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Contractual Liability- traps for the unwary

Mining and Construction are important to Queensland. In these and many other industries there are small to medium sized contractors are reaping the benefits by contracting to provide their services to construct works and/or supply goods.

If you are a contractor presented with a contract to sign, we suggest you contact your insurance broker as soon as possible or immediately if you have already signed.

Usually the contract will contain indemnity and insurance clauses and these should be checked carefully by your broker and your lawyer before you sign it.

Indemnity clauses can invalidate your insurance or adversely affect your ability to claim on the liability insurance (e.g. public liability, professional indemnity and management liability). Under these policies, the insurer agrees to insure you for your legal liability (e.g. negligence) in the absence of a contract, guarantee, warranty or agreement. Therefore, liability you assume under contract can trigger the 'contractual liability' exclusion.

Many mining and infrastructure projects ask for 'knock for knock' indemnity and release clauses. 'Knock for knock' is where every contractor on a project is required to provide mutual releases and hold harmless clauses to everyone else working at the project - regardless of who actually caused the injury or damage. If you agree to the clauses, you could be 'self-insuring' your workers and your equipment - without realising it.

Also in Queensland, 'knock for knock' arrangements will often breach the proportionate liability legislation (Civil Liability Act 2003 (Qld)) because they result in you 'contracting out' of the laws. Proportionate liability is where you are only liable for the share of an economic loss or property damage claim and your share is determined according to the percentage or proportion that fairly represents the extent to which you caused or contributed to the loss or damage. If the indemnity clauses in your contract are re-drafted to reflect proportionate liability, then the contractual liability exclusion will not been triggered.

Your commercial lawyer may not be familiar with the issues relating to indemnity clauses and liability insurance so speak to your broker and they can assist you or refer you to a lawyer who specialises in this area.

The last thing you want is an uninsured liability claim - just because you signed a contract.

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Phone: (07) 5538 8988

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