Insurance
Dealing with Third Parties
Indemnity and Insurance Clauses
VMIA clients constantly deal with third parties for the provision of goods and/or services. Formal agreements and contracts arising out of these deals, include consideration of who bears the risk. Indemnity clauses are a common method used to define where the risk is borne.
An indemnity is an agreement by one party to meet the expenses or liabilities incurred by another party.
It is important that indemnities are not indiscriminately granted to third parties by the VMIA client as such indemnities may create potential liabilities that fall outside of the VMIA's insurance coverage.
Contact your Client Relationship Manager before providing any indemnity to a third party.
Conversely, Whole-of-Government Contracts (WofG) published on the Victorian Government Purchasing Board website require the contractor to provide an indemnity to the State in respect of loss or damage arising from the a breach of the contract, the negligent acts or omissions of the contractor or the breach of the intellectual property of a third party.
In circumstances where the contractor refuses to accept the standard contract terms it is acceptable for a contract to remain silent on indemnities. In such circumstances each party will be subject to any liabilities to third parties (including other contracting parties) that arise under common law. Client insurances will be unaffected.
If the contractor or the VMIA client is content to have each party responsible for its own liabilities but wishes to express that in the contract, the VMIA has drafted a sample indemnity clause (see below). However it should be restated that such a clause is redundant and unnecessary if the intention is merely to seek to duplicate the common law position.
It is strongly advised that the VMIA client ensures that the contractor has the financial capacity to meet its liabilities arising out of the contract indemnity clause or the common law exposures. To that end appropriate insurance clauses should be included in the contract. The Whole-of-Government Contracts (WofG) contain such clauses. Alternatively, the following VMIA sample insurance clauses (see below) may be included where appropriate.
The level of insurance required by the third party should be commensurate with the risk level associated with the contract product or services. The VMIA can provide assistance in determining the appropriate levels.
Further information on the insurance provisions for the purchase of goods and services is also available on the Victorian Government Purchasing Board website Victorian Government Purchasing Board: Insurance Provisions Advice. The website also contains guidance on selecting insurance levels based on a risk assessment methodology.
There are two notable exceptions to the above advices.
Dealing with Victorian Municipal Councils
The following recommendation applies when the intent of an agreement or contract is for both parties to assume responsibilities for their own risks ( i.e. the party at fault pays - common law position).
By agreement it is the recommendation of both VMIA and Civic Mutual Plus (insurer of the municipal councils) that it is unnecessary for VMIA clients and municipal councils, when dealing with each other, to require any indemnity or insurance clauses. The insurance of both groups is adequate to cover foreseeable losses arising out of their own potential liabilities and is provided on the assumption that common law will prevail in such agreements.
Both parties should confirm that the other is insured by VMIA or CMP by referencing the CMP member list available on the CMP website.
Dealing with VMIA clients
The following recommendation applies when the intent of an agreement or contract is for both parties to assume responsibilities for their own risks ( i.e. the party at fault pays - common law position).
The VMIA recommends that, when dealing with a fellow VMIA client, it is unnecessary to require any indemnity or insurance clauses. Again, the insurance of both groups is adequate to cover foreseeable losses arising out of their own potential liabilities and is provided on the assumption that common law will prevail in such agreements.
Contact your Client Relationship Manager to find out if another organisation is also a VMIA client.
