Insurance + Risk Services

Understanding and managing contract risks

Smaller engineering companies can sometimes expose themselves to significant financial liabilities by not properly examining proposed contracts, according to a leading insurance lawyer.


Smaller engineering companies can sometimes expose themselves to significant financial liabilities by not properly examining proposed contracts, according to a leading insurance lawyer.

Matthew Curll is a partner at Hall & Wilcox. He was heavily involved in drafting the EngInsure policy, a joint initiative of Engineers Australia and Whitbread Insurance Brokers.

“A typical insurance clause is very broad and generally captures most claims,” he told a business roundtable this week.

“The devil starts to rise in relation to certain risks that you’re asked to take on in your consulting contracts. Your head contractors and principals are looking to allocate risk and they want to allocate it to you.”

He said it is quite common for a contract to include a clause along the line of: “The Contractor must indemnify the Principal against any liability incurred by the Principal arising out of or in relation to the performance of the services by the Contractor.”

Curll said such a clause is very open-ended and it is definitely worth trying to get it changed in some way, and he suggested five possible solutions.

The best option, he said was to try to get the cause deleted completely, but failing that, he suggested getting the clause amended so liability was shared proportionally between the principal, contractor and other partners according to their respective responsibilities.

“It’s worth arguing,” said Curll, “what you’re asking us to do is quite onerous and our insurer generally won’t cover that so you’re asking us to do something that’s uninsured. To the extent we’re responsible, we’ll take responsibility but we won’t take blanket responsibility.”

His third solution was suggesting liability be limited to the scope of insurance cover.

“We have some success with that,” he said. “At the end of the day, it’s not very useful for a head contractor to ask you to take on a liability for which you’re not insured.”

The fourth option was similar and can sometimes be combined with the third. It involves putting a monetary limit to the liability such as $300,000. The final option was to exclude consequential losses from the liability, although Curll said his preference was to start with the first option and work his way down the list.

He also discussed requirements that contractors assume liability for subcontractors as well as liabilities which are vague or unreasonable.

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This content has been generously provided by Engineers Australia a partner of EngInsure.

This insight article is not intended to be personal advice and you should not rely on it as a substitute for any form of personal advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228 License Number: 229092 trading as EngInsure Insurance & Risk Services for further information or refer to our website.