In an ideal world risks can be avoided by careful analysis at the pre-contract stage of risks which may arise. However even in the best prepared and managed operations, accidents will happen. Risk management involves the apportionment of risks between the parties involved in contracts and effecting of insurance by those parties to cover the risks that they have assumed. For this to be effective, contracts must be carefully drafted.
The obligations to insure that are imposed upon parties to an offshore contract depend very much upon how risks have been apportioned between them. This apportionment is done largely by way of indemnity clauses. The obligations as to insure and the clauses which embody these are intended to ensure that the parties, having assumed risks are then in a position to meet claims or losses which arise from them. Any consideration of insurance clauses must of necessity therefore include a consideration of the risks which are being insured against and the facts which determine how these risks are apportioned.
In an ideal world risks can be avoided. Careful analysis at the pre-contract stage of the risks that may arise will help towards avoidance of accidents. So too, at a later stage, will the carrying out of thorough site investigation, the use of adequate technology and equipment, proper safety procedures, adequate manning and effective supervision. In this way, it should be possible for example for an operator to ensure that a fixed platform, drilling equipment or in the case of a supply boat charter party, a vessel, are adequate for their purpose. The Health and Safety at Work Executive hope that the Safety Case Procedure recommended by Lord Cullen in the Piper Alpha Report, and now being put into force, will largely eliminate risks arising from any inadequacies in the design, construction or operation of offshore installations.
However, the history of the offshore industry tells us that risks of this nature can be overlooked and that others, for example those due to unforeseeable external agencies beyond the control of the contractors and operators, human error, negligent workmanship or manufacture of equipment, cannot be avoided in even the best regulated of contracts.
There are two important factors which may affect the way in which risks are apportioned. One of these is the state of the market at the time of the negotiations. When the offshore market is buoyant, a contractor will be able to negotiate a favourable contract. If the market is deflated, his position will be less strong.
The second factor affecting apportionment of risks will be the need, where possible, to avoid exposing a contractor, or for that matter a sub-contractor to risks which are out of all proportion to (a) the nature and cost of the service and/or equipment that they are supplying and to (b) their own financial resources.