Traditional liability insurance products hinge on findings of 'liability' and 'fault'. More specifically, the liability of the insurer under traditional insurance products and terms is not triggered without the existence of a liability of one or more relevant insured parties.
However, these concepts of liability are generally not part of the collaborative relationships established in alliancing. Alliance Participants use no fault - no blame - no dispute principles in terms in their alliance agreement to endeavour to effectively remove any such liability between them except in exceptional circumstances as defined in the Alliance Agreement.
As a result, traditional insurance policy terms may not be triggered and, therefore, alliance parties may find that there is no effective insurance cover. While this typically is not problematic for project works and public liability cover, it is a significant issue for professional indemnity insurance. This issue is often overcome by purchasing first-party project-specific insurance. This, in turn, raises the issue of who controls the various insurances.
Efforts to overcome this difficulty have included special drafting, where alliance Participants aim to 'carve-out' from no suit terms including;
• those claims that insurance will cover, e.g. through professional indemnity; and
• specific categories of claim, such as contribution arising out of a professional negligence claim made by a third party against a Participant in connection with the alliance project works (there is more information about carve-outs in section 4.7).
However, these approaches remain complex and it is uncertain how they will operate where the alliance agreement contains no express risk allocation terms or mechanism. They are fraught with potential issues and arguments about how the terms might operate if there is a dispute.
Even with the introduction, over time, of special insurance products for alliancing projects, there are numerous options and issues for parties to consider.
Finalising responsible, effective (and cost-effective) alliance agreement terms that take into account insurance obligations, and negotiating and procuring effective insurances, are technically demanding tasks.
Section 3 outlines some of the insurance options available to alliancing Participants and highlights some relevant considerations.
Insurance in alliancing also raises the possibility of adverse risk transfer and loss of value to the government. It is possible that the insurance procurement decision will influence:
• the commercial behaviour of project Participants (particularly if they feel the project has been 'de-risked'-explained in section 5.2-due to their participation in a no fault - no blame arrangement);
• the risk profile of the project or program for both the public sector and the Non-Owner Participants;
• each party's insurance history, insurance premium costs and the future cost of insurance; and
• the factoring of premiums into project costs.
The insurance procurement decision may lead to outcomes that are best for the insurance industry, best for Non-Owner Participants, but not necessarily best for the state2 in either a project or whole-of-government context.
2 The expression 'state' here is used to denote all the government entities of Australia, which include the Commonwealth of Australia and the Australian state governments and territories.