Under Insurances, definition of Client and Contractor assumes importance and therefore should clearly be stated such as:

  • The legal entity itself to the Contract.
  • Any Partners comprising the Client/Contractor.
  • Any Affiliates (again to be defined in the Contract as in relation to any legal entity, a legal entity that either directly or indirectly controls or is controlled by or under the common control of another legal entity. It is said to be directly controlled if the other legal entity owns 50 % or more share capital in the first legal entity or is carries more than 50 % of the votes exercisable in a general body meeting of the first legal entity. It is said to be indirectly controlled if there are a series of legal entities then if each legal entity in the series is directly controlled by the one or more in the earlier ones in the series). This definition is provided for understanding of the clause and should not be used for framing legal definitions in a Contract. The term Affiliates could be referred to for the Client as well as Contractors Affiliates.
  • Client’s other contractors and subcontractors.
  • Agents, successors, assigns, directors, owners, officers, employees, consultants, advisors, etc.
  • Any joint ventures.

Any other description used to define any other entity that could possibly/potentially be a party to the Contract.


As a result of indemnifying each other and assuming liabilities, Contractors and Clients secure them thru appropriate and necessary insurances (from reputed and experienced Insurance companies) valid for the duration of the Contract. Some of the insurances commonly employed for Contracts are as follows:

  1. Workmen Compensation / Employer’s liability: Insurance to cover liability in respect of injury, illness, death of an employee in the course of the employment during the execution of the Contract. The Client and Contractor should be totally responsible for injury, illness or death to their respective personnel, howsoever caused and particularly regardless of the negligence of the other party.
  2. Client and Contractors Property: The Client and Contractor should provide indemnity to each other for the loss/damage to their properties including any personal property of their employees.
  3. Client’s Works and Plant/Facilities: Contractors are liable for Loss or damage to Client’s property in the course of execution of the Contract and thus have to provide indemnity for any loss or damage. Clients could also purchase insurances to protect their property and extend cover to its Contractors, subcontractors and vendors in which case normally the liability is limited to the deductibles under such an insurance policy. Such insurance policies should be made available to Contractors for understanding.
  4. Engineering, Design and Construction works: Contractors are liable for deficiencies in their Works/Services till the Contract completion and shall have to re-perform to Contract requirements. There should be no liability cap on such re-performance and, the Contractor has to perform till all defects are rectified to Contract requirements. In case of individuals involved in design and engineering Contracts, they are responsible for “Professional Liability” and hence if necessary should take out a professional liability insurance.
  5. Motor Vehicle Third Party and Passenger Liability to cover liability in respect of death and injury to the passengers and loss of Third Party property in respect of vehicles used in the execution of the Contract.
  6. Contractors Plant, Equipment and any other property that it uses under the Contract for its full replacement value. On occasions, Clients Insure the materials supplied by Contractors thru declarations under its open policy.
  7. Third Party Liability (TPL): Contractors should indemnify Client for all general third party risks in respect of loss or damage to third party property and/or accident, illness or death to any third party personnel arising out of the Contractor's performance of the Contract.
    Clients could choose to extend TPL Insurance to its Contractors.
    If a Contractor is engaged in non-construction/non-maintenance type Contracts i.e. where the work is performed in a Contractor's office, such as design or engineering, the Contractor should provide a suitable level of cover, commensurate with the risks in its geographical location and per applicable law.
  8. Contractor's All Risk (CAR) (Insurance) policy: the CAR policy is generally taken out for insuring risks related to Construction Works. The CAR policy is not for insuring a specific risk but covers all liabilities during the construction duration till commissioning and handover of the Contract to Client save for those specifically excluded. For example, if Commissioning of a plant is the responsibility of the Client, the CAR policy in such Contracts would exclude Commissioning from the risks of the Contractor. CAR policies could either be taken out by the Clients or the Contractors.
  9. Other insurances and liabilities: there are other liabilities of Contractors arising out of removal of reservoir seepage or pollution originating underground, fire, explosion or blow-out of any well or reservoir, wreckage/debris, collision damage (marine vessels), pollution, spillage, aircraft, removal of unexploded arsenal, clean up, etc and, necessary insurances have to be taken out, if any of such risks are assumed.

Limits per occurrence of such insurances are generally stipulated by Clients or in case no limits are specified, they should be as per applicable law.

Right of Subrogation:

An important condition in insurances for consideration is the waiver of right of subrogation i.e. the waiving of one party’s insurance company’s right to proceed against the Client or Clients insurers for recovery of loss suffered arising out of an insurance claim.

Subrogation is a legal principle which provides that, to the extent an insurer has paid for a loss, the insurer receives the policyholder's right to recover from any third party who caused the loss. It is this aspect that Clients could require a waiver to known as “Waiver of right of subrogation”.

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