The biggest problem with construction compensation clauses is their applicability. In trying to determine the applicability of a compensation clause, two crucial factors must be taken into account: clarity and public order. Where possible, the contractor or subcontractor should endeavour to limit compensation and maintain non-damage obligations on property for which he or she can purchase insurance. As a general rule, insured obligations are the concepts of personal or property damage. Clause 3.18.1 of the AIA limits the obligation to compensate for personal and material damage (other provisions relate to other provisions of the AIA relating to copyright infringements, pawn rights and hazardous substances). Broad comprehensive clauses requiring the holder to compensate the owner of “all claims arising from the performance of the contract” or “any claim allegedly created by the acts or omissions of the holder” are simply too broad and unsurpassable. The contractor should carefully review the compensation provisions to ensure that the clauses in the property holder`s contracts are strict in order to cover the concepts of personal and insurable property damage. As evidence of this last point, a number of States have adopted their own anti-compensation statutes, which render many types of clauses unenforceable for public policy reasons. These statutes can only range from a total ban on broad and intermediate forms (A and B above) to the authorisation of broad forms only if there is a clearly defined monetary ceiling for the obligation to compensate. This is because when a GoC is allowed to discharge most of the financial burden of liability on itself and other parties, the GoC has little incentive to avoid risks in its own work. Indeed, compensation clauses are an important player in the constantly advanced war for risk management.
They generally arise from the main contract between the project owner/landowner and the general contractor, which requires the GoC to compensate the landowner for damage or damage that may occur during the construction project. In addition to these clauses, it is important to consider all other insurance requirements. Where possible, the contractor should try to limit its liability to the objects it can control and those against which we can be insured. Mutual compensation is sometimes necessary, but a good understanding and a specific area of responsibility must be developed to enable legal advisors to address the situation. This is when you have to learn how to write a compensation letter. [i] Among the lawyers, there are some questions as to whether the AIA compensation clause should contain the word “defence” to trigger the contractor`s defence obligation. This issue was not decided by the courts in Washington, Oregon or Alaska in a notified decision. Another common provision for compensation, which should be known to contractors, is that the compensation clause should be limited to third-party claims and should not include the rights of the parties (the rights of the owner) on the contract.
Again, the obligation to compensate should be insurable by limiting the obligation of compensation to third-party claims. A work-related clause is rarely used and does not require negligence or omission.