2013 INSURANCE GUIDE

CONTRACTS & AGREEMENTS

This guide is provided to assist University staff who are considering entering into contractual
negotiations on behalf of the University. This guide will help staff in understanding the insurances
required from parties with which the University contracts and the purpose of indemnity clauses
between the contracting parties.

Legal & Risk

Division of Services & Resources
What is an indemnity?
An Indemnity is a contractual commitment by one party to make good any
specified loss, damage or injury suffered by the other party. It is a commitment
by a party to cover the liability of another party. To indemnify means
to secure or insure
The common law position is that: someone or
something against
 Where a party is in breach of the contract or behaves negligently, the loss or damage
other party has a right to claim for losses or damage that it can prove
were caused by the first party’s breach of contract or negligence.

 The loss or damage claimable generally must have flowed directly as a consequence of the breach
of contract or negligence. It is up to the party claiming the loss or damage to show that the loss or
damage was not too remote.

Losses such as legal costs, loss of profits or pure economic loss may not necessarily be claimable when
relying on the common law position.

What is an Indemnity Clause?

An indemnity clause allows one party to recover costs from the other party, such as costs associated with
bodily injury, property damage or loss of income caused by the other party.

An indemnity is only worthwhile if the other party has the money to fulfil it or is sufficiently insured for it.
Therefore, if a contract contains an indemnity clause against the other party, the contract should also require
the other party to maintain all relevant insurances. Even if the contract does not contain an indemnity clause,
requiring the other party to maintain insurance provides a level of assurance to the University.

When should a contract include an indemnity clause?

1. When the University contracts with a party to provide a service or product to the University, the
contract should have an indemnity clause that requires the contractor to indemnify the University in
the event of an adverse impact upon the University arising from the contractor’s actions or lack of
action.

2. Where development of intellectual property is a significant service required of the other party, the
clause should also include a requirement for the other party to indemnify the University in relation to
infringement of third party intellectual property.

Sample Indemnity Clause

The Contractor indemnifies and must keep indemnified the University from and against all costs, losses,
damages, claims, proceedings and liability, arising from:

 any breach of any of the Contractor’s obligations or representations under this Agreement; OR

 any negligence or wilful act or omission by the Contractor.

The Contractor’s liability to indemnify the University shall be reduced to the extent that such cost, loss,
damage, claim, proceeding or liability was caused or contributed to by the negligence or wilful act or
omission of the University.

Contracts & Agreements Policy

What types of insurance are required by the University?
Public and Product Liability

This type of insurance covers the legal liability of a party to pay compensation and costs to the University in
the event of loss or damage to property or injury to a person arising from an action or omission on the part of
that party. Public and Product Liability insurance extends to University property in the care, custody or
control of that party.

Every agreement needing the other party to indemnify the University should require the contractor to provide
proof of Public and Product Liability insurance. This may be in the form of a Certificate of Currency.

Professional Indemnity

This type of insurance covers the legal liability arising from professional negligence on the part of a
contractor or consultant that has resulted in a loss or damage to the University.

Professional Indemnity insurance is required where the contractor is a professional person providing
professional advice or recommendations to the University which the University will rely upon (e.g. architects,
\engineers, analysts).

What level of insurance is required by the University?

The University requires a minimum amount of insurance from the other
party to protect itself from risk exposure. Each contract must be individually
evaluated to determine the risk and potential loss to the University. This For more information
assessment should form the basis of the decision on the limit of insurance about how to conduct a
required. risk assessment, contact
Anne Hill (Manager, Risk
An indemnity must be fair; it should not seek to avoid the University’s Services) by email
responsibility or avoid an outcome arising from the University’s actions. anne.hill@adelaide.edu.au
or by phone 8313 4603.

Public and Product Liability Insurance

The recommended minimum amount of Public and Product Liability insurance is AUD$10,000,000. This limit
may be increased where there is considered to be a high risk element in the contract or service being
provided by the other party. Similarly, the amount may be decreased where there is considered to be a low
risk element in the contract or service being provided.

Example (Increase) - A contractor undertaking hot work (such as welding) in the Barr Smith Library where
there is a potential loss to the University from a fire in this high value location - high risk with high loss
potential

Example (Decrease) - A contractor installing a culvert drain in the road at Roseworthy Campus - low risk
with low loss potential

Professional Indemnity Insurance

The minimum amount sought by the University under the Professional Indemnity insurance clause should be
evaluated against the loss potential that could arise from the advice being provided by the consultant or
contractor.

Contracts & Agreements Policy

What happens if the other party refuses to agree to provide indemnity or
insurance?
The decision on whether to enter into a contract without an indemnity and/or insurance requirement on the
other party (or a reduced minimum amount of insurance) must be based upon a documented evaluation of
the risk exposure and an assessment of the loss potential.

The absence of an
Some key factors in making this decision are: indemnity does not mean
that the other party will
1. The amount of work being undertaken by the other party. not be liable for its breach
The greater the tasks and responsibilities, the greater the risk. of contract or negligence.
Rather, common law
2. The criticality to the University of the service being provided. principles will apply.
Similarly, the other party’s
Eg: development of a new core IT system which, if faulty, will cause
lack of insurance is not
major disruptions to the University’s operations. necessarily unacceptable
to the University.
3. The likelihood of the contractor causing injury to third parties

4. The amount being paid to the other party. If the other party is receiving substantial monetary benefit,
then it should be prepared to accept the indemnity.

Acceptance of a contract without a requirement for the other party to maintain an adequate minimum level of
insurance must be brought to the attention of the University Officer who has the delegated authority to sign
the contract.

When should advice be sought?

Advice from Legal & Risk must be sought if a contract contains a clause requiring the University to indemnify
the other party.

Hold Harmless Clause

Some indemnity clauses may require the University to ‘hold harmless’ the other party. This means that the
clause prevents the insurer from suing the other party in the event of a loss, irrespective of actual
responsibility or negligence. The University’s insurance policy does not cover hold harmless clauses. Any
contract containing such a clause will not have insurance coverage and any damages would have to be paid
by the University, and usually from the resources of the School or Branch that accepted or approved the
contract.

For more information contact Legal & Risk

Refer to the Legal & Risk website (www.adelaide.edu.au/legalandrisk/contracts/) for more information about
contract management and seek advice during the contract drafting and negotiation process.

Kim Evans (Senior Legal Counsel) Geraldine Yam (Legal Counsel)

kim.evans@adelaide.edu.au geraldine.yam@adelaide.edu.au
08 8313 6103 08 8313 35244

Contracts & Agreements Policy

Contracts & Agreements Policy