37.5.3.1 Corporate finance may result in insurances required under the Contract being covered by a corporate policy (i.e. a policy covering the activities of a company or group of companies, or covering a group of projects, but not specific to the Project), which may produce a cost saving which can be reflected in the Unitary Charge. However, the Contract will still need to have a Required Insurances Schedule as if the project were being insured on a project basis (see Section 25.2 (Authority's Requirements)).
37.5.3.2 Although it is important that the bidder is able to demonstrate transparency in terms and pricing, it is unlikely to be practical to apply the Insurance Premium Risk Sharing principles used within project-financed Contracts (see Section 25.9) to a corporate-financed Contract, as it is unlikely to be possible to determine the change in premium attributable to the relevant project.
37.5.3.3 If the Project is corporate-financed and it is proposed that the corporate insurance programme is used to provide insurance, the Authority may not be afforded certain protections available when insurance is placed on a project basis. If this is the case, it will be necessary for appropriate alternative arrangements to be agreed between the parties in order to ensure that the Authority is adequately protected. The most material issues are likely to be as follows:
• the concept of uninsurability (see Section 25.10) relates only to causes which affect the insurance market as a whole. Accordingly, where corporate insurance policies are used any uninsurability protection afforded should relate to the unavailability of insurance for the Project as a consequence of market-wide events;
• if the Project is project financed, should the Contractor fail to renew insurances it is possible for the Authority to make the payment and recover the cost from the Contractor. This is unlikely to be practicable where insurance is placed on a corporate basis. However, to the extent that the Authority has an insurable interest in the project, it could itself take out a new substitute project-specific insurance policy if the corporate insurance is not renewed. In such circumstances, the Authority must have the right under the Contract to recover the costs of the substitute insurance from the Contractor;
• corporate insurance programmes generally carry significantly higher insurance deductibles (see Section 25.12.5) than project-specific policies. The Authority will need to ensure that the deductibles are appropriately limited in the Required Insurance Schedule so it is not excessively exposed;
• the Authority will need to ensure that the maximum indemnity cover under a corporate insurance programme is adequate for the Project, particularly where cover limits are on an aggregated basis across all of the Contractor's activities;
• a number of the endorsements typically agreed with insurers to protect the Authority may no longer be available, including the Authority being named as a co-insured. However, the Authority should always be named as a co-insured under the material damage insurance, so it can claim directly should the Contractor elect not to do so. For other Required Insurances, if the Authority cannot be named, the Authority and its insurance adviser should consider other measures. In particular, the third-party liability policies must include (i) an appropriately-worded 'indemnity to principals' clause, and (ii) a waiver of subrogation for the benefit of the Authority;
• a notification of cancellation endorsement is unlikely to be available. Instead the Contract must require the Contractor to provide immediate notification to the Authority of any cancellation or material change in the terms and conditions of the policy. There should be a similar obligation on the Contractor's broker within the Broker's Letter of Undertaking;
• with the exception of the third-party liability policy (for which claims will be paid by insurers directly to the aggrieved party), corporate insurance policies are likely to name the Contractor as the sole loss payee. For material damage insurance, the insurance proceeds should be paid directly into the Joint Insurance Account (see Section 25.7). In this case, insurers must confirm their acceptance of the reinstatement provisions. If insurers are unwilling to pay other insurances into the Joint Insurance Account, the Contract should specify that they are paid into the Joint Insurance Account upon receipt by the Contractor, with such proceeds being held on trust for the benefit of the Authority prior to any such transfer; and
• the corporate insurance policies are unlikely to be available for scrutiny by the Authority. If specific policy information is required by the Authority which is not contained in the cover notes (for example, premium information), this will need to be made available by the Contractor and specific provisions for this incorporated in the drafting.
37.5.4.4 As there is no Senior Debt, the Economic Test drafting in Clause 25.7 (Economic Test) will not be required, and reference to this Economic Test in Clause 25.6 (Reinstatement) can be deleted.