Your clients’ terms and conditions are their first line of defence – is insurance their second?

That’s why, for marine businesses, having well-written and vigorously enforced terms and conditions (sometimes referred to as T&Cs) is essential in providing their first line of defence. These terms and conditions define what the business is responsible for, what it isn’t and how liability is handled.

When properly written and applied, a well-written set of terms and conditions can help to:

Ensure fairness – It is cost prohibitive for a sole trader working on a large ship to bear responsibility for the whole ship. Similarly it is unfair for a provider to avoid all liability for negligent work. Well drafted terms and conditions give both parties peace of mind that they are protected.

Maintain consistency – Ensuring the same terms apply to every job, and that the business’s preferred legal terms apply to all contractual engagements.

Promote efficiency – With a set of terms and conditions already in place, marine businesses can finalise transactions without the need to draft new terms. 

Avoid negotiation – With clear, non-negotiable terms, marine businesses can quickly set expectations without lengthy discussions potentially delaying the contract start. [1]

Why terms and conditions are important

Your clients’ terms and conditions are important because they serve to exclude or restrict liability. To do this, they set out exclusion clauses for certain eventualities. Some limit liability by capping the amount payable in damages, restricting the types of losses recoverable or setting time limits for claims. These can all help reduce overall exposure².

Some businesses even include exclusions that remove liability altogether.³ These kinds of conditions don’t just manage risk, but they also make it easier for insurers to offer cover. However, these exclusions need to be carefully drafted to hold up if challenged. If the clause is vague or unenforceable, it won’t offer much protection when it’s needed most.

When working with clients who are dealing with other businesses that have their own terms, it’s essential that a full review of both sets of terms and conditions is conducted before work is carried out.

You should encourage clients to enforce their own terms for every job. Without doing this, they may accept the other company’s terms by default, often with unlimited liability. If they have conflicting terms, these need to be formally addressed, otherwise a court could rule in favour of the party who last put forward their terms and conditions⁴.

The role of insurance

Your clients’ insurance is there to protect them against risk, including liabilities. However, it doesn’t act as a catch-all safety net. Most marine insurance policies include contractual liability exclusions. This means that if your client accepts liabilities in a contract that goes beyond what the law typically imposes, their insurer may not pay out⁵. To put it simply, if the terms and conditions don’t align with your marine client’s insurance policy, the ‘second line of defence’ will likely fall through.

Because of this, it’s important to ensure that your clients’ terms and conditions don’t just manage risk, they should also ensure liability agreements fall within insurable limits. For example, if a marine company agreed to unlimited liability in a contract, but their insurer will only pay up to a capped amount, they may be left needing to pay the difference. 

Even with sufficient insurance in place, claims can still get denied. One key reason for this can be due to accepting broad liability without insurer approval, often through poorly drafted or unenforced terms and conditions. This is often avoidable with the right terms and conditions in place from the start.

What marine businesses should consider

For marine businesses, risk management isn’t just about having insurance. It’s about creating a wider risk strategy that works together to create a stronger line of defence. That means:

• Enforcing their own terms on every job or coming to a considered and formal final agreement of dual terms.
• Including liability caps and negligence-only clauses.
• Getting terms and conditions reviewed by a marine solicitor.
• Sharing terms and conditions with underwriters – some insurers offer broader cover when robust terms are in place.