Do crane companies genuinely understand the liabilities they face when signing a contract and who’s responsible if something goes wrong? Cranes and Lifting finds out more.
Cranes companies face and assess risk every day. Working with Hicksons Lawyers, UAA makes an important contribution to the industry by highlighting existing risks around contracts and seeking to reduce them.
According to George Grasso, UAA Chief Services Officer, there are significant liabilities.
Issues arising from crane contracts which not all crane companies fully understand. Along with George Grasso, Hicksons Lawyers partners, Paul Hendriks and Dr Tim Channon, discuss some of these issues.
“We have been working with Hicksons Lawyers for 30 years. Their understanding of the industry and the commercial intention and role of our policies has been an important part of allowing UAA to partner with our clients to provide a premier insurance product and service to our clients,” said Hendriks.
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“We want to continue our conversation with the industry in relation to issues coming from crane contracts including the potential pitfalls, the variables, what liability may be imposed by a principal, what to look for in contracts surrounding dry or wet hire conditions and what impact such contracts may have on insurance coverage.
“When we have to look at an insured’s contract in the context of determining whether the insured is liable for an event or whether the insured has a right of recovery arising from that event, one of the biggest bugbears is that a number of crane operators treat the process of entering into a contract as purely procedural event,” said Hendriks.
“It is a procedure, but sometimes little thought is given as to what constitutes the agreement or whether in fact there is clarity in the agreement. When you enter into an agreement, a basic question to ask yourself is what commitments am I agreeing to.
“These are legally binding agreements; they can be enforced and so they are very serious matters. On one level, you are trying to ensure there are no disagreements as to who the parties to a contract are, there’s no question about the crane that is the subject of the contract and no disagreement about the price or period,” he said.
“You then ask what else is the agreement obliging me to do. Agreements are, in large part, about risk transference. They set out rights and obligations between the parties and allocate risk between the parties.”.
“There are two big determinants in that. The first is the subject matter of the agreement. For example, whether it’s a dry hire or wet hire will have significant implications as to who is responsible for the planning and supervision of the lifting operations. The second is an issue of economic power. It’s alright for lawyers to talk about insisting on terms within the contract, but more often than not, the contractors are given a document and told to take the job or get nothing. The unfair contract legislation may come to their aid,” said Hendriks.
Dr. Channon elaborates on other contractual related issues.
“Subcontractors need to understand about the risk transference, covering issues such as who’s responsible for the planning, the supervision and the carrying out of the lift? Who’s responsible for the maintenance? Who’s responsible for specific geotech reports? Who’s responsible for the crane ties designs?
“Other issues include what’s going to happen if there’s a problem? If there’s a delay on site due to an unforeseen problem, who’s going to be responsible? What is the formula for determining what the rights are between the parties?” he said.
Another issue relates to the provisions dealing with insurance and indemnities which are often set out in contracts.
“These provisions are critical, and the obligations in relation to insurance, cover a whole gambit of scenarios. As far as indemnity and insurance obligations go, we strongly recommend, given the importance of the provisions, that operators get their insurance broker to advise on what risks taken on in the contract are insured. More often than not, there are provisions in these contracts which cut across and conflict with the policy the insurer has already issued,” said Grasso.
“The classic examples are a limitation on the right to recover. Without these terms, there would be a right to recovery and such terms could result in an insured not being covered under its policy.
UAA is very good at working with brokers on these issues and prides itself on this. Good brokers will know what to look for, what advice to give and know what questions to ask UAA in relation to a contract,” said Hendriks.
The effect of not getting proper advice can be devastating to the crane operator’s business.
“Many contracts are pretty well organised in the sense that the broker can usually go to the area most relevant to the insurance obligations. Often, the insurance provisions and the indemnity provisions sit side by side. Another example is liabilities attaching to an insured which may see the insured fall foul of their policy, including in relation to proportional liability regimes,” said Channon.
“When it comes to understanding what obligations are attached to the insured, the answer isn’t always easy. But good brokers know where to look and know what questions to ask of the insurer as well as advising on how to go back to the principal contractors to inform them that they don’t want to be so exposed to potential liabilities and find ways to negotiate with them to remove that level of exposure.
To put it simplistically, there are contracts where the tier-one contractors or principal contractors are enforcing agreements on subcontractors, like crane hire companies, where the intention is to expose them to liabilities despite whether the client is the cause of the incident. Even if they are not involved in the incident, because they’ve signed this overarching agreement, the tier-one principal contractors have the ability to apportion their overall liability across subcontractors. In that way, they reduce their potential risk, reduce exposure to their insurance company and reduce costs in terms of premiums,” he said.
According to Grasso, crane companies will sign a contract for commercial reasons without fully understanding the implications.
“There is a risk that subcontractors will feel pressure to sign or they won’t get the job. They don’t go to their brokers to see if their insurance covers the risks they are being exposed to. Very few insurers will accept a liability a client has exposed themselves to with a principal contractor if the liability is not caused by the fault of the insured.” He said.
“Australia and in particular New South Wales is very litigious. With greater pressures around OH&S and increased involvement from regulatory bodies, we want to make sure the industry obtains the appropriate advice and negotiation tools to go back to the Tier One contractors or any principal contractor and negotiate appropriate terms to suit both parties without losing out on work. And they need to make sure they follow up on their obligations. Many contractors agree to insure their principal and they don’t, exposing themselves to an uninsured loss,” said Grasso.
Other issues include evidence. Mostly gone are the days when a contract was formally signed and handed back, with one copy going to each party.
A lot of these agreements are sent electronically but sometimes there’s no acknowledgment the parties have accepted the terms of agreement. It’s critical for these contracts and agreements to be acknowledged.
“I think it’s critical for the industry to be more vigilant on this because if it goes wrong, the information in the document will be heavily relied upon. It’s not just from a monetary liability perspective, it can also apply if someone gets injured or there is a fatality, there’s a reliance on understanding who’s responsible in the lead up to these incidents occurring,” said Channon.
Keeping a diary of events is also a critical discipline, according to Grasso.
“Not enough information is captured on job sites. We often see scenarios where an incident has occurred, and the operator or supervisor of the crane company states the site said it was OK to operate the machine in a particular manner or the set-up of the machine was alright.
There’s too much hearsay and not enough evidence. It can come down to simply keeping a daily diary and noting who it was you spoke to, date and time, what was clearly stated, and this may stand up in court. The industry needs to pick up this discipline again. Everybody has a smart phone and there are a variety of apps that ensure this information is captured. The industry could improve on mitigating some of their risks and exposure by ensuring they keep a form of a diary,” he said.
Understanding the chain of responsibility is equally important says Hendriks.
“In this day and age with OH&S issues and obligations, under the legislation you cannot delegate obligations imposed on you by the workplace safety legislation. It’s amazing how many times there is a lack of clarity as to who is responsible for devising the safe work method statement and who’s actually in charge of the lift,” he said.
“People’s safety is the issue and there shouldn’t be any lack of clarity about how the lift is conducted, what method is being operated and who’s in charge. It’s a critical element of the contract. This is relatively easy when it comes to dry hire but not so straight forward when you wet hire and gets even more complicated when you hire out the driver and not the rigger or the rigger and not the driver,” said Hendriks.
Grasso emphasises the point when he says that there have been scenarios where they have requested the client provide them with lift plans only to learn they’ve (the client) been provided by a third party.
“It’s important we understand who that party is and there has to be an agreement that whoever designed it, is responsible for that lift and its implications,” said Grasso.
“People need to understand what their contractual obligations are. If they do, at least they are open to entering into an arrangement with open eyes. It may be there are certain terms they can negotiate and others they can’t but at least they can make an educated decision as to whether they will accept a certain level of risk. Risk should come with some reward so the insured may take on the risk, but he may need to increase the price of his services to do so. Open eyes enable them to make informed decisions,” he said.