Indemnity clauses can be an effective way of allocating certain project risks between contracting parties. However, the use of indemnities is traditionally much more limited in alliancing because the risks associated with the project are generally borne by the alliance. For example, alliance terms may limit indemnities to circumstances where a Participant's failure to comply with insurance provisions set out in the alliance agreement causes loss or damage; indemnities can be capped to insurance proceeds.
Alternatively, if responsibility for a particular risk is not allocated, then an insurer may have more scope to deny liability, depending on the specific policy terms. The events giving rise to the claim may then need to be analysed (potentially involving costly, drawn-out litigation against the insurers) to determine which insurance company should respond. This would be time-consuming and costly.
As liability usually flows from a combination of events involving more than one party, the allocation of blame detracts from the alliance philosophy.