Australia: Proportionate Liability - still causing insurance havoc

Building and Construction Update
Last Updated: 30 June 2011
Article by Ray Giblett and Scott Laycock

It is now several years since the commencement of proportionate liability in New South Wales1 yet it continues to wreak havoc in the allocation and management of risk in a variety of contexts.  This is particularly so in the context of construction projects where parties routinely contract out of proportionate liability in an attempt to avoid a multiplicity of claims arising when something goes wrong. 

An unintended consequence of such attempts to simplify the allocation of responsibility is that the relevant party may be partially uninsured, leaving both that party and the claimant exposed.

The problem

Liability policies generally exclude an insured's liability in contract except to the extent that such liability would have arisen even in the absence of the contract.  This is because insurers price policies based on an insured's normal liability at law (e.g. in tort) and do not wish to cover additional matters arising under a contract.

In jurisdictions where it is possible to contract out of proportionate liability, including NSW, any party doing so will be contractually expanding liability from their proportionate contribution to joint and several liability.  This means a claimant can seek 100% of their loss from a single party.   That party is then required to seek contribution or indemnity from any joint tortfeasors or under any other available contractual indemnities.  Where such other parties are impecunious or for some other reason are unable to meet the contribution or indemnity claim, the first party will be left bearing 100% of the loss.  In contrast, if proportionate liability applied their exposure would have been limited to their proportionate contribution.

In addition, the effect of a contractually assumed liability exclusion is to limit the insurer's liability to the proportionate contribution.  The party is effectively uninsured in respect of any greater amount.  Where a party's contribution to a particular loss is relatively low (e.g. 20%) this could result in most (e.g. 80%) of the claim being uninsured.  This has implications for both principals and contractors.

The consequences

For contractors, it is obviously undesirable to carry a significant uninsured exposure.  This may cause substantial financial hardship and even insolvency in the event of a substantial claim.

The potential gap in cover caused by contracting out of proportionate liability was identified by us and other insurance experts at the outset.  However, it has taken some time for the message to filter through to contractors and many still carry this often unintended and unknown exposure.

For principals, who routinely require parties to contract out of proportionate liability so that a single claim can be made rather than multiple claims against all concurrent wrongdoers, it is not enough to simply rely on seemingly robust indemnity clauses.  The broadest indemnity is of little comfort if the liable party cannot meet the claim due to an absence of insurance cover.

Accordingly, it is equally important for principals to ensure that, when requiring parties to contract out of proportionate liability, such increased exposure is covered by insurance.

Addressing the gap

Obtaining cover for contractually assumed liability is not always easy.  Although insurers would be entitled to bring a subrogated claim against any joint tortfeasors or other indemnifiers, the additional cost and risk of doing so means that they are reluctant to revert to the joint and several liability regime they successfully campaigned against.

If reliance is placed on a standard 'off the shelf' policy covering all of a party's activities, the insurer is unlikely to agree to remove the standard exclusion.  Nevertheless, particularly for more sophisticated insureds and larger projects, it may be possible to remove the contractually assumed liability exclusion or at least modify it so that it does not apply in respect of a particular project/contract, ordinarily assumed liabilities or contracting out of proportionate liability only.  Insurers are more amenable to expanding cover where the relevant risks can be identified and quantified.

For major projects, a project specific policy may be maintained covering all relevant parties (e.g. the principal/developer, head contractor and subcontractors) for contractual liability where the parties have contracted out of proportionate liability.  This is the preferred approach to ensure that all losses are covered regardless of the contractual allocation of responsibility between the respective parties.

It is important that issues of risk allocation, indemnity and insurance are addressed at the earliest opportunity.  This will ensure that a robust indemnity and insurance regime is negotiated with sufficient time to obtain the right cover to address any potential gaps in coverage. 

Otherwise, parties may find that their insurance is not there when they need it most and principals may find that their seemingly vigorous indemnity regime is a mere chimera.


1. A limited regime of proportionate liability existed in 'building actions' for several years prior to the implementation of proportionate liability under the Civil Liability Act 2002 (NSW).


Scott Laycock

t (02) 9931 4865


Ray Giblett

t (02) 9931 4833


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.