Road transport procurement: Insurance matters

03 June 2020

Road transport operators usually trade on robust terms which exclude liability to the maximum extent possible, and contain broad indemnity and lien clauses.

Where those terms are subject to negotiation, it is important for the ensuing risks to be managed in an appropriate way having regard to all the circumstances.

It is particularly important not to overlook the potential insurance implications and consumer law implications1.

Liability and indemnity provisions in commercial contracts are frequently supported by relevant insurance clauses. In the event of a dispute, the scope of those insurance provisions may be construed variously depending on the language used, the surrounding circumstances, and the purpose and object of the contract. It is therefore beneficial for liability, indemnity and insurance clauses to be tailored to meet the specific intentions of the contracting parties.

Importantly, careful consideration should be given to how the liability, indemnity and insurance provisions are intended to work together. There is a significant difference between insurance which provides security for the performance of an indemnity, and insurance which provides cover for loss and damage which an indemnity is not intended to cover.

Attention must also be given to the insurance policies themselves. It is important to understand the availability and scope of cover to ensure there are no liabilities that are unintentionally uninsured, and perhaps unrecoverable.

Once the liability, indemnity and insurance arrangements have been agreed, it is also critical for the parties to comply with the established obligations. If appropriate insurance is not obtained and maintained, a party may be in breach of contract and left without insurance cover.

Such disputes frequently end in costly and complex litigation.

Recently, in Garnett v Qantas Airways Limited [2019] WADC 89 the District Court of Western Australia considered the operation of contractual indemnity and insurance provisions in the context of a dispute under a lease at an airport terminal. In that case, the Court found the insurance clause had to be read together with the indemnity clause, and dismissed a claim for failure to insure more broadly. The Court had regard to the specific provisions in the context of the contract, and the commercial purpose of the contract.

The same principles apply to the interpretation of commercial contracts in road transport.

In our view, it pays to carefully consider the insurance implications and consumer law requirements when negotiating and drafting commercial contracts for the provision of road transport services, to help avoid costly issues arising later on.

This article was written by Joe Hurley, Partner and Kristin Hibbard, Senior Associate.


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