G. Evan Spencer and Douglas J. Shoemaker ●
Despite recent setbacks, a number of U.S. offshore wind projects remain on the books and on track. A recurring issue with these projects concerns what contractual indemnity scheme should apply. For offshore oil and gas projects in the United States and internationally, and for offshore wind projects outside the United States, the parties almost uniformly utilize some iteration of a “knock-for-knock” indemnity scheme, whereby each party picks up the full tab for any personal injuries, illnesses, or deaths of its employees and for any damage to or loss of its property, regardless of the cause or the fault of any party. Each party is also responsible for the people and property of their respective “group,” including underlying subcontractors, who should also have the same knock-for-knock indemnity obligations.
The knock-for-knock indemnity scheme is efficient and effective, particularly if it includes no carve-outs and is applied uniformly across all of the contracts for parties that have personnel and/or property involved in the project. This setup provides the parties with more certainty of their liability exposure and avoids duplicative insurance coverage. In most cases, each party with personnel or property involved in the project will also be required to have insurance coverage that names the counterparty and its “group” as an additional insured and waives the underwriters’ rights to pursue subrogation against them.
However, even in the U.S. offshore oil and gas industry, there have been some hiccups in adopting knock-for-knock indemnity. For example, Texas and Louisiana each adopted regulations to ensure equitable division of liability exposure with contractual indemnity provisions in offshore projects, limiting where knock-for-knock can be used. Also, some jurisdictions find indemnity for an indemnitee’s gross negligence or willful misconduct to be void, as against public policy, or to require specific notice to the indemnitor.
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