 2:

                 y
                  •
                  ,


                                                           • 11 •




                                                                                                             SR-001470
     "NDtwidmandlng anything 10 Ibc             <0"'...,.
                                             con....ed in "'I.       I~
     be no lbobilirr ........."... ror anr 1_ ""U>ed by, 0< """tIlDe; ·r
                                                                       ....... o.
                                                                                  _loa.         <hal.
     incurred U II n:sult or:~

               0)         the dd:otU.tion or an e-.p(os{vc andIor



               ~ ';:r eAtU4d by 1m)' ~n .1ctitl8 mArioi'oUII:ly 01'
               I1lOtJv.:.

     h.                 for polill«l D. iClTOrist PWPO'" of ...y
               I\(ty IlOl
               ... nol _      "r • "'-1If1 power. lind              "'" ph)':>I"" I....
               dorroo&o or ,,"_l'CSUItI.Z th..cIi<><n b..., CIlia! DC Idtcnlionol",
m,   CanodIaIiOit. AIIIe...do Tumi...,OII, S,.",...,
     Amend"""" on"""" r""" 71"", .n....d 0
     .:        <I)

                            Cov.mg. und...        '~I.cl""", may be ...""'Icd by the
                            Und~ters eiy;nl         ucc ctl'eettw DO th.: Q,piry of 14 da)'$
                            from mldnichl 0        wid> M""" Time on ,flo day on which
                            nodec is lsww..       ndawri~ qt'In hoYn:Ivc.r \0 ret~'i.tiltc thl~
                            iQ$ulll1lCC sub' 10 agm;mcnl b<t.wecn UndcrwrilClS and the
                            iI ..""", price tho expiry of .uch nod... of ......II.fio... '"
                            new rule: Qr emlurn Ilndfor condJtio,".

                (Ii)

                                   ge Dod... ,hi. cl..,., may 01$0 be <OlI""Jed b7 the
                                      ton; o( the AMUftd givlns h~doc pot IPu than £IJ'W~
                                • prior 10'!h<: .,.;d Of each 1><riod of """" _nths wm
                                    DO.

      b.                      r or not :rue" notice: of ~t:d~ ~ ~ $iven eo"'cnsc
                            \hi••1.""" ,boll TERMINA11': AllTOMAl1CAlt.y,

                             Upon the OUlb... k of.,.. (wheu..r         Ii",,,,
                                                                           be • declaration of
                             war Or no!) bctWCCJ1 an.,.. 01' the following Sla.I.d:. namely. '11n:
                             UniMd Kingdom. Unik:d Sta1u of Ameticu.. F)1Uk:e:.
                             Commonwoollh of I~.' Sla1c> (forme"y ·U.S.S.R.). Th.
                             Poopl.... R"I"'hll< of(,.hl ..,or

                             1I:'Y).I1 the Ml'dle d&:lQnadon of ~ weapon Qr WiJl' empkJyfna:
                             ,       ,jc or nuclear filfshm and/or fusIon or ~t Ii~c n':ll.;tiou. or
                             m.:i;oaelion force or malter, 'Whemoever deJlQl1ltt£~.f\ :T.,';,   OC<::l.Ir~

          c.     '1111:   eo'Yetag~   OllT'ordcd by ~hls cb:lU~ .:shall be: suspended in respect or
                 Ih<e ptopctty COI"tC'QmI.l:d. in lbe    ~mC   of 'he ~~y l'mlns .pproprialc;d,
                 rcquil,ili~nuJ       or conliSl:tllcd or    n.adon.1ised by an.)' Obthc",;Cy of

                                                                                                     00036
                                               - IR-




                                                                                                             SR-00Wl
                        00YcttImen1 io _
                        lbc _ _y
                                     (wbdhor civil, mlJltaly or d. factol of lbc _ . ill whi
                                            Of rcalMtcd:


                 d.     l'rovIdcd lIuot !hen: ha... .,..,. no cla/nls hc:n:undcs-,         • """'" or
                        """"I.... shall Ix: ~. to lbc /VJ:Iufcd In                  <itru of cllbcr
                        (:4nCCllllion by noli" fr;om UndcrwrilCl'I Of         lIutOhAlflc lctminatlon
                        or suspcns:lon by mt."iQn of the opcr.l!iQn       Is Section of the Palie:y.'

       'v.       Held eo.w.d




J7.     FORW"'RDING CHARGES
In .......' on....i'(» Ins.m.t h.."".dor, if ........11 of on           111:/1"" "".... <tld by the tcnns
or SeoUOIII. Ibe in...red IIOnsh b I....,inate<! .at • port       ..,. other.han thdIto which the
property btlutW b CO'\of'('JM QMDr thlr i~.                  riton;: will n:fmbutH t:fM, AAurcd (01'
anr .. Ira cOO.r&o:s properly.nd """""&Iy i             In unloadln&. ""ring an<! r.,v.mUng tho
pwpony I_red to .". d_lio. to wIl               I. I...ted hctoundcr.

tJndetwritCI3 will bear the ~sl  any 5tJch t::XfrJ charia .A!bjlXlr to a sub·Umi( or (JSS
(AMOUNT) {IOO'IIoI"Y 0'"        U_.·              .

18.     ../\ YM£N'f OF CLAIMS

It is agreed thIg uU claims O')vercd under   S~ioo I sbalJ be paYl)blc: 10 lbe ~4S
~1~I"e            ldudncd In hem 8 cr the 1'kr:I-.rarJl)n.s nQ '.10:;- Uutn thJrtr (30) day.t ...n.;r
prqehlation Wld ~ptanee of proofs of JOn                     by UhdC:rwriccrs     or their o.ppro\'cl
Iq'I:CCIlLati ve,,"

.19.     MAINTENANCE

Tho cover "",vidod hereund., shall Ix: n. wider than thai         <"."ned .1!IJoWIu:fe in the Policy.
COY,,"gc und... S<:<tlo. I only shall ""nlln... during the maiIu_ pcrlod(., _ifled in
indivldWlI contrac1.:f, but "at exc;ecdl1"l8 a rurther 12 monlh3. flVm .;xpiry dato of the Pmjecl
Period as $1$\ uut In hem J of the ~J~i(ms.. t)lUihK sucb malnt.:nanc.c petitxf(s}, eov~rac~
 is limited 10 phl'Sievll",. or physical dormtge ...ulllrrg tl'om ... aMbulab'" to:

         ft.      rOJulty Ql" defi;cdvl; wo~'Pt ":Onsb:\ldlon. matcrilll or desik" arbing from
                    QlU)c oc.e\tmnJS prior eo ,tn. GOn1n'cm:cmlJf't& orth. tn3.in1On:anco p.mod; Ilnd
                  ill


         h.       np:ratlons C:iU'ried out by O1her I\s:nJreds during the moI'tIb:nunce period($) fOf
                  the: purpose or wJllplylne. with dwir oblicadons it) n::$pt:Cl of It'IaJtdcnam;e nr
                  (he:: making 1\,000 Qrdd"~ liS may be rc:r~ 10 in the candiilo", uFcQotntct.
             ,    or by an)' oLhcr vt"iL'I: .tII .he ~hC' ~orir,. incvryc:d to comply with
          ,       quultljeation:5 lu dill IKCCpflU1t...'c ccrtlfk:u'e.

                                                                                                 00037

                               mGIZIUIGt
                                                                                      "   I·




20.    OTHER INSURANCE
ThoIMllOncc al1"t>t:d.d ....d'" _  I shall be pri....".lo. III"Id .,.,..'" no <;Ol1tribullo. Iio...
""l' oIhc< i _ IlI8Inlalncd by or Ib, tho PrlnoIpoI Aoo<,red!.) and/or Otber A_ta).
                                                 DEFINITIONS
                                                 (Sio:oIo.l ...ly)

1.     ~    phra:;c "'rbe: {Irq,","" IblUnd hontJ~dc.r" ,,1...11 bet IIub#IiU.t14d for the ward
       ...._ , . as \I5Cd In the IlICOI"pQratod Cl....... wt,•.", ,1,0 """'''''' or s..:rion I of the

2.
       1'011")' allows.
       1,., _hi
       ~

        _
                          "ra...",,-
                       oMlor moting ...uor fIooIIog In dry d.>d! _ r RoodlJIa
       ...... rer of the prop<tty i......-..lI.... _
                  .. 01 ....
                                       abaIl bo """"'=<I to I""'''''••~iddlllll 0.10 unci
                                                                                           """or
                                                     and/or Clnplll<:al1<l1t ondIor pooilIonins In
                                                                                                         _rorr    I"""""



3.'    The term "Occ:urnace/" ~v.cr usod in S'CC1.iul'I ( or d~ Polier. shafl mean one
       1~ accident, dtsa.m:r Qt C8.$1JS.II)' ot :scrte3 orl~;';. IICcldems. di.sQ\I;Q or 'C~'iq
        ari:sing out or one evenf:;                             ~


        i.          u to:spO'C;:~ owi'ndJttorm." .11 c~. QfQl~",,",. btnrl~nec, dmilu IIIt.or'rru1 IUId
                    SY:lllem~ of wlncls of. violc::nl and d~ln1t:lIylo!. natUre• .nanS aut of the $amC
                     llUrto$pheriC d1StIJrbal'tec Wltlll" any period "r ~cnty-tWQ "CObS!;f;:udvc hours
                     t!()mrncneinc during: the: period nf this lJl!tU"lIflc.::~ shall be considered one
                     evem;
        it           each ea.rmquakt:. shol:lt qr volcani!': nruplilln.. shoJJ \!om:tilulc one tMmC
                     bcrcunder. provided Ibllt ir mure dmn OO\.' CilrthqUUS;e.,. shtxt or volcatlJe
                     ervption shall occur within any pedod "r seYenly.IWQ wn,$cculiVc hocm:
                     ..,nun.nems during"'" p.riod .r Ihls f"""ance, we.h CJUthq...w.. _                    or
                                                                                      -
                     VQlcanlc. cC\lption~:man be cic:c:mw to be (un: 'C:'t-cnl within tIM fTit!4nlng hct'CQf.
                                                               ..
                                                   EXCLUSIONS
                                                   (s..:.1an '""Iy)

  \.     1'ba """"'go .!fOrded by Sc<:,lon I ,ball !IQt apply '":
         ...          vc:mel$ or other Wfltcrcrafl. QXceP( tist       flU.1Iil'1l!,   matQrial:s   I~'   ve destined to
                                 pcrmanenl part or tho complcte\' ('h;)J~'i Md
                      bccOlntll' It                                                                rtl"'e ~ared   to and
                     IKi'ccplcd by Uoderwrll1rr$ prior,u lou:

            b.        aitt'lraf\ and/or hclie:opt~l'S':

            t;.       1~mp<lrary wotic_, :,"0' pt"I:plln/.lory work •• J\I"\lf'Ort)' and/ur equipment lh;iIl r;&n.r
                      not owned by Ihl: Principal I\Iw.n~thr Itnd on:: not. rOt iocotpon&l.ion in Iho
                      CUf\tracl ""mit.. unlesll scpar;.lcly scl1\.",,,,"<:\1 hCfOlJooer IUld agrco~ by
                      tll1dcrwrlh:nt .11 on addllion41 pt.."'InllJm pOl1r ta las,::

                      p;n~hiQ rur nnn-c.ompk:;tlo.. or hI" dt.:l_y In          OIHnplat;ut..   ur COllll'l1'Ct or r~f1 or
                      IlQrH:ompli;1QC;:c with cOhtnK:l c'lNlIIun.'i:

                                                                                                                    00038




                                                                                                                      SR-001473
P":

            c.             any claim by ......,.. of 1M platN_ and/or _         boloS plaocd In lb.
                           wro""  Iocoti..... unI.....used by ... O<.wmnoe whloh b ,",,""'" by the
                           tcJms of Sootion I;

            r.             I.,.. ofu.. or delay I. -,,>111/11••rIM i""""", properly                  ho_., ""us«!;
            II·            liabUit)' ~ under (;ontrac:lS or othctwi$llt. for ·ptrrormanoe Ou~"
                           si.... by "",,pilon;                                                  .

            h.             Inflddlty of. Princlpalll.....-..J or w;,~ Ibc knnwtetlge of. Pri"!'lpalll.$$u...J:
            i.             c:osts of n:pafrin¥- eom:dinc. or I"C1::tlryiml wr:at Ind lear.. IU$I and ox:kllsatiOh
                           and nUCIlIalk>.. ln _""",tun:;

            j.              any c:Ialm W"Il !root or In ""nl1O<!llon wllb Ule dump!hi or II><ks' .,.;tor
                            oimilor ma..nll.. wb"" ,..;, roc:I<.s and/or similar matcn.b ""ve been placetl
                            inlha wtQQ8 poc:ldoa or loeatlon;                                               .

             k.             aU ()p¢mtl0tJ3.. 'lCmpofaf)' or IXnnanctat wOl'b. 3.$$ClS or cqulptnoo« (Whether
                            dCSlined to be .. pcmu.nenl part or [~ prolec::t or hen ror Which rc:latc::d
                            budgdt:::d. cO$(s ate 00( included wilhin (he latest ag.n:cd Schedule: B;

             I.             Ih~ wsls       or ~pc:~ I1f repairins, I1!!'newing or repJ~o;;l1g fuult)' welds;

             m.             10... d""age, liability or ""P""'" directly or indir<:clly tpu$etl by or
                            eonlributcd 10 by or arising from:
                            i.           ionIsing rndiations (corn or cOhlamlrwtion by radioat:tivity truro any
                                         ltuclc.r f\l.el or (rom "-')' nucl=r wa~tc; or (rom thl: cambu>tion of
                                         nuclear fill::l;          ,
                            it           the radi~etive., toxic. explosive or other h~ous or contlminaliDK
                                         ~ of any nuclear 'i1\:JlaJ1,uoh., tca~or or oilic;r nUl:lcur a.sumbJy
                                         or ttttclcar component 1.hc:t1:O~   ..
                             il           :,' ':. watpon orwar employing .tomlc 'Of nuclclV tlsslon bndtor fusion
                                          or other Ukt rc:a.ction or nsdioacHve fol'l:e or mfIIncr. Or
                             jv.          mdifX1CdTC        (:on\lItninuli~~   howc:vcr c::e.u:sw whe" '.,      <II     'lOtcVCl'
                                          happc::nin~;

      2..        1"he following clauses i. and ii.               W'I:   only In IlPI'Ily lQ propc:.rty on land and/or jnslall~
                 .\ lito otT"".,. I_tlon. but thoy shall                    flO' bo COnslnJetl to "".Iude RhY$lcal loss Or
                       !'y"Ic:a1 damJlGc      ClIU$C"\I   by mine."" bomb:.:,     torpcdoC:II. mi~ilc#   or other     "'TCdpo.nt)"
                             ;!11J.   rnnn previous hostilitil:'J or mUitary c~cn:il'loU.
                  i.          ··IOlwithslllllding. :ilhything to the i;Qntr.a.ry contained hmin.. 'I~s s=tion d~
                              not ouVt,:r lou Of damage directly or indinxU,y ocQSioned byy happening
                              lhroulth. or In cotl.1ccqlJcncC' of war (wbcth<:r 'W'oIr be: dc:dan:d or not), invu!lloo~
                              ne1., or foreign t;ncmies.· hostilities. civil                   ~r.    rcbcUlr         ""JIYlioo.
                  t           ih$\lIn:cdon. miW'I'ry or usutp.:d po~ or CQnfi::lCation or                               :!ion tIl'
                 ,.           rl.-qui>tiUon or dcsti"tll.::lil.n "r rI(' d:£lnage 10 prop<;rty by Uf \.                  . ...der or


                                                                                                                             00039
                                                                         ·21 •




                                                                                                                                SR-001474
     anr gov _ _• or public or I.-J ..nhorily .''''01'1        .. ott.:.wi:lc provided in
     Sedloo I oflbc Polley.
iL   Then; sJWl be; no liability who_             r..r any claim ........J by or IlOOJItIl1g
     fl"Ofl'l. or Iw;utrcd as a ~nscqUft1oe of.
     ..      (I)    Th. d"""",tlo. of an oxplosl....

             (2)    Ant ~(l or war -.,d e.used by Nty IXtrwn ~i"g
                     maltcbJsly Q( l\o'PIa -political m'QUve..

            Ant "'" for polldRl or I<rrOmt PIlIJ'O"'" of any pc:/3O.... ~ Dr
     b.
            no! agents of. _ l I D         '0_.•     nd wbether tb.::"Iol;$, damage .r
            ex.,..,.. .....IUna thc:P>liom i. """idcnlDl or Ihtc;ndonal.




                                                                                          1)0040

                                      - 22-
                    iUSlZlllItlt


                                                                                   LARY iNSURANCE




                                                                                         SR-001475
                                   -:    :     ,
                                   ','   ':'




                                                   SECTION II-LIABILITY
                                                    INSUIUNG AGRltEMENT
I.         COV~RACIl


U~ittt$ a~ $ubl~ 10 l.hc litnitatlom. t~ CIOntJilfoM and Qclus'
ImI<mnll'y lhe Asouttd(.) for Uld"",t. N<I Loss wbicll ,t.: .... """"(.) sIuoI
pa1 by """",".r
           I.           liability Imposed upon u.. A~'l by ra.,. and/or

           il.          expI'W Con!nlclUal Llablllly.

ror J3.0diJy         '''JUt,. or Propc:t1y         Damage   QlUacd   by an Occu
~c                   10k.. p""," during the Pro]OCI Peri<><! and ari... 0.
1M Scope or InS\Itancc secrJon herclh.
2.          DEDUCTIBLE

Rt::glltdt~$$        or the pumber of;
            i. Assureds under the Policy.
            ii. pc:rson.s or orpnl:sauOt'U who sustain                       iI.)' Injul')' Of Property l)-,Jmage. ur
            iii. dulnu m4'Cb:: Qr ~uit;$ brought VIl lI.Iot1O             t of Bodily Injury or Proport), OIUn!Sl;,c.

Undttwrlten: shall only be liable                    rot'
                                       Ult.imal C( lq$s exceeding lhe Deductible Sc' fonh In
hem 5 ot th., Oecl:arat1on$ 'in mJ;~ or            and CVe:tY O~cc Inc:iudlne, c:.'ltPCO$eS.
liabiliw. debris n:m()V8:'~ uncollected ace:   chlltge.s and legal ren, attdlot d~'(ellCt:i cfmr~.
 or all combined.

 J.          LIMIT OF LIABILITY

 The: Sa;eiun II L.imit or t.iabUJ                        ~,ed in Uan 4 of Ihe Dcdaratiom. i$ the limit or
                                                       IQtl II tar aU Ultimate Nct to'" by r<:aon or anyone
                                                        number Qr ASSW1:dS, claims or claimants. The Llmll of
 Liability :sIuJ1 be leduocd                            may be ••....",cd by Uili ...", N<I Lo.. paymenls.
 U~tcr:s                IhaJl not b.. 0 19ated to mllko any Ultimote Net I.ou p;t.)l'mcn\ bnce thq Umil
 or Uabilit)' i:s met. 01' upo deposit of the availahle Limit of Li:llbUlI)' in a court ofcol"l1petc:nt
     .~';$didioa...        '

 4.

                                 ( be catlcd' uJ;lQU (0       l:I$. ume
                                                                  ...     charge of Ihe 5euJcmenl or lIerencc n( ahY
                                1 or ~ng Ill$lltul(;:d a"aiM the I\::ssun:d(:s:)~ but Uaui'CJ'Wl1,e:rs shul1
 ha\l1:: the rirth'    ~hzll 'bII!: giyen I.ru:: oppnl1unitr 10 ~i.t¢ with tho; A.s)urcd($) in lhe
 dcl'c:noe. and 011'01 or lUI)" chum. suit or proceeding rdtdi,,¢ In In (>ccu~ whc;«; It..:
 e'qi.." 9r :f ~ ih'l'O'I ....:_. or GpI*JQ NUliUl'I4bJ)' cUkel), to ihVol'll'o r:.moWlls payabloe by
 tJnd'Crwrit • in which QVcnllhl: AsslU'Cd(s, :md UooerwrilcrN lOholi cnwopcralC in aU thinu.s In
 Ihe: derc ,~~r'StJch claim.l'Ouil or pro.;:ccUinK.
                 ,                                                                                                  00041

                                                                 M   2.l _                                   LARY INSURANCE




                                                                                                                            SR-001476
                                    TERMS ANI> CONDITIONS
                                        (Scollon lI.nI,)

I.        NOTICI&:TO UNDERWRITERS

In the nCh' of un Occum:nco. the As$un:d(s) shall pi-uvkle wrill.en notice t
SOOn" is pl;1iC;l/abl. SUltIni tho following: .
           (I)    the O»«>iflc 0cc:ur=Iec; and
          ,(2)    ,he damages w!deli mat ......, M has =ullQI from Ih'
            (3)   Iho _ _ b;y wblch lb. A ..IIt'9d(.)                       n
                  <:kt;um:nee.

In    ,.,pocl
          or Clollns \0 whldl Stdlon II, I&>cclusf •• IS ...r Ill. "",ur<d(S) shall pm.leS.:
sud> noli"" wlthl. tho limine requl,..."".. set Ib<Ih I. Ibnt h"ion.                    .
2.        ADMlSSION OF LlABn.r:rv

Th~ Auun:d(sJ shall nat 11"1     any Wily acknowk:dge .adrnil any liabilily on a~unt or :an)"
C>oetIrn::tu::c I1Qr settlo nor neao'tlal.c t.be sdtlemem r an)" claim or suit resulting. lherc:from.
nor wIthout dw II;Omc:nt of UndCl'Writ'e1":Sw inCUt" Iltly expcruc "rh~r IbM 3UQh imm«tiab::
m!;,dlc;.a\ ot .urgiQl aid as b im~vc at rhe 11          oftlw: ac:l;idcnI.
J,        OTHItR,lNSURANCI!:

If oUll::r valid IUld eolh:t::.tlble iDsUtant::::le any ulbw instll'l!r Is ,available (0 (he l\s$urcd(sJ
eovaint. a IQ$' ,,1$0 CQve~ by this S tion: It of the Policy I olber tMh imur.m.c;:cr lMl bi
specifkaJly stated to. be ~cc::s; of ahe P. lU;:Y. rhl:' hubratlCC Jd'fr:)n1c:d by Sc:::ctlt)l't U shililf b.; fh
~XC<l~     or IU1d   aMlI nol contrfbut.       hk r:uoh other in$\I~"c~. N'~'hln8 b.:rcin $hall be
eons1rued 10      m~kC'   i.he Policy sub       10 rite terms. conditi<lns and limitatlioM or .olher
insurance.

 4,

 In the .vent of on. A",UI'Cd I unlns liability , ••ny olher.f th. Aslrurtd., tbI. SIlO1lOllll of
 \hI: PoIiC)" shall eover the:       against whom thll: d.iln b: or may be rrutde in the same
 manner as: if' '~le. J'QU es had been I~ \0 each AmJred. HQWQ\lcr. Ibc:: 1neIU3Jon of
 more tIM one Assured h        det Ih.sU not OPCf1,CI: to i~~ lht: l.imlt ClfLillbilily.
 In no case shan thii$ • tion II of the Polley provide coverage ror any physical IQ$li or or
 phY$icaJ damns!; 10 0 derects discovr:rcd in ~ prupeny inl>Ure:d under SCCfion I.
                          or Other A.'iSured$ don naf IIppl), (9 Ql;lual 01' ;dle&cd lfabUiI)" IQ olb"
                        v-:nduf'$ and/or suppliers rur l.."un:scqucnll-.J 'oS$" 10$31 or proOt or bu::.int:~




                                                                                                        00042

                                                       ,,24 "                                      LARY INSU'RANCll
                                  nOllillUOt




                                                                                                            SR-001477
                                                            DEFINITIONS
                                                            (Sodlon "only)

I.        "BODILY INJURY" ....... bodily In)"')'••icIcn...... d i _ .. tiding dcalh
          "",,"Ing ~m (end indudina dama&os .Ilowed ror \oss of so                                                   ) and m..,1lll
        . an,,,,,,,,, provimd """" injuries ... ..:ado.taUy s"""'inod by ....y                                     ~ by ........ of
          tho~. o""",d_ ..                           dec""""
                                                 hc:<Io.
Z.        "CLAIMS     lQ(f'Er«:nts'" pall mean n::asonablc Icgstl              other expenses
          I"""rrcd by or on behalf of tho Aooun:d(s) In tho d< •• o( an, ",,"Creel .Ialm
          inoludlng .IIOtnq'. f.... and dl ........"ents. In....1 .... adjust/llcnl. appraIsal.
          a~ ~~ ...-.d. ..~ .pet p~ Md                                  pa. judccm              int~ CxclloJding MlI&Ii-..
          W3g<:s   and benefits of the A$suffiflll empJo)'Ce$ a                               tht.   AR;urtd's lkirniDJ,ttrllltivc
          ""J>I""I"'S-
3.        "bAM AGES" shall "'"" com~ d                                             Bc.1. nwn*17 JudsecmoftlS,.             IWmis,
          and/or QOtnptvmb<! ~tdc;:rn~ IC'fIloJ'CKI wit                                miuwrilenl- CORSon" 'but; :thctU "Cle
          include flhC::S at penalties. punilln:         • I'!J(Cn'lpI;Uy damae,q, cq~lcblc rcUcr.,
          ll\Junc.ti...c rdfef 01" any'additlonal dam e:s rt:$ulting, from Ihc multJpUeal(JO of
          eompc:n:;ato:y dam.g~.

4.        "EXPRESS cOmMCTUAl. Ll                                      ILITY" mcan.$           'hl~ilJty ~         the A.3$Ut't:d bM
          "".....,.Iy llSSumod prior 10 lUI,                0.:.=9"i='" """"red by Ihls Policy In:
           !Ii.        iii".)'   wrillc::n contt~t; Qr
           b.             ~      Qral   t;Qhltact   red.u      [0   "'rHing. ;tthin 7 days after the contnsct is otRlly
                          ag~.

S.          "OC(':::Uk.Rl!!NCE'" means un aeci'deul. ineludinu coOliftuQI.t$ or repe~u~d exposul'C t()
           (:bO!litlo~ which f$a;l.Iltc in Bodily Jnjuq or Property Damago n<lhher upcc:tbd nor

                                               .
           inltwfed from the $l.ndp,ofnt of the AS$u~.
           'PROP£ltlY DAMAGE- mo.... pilysicSll ... or or
                                                                                   .
                                                                                            dr..
                                                                        ct dan>age 10 or d<.S'lniCUon
           .rtanglOl. proJlOl1:Y.A ..ludln, lb. I"" of us< thereof. <nd 1 11141•• the I... or .... of
                                                                         ..
           •..,,11>1. ~ which hM ......... phy'; ..Uy 'nJ_ or d.."",..., Provided ,,.,h
           10$5 or"", is cau.E:d by an                 O«.um.""
                                                     dufing ,b. Policy Pcriod.lII1d such I..... arc
           .cc:ldenlaUy .usfaillOd by...,...,. of tho Assured'. opern1l0", ~                                            """'ared ,.
            Und",wrflCl'll. /                                                                                       '

 7.         "Ill..TIMA.J NIIT LOSS' .h.II mosn .he ,olal :rum lho Ass..-.d I. obUll"lod pay
            It$. Damage,. and $hull include CI"lms expenses in IUSpCCt,of c'aim5 po~r«I under
                                                                                                                             '0
            Ihi# poUe?

                                                             I::XCI..USION:S                                  '




              I:.
                                                             (Scc:tioll U IImCy)

 "1lH: insu               .IdTQrdcd by Secllon         JJ docs noC apply 10 aClual or aUGg~ li1olbilily:
 I"         0. sin& wi or opcradons                 in 'in1cntlomd viohUion Dr tlhy nation",l, international. fcdcI'D!
            Of ".ullc: :oJ;tJlu(c: or J,.sw;
                  ~




      -
                                                                                                                             00043

 ... ...'..,. ...,.. ... ........
                      ,    ,~                                        - 25 •                                              tAR Y INSURANCE




                                                                                                                              SR-001478
                                                                                              ... ,"    .



2.         ....,..., by 101)' _ b l l . ,          _lor.
                                                  !rail.... vchicle (<>!her 111M lw¥I propol
            Iocomvttvc.. ftalcht tQn; 11)' ~fl. 'Thil: cnn:tPAon ......U not apply tQ ......,. CJ ... l)'P-
           "l"'_.IIOI •••
            _ . dild! or Irmdo dlll8<'. power ""'.... oho..l. grad.......-..p.!r
                                jec:l1o _ .... ychic'" ..gbwdoo;
                                                                                                 d ,I",il.r


3.         for Rodllyl'liury or Propcl\y 0 .....11" dlr«tly or indi=tly """",ion                                         by. ""ppcni'B
           thtoU;h OI"ID ~ of:

           ..         W1Ir   C - 01«1..-..1 or _}. I.......... "Ill or f....1
                     civil war. rebellion.. n:.\'OIuuc:m.. insurrcctton, mill                                 or u.:sujpcd pcwcc Dr
                     =nfi:scatlon or nallaMfl$a.dQll or r-equbitlon or dN                                    11011 Qr IJropeny by or
                      under the onScr or dn)" &O"~c or publiq or                                       imthority; Q'r

           b.         lhe COItHquc:.ncc oran)' aet ror political or ler                        L p~              or any ~on or
                      p::DOm whctbc:r or not.             ~t,
                                                         of • ~n:1                        _                 and Wbcthcr or nol tho
                      '.... dornoae or ....,..,... ....111.& therefro·                    aeckf.cntal or Intentional i
4.          for indemniticad<?ft of ~t:$Qlt$ for damace to
           .equipment '¥hUe pc:rlbrmint openuions ror My'

5.          arising out      or the:   U$.C   or   o~(lIli()n   of w            aft. whether                Qwtled. ~Ime cb~d.
            ~rebool  lO::hlutere.d or Dpct'8led by uny                   Ur«i. or fot whlch any A:buRd mil)' be
                                          as
            ,espon.lble .",... !han declared hereto'

~,           to an A.sS1U.rcd·. employccs, w~lhc\'               A"stU'cd is lIabSo Il$' *" employer Qr in an)'
            other Cllpa~ll,.. in~ll,ldinl: wilho ..... U ting the genentlily of Ihe forl:&Oh:tg any liability
             under flny woric.er.s' compensalion aw. unemplo)'rncnl com~Uon law. dlsablUly
             benefit 1:rH. Unit~ Stare::s: Loh          rvIlcn''S and Harbour Workers' Compensation Act,
             Jones ACI, Death on the Hlgb                 Ac:1." Ocnual Maritime Law, F~ebJ Employcn;:'
             Li.bilhy Act.; c>t Grtf IIIlmil... _ww or li.bilill~1 llrId/'or wI'KlItbcr by te-.sQn of I.tte
           . .relationship of ma$tet and $f: ant or employer and employcc or not.

 7.          to \he spouse. child,     l,. brother. siS1cr. iclalive. -d.cpcndCltt or 'O$tatc of W1y
             <II1pl_ or an AlDm.;~.;,·.lng out of Illc bodily ond/o, P""'Onal illiU/J' 10 . , illness
            of   dc:llo!h   Qr ~d -:mp         ~ ~cthcr         the   A3$~        mo)'    ~       liable      lUI o,ll   eroployc:r Qr in
             any other crtpJClt.y                   er;

 I.                                    Iy Injury to MY IC'Inplo),cc of the: /\.s:surcd" includlna. without
                                    ,.lIly of "'" f.,oll"lnli aoy ••                on
                                                                         lilIbility fqr (I) indemnity .r
                                        In. 10f1. conlmd or othcrwi$C and (ii) !Jny liability of such other
                                  tmdcr W(lkaCC or ag.rc:chl<:nt;

 'I.         of any cmp,       ~   or IOUlY A~\Jred with f1I'JlPcet 10 80diJy lnJUIy 10 MOthe:t t:tnployee at'
             \he: Misu        su:s,alncd in \he l;Oune ofsudl Nnployrnc:l1';'
     10.     which         dirc:ctOf". omoc:t~ INInnc:t. prif\l:ip:ill,cmployce or slQQkholdtt o(Lhe                             A~'urecJ
                       ve (0 my employfl:C or Any AS$Urcd:

     II.
                        which is bcirtC driHcd or worked              fJVCf   hy or ~1n   be:'..~lr v;

                                                                                                                                       00044


                                         nO&lUlllllt                                                                                     n"'lo~n:




                                                                                                                                      SR-001479
:.'.-




               it          which Is In the c:;a.re. c:ustcx;ly or conlrol of the:: Assunxi. or

               iii.        in conneetion with whic.h the l\SSured hu provided scrvicc:s.                   t:q
                           ·matc:riab;

        12.    rOt any t::O'SC or cxpcft$C incum:d In tcdrlmnt or rcswrinG en)' such
               lIUbodlu", "",II or hole;

        13.    for _ or or            dama""
                                         10 ""Y drlllll1ll )out. rip<. ••11 .......1.
               wen scrvking. mac:blnery. or 1U1)' ather I;Q\,dpmcn\ while i.t b
               .:ar1h in ..y woll.,.. bole:                   .

               i.          whie.h. is bo:ine drilted or worked o"I;r by ur on

               Ii.         which Is In tho """'" =OOy or control oft                                                              ,
               Ill.        in conllCGticn with willa. the I\#SUrcd                   provided. :SCM'ic:cs.. cqulpmcrlli. O'r.
                           material"
        t 4.    rot ccxns or CXpcmsCSi inc;:.uned in

                I.          conU'OlUng or bringlne. under (.()          ."#h)· ~1I, or holes. Or

                iI.                                               "1 such wells or halos. or

                iii.        dtiJting relief well, or            s. whether or Ml the rcltcf wells or poles are
                            $Uccc::csful:

         IS.    for Bodily l'1iury·or Prorcn              amage di~l)' or indiJ'lXdy QU.$Cd by or 4ri$lns out of
                :SC:C;pa(;t;;,   pqUll\iQn or           bnni....uon howevC4 'Ca~ 'W~er .or ~rYWr
                happonihg;

                                                  apply wbCll.m- A"urtd"has t;stablished all oftlie fbUawi""


                 L

                    b~                    fim commenced on WI idcntifiod specific date:: durinu:                 'nc Policy
                                          out in (tern 3 of tho ()e:cliJrotiufl$;

                    c..      thl:!:   'Vent. was lint discovered by thl:- AS$un:d wilhin 14 days or ,uch
                                      cneeme:n:lj

                    a.        ndtrwrilt:Of n:ccl~d wrinon nudti~lion or 100 -:vcnr from the /\~urcd
                             wUl'Iln 00 daY$ orlht' !\SS\UT,;d':i n~ cJbI.."Overy ord'lc t::v.::-tlt~ ond

               . c.          th\! oevclIl did not rClult r,om du: I\:i. "ut;d"s inlenti()rwl viohllion or 1;:11'1 statute,
                                                                      ..
                             rule!. ohlin.nce or ,csulalion.


                      ,f
                                                                                                                          00045

                                                                 ·17·
                                               ztlJ'll'Ul.IGt

                                                                             ,...•




                                                                                                                         SR-001480
                                            ",




               Even if the .bo"" eondillo.. 0) 10 o).n. soU,flod, lids policy due>!!!!l opply Ia
               0dUai0<.u..g.d n"bllll)':                                                  •

               i.           to oval..."" monil«, conlrol, """""'" nullilY or 01.... up seopint.
                            oonlaml..tiag ...~ Ia the ""loml .uoh liabllily                  I       an"", ..
                            obIlgaIl_ illl~ by any SI<ItuIO, rule. ol'di......, '9!"lallon
                            contnct;

               Ii.          to abate: or In'V'C!:$Uptc PI11 tbRat        orso:pag;~ onto     or poilu        or cantunlnation
                            of the propony ofa IhII'd .....y;
               iii.          fa .. scopAC.s.. pollution or OOqturoizw'iol\        or pro            wb1dt b     Ch"   wv...1 NlY
                             w.... owned, I~ rmlcd or OCCUpied by               .n.d, or wtdc:b Ia or WB$ .t
                                                                                     lUI)'
                             any tim. In lb........ CWlDdy or """1101 of lUI _         (1ncIlldlng the ""ii,
                             minl:ols. watci or MY other sub."4Mcc OQ. f or under suc:h owned, lcued.
                             rmIcd Ol OC<tIpied PJ'OIlC'lY ot P"'l'Crtl' in ..... -..Iy or ......,1);

                iv.          ,,",ing direc:lly 001 of the _rtation   the Assuzed of oil (othc< IIw> Il101
                             01'other su_ceo uoed In IUrth'..,.qlb:f Ihc Assuzed's opcmdons) ~r other
                             "imiJar su~ by wwcrcru.ft; or

                v.           artstne: diked)' or Indi~y ~m " age. pollution or contAmlntlidon wtU~ i:ll
                             in~nd.ed from the stand.poiul. r the ~ or any other person Of
                             orpnisalion,acdng. tbr ot en   rof lho Assured;
    16.         for ~r ari~llg. out Qr ,he LwKIJing.                      ,ing. 1.-.-1, ...ra8e, dbFdSaI. dwnplng.
                moallUring. eonllOllle&. rem..i                        or elcaning..up or nn)" Wa$lr::· materials or
                substances. or arising ou' of                        SlC materials during Intn:sportation:

     11.                                                       of U&e Qf p"rapcrt)' dirtetlt <l'f   h1cJj«!lC:tl~   resulting ftom
                                                              ace cpcradom of the Assu"7d;
     18.           fQr toss of Qf' da.rne.&c to          b-!JUrt'acc oil, guo water, Of ~r substance tlr ~criaJ. (lr-
                                                      Qf n.dudPS to phy.ioaJ pc»s<:sI5ion abo"", lhe .wfooc of lb •
                                                      • or ot~ :lub3'tohOG or m.,eri.l~ or (Of' the            'CO.
                                                                                                          or .Kp-mH
                                                        sary lo preve:nl Or" minimise :s\.lCh 10" or dam4~

     19.            for   nIleS. penalll     punlClw or ~emp'l1fY damllecs. includinL! lre:ble dimlic:q or I1l'1y
                                           ullj~      (rom mlJlUpl~ca1ion ofcornpen.wory damag.cs~

     20.            an.lng out Q good. or proIi••L, manufaeto",u. sold. h.ndled or dbllibuu:d by lhe
                    i\ssun.d., y olhe.. trading WIder his nLlme, l""ludln~ any <on\Bin.. th.... r:

     21.                      . e to or loss of or 11)$$ or UP: of:




                              prosxm.)' In Ihe can::, l;;us1.fXiy <lr ,::u,",U'ol Qr the l\.S$ured          Dr over which Ihl:
               ,     ,        A$$urcd is for any purpose exercising physical control;
                                                                                                                            00046
                                                                      • 2K-
,,,,...q0r   I ~/1S:· 4    m:...t                ~ttllilill.!10t




                                                                                                                                SR-001481
21.    for IIle - . of """"v.I,
       lQQy pw1; tbcrool) whk.b flllit.
                                        """"''''l'. repair,the......loD or "'PI~wuOIly
                                            to: puf"onn
                                                            .1
                                                                &bction     wf1loh it
                                                                            (0,"
                                                                                      of
                                                                                         d:.tui
       dalgned,lSoId, supplled,lnotiolled. n:pain:d Of .It=d by or on beb.Jr of
       In IIle no""ol _ _ orllle Asouted'. oporadons;
22.     arisio& from any ncgllteacCt crrtir oronlluion.. maJpn»c:Uc:e: or mist
        rollins 10 p;vvido p",f=l_1 ....1 whi.h I, commlued or •
                                              ....                                       ... ho"" lmm
       .•ommilled by or on behalf of any ........n:d I. IIle cond"", or y or tJ.e As.w..d',
        business aeUvities. PtDre$SionaillCi'Vie~ ~'udc but are hOt a                 "ed
                                                                                    to tbe. ~tlon
        or opprov:al or maps. plans.. opinkms.. RPOrts.. :Su.rve)'S. des        IW specifications and
        supervisory, 1~n..I!ft&iuccrifl1l., or data proccsslng           ICC'S~

23.     for ~1I1 Injury or r";pcrty ();unoac dl....lly or I    Iy ouUlng oul 01; ~
        carpoJ IWlbd; oool dll>l; polyohlorlnated blphcnyl'~y~~ \CIliary butyl cthc:r; ~iIIc:a;
        ~; Iea4; talc; dioxin; clectmmau:ndle                 phamtaccuJ.ical or mc:dh:::al
        d..up/p"xh.l(:lSf$ulr.J(a~dcvica; or any sU                         containing sud1 malcrild or any
        d""v;ulvo 111=1;
24.     ror BodU,.. Injury. Property Dam':lge 'or
        c;onuibuted to by     0('   ari$in~   f&'Qm:

        I.                                                  tomhmtion by nadiollQth'lty from em,. h,u.;;!_r
                                                            or from Ihe comhustlon of rnlt:ie"" fuel;
        it      the rudiQ3ctlvc.lo:Kk.                 (osive or other huv.ardoUIt or cont",minalin,
                PtOJI'=f'lies or any nucl          il1~laH411on, reactor or other nuclc~ ~Sl:mbl)' or
                 nucle:u eomponent             ercor~

         iii.    any weapon or t emplQyln, Il1OO1k or nvcJQt n~lol1l'1nd1(lr f\.I.$lun or oth~r
                 lib ~h,o or dicactiv<: fcn:c or m.attu: or

         Iv.     md1ol.1.Ctlvo::      tlU'ni".tian howc:...,;::r l::ALlHd whenover or wh~...U' happening;

 25.                           warrant)" for lhe ntn~$3 IX 'luality          of
                                                                     the Awun:d's produe\:$ or a
                             qrk ptrfon:m:d by Or on lx:hotlf or Ih~ Ass",tcd will be d~ne In a




                                                                                                        011047


                                    ltOdlztUlllt


                                                                                                 LAR Y INSURANCE




                                                                                                                 SR-001482
         OFFSHORE CONSTRUCTION PRO.rEct POLICY

                                             Il!tC1.hRATIONN


1•. ASSUP-t\):              (NMf8)
                            other Joinl 'Wcntun."f'C (It." Ih..-ir iJll\"l\':dl may' appear) as PrincIpal
                            Assureds and Irtcludln\t '-mJI.'CI Mntnl"UI andIor Conuae'CQt'S an4'or
                            Sub-ConlrBc.lQr.IO amtl,w M'\nloll'oiaU,,"r. and/or SuppUe.n; as other
                            AlSurc:d$ tc,r the fb.·~"\·liV\" KilJhl)l. urld inltrC$l$ IQ perwcmJing..

2. PROJECT:                 (NAMI>1

3. POLICY
   PERIOD:

                            The Policy attache$ an (I ''''1"Hl. dlltl insures In' rapcet of eadt part.
                            item or portion or the 1"""1"'.·"1 in$Lh."l."\I'hereln which 1$ pI th¢ rbk oren
                            Anund at ineeptillo nr ",hidl il«nmcs 1\1 risk or BIl A.ssu.mi afttt
                            inc.cplloo and ::;holl \."\~"·C'r (,"CmUmlU(Cfly thcrca.ft.cr
                            the last pan:.. hem ur ",,,niun "r dt(' pm~y ilUUi"Cd h~m. ~p«tcd
                                                                                               "",n
                                                                                          wmpleliqn               or
                            not later than {ll1\.TI~l. 1"h~ I'''ljecl t'triod roily be ex.t~ at tcrtn:s
                            Qnd premium la be a}U","\.'\I hy the 'uml I Jnderwri~r.

                            Co~ge ~I nlU1~h Ih'l11 1114,'lhlll,~ fII:ll~ri.ds and/or pa.t'U; come ..t tbk
                            ()f an AssllfC.d inclu\lin~ w'tlli.''''llnl ..",1 !;'lui at contreclot'$ and/or sub--
                            contractors amVur IIl1umJm:'llIn'rs .u"lIuC" $upplien prdnbc::s a'nd 011
                            lnansi13 (an and Qrrshurellmd l'hnU "HII\lnuc during aU operatioR:l until
                             cKpiry ~   d.Qlin~d Qh."'~~,


                             Legal and/hr (\)1111":1,"1\1111 l.inh'h(~ ("oVerate WSI anacll ttom
                             commenc:cmenl,..,f:dllllil\):lIU,n"iihml,·nnttatu.

                             M6INTEtM,NCllIJHt~IUI) V';~(jQh I               ulllxl
                             CQv...gc "ode>" SEt TI(}N I : I'll Y~ICAL DAMAGE _ I ""nMue
                             durll'114 'he: lNIinlmHlIl'1.· f'KrriudO:) (,r ~przcil'k:: conlnlCts (subJcd: to the.
                             rmns. wndilion:t unci ('xt:lu:.:iuHlf In Ih\'! woniing), up to Il pe:riod pf 12
                             month, aflt:r ~"piry ~Ir (ht.~ Pn;jc,,"\"l t',·rnld.

                             PISCOVERY I'EKJ'}I) (S\.'l:lil.111 l'"",' ~i4f
                             The 0i5oCuvc::ry l'eli,.1 (:iHhj".... '   .u th,,·   kl:rtn:f
                             wording) shaU eunUn".,lI,"t' un 'lu: "';"'1\.' date as on..!
                                                                                             lind c:oaditioM in Ihe
                                                                                                  fUn   concurn:z:nt1y
                             with th~ '2 rnonlh Mpinlcnlll1l.'1." 1'~j'il~l.




                                                                                                                 00048


 • _ _.u_ .. u·u ........
                                                                                                         LAR¥ INSURANCE
                                                         . \II

                                    It'OSlZSUIO+




                                                                                                                  SR-ee1483
                                                                       -::::-.




4. INTERESTI
   POLICY LIMIT: Sf.c:rJQN I -PHYSICAl. DAMAGE

                 Undcrwril....• lolalllability under ScctiOft I !'or all claim. arisiftS OUI
                 ~::r. ooc   o-n-:c shall "'" ........t 125% or the Is.... sgn:cd
                         ule. "'B"   valu.ea.   includJnl1 paYll'RflI$ made UI'IdI:t \he JlJC. IUld
                 lobo.... .,...... tho oddll_' work cIa_ iItId the _ , or~
                 and/or debris .10.... ~"'"'" .r whiCh iJ sopano,tcly limited und", the
                  ai>Pf'Ol>rl'" .....rop d .......).
                  In the CVUII Ued..,.,i""" """"1'1 Bddilionol prcmlllll1 limn Ill.
                  Ass"""" I ror all <41.... "",ing out of any one o.:oun-:c shall
                          und<r the l!scaIlllion CllIIlSe.' Undawr!ICI3' 10li01 liability
                  under Scction
                  no!. ........t ISO"JI. or the lolUal s.h«Itil. "II" values, Im;luding
                  pay....... made und<r the .... me! labour <:1....., "'" ..!d1li....1 ....,rIo              ..
                  cJaU$C. and tbe: remov.1 or wreckage andI'or debris elkuse. and the
                  s.scaI.mon Cbule (c.ch of Yd1.ic:h b Stlpa.ra.lel1 limited WlaX:r ibe
                  appropriat~   eovcrqe claUle$),

                   NotwitNtsndln, ""yllling contained h....ln, Undcrwdlt..' maximum
                   Iimi' of liability in =1"'01'0£ Se"lion I shall nol exceed the SoheOulc
                 ' ..~.. value In tho IIIJ8"QlIle,

                 ~~~~~~~

                 USS(AMO

5. DEOUCflIlLr,s: SECTION I

                  i.   USS (Amount.) cac:h and         tvtO'   Oecuncn<:c in rC$pet:t of _.II.cargo
                       sendil>gll.
                  ii. USS (AP1Qunt) cacb ••d rnr)'             Occ.""""" In respect of OnshIJ",
                       Fabricatioa Rbb.

                  m. US$ (Amount) ~h and every Oo::::urrence in respect of tow,
                     wlthln waters to nod omhon:: $hc

                       .r
                       USS{Amotml) each and evCf)' Occurrence in ~1 of Imnst)f;t;.ah
                       IQ~ or heavy un movementS (0 Onel omhore :she:::,

                   iv _ USS(Amoont) each and every Oceutrenea in \"t!."'i'p.~t of o[f:;hore
                        works and .~18ted SUKeqU¢:hl m.intlUllUK:l':!~ bul

                   v. USS(Amouot) for up IQ 2"" dillnlc:td" pipes or US$(Amount) for
                      <,'Vel' 24" dlomctcf" pl~ eoIch tmd every O«UrtCstc::1: in ~pecI Qr
                      in.Wlllalion or pipc:!'lillQ. cables.lie~in.". risen.. spool. piC'CCSIIM any
       ,              olhct :mb!lC4. QOO u,50014\ed lIouh.;.oqu$n, main1'C1UJ'\'C'.

       "           vi. 48 huurs ctI(;h and      cv~r)' Occ::urn:I1CC ill   rQPCc\ CJr~l;2ruJ~by c::hargcs.

                                                                                                    00049




                                                                                                     SR-001484
6. PREMIUM,        uss
                                        uss         (20%)
                                        uss         (20%)
                                        uss         (50%)
                                        uss         (10%)


7. NOTICEOF
  CAN(;!;LLATlON:        (N...... and Add....)

8. CLAIMS REPRESENTATIVE, (N......O<I Add"",,)
9. INITIAL ESTIMATED nNAL CONTRACT VALUE (IDO%): USS, _ _ __




                                  sCHEDULE A
U5S ____________




uss _________

This xh.:dulc: i:-. provislCtnfll and lo be confirm<;d by _ _ ,' ....~ .
on or beron: _ _ ..... _ _ _ _ _-'




      ,:                                                                   (t.
                                                                            00050
                         mUlI!.!ilt




                                                                           SR-001485
                                    , .. ,,' ~"~ .. ".... " .. H"", " .. ,."_ •• "~." "." .. ' ' ' ,




                                ,.
:'"



      ENOOI1SIWKNT I
      DEUcnVr;: PART eXCLUSION BUY-IlACK

       Nolwi~C Il>o I"""w.... of ~ o.rodl"" """ ct._                                     of tho .-hod
      .roll<Y. this I"",....... Will pay r.... !he """ or repair or '"'P1J6~"'1       C:ctIv.. »ails which
       have sulTorcd phy.h:.J Jos:r and or pIIysloal damacc: du                 I'<riod, bid tho                        --r
       fir lQ.ICh eo$b is subject to:
      .)      _Ubl.S, _ _ _.,..

      b)                                                                                ror .11 10..... durina Il>o PoliO)' Pmod,


      0)

      dl                                .,..i_+___ 1>01.... paid In MI.
                                                           ~ ,hat thi$ mdofWPlent will not p(Qvldc
                                                    tcod and
                                n ct.afu...      $t4lnd-by cc)sts: Of con&equentil'il costs Or CXpcn$e$ that
                              ble   ~   der the: tcnns and conditions or the Policy tn the absence. or this




                                                                                                                            00051
                                                                         .))       .




                                                                                                                                SR-001486
                                                     SfANLIlY BAYLESS


                                                       PlF ll&                                                                    hr;cllO
 I             MR. PAl'ANDREOU: OQjection., lonn.                   1 break.
2        Q. & that what you'" telling Wi1                           2          TIlE VIOEOGRAPBER: 12:07. Going off
3              MR. CLEMl!R: Objec:t to loan.                        3 the r«:O<d.
4              MR. PARRISH! .Objection, fomI.                       4                 (Recess from 12:07 to 12:47)
5        A- 1don', WldersI3l1d the legat ramifications              5                 TIlEVIOECXlI\APHJlR: The time is 12:47.
6    of that phtase at.n.                                           6     Back on 1hemcord.
7        Q. Didn', asI< you for aloglll opinion,                    7                 (ExluDit 13 DlaIked)
 8   Mr, Bayless. 1WldersI3l1d you"'lIOta lawyer. I                 8          Q. Mr. Bayl.... l'l:n handing you what's been
9    asb:d yOu if-based 011 31 years or experieIIce in               9    marlted .. ExJuDi'13. which is, in ibis case, al..ary
10   the i••uran«: i....lIy. both on the UIldcrwriling am!          10    lusur.mce docuux:u4 am! Laty's rlocuwentI were
11   adjusting side, having. copy of the certi.6c.ate 01            11    nlllllhele<J, wb<m pn:se:nted to us, but they didn~ ha..
12   insurance in the pollcy that you Ie!ied on and quoted          12    alabol on them, ,. w~vo used the Bates n_!hat
13   from in fooninlYOllCreporI, drafting your report               13    l..ary affixed but addo:I. doslgJllltion "l..ary Insnran",'
14   !teo; yoor leatimeny is !hat you bad 00 understanding          14    1lIldcrncath it.
IS   of what chat line meu:s.                                       15              'Ibo!. "'" l..ary insuranc:e 149 to IS8.
16             MR. PAl'ANDRIlOU: Objectio.,fOllll.                  16,   Do you <=gnizo !hat as a suppl.....tal ,ubmitt.1l by
17       Q. lsthat_?                                                I7    HoWilOO ll;q>JoratiOD of il$ olalm in tN,_7
18              MR. PARRISH! Object to fonn.                        18        A- 1don't recognizo it as a supplemental
19       A- Na worldng undetst2nd!ng of i~ coaecl.                  19    Stlbmission. I recognize it as another copy of the
20
21
22
     ""'_1"
         Q. How about the line !hat says, "Additional
                  It', Wldef the heading "Speci81
     Conditions." '1' is _ 0 0 and agreed !hat
                                                                    20
                                                                    21
                                                                    22
                                                                          same documents W\I received before.
                                                                              Q. This is dated January 131h. wh..... the
                                                                          other one was J)eccmber 17th. And it says. -Following
23   Houston Explonttlon Company is Damed as Additional             23    the January 7th JJ:lCOting' - which, I believe, is the
24   Insured. ~ Did you also baveno undemanding of what             24    meetlog that you and Laty and Cbrls Moai. """'<10<1.
25    lhat mt.an5 after 31 )'eari in the indusny1                   25    is - they are ;UbmiUing additional invo.i<:e3 and


                                                       P~gc   119                                                                 Pact::: J2\
 I     A. Not in - nodn - in Ihi5 in thi,                            I    saying that there's A revised claim amount. Do you
 2 jJ1$tan<e, I und"""'d what addition81 ..sur.ds ""                2     rteall n:ceivlng these?
 3 but 1 don't understand -1 have no working knowledge              3        A. I d-ou't recall n:ceiving this. fei have to
 4 of how it would function in thls case.                           4     look at the file to see ..... to - to sec that we did
 5     Q. Addition8l insureds .... other people who                 5     rect.ive this and made - duly nott:d the ... the
 6 are amm:ds UIlder the policyI corn:ct?                            6    clumges.
 7     A- Corr,,",                                                   7       Q. Okay. And ibis do-.nt says that it's
 8     Q. And a loss payee is the entity to whom a                   8    attaching invoices and I don't see anything here that
 9 loss: is k) be paid. correct?                                     9    constitutes invoices, but this is the only one I
10     A. 1- rm not - I - I see where you are an                    10    oould find that was a copy of this submission that
11 adWtional- yOIl are an additional a.ssu.oxJ. I see               Il    comes from Howitoll Exploration.
12 whe:te you are aloss payee and you have an intuest.              12       A. It c10es not - there arc no invoices
13     Q. And you see thallloustoD ll;q>loratioo ~ tho              13 attached to tN$.
14 one that submiued the claim and has prcseutcd the                14     Q. The 'Very last page has some handwritten
IS nOlebook!hat is the claim documents?                             15    notes. Arc those your notes?
16            MR. (l.EM1lR; ObJec:t to fonn.                        16       A- No.
17     Q. Rigbt?                                                    17              (EXblbit 14 DlaIked)
18            MR. PAl'ANllREOU: Objection, fonn.                    18       Q. l'm hinding you what l'vo marked as Exhibit
19     A- We did - could not detmnine that at the                   19    14, whlel! is Matll.. 137 through 145. which is •
:w time.                                                            20    pn:1I~ report, wblel! I bell... ;" signed by you,
21     Q. Did you ask? Did you-                                     21    plus a ttansmltt.1llo1Wdated.Pebnwy 191h. 2003.
22     A- No, we did not.                                           22    addressed to lnten:sted Underwriters ""'" ofLaty
23      Q.   ~   ever ask?                                          23    Insurance Servicas. .a fax cover page from Lawie
24      A- We did ool                                               24    Sande:s to Lawie Lary at Lary Insurance. :same date.
25          MR. WINTON: Okay. Let's toke, lunch                     25    and thCll a rax oonfirmation page 1.)0 the r.op that's


                                                                                                                     31 (pagcllll8 to 121)
                                                   Independent Reporting, loco
                                                         281.469.5580




                                                                                                                           SR-002008
                                                             STANLl'iY BAYLESS

                                                              Pap 172                                                           Pa,gc 124

 1 labeled Matthews-Danlel. Do yo. see thaI.?                             I     Q. Fourt.ec:n. CoIre<:t?
 2     A. I "" that.                                                      2     A. Camel
 3     Q. And do you <=>goize lhat document?                              3     Q. TakealbokatPagc 1. whkhis Madlan 140.
 4     A. Yes.
       Q. And 1$ this a true and accurate copy 01 !he
                                                                          4 l'reIiminary Roport. It  "Y'.
                                                                          5 Specialty Fabricators. Inc...
                                                                                                            "A..suted: Offshore
 5
 6 preliminary report dated P,bnwy 19th. 2003. that                       6           ! tIlink as we 0Ilkcd. before !he lunch
 7 you .submitted to Intete6tcd Underwriters?                             7 lm:al:. MatDon 001. which is • part olE:du'bit S.
 8     A. Y~itis..                                                        8 indicateS that thele', an J$s~ and an additional
 9                                                a'
       Q. 0l11'3g. 4. 11.11&:1: illS""""" details. !he                    9 assured, thai. beinS llD_nBxplantion. c:ntnlCtl
10 top. do you see where it st.ates. "We have in our                     10     A.Correot.
11 positioo acopy of the certificate of insurance                        11     Q. In the thhd Jl'Il2I!l1IPh of your p:Wminaty
12 issued by Lary lrururance Servi",,?"                                  12 report !hat begins. "Following' series of meetings
13     A. I sec that.                                                    13 widt tho projeot  _as:         do you w:alI how_y
14     Q. And wc'velookedat a partofEx1llbk 7 and                        14 IIJI:dings YO. bad. f_to-Pcemcetings with ClIris
15 8. Both contain a copy of a eertificaxc of insurance                  15 Mmris, the project maoagcr1
16 issued by Lary I=rancc Services. Do YO. n:call                        16     A. Woha<!onell'lMting.
17 thal.7                                                                17     Q. Okay. it,.ys, "FoOewinga sorios of
18     A. Y...                                                           18 meetiDgs." Is thal.j1Ista typo?
19     Q, And are!h"" true and lICCWlIto ""Pies of                       19     A. We had a - DUIIltZOtl$ teJephone
20 the ctrtificatl: of insurance that you had at the time                20 COQ"""atiollS with him.
21 yon wrote this d _ t ?                                                21     Q. But Ih= "'" only 01Ul meeting?
22    A. A1 the time we '\'IIl'Ote this document, we had                 22     A. One pbysica1 meeting.
23 • ropy ofMatDan 0001 only.                                            23     Q. Okay. Onthes=ndpage.thebeadingdown
24    Q. And that is !he Augast 6. 2002 Lary                             24 at the bollOtn&:tnaSelreinstatomcn~ what does
2S Insu:ranee certificate. correct., that we talked abollt               2S reinstatement mean?


                                                              Page III                                                           ..... '2S
 1 right before we took the luoch break?                                  1      A. I believe reinstatement is - could be.
 2     A. Yes.                                                            2   synooymoua with repair or return to preJoss
 3     Q. Confinning all risk installation floater.                       3   cooditiOD.
 4 correct, according to your segtcnce there? The next                    4    1 Q. Thilt's bow you usc the temllberc? 11m nOt
 5 $~ence.                                                                5   trying to "Suc with you.
 6     A. Indicates aU risk installation floatcT was                      6       A. I think-
 7 placed by Lary lnsUl'llllCe  S_.                                       7       Q. fm just txying to I:lDders:taDd how you were
 8     Q. Right. Wc:ll,itdoem'tsay,''Placedby                             8   using the tenD. It's your report.. so...
 9 Lary:but-                                                              9              MR. CUlMER: Give him a chance to read
!O     A. Plsocd.                                                        10   it then.
II     Q. Rig)lt.                                                        11       A. I think in 0", - in this_.
12           MR. ct.EMER: He's looJdng at one                            12   ","'_1 wonId be repair - repair op<nlions
13 ••hibi' and you'",lookillg at aoother.! think.                        13   thai. "" conld identif)' thai. wonId be ~ 10
14     Q. rm lookiDg at YO'" report for the                              14   return it - to teWstalC iC lO prdoss condltion.
15 langoage.                                                             15       Q. Okay. The I..t paragrapb of that section.
16     A. 011. rm looking at the certificate.                            16   right above·Qw.se ofLoss.' yon say. "In late
17     Q. Oil, okay.                                                     17   0d00er. following ....ther delay, associated with
18     A. Okay.                                                          1&   H"""","", Isidore ond LUi."
19     Q. aut that is lhc ctrtificatc you were                           19              Thai'.. typo. isn~ it7 Late
20 referring to in your preliminary report?                              20   September. early October is what you mean7 Because I
21     A. MadlIU1 OOOI.)'t'.'.                                           21   thinkLJli was the last of the weathtr systelt:l.1 that
22     Q. 1(s the c:atiflCate of insurance rofen-ed                      22   affect this clahn. and it was September 30th through
23 to in MatDan 137 thrtrugb whatever I said, 145, wbicb                 23   October 4th.
24 i$ fuhibit 13?                                                        24       A. We!!-
2S           MIt. a..EME.R: FourteeD.                                    2S              MR. CUlMER: Object to form.


                                                                                                                     32 (pall<" 122 10 125)
                                                       Indc:pendent Reporting, Inc.
                                                              281.469.5580




                                                                                                                             SR-002009
                                                        srANl.EYBAYUlSS

                                                         .... 126                                                              Paw:-l2a
 1            MR. PAPANDREOU, Obje<:tioll,      'amo.                 I    "Ill the even! of. covered 10ss Wldct <bis
Z      A. 1think you can have -I think you """                        2    - . 0 . the basi. oUettlement is" - and_
3 have a wea!bet delay Ihal would proIuOit a demci<                   3    you quo'" from the policy. """",,7
4 barge from working that is not associated with a                    4        A. Com>:t.
 5 huai"""" or a tropicaJ SWnll, so Ib"", could have                  5        Q. ADd your quote Ih"'" is definlng what
 6 been O/h... delays that _ . no. assodared withany                  6    claim<elaled thhIgo are goiog 10 be addressed UDder
 7 named - particolJr lWJlCd stonn.                                   7    <bis policy for P"'P""" of YOIIf rq>ort 10
a       Q. Okay. So ill !ale Oc:.ow.the instalhUlon                   a    U_1m, rigllt?
 9 of pi1es for logo B-1 and B-3 Wail complered wiihou.                9       A. By what -bow do you moan going to be
10 tilt!Ii<r iDcidentl                                                10   addressed by !hepollcy?
11             MR. Cl.EMER: That's iL                                 11       Q. You say, "The basis ofsettIemcnt is," The
12      A.. l'bal we know of. YC3.                                    12   basis or settlerncnt means the claims that are going
13      Q. Okay. Olcay. 1 was jll,uolsreading iL                      13   to be-l'm ttying to ~void using the word covcml
14 Page 4. whlcb wcloob:<! aI ear1lct,!he top,                        14   _ , don't WaDI to get into. fight tha(s gonua
15 li1sIlrm:e Del>ll.. Coverage placed for lbe benefit                IS   tam 1l3l1lO1het hour.
16 of !he assured, Off<hore Specialty FalJrit:llt=, Inc.,             16              The basis of seal...... is those
11 reiemog to tbe certifica1C of itlSUiaDC8.                          17   claiIm - those """' ihal axe addressed ill &luD!t
18          Aa wc.'vc seen. tho asSUl'Cds, jn the:                    18   9. the long y...wll, that arc going 10-
19 plural. were OSP! and Houston ExplonLion, right?                   19       A. RighL
20        MR. Cl.EMER: Object to 101m                                 20       Q. - fall within !he policy, right?
21    Q. Tha1's what the: certificate of iosur.mce                    21              MR. PARRISH: Object to foJlll.
22 says?                                                              22              MR. PAPANDREOU: Obje<:tion, foan.
23
24
          1m. PAPANDREOU: Objection.
          MR. Cl.EMER: Object to 'om>.
                                                ,om.                  23
                                                                      24
                                                                                A. In!he ....t it is detonnined that Ih= is
                                                                           a coveted 10$.'1, the basis of settlement \VilI be as
25    Q. Right? You can go ahead and answer.                          25 p«-


                                                          .... 'l'1                                                            Page 129

 I   They're Jost making objoctioos!'or lbe record.                    I     Q. Theae items tiom!he policy?
         A. The certificato clo.es m.cntion Houston                    2     A. -Ihese items from tho policy.



                                                                           -z
 2
 3   Exploration .. an additionaJ.ssured - rm SOllY,                   3     Q. ·Right. 00 Pago 6. "A<\ius""', Co,"""",,,;
 4   l""pa)'I:C.                                                       4 you..,... '"l'bo _ ' s claiJn is oxpected 10
 5       Q. ADd additiooal as.sured?                                   S oompdsc!he ""1"'11"'" assod.red wiihcoglneering.
 6       A. And addltional insured. yeS.                               6             aIlIidriving!he subl"" A·3 leg plio.
 7       Q. R1ghL Botll. And you say, "Th.limi. of                     7 grootiog of tile A-3 leg. "'gether with SIlmdby
 8   liability under the certificate was $8,716.000,"                  8 _goo due '" _!her delays and tho attempts ...dc
 9   ooITect1                                                          9 to date by the Assured to return to platfonu to 1m
10       A.. Tbat's what the ccrtificak: indicated.                   10 even. borlzol:1t3l attitude." Correct.? I mad that
II       Q. And you note down bc!ow, in tbcscntcnce:                  II - y ?
12   that bcgiDs, "The _ t e provides cO""""e p«                      12     A. Yes.
13   tile 'tipul>liom ofihe Wel.llf2001 pollcy f'orm. "               13     Q. Okay. AM <bis is lb. report that you are
14              Do you ""ihat isoguage? It's on                       14 sending 10 U _..... lIS ofFabnwy 191h?
IS   Page 4 of your pn:liminll)' lOpOrt•.                             15     A. 'l'hat's when it went to Lary Insurance
16       A.. YeG:. sir.                                               16 S<tvi....
17       Q. Do you !mow what WoI"" _ds for?                           17     Q. For !he Unduwrlta>1
18       A. Not preciscly.                                            )8     A. For onpassiD,g to UndcrwrilC[$.
19       Q. Have you ever heard the phrase ~We11ingtod                19     Q. RighL That's alii was saying And your
20   Construction All Risk"?                                          20 undemanding as of the date you wrote this, from the
21       A. I have heard that tcnn.                                   21 c:crtificate of illSUl'ance. issued by Lary, was that
22       Q. III it your understanding tJiat that's what               22 tile policy liodlS ... $8,716.0001
23   Wdcar meaDS?                                                     23     A. Yes.
24       A. I believe so.                                             24            (Exhibit 15 marked)
25       Q. And then on next page,lPage 5, you state.,                25     Q. Take a look at whall've marked as Exhibit


                                                                                                                   JJ (pas", 126 '" 129)
                                                     Jndependent Reporting, Inc.
                                                           281.469.5580




                                                                                                                              SR-002010
                                                          STANLEY BAYLESS


                                                                                                                                Pap: 136
                                                              "'" '34
 I     A. I don't iaIow, I would IISSIIlllC it would be.                I    tbey bad to _        worl: o. the jacket itself wbete          .
 2 Iatger I.". than UlCIliIy "llI{>air I"",.                            2    tbey wm: ooing welding or S<>.tD:thing, that would be
 3     Q. Then at the bottom il says, •Advioed                          3    picked up ill downtime c.xpeIVJe:i?
 4 Shephenl." Wbatdcea thatmean?                                        4       A. a.....ny. if-if a woik,,";s unable to
 5     A. Well, I beli""" thau""... that I did DO!                      5    worl: and chargesl10urly time IWitlns 00 weather. that
 6 have • copy of the rclu:duIe. Advised him. And h.                    6    woold be. downlime-
 7 was going to fax me a copy (lC same.                                 1       Q. Would that-
 a Q. Wbat rcl1edoIe ""')'011        _g          to1                     g      A. -I»>"o' ..pense.
 9      A. The _             indioatlng pilings portion of               9      Q. Would that be astandby expense as well?
10 the job lllSUl'Oi                                                    \0           MR. PAPANDREOU: Objection, funn.
II      Q. Now,lIouston Cuualty is not the lead                         1\    A. rmnot-loonl-lcWo'tthinkso. I
12 _ " " on thi. polley, OR they?                                       12 think it might be a ,ligbdy different -
13      A. I  cWo,   believe ...                                        13    Q. Ololy. SQ)'OII"'-
14      Q. Tha1 wu - Wellington was lead                                14    A. -expense.
15 I.lJ\derwritet. mr:n:c.t?                                            15    Q. So)'Oll're making a diatioctioo _ j u s t
16      A. YO$, lbeli.... s..                                           16 suspc:arion ofwoik. due to weather, vasus standby.
17            (li.;tbibit 16 madoId)                                    17 Is that.fair,ta_
18      Q. lbavemarli:ed asExlUbit 16 wbalappean to                     18    A. I think tbey '"" different types of
19 be a printout of an cmaill'rom you to John HOOgett                   19 Cl<pCnditmes. Dlffenont types of expenses.
20 aDd k Is MatDan 0132. Do you recognilJ: the!?                        20    Q. In some of the notes we've looked at and in
21      A. ldo.                                                         21 your preliminary report. you talk abo.t something
22      Q. And Mr. lIodgett "'" with Wellington                         22 that you de:saibc as weather standby. co.rrect1
23 Insttrancc in London, correct?                                       23      A.   Cmroct.
24      A Yes.heMS.                                                     24   Q. What is it thet )'011 are des,,:ibing as
2S      Q. And be W3S on the elsims ~del                                2S weather standby? What types of costs fit into that


                                                              hit 135                                                           PligolJ'i
 I      A. He was jp the claims department.                              1 particular pigeonhole?
 2      Q. Rlghc SQ, in (lib... words. undClWriting                      2     A. Those are genemlly characterized-
 3 issue:;: policica.. cla.ims handles <;laims that come in              3 normally ~ as eosts for vesscb wailing
 4 under a pOlicy. right?                                                4 or - waiting on w~ or mobiUzi0S to shore
 S    A. I tl1iok th.(, geJlel>Jly the way irs                           S because of weather or mobUiz.ing back to the work
 6 organ.izOO.                                                           6 site following the palisage oftbe weather where
 7    Q. May be grossly simplified. hilt essentially                     7 thoy'rc unable to directly work at the site.
 8 """",Ie, right?                                                       8     Q. SO you are defining weath=- standby as
 9    A. Com:ct.                                                         9 being vessels that can't work because DC weather?
10    Q. Ol:sy. So you're writiog to Mr. Hodgen.                        10     A. Oencrnlly, that's what I would put into
II indicating that you've II.$kcd for I). breakout of costl             II that loss category.
12 betwecm the pile repair. platform engineering costs                  12     Q. Okay. And is it ~ to say that it's
13 and downtime expenses from the project manager                       13 Mr. Hodgen who i. ,uuesting to you the! yoo brellk
14 TechulpH<:M:tstoll, and then YOll're gonna forward to                14 these costs that are part of the claim into the:
IS _ upon receipt -tbrwanl those to him upOn                            IS categories: pile repair. platform engill:eering CQSts
16 rece.ipt, conec:t?                                                   16 and downtime expenses?
17    A. Com:ct.                                                        17            MR. PAPANDREOU: Objection. form.
18    Q. What .... downtime expen=? Is th>t the                         18     A. Would yoo - would you n:pca1 th>t question
19 weath.. standby?                                                     19 for me. please?
20    A. That would include standby.                                    20     Q. Yeah. Yeah. No problem. Is it correct
21    Q. WhIl1 else would it includl:{l                                 21 lhat it's Mr. Hodg.eu.. who is suggestiog to you that
22    A. It eQuid include other 3$SeI.S that were-                      22 the claims that arc contained in F.xhibil9 and 13 be
23 other assets that were unable to do what they were                   23 brokc:n down into the categories suggested in this
24 supposed to do because of weather delays.                            24 email. which b Exhibit 15 -16 ofpilelll{>'ir,
25    Q. SO more than just vessel standby time. If                      25 pJaLfoma engineering costs and downtime expenses?



                                                                                                                    35 (pag'" 134 to 137)
                                                       Independent Reporting. Inc.
                                                             281.469.5580




                                                                                                                            SR-002012
                                                    STANLEY BAYLllSS

                                                      Paae 138                                                          I'qo'<o
I              MIl.. Josr: Obj«:t 10 foan.                       I       Q. Alld I assume that you f~ that to
2              MIl.. PAPANDREOU: Obj«:tion, fonn.                2    Landon at some point
3       A.. We-I don'tkoow bow to answer that                    3        A. I can~ oonlinu that that was 1brwarded 10
4    questiOll. What I nee<l1O - 10 look at I. Olle              4    Loedon. 1- I do.~ !:now.
S    .,hibk wblch _ _ - what you'le asking me                    5        Q. Well, there',. aote" tI>e bottom that~
6    10 intaprel Mr.llodge<l is "king.'                          6    dated Man:b 251b. '03, and I assamc that', )'OUr
7              MIl.. a.EMER: You'lelosing him.                   7    handwriting: is that C<lfl'CCI?
8        Q. No. Thi, is yOIll' email.                             8       A. That"s COIl"CCt..
9        A. Y0Il'le losing me.                                    9       Q. And it says. •At 10:30 un. OQ Man:h 25th,
10             MIl.. a.EMER: You'le 10';03 him.                  10   '03. met wilb Guy n..eU and David Miles." Is that
II   talJdng about Exhibit 14, 15,9 and 13. There', two          11   what that says? Wiles.
12   maay cliffen:nt pl_ of P"I"" yoo want him 10 IIti:nk        12       A. I lJoIj"", n', Wiles.
13   about aD at tho """ lime.                                   13       Q. 'Discussed this fu and gave them. copy of
14       Q. Well, Ibis is your email-                            14   ,ame.   Lat<:r!hey db<:ussed with Underwritm." Did
15       A. It ...                                               IS   1 read that comctlyl
16       Q. - and you'le saying, "FmtIicr, to                    16       A. Y ...
17   Mr.llodgCU's nqum,' right?                                  17       Q. I take It !tom rh,~ when It says that you
18       A. Yes.                                                 18   met with Guy Darell and David Wiles that you were in
19       Q. You'", asked for. breakdown of costs inlO            19   Loedon for that _ting.
20   Ibose car.gnri... And I'll> asking you, is the              20       A. Correct.
21   breakdown of costs into those categories coming from        21       Q. SO was there some exchange between you and
22   Mr. Hodge'?                                                 22   Loedoolhat o«:urn:d between your M:mh 13rh emalllO
23       A. I don't know.                                        23   Mr. Hodgett and yOW' going 10 London on March 25th-
2A       Q. Were Ihcre any orb" reportS or brcakdQW1IS           24       A. Idon1tknow.
25   of costs that you submitted to Underwriters betweeo         25       Q. - two w<:eks later?


                                                       htc:t39                                                          P'ase 141
                         '0
1 Ibe date afthat email Mr. Hodgen and March 25th?                I       A. I doo't know.
2    A. There may have been. ru have to look                      2      Q. The ncxt cnby is 4:00 that SaIIH: day.
3 aI-                                                            3    What', lb. first WOld there atW 4:007
 4       Q. Letme-                                               4        A. pm.
 S       A. - at ()Ur file.                                       5      Q. Ob, p.Ol. "Met with C. Peon.," - is rhat
 6       Q. Okay. Well, let me give you another                   6   right?
 ?   e:dUbit. This may help you.                                  7       A. Ub-hllh. Correct.
 8             (ExhIbit 17 marked)                                8       Q. - 'and 101m Hodgett at Wellington.
 9       Q. rYe marked .. Exhibit 17a four-page                   9   discussed claim wd schedule. Abo gave them a copy
10   docuateltt compOsed cfMatDan 126 to 129, which is a         10   of this fu and" - wha1'$ £bat word? "List of
II   fax - the first page of wblob is a fax Iiom La!y            II   expenses 12-17-02. ' So that would be Exhibit 9 that
12   I.nsurancc to you, Mr. Bayless. I believe.                  12   you gavc them? 1'bere we: go.
13             TIlE VUlEO<lRAPHER: Could I get you to            13       A. fd nero to look at my -I can't confinn
14   raise that mike Just a little bit? Thank: you.              \4   that -1 dOIl't believe that this was given to them
15             MIl.. WINTON: He was talking to "".               15   in that meeting. fd have to look at the file.
16             TIm VlDEOClRAl'HIlR: You'", fine.                 16       Q. ThU', the oo1y rhlng rm aw.... oflha,',
17       Q. The date of rha! fax is Man:b 24th. Okay.            17   daled Dcccmbe< 171b. 'lI2. Could you-
18   Do you sec that?                                            18            MR.. Cl..E.MER: Do you want to look in
19       A. Yes.                                                 19   your 6I.?
20       Q. And thl$ appea!ll1O be Mr. La!y sending to           20    Q. - take a Jook in your documents and sec it
21   you a breakdown of costs based on cost to repair            21 you can find it1
22   pile. engineering inspection. oost to level jacket,         22    A. Let me look and see. I don't - fm. not-
23   weatbc.r due to levelling. Da.you see that?                 23           MR. CLEMER: Well, just look and ,ee.
24       A Correct. That's what he's gnding me a:i of            2A Just take a minute.
25   Mareh2Ath.                                                  25    A. I believe that's - I believe this



                                                                                                            36 (pas", 138 to 141)
                                                  Ihdependent Reporting, Inc.
                                                        281.469.5580




                                                                                                                       SR-002013
                                          .__ ............   ~~".




                                                               STANLIlY BAYLESS



 I    A. If th= ...... dynaanc component to the
                                                                    hge%78
                                                                               I sticks up above the waur'l
                                                                                                                                        .... '''''
 2 scenario.                                                                   1     A. I.-I to review the blueprints of !his
 3    Q. That the tilt was acliyoly ~g?                                        3 partlc:ulor - but I would """",that thai lim
 4    A. The plalfoon was moving.                                              4 ..ctic. thate is the jacket.
 5    Q. wen,"we dt)J1't have a platfonn.. Vie have a                          5     Q. Weo.l have - I I0OI<; some of the drawiogs
 6 jacket out tb=.                                                             6 out of the dDCUlDCllI3. and if I can find them. ru
 7    A. The jacket was I1lOviog. the d<x:l: was                               7 shaw those to YOil and you can indicate whether or not
 8 collapsiog; • dynamic sirualioo.                                            8 it's yourutKiemanding that those:: are what we~
 9    Q. WeD, we donl have a d<x:l: on it" that                                9 talldng about. aut ru haYe to find !bose.
10 point either,                                                              10           (Exhibtl34 marl<od)
11    A. WdI_                                                                 IJ     Q. Okay. ExhIbit 34. We',. gonn. Iny. to
12    Q. I tak.o it you,", fa1Ulliar with wtw a                               12 give these back before we're allowed to talk about
13 jacket and deck look like out in the Gulf of Mtndrol                       13
                                                                                 arry """'"
14    A. lam.                                                                 14           Exhibit 34 i, MatIl>n 092, which
15    Q. WluU. was being const::nlcted in this case?                          15 . _ to be. pri.tout that yon made of an email
16    A. lam.                                                                 16 from Cllris Sydenham." 1»..... to you, dated J""e
17    Q. !!.JuDit 12 is! photo<:opy of the tIlUms                             17 26, 2003, """",,17
18 submission by Houstcn1 Exploration. comet'? It's a.                        18     A. That's what thi" iii. yes.
19 pholOOOp)' of the face of the notebook?                                    19     Q. Aod!hi, noti« - notes that )'..eading
20    A. U .ppean to be, yoo.                                                 20 Ilnderwritm, Wellington, have raised • query in
21    Q. And i$ it)'OW' underttJmding that tbis is a                          21 respect of whether snutdhy c1wgoo which you have
22 representation of South Tim 317 "N' as it was finally                      22 approved _           0._13 of Seetion I of the Policy
23 completed?                                                                 23 Wording is deleted, They're asking for your
24    A. No. ThaI: is a pictw.'e of a platfonn. It                            24 COD:IIJlents, com:ct'l
2S would be-                                                                  2S     A. Thet', what it "ys, yes.


                                                                    PageZ1g                                                             Page281

 1       Q, ",Iabeled-                                                         1            (Exhibit 35 marl<:ed)
 z       A. 1 wowkl' bow you can-                                              2     Q. Exhibit 3S is MaID.. 091. That I...     "".il
 3       Q, It. labeled ST 317 "A,"                                            3 from you to John llodgett at Wellington, oopy RandoU
 4       A. Okay. I would - okay. I will as,_ thal                             4 YOllOg and TonyMaxwdl, daltdJ"""Z7th, 'OJ,
 5   that is bow it looked when it was completed.                              S • ..,...?
 6       Q, I guess. in fiW:ne.<, to you, the _     is                         6     A. Cone<:t. That', wtw that is.
 7    "I d",,'t know:                                                          7     Q. And it starts out. "Pursuant to our short
 8       A.. I don't kIlow. You - sometimes these                              8 c:onvcrsation yesten1ay" - so, apparmtly. on
 9   things arc presented with justa pictw'e of a                              9 ThundllJ', J.... 26. Mr. Hodgdl callod you?
10   platform.                                                                IQ     A. I don~-re(;all whether he called me or sent
11       Q. Okay. Tbat'sfjn~ Is it your                                       II me an email at'talked to someone else or,.,
12   undetSUlnding tbu this is areprescmtativc of what                        12     Q. I didn~ find auy ootes of that
J3    the jacket and deck looked ijke once they were                          13 e;:onversation tbat rm I\W8I'e. of.
14    complc:tod?                                                             14     A. I don't recall. I belic'VC: it wa$. more
15       h. I would aooepI that, )';S.                                        IS than likdy, a telephone convcrsatiou.
16       Q, All rig)1L AlId we oan , .. the water?                            16     Q. Do you reoodl what the sub]"'t of the
17       A We can see the water.                                              17 converution was?
18       Q. And there's aposltion of it that sticks up                        18     A. Idooot.
19   just above: the water, correct?                                          19 , Q. Do you reoodl arrything about the
20       h.C""",-                                                             20 convetSation?
21       Q. And then there'" a deck that's built 00                           21     A Idoo't.
22 that. correct?                                                             22     Q. You indicate that you have reviewed the
23    A. Corro::L                                                             23 conditiOO$ of the certificate of iTl$\lt3.llCC evidencing
24    Q. And is it correct that the jacket that                               24 all risk installation floater for this -pl~orm
2S we're: talking about is the portion that just barely                       2S installation. engaged in a number of exchangs with


                                                                                                                          71 (Pagoo 278 102Si)
                                                             Independent Reporting. tm;.
                                                                   281.469.5580




                                                                                                                                SR-002048
                                                       SfANLEY:SAYLESS



I the placing broker - and. .gain, we're DOt swe
                                                         Pagc'2.3l
                                                                        I        A No. Thallstheplacingbrokct'soplnion
                                                                                                                                 ""' ....
 2 wb.tl><:r that""""" LaIy or'l'y= Is that """"'"                      2    regar<ling!he co_go be feels that be placed.
 3 Or does that mean Tys<ts?                                            3       Q. And be~ Ihe guy who plaa:d Ihe risk,
 4     A ! think iD!his i _ it is 'l'y"",                               4    right?
 5     Q. - repDg Ihe intent of Ihe declaration                         5       A. I dOllH"",w.
 6 of !his pal1icuIa>: proi<ct to the opeo cover. And                   6               (Exhlbit 36 marla:d)
 7 then jOU quote Sec1Im I(A). indicati:ng that all-                    7       Q. ExbIbit 36 is MatDao 073, wblch "l'l"'at to
 8 thai included within thero_gels "u"-COS1S                             8   be your email to Mr. Hodgett zed then with •
 9 _ y i _ zed duly ju.s1ified in ropair or                              9   bandwrlttea pate on ~ bottom of iL Do you see
10 replac<mo:nt as "3lWl Schedule B, com:ct?                            10   that?
11     A. Thar. wllat we di<w:overod and qllOIOd from                   11       A. I do.
12 lhepolicy.                                                           12       Q. And do yoo III<OgnW> that Ilandwxiting zed
13     Q. Right. Well, _ . tho same language you                        13   Initials to be Mr.llOOgen1
14 quoted In your -                                                     14       A. I do~t boW Whal'Mr. Hodgett'a Initials or
IS     Alnthol<pOrt.                                                    15   Ilandwxiting look like.
16     Q. rugh~ And you nott, "Wooling of the                           16       Q. Did jOU_.. !his fromMr,IlOOgen1
11 certificatt and its declararloD in Qur possession                    17       A. I did IIOt - don\ beliove I _vod'!his
18 conwu no spec:i.6c exclusion for standby charges                     18   dim:IIy fromMr. Hodgett.
19 and, !utthermoro, lIIldet ded"ctibl.., til".', a                     19       Q. It's in your file zed itiat the:e
20 specific deductibldor standby cbargeo;," COIl'CCt?                   20   sotnebow. Did it come from TY"""'7
21     A. That'. wllat that says.                                       21       A. I don't boW.
22     Q. And then you say, "It is the conmntion of                     22              MIl. PARRISH: Object to funn.
23 the placing broke(' - Tyscrs again., right?                          23       Q. Th....s. _         at Ihe bettom thal says
24
2S
       A.    = ....
       Q. -"that CIa.,. 13 (delerod) is utilized in
                                                                        24
                                                                        as
                                                                             "ACS Wf!J!. SI8IfY3." Do you see that?
                                                                                 A. Yes.. I see that.




 1   the event the A~ were to Rquest a 5Cpa{stc
                                                             ..... ""    I      Q. Is that 5th August of 'O3?
                                                                                                                                 Pa,c28$


 2   additiOnal sublimit for weather standby costs in                   2       A. I don't know. It looks lib an J!nglisb
 3   addition to those included in project vah1es declared               3 date notation to mc:, but rcan't be ~
 4   10 the open cover, II OOfTe(;t?                                     4    Q, If jOU tum it up,ide down and jOU rue! the
·5      A. 1'hat's our interpretation of.wbat they -                     5 date, time, phone: number Imprint, does that - auy of
 6   wluit they opined.                                                  6 that look tlmUtia17
 7      Q. And then you state, ~In this instance. the                    7    A. I don't know who that is,
 8   placing broker has coatitmed that standby charges are               8    Q, 171621!lO42 would be. phone numb" in
 9   included in the project values declared." correct'l                 9 London. eom:ct?
10      A. That's what it says.                                         10    A. It appears so, yes.
II      Q. In olhc<words. based on ail oftha~                           II    Q. 713-622·1644, do you recognite that phone
12   standby chorg'" ar. properly • part of this claim?                 12 numlx-tl
13             MR. PAPANDREOU, Objoction. fonn.                         13    A. Ido.
14      A. We've asked-                                                 14    Q. And wbose phnne mnnher is that?
15
16
11
               MIl. a.I!MER: Object to fonn.
               MIl. PARRISH: Ob],," to form.
        A. The. hlst sentence of that email requests
                                                                        IS
                                                                        16    Q. Oleay. So,   ._dy.
                                                                              A. Thall. our fax number.

                                                                        17 faxed thi. to you, correct?
                                                                                                           somebody in London

18   his l":view and advice OD that entire cma.O.                       18    A. lwou!d....,..so.
19      Q. RighL But based on whal tile placing                         19    Q. Btlt you don't rcmem'bcr whether it was:
20   broker is telling you about ~ intent at the time                   20 Mr. Ilodgctt Of  som""'.   al Tysm?
21   this risk was placed. means it's covered under this                21    A. Co_.
22   paragraph, right?                                                  22    Q. Do you havo an utKbstanding of whose
23             MIl. PARRISH: Object 10 form.                            23 writing that i$ on the bottom of thl1 doCllrnent?
24             MR. PAPANDREOU, Objoction, form.                         24    A. By u,ndcrstanding. what do )Iou - what do
25             MIl. CUlMER: Object to fonn.                             25 you mean?


                                                                                                                   72 (pages 282 to 28S)

                                                     Ind~pCndent Reporting. blc.
                                                               281.469.5580




                                                                                                                            SR-002049
                                                      JOlIN HODOEIT

                                                        hsc.')O                                                              P.,t 52
 1    A. 1 don't know.                                              1     Q. Do you have a recolleclion or what the
2     Q. SO you rely 01'1 the broker to produce a copy              2 brief polite comr:neot was?
3 of the policy on which you can ba.<;e your actions in             3     A- I imagine it's the one th.at I wrote Oil the
 4 responding to a claim?                                           4 file OR the 27th of february or whatever it was.
 5     A- Yes.                                                      5     Q. And 1 don't know that we've tec::eived a capy
 6     Q. Exhibit 175. Take a look at that one..                    6 or that, so can you leU me -
 7 please:.                                                         7     A- ¥oujustshowed it to me.
 g            MR. WlNrON; 175. IlShouJdbelhe                        8     Q. J did? What was it that I showed you that
 9 ncx.t one., t trunk.                                             9 had your comment?
10     Q. Th",,~ an ,mail here dated 271h Pebruary.                10     A- It was the end of a Matthews-Daniel report
II 'OJ. Do you see that where it says, "Dear Stanley, ~            II in which I've written something about the piling
12 in the middle?                                                  12 limit.
13     A- Oh,okay. y(:$.                                           13     Q. 011, your scratch is what )'Qu're referring
14     Q. And lhis is from David WIles at Tysm. Do                 14 to that was-
15 you see that?                                                   IS     A. Yes.
16     A. Yes.                                                     16     Q. - on the bottomQf 171?
17     Q. And he is saying to Stanley Bayless - he'l)              17            MR. PAPANDREOU: Iwt in case,let me
18 referencing a telepbone query from Leaden Wellington            18 show you the documen••
19 along the same Une as adlseussion with Dave                     19            MIl WINTON; That's the preliminary
20 Shepherd regarding the L5 estimate for piles being              20 report.
21 within lhe 1.1 milllon SIJblimil. Do you see that?              21            MR. PAPANDREOU; LeI me gel it.
22     A. Yet;,                                                    22 That's 171.
23     Q. Do you know who Dave Shepherd is?                        23     A. y".
24     A. No.                                                      24     Q. And why are you teUing him that you're
2S     Q. Do you recall a telephone conversauon with               25 bored with his file?


                                                        Palle 5J                                                             r.gc 5)
 I Mr. Wiles, at Tysers, regarding the sublimil                     1     A. Because the 1 t th of Match was. two weeks
 2 regarding the piles?                                             2 later and he hadn't been to collect jl
 3    A. No,                                                        3     Q. SO what you do is. you will call or email
 4           iliE WITNESS: ~3y I have some morc:                    4 Tysem, in this example, and ask them to bring
 S water, please?                                                   5 documents to you. and then you expect them to come
 6           MR. WINTON: Let.me see the stack of                    6 back around and pick those up and take. them back?
 7 document$ that have bocn mad.:ed ill the last couple or          7     A. I don't generally ank them to bring
 8 days, please.                                                    S documents to me, They ~~ they bring their claim file
 9           MR. PAPANDREOU: Thi,?                                  9 to present their diel'\t's claim to me.
10           'MR. WINrON: Yeah. We're having                       10           I sometimes keep it. I sometimes write
II trouble finding our copy. Let me see if l've already            II conunents on it while they sit there, and thet! they
12 mark~ it and jllSt didn't write the number down. I              12 take it away again.
!3 have left the:;e broken where rbi$ goes back.                   13     Q. SO do they basically maIntain the claims
14    Q. Mr. Hodgett,l'mhanding you E:thibit 176.                  14 file on these mat~ers?
15            MR. WINTON: I apologize for the                      IS     A. Yes.
16 delay. I dido'( have lhatone tloted. This appears               16     Q. And when you need access to the claims.
17 to be an email from you to Mr. Wiles ~~                         17 file, you get them to bring if or they bring it to
18    A. Cornx:t.                                                  18 you?
19    Q. - dated 11th March. 2()()3.                               19           MR. PAPANDREOU: Objection. form,
20    A. Correct,                                                  20     A. Sometimes..
21    Q. You stale, "D~vid, fm bored with your file                21     Q, How eJse docs it get to you'? Eilher they
22 on my desk $0 I've written a brief' (polite) comment            22 bring it or you uk for it. How else would it gel 10
23 an it and put it (In the '\0 be COJlecled' plies in             23 you?
24 our reception." Do you see that1                                24     A. In consider it neccss;uy, ('11 keep my
2S     A. Yes.                                                     25 own.

   --~
                                                                                                                 14 (Pages 50 10 53)
                                                   lndependefU Reponing, Inc.
                                                         281·469·5580
                                                                                                                                       )


                                                                                                                   SR-002232

				
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