Generally, deductibles payable under insurance policies are payable on a 'claim-by-claim' basis. This means that for every claim under the particular insurance policy, a deductible is also paid, whether the claim is the first during the insurance period or a subsequent claim. If the deductible is payable on a claim-by-claim basis, the amount of the deductible may be treated as a direct cost that is specific to the project.
Care needs to be taken where a deductible applying to a particular insurance policy is not paid on a claim-by-claim basis, but instead paid on a one-off basis for the year following the first claim for that year (which is more common in global policies). For example, some insurance policies provide that in any insurance period, the deductible is only payable on the first claim and no deductible is paid for all subsequent claims regarding that insurance year. Policies of this nature generally have large deductibles and it would seem inappropriate for a single project to bear the cost of that deductible-providing, in effect, deductible free insurance for subsequent claims on other projects. Special terms are required to deal with such issues. For example, Participants may agree that if the first claim under such a policy is made in connection with the current project, then only a certain percentage of the deductible will be considered a direct project cost, with the remainder of the deductible being a cost borne by the Non-Owner Participant outside the alliance.
The Owner Participant has options for dealing with not just insurance costs but also deductibles, in particular, whether, or to what extent, such costs should be considered an alliance cost or should have some impact on particular Participants in terms of Risk or Reward provisions. The Owner Participant should consult with the insurance advisor and consider the amount of the deductible as well as the circumstances and processes for allocation of the deductible amongst Non-Owner Participants.