How do I insure my rigs, tools and equipment when they are out on location?

General liability covers your liability for damage to other people's property. It does not cover damage to your own. Auto physical damage covers the truck as a vehicle. Neither one pays when a pump, generator, power swivel, light plant, welder or trailer-mounted unit is damaged, stolen or destroyed.

That job belongs to an inland marine policy, usually called a contractors equipment floater or tools and equipment floater. "Floater" because the coverage follows the equipment from your yard to the lease and back.

If you run a well servicing rig, a hot oil unit, a roustabout crew with a trailer full of tools, or an inspection company with expensive testing gear, this policy is often the difference between a bad week and closing the doors. See well servicing insurance and oilfield inspection insurance.

A floater can insure equipment two ways, and most oilfield programs use both.

How the policy values a loss decides the size of the check.

Actual cash value (ACV) is usually figured by subtracting depreciation from repair or replacement cost, or by using fair market value. For oilfield equipment that has been run hard for ten years, ACV can be a fraction of what it costs to replace the item today.

Replacement cost pays what it costs to replace with like kind and quality, usually without a deduction for depreciation. It costs more, and insurers often limit it to newer equipment.

Some floaters use stated value or agreed value for scheduled items, where the value is set when the policy is written. That avoids an argument after the loss, as long as the values are kept current.

Two practical checks:

• If your schedule values have not changed in several years, they are probably wrong, in one direction or the other.
• If you finance equipment, the lender will want to be shown as loss payee, and the payoff may be more than an ACV settlement.

Rental equipment is everywhere in oilfield work: frac tanks, light towers, forklifts, manlifts, specialty pumps. Rental agreements almost always make you responsible for loss or damage while it is in your possession.

Your floater may cover rented-in equipment automatically up to a limit, or it may need a separate rented or leased equipment coverage line. Check:

• The limit for any one rented item.
• Whether rental reimbursement is included, meaning the cost of renting a replacement while your own unit is down.
• Whether the rental company requires being named as loss payee.

Equipment you borrow from an operator, or that an operator furnishes for the job, is a different problem. Your GL usually excludes damage to property in your care, custody or control. The floater may or may not extend to others' property in your care. If the MSA makes you responsible for operator-furnished equipment, ask how that is insured before the job starts.

This is the gap that catches well servicing, wireline, fishing and rental tool companies.

Many equipment floaters exclude property while underground, in a well, or below the surface. The reasoning is simple: once a tool is in the hole, the risk of losing it is a different kind of risk than a trailer getting hit on the highway.

Some operators accept responsibility for that risk by contract. The IADC U.S. land daywork drilling contract is a good example. In its 2013 form, the operator "shall assume liability at all times" for loss of or damage to the contractor's and its subcontractors' in-hole equipment, including drill pipe, drill collars and tool joints, and reimburses the contractor at a value set by agreement. The same form has the operator take on equipment damage from H2S, CO2 or other corrosive elements introduced into the drilling fluid.

Service company MSAs are not drilling contracts, and many do not have that clause. Some make the contractor responsible for all of its own equipment, including what goes in the hole.

If your tools go downhole, you need one of these:

1. An MSA clause where the operator assumes in-hole loss, with a valuation method you can live with.
2. A specialty in-hole or downhole equipment coverage, usually written separately from the standard floater.
3. A conscious decision to self-insure that risk, priced into your rates.

Do not assume the floater covers it. Read the exclusions.

Most operator MSAs are knock-for-knock: each party takes care of its own people and its own property, regardless of fault. The IADC sample says it directly for surface equipment: the contractor "shall assume liability at all times" for loss of or damage to its surface equipment, "regardless of when or how such loss, damage or destruction occurs," and releases the operator group.

What that means in practice: if the operator's crew backs a truck into your unit on location, you generally cannot recover from the operator. Your floater pays, subject to your deductible, or you eat it.

It also means your floater insurer may need to give up its right to recover from the operator. Many MSAs require a waiver of subrogation on all policies, including property. Some floaters allow you to waive recovery rights in writing before a loss; others need an endorsement. If your floater does not allow it and you sign the MSA anyway, you can create a coverage problem for yourself.

In Texas, Chapter 127 limits indemnity for the other party's negligence, but the statute's definition of covered agreements includes furnishing or renting equipment, and mutual indemnity supported by insurance is enforceable within limits. See knock-for-knock indemnity and Texas oilfield anti-indemnity act.

To check whether your floater matches your MSAs, pull together:

• A current equipment list with year, make, model, serial number and what you would pay to replace each item today.
• Which items go in the hole, and how often.
• Rental agreements you sign regularly, and the typical value of rented-in equipment.
• The equipment and property sections of your largest MSAs (look for "Contractor's equipment," "in-hole," "surface equipment" and "care, custody or control").
• Your current floater policy, including the exclusions page and the valuation clause.

Send those to us and we will show you where the contract makes you responsible for something the floater does not cover.