Insurance and indemnities

by Dennis Brand

The insurance clauses or provisions in a contract will often state the employer’s requirements as to the types of insurance and the required minimum amounts. Sometimes the amount of insurance is linked to the limit of liability under the contract – and, while there is no objection to this in principal, the required amount of insurance should not be more. Moreover, one must take care to ensure that the insurance provisions do not allow for liability which is separate or in excess of the overall limited liability under the contract.

A contract will state who is responsible for arranging the various required forms of insurance. It may also state that the contractor provides evidence of the insurance being in place or a copy of the insurance policy. Where there are global policies, production of a copy of the policy may give information to the employer to which he is not entitled; therefore evidence of insurance by way of a broker’s certificate, which will set out the required information as to cover, will be sufficient.

Employers

Nowadays employers frequently want to be added to the contractor’s insurance policies, either as a co-insured or joint insured. The purpose of this is to allow the employer to make a claim directly on the insurance rather than making its claim to the contractor, and the contractor subsequently making a claim on the insurance. This is a matter for discussion and agreement between the parties, but where there are global policies, such a request becomes problematic.

Often the insurance provisions of a contract require a waiver of subrogation rights. Put simply, this means the entitlement of the insurer to recover from the party who caused the loss or injury the amount paid out by the insurer in respect of the claim made. The waiver of subrogation rights is not a legal but a commercial matter as between the insured and the insurer. If an insurer is unable to exercise its rights of subrogation, then it is likely that this will have an adverse effect on the renewal premium for the insurance in subsequent years.

Types of indemnities

When considering the health and safety of personnel, cross-indemnities flowing from one party to the another are frequently incorporated in a contract – for example, the contractor will indemnify the employer in respect of any loss or injuries suffered by the contractor’s employees, and the employer will indemnify the contractor in respect of any loss or injuries suffered by the employees of the employer. Such indemnities may or may not include negligence, and may not be fully back-to-back. The FIDIC Conditions of Contract for Construction (1999) provide for such cross-indemnities, but they are not truly back-to-back.

17.1 Indemnities

[By the Contractor]

“The Contractor shall indemnify and hold harmless the Employer, the Employer’s Personnel, and their respective agents, against and from all claims, damages, losses and expenses (including legal fees and expenses) in respect of:

(a) bodily injury, sickness, disease or death, of any person whatsoever arising out of or in the course of or by reason of the Contractor’s design (if any), the execution and completion of the Works and the remedying of any defects, unless attributable to any negligence, wilful act or breach of the Contract by the Employer, the Employer’s Personnel, or any of their respective agents, and

(b) damage to or loss of any property, real or personal (other than the Works), to the extent that such damage or loss:

(i) arises out of or in the course of or by reason of the Contractor’s design (if any), the execution and completion of the Works and the remedying of any defects, and

(ii) is attributable to any negligence, wilful act or breach of the Contract by the Contractor, the Contractor’s Personnel, their respective agents, or anyone directly or indirectly employed by any of them.”

[By the Employer]

“The Employer shall indemnify and hold harmless the Contractor, the Contractor’s Personnel, and their respective agents, against and from claims, damages, losses and expenses (including legal fees and expenses) in respect of (1) bodily injury, sickness, disease or death, which is attributable to any negligence, wilful act or breach of the Contract by the Employer, the Employer’s Personnel, or any of their respective agents, and (2) the matter for which liability may be excluded from insurance cover, as described in sub-paragraphs (d)(i), (ii) and (iii) of Sub-Clause 18.3 [Insurance Against Injury to Persons and Damage to Property].”

Consider this in the light of the indemnity provisions of Clause 83 of the NEC 3 suite of contracts, a basic tenet of which that the parties shall act in “a spirit of mutual trust and cooperation.” Clause 83 tends to reflect this.

83 Indemnity

83.1 “Each Party indemnifies the other against claims, proceedings, compensation and costs due to an event which is at his risk.”

83.2 “The liability of each Party to indemnify the other is reduced if events at the other Party’s risk contributed to the claims, proceedings, compensation and cost. The reduction is in the proportion to the extent that events which were at the other Party’s risk contributed, taking into account each Party’s responsibilities under this contract.”

There are various views and opinions expressed on whether the classic common law indemnity regime can work in a civil law system where the law specifies where liability should lie. However, the essence of an indemnity is not to change liability, but merely to provide that the payment for that liability would be reimbursed by another party. The UAE is a civil law system that appears to have no difficulty with insurance as a contract of indemnity.