the loss itself or the lack of relevant insurance cover amounts to a failure of due

performance allowing the Employer to claim on the bond.

Any lack of recovery from insurers could result from one of the following causes:-
(i) no obligation to insure;
(ii) breach of obligation to insure or procure insurance;
(iii) non-disclosure or breach of term of insurance policy;
(iv) excess;
(v) loss exceeds maximum cover; or
(vi) reduced payment due to scaling-down or negotiation.
Under item (iii), breach is covered by clause 25.4 (Compliance with policy
conditions): whoever breaches the policy is liable for any non-recovery. Under
English law, non-disclosure of any information relevant to the risk to be
undertaken by the insurer is treated as rendering the policy void and as if never
effected. In some European jurisdictions, the same is true if the failure of
disclosure was in bad faith. A difficult question arises as to whether an avoided
policy should be treated as a failure to insure under clause 25.3 (Remedy on
Contractor's failure to insure) or a failure to comply under clause 25.4. In view of
the ineffectiveness of the prescribed remedy under clause 25.3 in situations
where a claim has arisen and the insurer has refused liability on the ground of
non-disclosure, the practical solution must be to treat the case as one of breach.

If the uninsured loss is the result of a breach by the Contractor of the duty to
insure, and falls within clause 20.4 (Employer's risks) items (e) to (g), the
question arises whether this sub-clause means that the Employer must bear the
loss or whether he can pursue the Contractor for the breach. It is submitted that
the Employer's remedy for the failure of the Contractor is set out in clause 25.3
(Remedy on Contractor's failure to insure) and that it is intended to be the
exclusive remedy. If it had been intended that the Employer could sue for the
breach, the draftsman would, it is submitted, have so indicated in this sub-clause
or in clause 25.4 (Compliance with policy conditions).

The 4th Edition for the first time divides the Employer's risks into those to be
insured and those which need not be insured. Employer's risks (a) to (d) cannot
normally be insured against and thus are excluded from the insurance obligations
upon the Contractor. If the Employer is able to obtain insurance for some or all of
these risks, he is free to do so.

Obligations in relation to insurance are also imposed by clause 23 (Third party

insurance), clause 24.2 (Insurance against accidents to workmen) and clause 25
(Evidence and terms of insurances).

As with clause 23.1 (Third Party Insurance) and clause 25 (Evidence and terms
of insurances), Part II provides for this clause alternative wording in the event
that the Employer decides to insure the works and the third party risks himself.

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CLAUSE 22 : Indemnity

The Contractor is to indemnify the Employer in respect of the death or injury of

any person or damage to the property of any third party resulting from the
execution of the project subject to certain exceptions.

The exceptions are listed in clause 22.2.

The Employer shall indemnify the Contractor against claims in respect of the
exceptions.

This edition is similar to the 3rd Edition although there have been changes to the
vocabulary and the exceptions are now set out in a separate sub-clause.

22.1 The drafting of this clause obscures the meaning of this clause. Why it is
necessary to have two lists of items against which the Contractor should
indemnify the Employer i.e., "losses and claims" as well as "claims, proceedings
etc" is a mystery and raises the suspicion that the exception qualifies only the
second list and not the first. This, however, cannot be right.

"...except if and so far as the Contract provides otherwise..." The principal

provision which the contract makes in relation to the indemnity is the insurance
required by clause 23.1 (Third party insurance) which is in the joint names of the
Contractor and the Employer in respect of these risks. Thus, the Employer will
recover directly from the insurer and neither the Employer nor the insurers will be
entitled to seek to recover from the Contractor in respect of sums paid out under
the insurance policy.

Clause 65 (Special risks) provides further exceptions, protecting the Contractor

from liability for items (a) to (e) of clause 20.4 (Employer's risks), provided in the
case of item (b) that the rebellion etc occurs in the country where the Works are
taking place.

"(b) loss of or damage to any property (other that the Works)". This covers
property of the Employer other than the project itself. The corresponding
insurance obligation puts the matter beyond doubt as clause 23.1 (Third party
insurance - including Employer's property) expressly covers such property.

An equivalent version of this indemnity was considered in Richardson v

Buckinghamshire County Council (1971) 1 Ll R 533; 6 BLR 58 when the Court of
Appeal considered the ICE 4th Edition clause 22(1). There the Employer had
incurred legal and other costs in successfully defending a personal injury action .
He sought to recover those costs from the Contractor who had been joined into
the action as a co-defendant. The Court of Appeal decided that the Employer's
costs did not fall within the terms of the indemnity.

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22.2 Items (a), (b) and (c) could arise, for example, in the claims that might be
made by an adjoining owner who considered the value of his property to be
adversely affected by the construction activity and the presence of the completed
project close to his land or if there was a disputed boundary between his property
and the site. In particular, an injunction or other order of court could be obtained
bringing all or part of the works to a halt.

Item (d) injury or damage caused or contributed to by the Employer or those

employed by him is the most important exception. It is submitted that the
Engineer would be the servant or agent of the Employer for these purposes with
the result that injury or damage caused by the Engineer's design would be
covered. Compare the wording of clause 44.1 (Extension of time for completion)
item (d) and the commentary thereunder.

"...other contractors not being employed by the Contractor..." could create

difficulties in relation to contractors employed by subcontractors. The intention is
clear however, even without an express reference to clause 31 (Other
contractors).

22.3 It may be worthy of note that where damage to the works results from
risks which are the Employer's responsibility, the Engineer is empowered to
ascertain the cost of rectification under clause 52 (Valuation of variations). With
risks that may be termed "off-site", the Engineer and the contractual payment
machinery have no part to play. Nevertheless, a dispute as to the contractor's
entitlement to indemnity would have to be referred to the Engineer for a decision
and to an arbitrator pursuant to clause 67 (Settlement of disputes).

CLAUSE 23. : Insurance Liabilities

The Contractor is to obtain joint insurance for death or injury to persons other
than workmen and loss or damage to property other than the Works subject to
certain exceptions.

The minimum amount of insurance is stated in the Appendix.

The insurance policy shall treat the Contractor and Employer as separate
insureds.

This clause has been changed for the 4th Edition and introduces insurance in the
joint names of the Employer and the Contractor, whereas the Contractor took out
the insurance in his sole name in the 3rd Edition.

The exceptions relevant to the requirement for third party insurance are items (a),
(b) and (c) in clause 22.2 (Exceptions) which refer to claims and damage which
arise from the mere fact of the existence and execution of the project. It must be
doubtful whether insurance is available to cover those matters. Insurance for item
(d) should be readily obtainable.

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