It is common for commercial contracts to be used by the parties to allocate and transfer risk.
Such contracts frequently include mechanisms of allocating or altering risk, by which one party (e.g. principal) seeks to transfer all or part of their liability to another party (e.g. contractor).
The most common types of clauses include:
- Clauses which impose a high standard of care or a more onerous measure of damage
- Indemnity clauses which require one party to pay the liabilities, costs, expenses and loss of the other party arising from the performance of the contract
- Releases by which one party agrees to release the other party (invariably the principal) from liability
It is also common for commercial contracts to contain insurance clauses which require one party to arrange a specified type and level of insurance in respect of obligations connected with the contract. Often such clauses will require that the cover extends to certain obligations of the principal, head contractors, subcontractors and others.
It is important to understand these clauses and their interaction with each other when assessing your insurance needs. You should provide copies of all relevant contracts to your insurance broker to enable them to help to ensure that cover is obtained which meets your insurance obligations and, to the extent possible, your contractual liabilities.
To the extent that cover is not available, you should be clear about the risk that you are undertaking by entering into the contract.
For legal advice, contact Meridian Lawyers through Webber Insurance Services or the Steadfast Contractual Liability Helpline.