Insurenace in FIDIC

In Contract Law, it is normalcy that 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 damage to or loss of any property, real or personal, 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. In the same manner, the Employer shall also imdemnify the Contractor. It is also in the benefit of the Contractor to safeguard executed works, materials, equipment, plants and its personnel’s against unforeseen damage as the Contractor is eventually responsible for the care of the Works and Goods from the Commencement Date until the Taking-Over Certificate (TOC) is issued for the Works. Insurance is the paramount selection to transfer the risks to cover losses and damages resulted from such risks cited above. There are many types of insurances such as Contractor’s All Risk Insurance (CAR), Third Party Liability Insurance (TPL), Worker’s Compensation Insurance to cover those risks.

Coverage of Insurance

i.             The insuring Party shall insure the Works, Plant, Materials and Contractor’s Documents for not less than the full reinstatement cost including the costs of demolition, removal of debris and professional fees and profit. This insurance shall be effective from the date by which the evidence is to be submitted, until the date of issue of TOC for the Works. Please note that Under a CONS contract, insurances may need to be effective from the Commencement Date. Under P&DB or EPCT, this may be unnecessary because no insurable activities for some time.The insuring Party shall maintain this insurance to provide cover until the date of issue of the Performance Certificate, for loss or damage for which the Contractor is liable arising from a cause occurring prior to the issue of the TOC, and for loss or damage caused by the Contractor in the course of any other operations (including those under Clause 11 [Defects Liability]).

ii.            The insuring Party shall insure the Contractor’s Equipment for not less than the full replacement value, including delivery to Site. The insurance shall be effective while it is being transported to the Site and until it is no longer required as Contractor’s Equipment, but may exclude items "while they are not in the Country".

iii.           The insurance against Injury to Persons and Damage to Property shall be for a limit per occurrence of not less than the amount stated in the Contract Data, with no limit on the number of occurrences. The insurance shall be effective during the Contractor’s performance of the Contract will remain in full force until issuance of the Performance Certificate.

iv.           The Contractor shall effect and maintain insurance against liability for claims, damages, losses and expenses (including legal fees and expenses) arising from injury, sickness, disease or death of any person employed by the Contractor, the Employer and the Engineer. The insurance shall be maintained in full force and effect during the whole time that these personnel are assisting in the execution of the Works. For a Subcontractor’s employees, the insurance may be effected by the Subcontractor, but the Contractor shall be responsible for compliance with this Clause.

v.            The insurance shall cover all loss and damage from any cause except the following Employer’s Risks as per Sub-Clause 17.3

a.    war, hostilities (whether war be declared or not), invasion, act of foreign enemies,

b.    rebellion, terrorism, sabotage by persons other than the Contractor’s Personnel, revolution, insurrection, military or usurped power, or civil war, within the Country,

c.    riot, commotion or disorder within the Country by persons other than the Contractor’s Personnel,

d.    munitions of war, explosive materials, ionising radiation or contamination by radio-activity, within the Country, except as may be attributable to the Contractor’s use of such munitions, explosives, radiation or radio-activity,

e.    pressure waves caused by aircraft or other aerial devices travelling at sonic or supersonic speeds,

f.     use or occupation by the Employer of any part of the Permanent Works, except as may be specified in the Contract,

g.    design of any part of the Works by the Employer’s Personnel or by others for whom the Employer is responsible, and

h.    any operation of the forces of nature which is Unforeseeable or against which an experienced contractor could not reasonably have been expected to have taken adequate preventive precautions.

vi.           The insurance shall also cover, to the extent specifically required in the bidding documents of the Contract, loss or damage to a part of the Works which is attributable to the use or occupation by the Employer of another part of the Works, and loss or damage from the risks listed in sub-paragraphs (c), (g) and (h) of Sub-Clause 17.3 [Employer’s Risks] as cited above, excluding risks which are not insurable at commercially reasonable terms, with deductibles per occurrence of not more than the amount stated in the Contract Data (if an amount is not so stated, this sub-paragraph (d) shall not apply). The deductible must be stated in the Appendix to Tender under CONS or P&DB or in the Particular Conditions under EPCT.

Exclusions of Insurance

i.             a part of the Works which is in a defective condition due to a defect in its design, materials or workmanship;

ii.            a part of the Works which is lost or damaged in order to reinstate any other part of the Works if this other part is in a defective condition due to a defect in its design, materials or workmanship;

iii.           a part of the Works which has been taken over by the Employer, except to the extent that the Contractor is liable for the loss or damage;

iv.           Goods while they are not in the Country, subject to Sub-Clause 14.5 [Plant and Materials intended for the Works];

v.            the Employer’s right to have the Permanent Works executed on, over, under, in or through any land, and to occupy this land for the Permanent Works;

vi.           damage which is an unavoidable result of the Contractor’s obligations to execute the Works and remedy any defects; and

vii.          a cause listed in Sub-Clause 17.3 [Employer’s Risks], except to the extent that cover is available at commercially reasonable terms.

Payment of Insurance Premium

According to the provisions of the Contract, the responsible party could be either the Employer or the Contractor who will act as insuring party. The insuring party will be responsible for paying the premium and effecting and maintaining the insurance specified in the relevant Sub Clause. When each premium is paid, the insuring Party shall submit evidence of payment to the other Party. Whenever evidence or policies are submitted, the insuring Party shall also give notice to the Engineer.

Terms of the Insurance

Wherever the Contractor is the insuring Party, each insurance shall be effected with insurers and in terms approved by the Employer. These terms shall be consistent with any terms agreed by both Parties before the date of the Letter of Acceptance. This agreement of terms shall take precedence over the provisions of this Clause. Wherever the Employer is the insuring Party, each insurance shall be effected with insurers and in terms acceptable to the Contractor. These terms shall be consistent with any terms agreed by both Parties before the date of the Letter of Acceptance. This agreement of terms shall take precedence over the provisions of this Clause.

Each Party shall comply with the conditions stipulated in each of the insurance policies. The insuring Party shall keep the insurers informed of any relevant changes to the execution of the Works and ensure that insurance is maintained in accordance with this Clause. Neither Party shall make any material alteration to the terms of any insurance without the prior approval of the other Party. If an insurer makes (or attempts to make) any alteration, the Party first notified by the insurer shall promptly give notice to the other Party.

Joint Insured

Several parties are insured under this policy. If the Contractor is the insuring Party, he may wish to extend insurance cover so that a Subcontractor is indemnified. If the Employer is the insuring Party, he may wish to extend insurance cover so that another occupant of the Site is indemnified. Typically, when an insurance policy indemnifies joint insured, the insurer should regard them as joint clients, make payment to both (or all) of them, and leave them to determine their respective entitlements under the policy. This situation is reasonable with only two joint insured, namely the Parties, but could be wholly unreasonable if the insuring Party arranged for the policy to indemnify other joint insured.

When Insurance is not in Existence

If the insuring Party fails to effect and keep in force any of the insurances it is required to effect and maintain under the Contract, or fails to provide satisfactory evidence and copies of policies in accordance with this Sub-Clause, the other Party may (at its option and without prejudice to any other right or remedy) effect insurance for the relevant coverage and pay the premiums due. The insuring Party shall pay the amount of these premiums to the other Party, and the Contract Price shall be adjusted accordingly.

No provisions of insurance in FIDIC Conditions of Contract limits the obligations, liabilities or responsibilities of the Contractor or the Employer, under the other terms of the Contract or otherwise. Any amounts not insured or not recovered from the insurers shall be borne by the Contractor and/or the Employer in accordance with these obligations, liabilities or responsibilities. However, if the insuring Party fails to effect and keep in force an insurance which is available and which it is required to effect and maintain under the Contract, and the other Party neither approves the omission nor effects insurance for the coverage relevant to this default, any moneys which should have been recoverable under this insurance shall be paid by the insuring Party.