23.4.2  Treatment of uninsurable risk

(a)  If either party considers that a risk which is covered by the required insurances99 is or will be uninsurable, then that party must immediately notify the other in writing, giving particulars.

(b)  If the parties agree, or it is determined through the dispute resolution procedure, that the relevant risk is uninsurable, and the fact that the risk is uninsurable is not attributable to the actions of the private party or a sub-contractor, the private party is not required to procure insurance against that risk for so long as that risk is and remains uninsurable.

(c)  Government will then deduct from the service fee an amount equal to the premium that was payable immediately prior to the insurance becoming uninsurable. Government may also consider any other changes to the private party's rights and obligations arising from the unavailability of the relevant required insurance.

(d)  If the uninsurable risk materialises, government will:

(i)  pay to the private party an amount equivalent to the insurance proceeds that would have been payable if the relevant insurance was available;  

(ii)  in some jurisdictions, if the facility is wholly or substantially damaged or destroyed, terminate the project agreement, in which case:

(A)  in some jurisdictions, compensation will be payable on a Voluntary Termination basis100; and

(B)  in other jurisdictions, compensation will be payable on a Force Majeure Termination Event basis; or

(iii)  implement a government-initiated Modification to remove the affected part of the site from the project provided that following the implementation of the Modification, the private party will be no worse off had the Uninsurable Event not occurred.

(e)  Where a risk is uninsurable, the private party must approach the insurance market on a regular basis to establish whether that risk remains uninsurable and advise government accordingly. If the insurance becomes available again, the private party must effect that insurance.  

(f)  Government may treat risks which are uninsurable prior to contractual close differently, as it is a matter of negotiation with the private party and will depend on the particular circumstances of the project.

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99  Uninsurability protection does not extend to insurances which cover risks which the private party is required to bear (such as loss of profit, professional indemnity and non-vitiation insurances).  However, for value for money reasons, the uninsurability provisions will extend to cover business interruption insurance.

100  See Chapter 26 (Termination Payments).