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Contract Reviews – A Danger Area for Risk Advisers
Risk Advisers owe a duty to their clients to advise them to the best of their knowledge. Unfortunately there are some cases where the circumstances go beyond the risk adviser’s knowledge base, yet the duty remains. David provides some great advice for risk advisers dealing with contract reviews – which can prove to involve some very confusing, tricky and intimidating legal issues.
As a risk adviser you have a duty to understand key concepts of liability in insurance law.
A useful summary is provided in SWF Hoists & Industrial Equipments Pty Limited v State Government Insurance Commission (1990) 6 ANZ Insurance Cases 61-002;  ATPR41-045:
“Insurance brokers are required in the ordinary course of their business to have knowledge of aspects of the law which regulate insurable risks, the liabilities which can arise from the eventuation of those risks, and the types of insurance cover which can be issued to protect against them.”
This duty is a significant one. As risk advisers, you are regularly involved in negotiating a product that covers legal liability. Your job requires extensive knowledge of liability law, as well as the fundamentals of insurance law.
However, you can discharge this duty to your client by recommending that they seek legal advice in appropriate circumstances.
When being asked to conduct a contract review, key items to look for are:
Indemnity clauses given to clients as the assumed liability exclusion will be relevant.
Signing an indemnity clause will often infringe other provisions of the retainer, which oblige the insured not to do anything to void their professional indemnity insurance.
It would be wise to advise your client that they should seek legal advice as to whether or not this assumed liability could create a liability that would not attach in the absence of the contract. Sometimes clients are prepared to take that risk after receiving legal advice, but that is their call – your obligation is to identify the issue and bring it to the attention of your client.
Whether or not the client uses subcontractors to do the work (and if so, what is the insurance arrangement with the subcontractor?)
Simply put, unless a subcontractor is a named insured and entitled to the benefit of the waiver of subrogation clause in the policy, they do not have cover. Once again, it is up to risk advisers to identify this issue and bring it to the attention of their client. Often it would also be prudent to recommend that they obtain legal advice in relation to the contractual arrangements between the insured and the subcontractor.
Any clause that obliges your client to take out insurance for another party.
The key point for risk advisers is that if a client wants you to organise the cover they are obliged to organise under a contract, the alarm bells should start ringing. As a minimum you should consider:
- What primary liability will arise?
- Exactly which party is the insured obliged to organise insurance for?
- Is the cover vicarious or actual? In other words, does your insured wish to preserve an insurer’s right of subrogation against negligent subcontractors?
Don’t be worried if you feel out of your depth very quickly – contract reviews dealing with insurance issues, is a highly specialised area that often requires specialist input. Do not hesitate to recommend that your client seek legal advice if there is any doubt. Your friendly lawyers at DLA are obviously here to help!