Agreements between transport operators, contractors and their principals have always played a part in defining the insurance obligations of the parties.
However, recently the detail and additional conditions set down for signature have increased and become more complicated. This can leave not only the contractor unsure of their responsibilities, but in many instances the principal or transport company for whom they drive.
A lack of understanding of the wording applied can be dangerous. This can certainly be true of parties and their advisers when it comes to specifying insurance requirements in contracts. A recent example to cross our desks saw a professional indemnity cover set down in a standard owner driver agreement. When queried, the intent was of course that the driver arrange cover to a specific level of public liability.
Many agreements now not only stipulate that the contractor will hold specific vehicle and liability cover up to defined limits, but also require the ‘other party’ to the agreement be protected by noting their respective rights and interests.
Such a clause can increase the exposure to the insurer and therefore require an increase in the premium paid by the contractor.
It is generally one way traffic in this respect, with the cost to comply with these additional conditions under ‘Insurance and Indemnity’ sections carried by the contracting transport operator. That’s assuming the contractor has actually had the additional requirements outlined to them or has carefully read the document themselves.
It is reasonably common in commercial contracts for one party to indemnify the other for liability arising out of performance. In most instances there needs to be an element of negligence on the contractors part, following an incident for their policy to respond.
For this the contractor can arrange the necessary level of liability insurance to protect their interests up to the specific limit set down.
We have seen examples of commercial agreements taking the next step and confirming the contractor must arrange insurance to a certain limit whilst providing indemnity even when they are not negligent nor liable under law. This shows that the contract drafters clearly have a limited knowledge of insurance matters.
A lot of issues arise from principal companies domiciled in Australia that pass their New Zealand colleagues standard agreements that are simply not suitable to our environment. In many instances the requirements set down to New Zealand contractors are not relevant due to differing market conditions and statutes. Requirements to arrange cover in line with Australian Workers Compensation are often referenced (where in New Zealand ACC applies).
It is also common to see requirements to provide full cover for product carried by truckers, rather than the Carriage of Goods Act 1979 (COG) applying with its recently amended $2000 per unit limit.
Performance bonds in standard contracts are increasing. Recent examples sighted have asked owner drivers for a $10,000 bond to be paid. The contract outlines that the ‘company’ (principal) reserves the right to deduct part of the bond based on what it may consider reasonable grounds. There are however no specific parameters set out around when, or in what instances, it may deduct from the bond.
With increased directive for contractors to commit to signing new or upgraded contracts, it is time to be wary.
Ensure you carefully read and understand what you are signing. Refer the ‘Insurance and Indemnity’ clauses to your lawyer or insurance broker on every occasion. That way you could be saved from agreeing to the impossible as well as better understanding the insurance obligations defined.
Eamon O’Connor is a director of O’Connor Warren Insurance Brokers, which specialises in transport and logistics insurance. He will be sharing his expertise on risk management and insurance matters in DIESELtalk. He can be contacted at: [email protected]