Initially, it’s a strange concept to grasp – regardless of it being your fault, the other guy is responsible for any damage to his property!
That’s the nature of “mutual hold harmless” clauses in offshore oil and gas service contracts.
Once you wrap your head around it, the concept is really quite simple:
- the Contractor is responsible for any damage to its property or injury to its people (and that of its “Group”);
- the Company is responsible for any damage to its property or injury to its people (and that of its “Group”);
- each Party is responsible for its Group’s own pollution;
- in relation to loss or damage caused to third parties (i.e. anyone outside the Group). It is usual for the Party at fault to be responsible for the damage they cause. Risk can be mitigated against if you sign up to the IMHH (more on that below).
(There are, of course, exceptions to this in the shape of Wilful Misconduct carve outs, responsibility for blow-outs / downhole damage and others, but we will deal with them in a separate blog.)
The main reasons for the industry adopting a mutual hold harmless model are:
1. Certainty: A clear indemnities clause ensures that each Party knows where it stands.
2. Reduced Costs: That certainty allows most potential risks to be insured only once and by one Party rather than multiple insurance policies across the Parties covering the same risks. Each party knows the value of its own assets and therefore is in the best position to understand the level of insurance required.
3. Protecting the Industry: There is no point in smaller companies being costed out of the industry by having to choose between risking their entire business or taking out costly high level insurance policies when certain risks are already being covered by the E&P companies’ insurance policies.
Be sure to discuss your indemnities with your insurers to ensure:
- insurance policies are aligned; and
- subrogation rights are properly addressed to ensure indemnities are not undermined.
When conducting contract reviews, pay close attention – a pure “mutual hold harmless” model is a great place to start.
The indemnities provisions are among the most important in your offshore service contracts. The crafting of these clauses needs special care. If the worst happens you need to be certain that you are fully protected.
You can find more information on LOGIC Standard form of Contract at - https://www.logic-oil.com/content/standard-contracts0
If you are a contractor providing services offshore in UKCS, make sure you are aware of the Industry Mutual Hold Harmless (IMHH) Deed and consider signing up. It creates the “mutual hold harmless” regime between you and other contractors who you may be working alongside.
