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In international project finance, insurance plays a crucial role in managing and mitigating risks associated with large-scale projects. While the specific insurance requirements and clauses can vary depending on the nature of the project.

Project Finance: Common Insurance Requirements

Here are some common requirements and clauses typically seen in international project finance:

1. Construction All Risks (CAR) Insurance: This insurance coverage is commonly required during the construction phase of a project. It provides protection against various risks, such as fire, theft, natural disasters, and damage to the construction site and materials. CAR insurance typically covers the project owner, contractors, and subcontractors.
2. Delay in Start-Up (DSU) Insurance: DSU insurance, also known as Advanced Loss of Profits (ALOP) insurance, is often required for projects with significant construction timelines. It provides coverage for financial losses resulting from project delays caused by insured events, such as construction accidents, equipment breakdowns, or regulatory issues. DSU insurance helps protect lenders and investors from potential revenue shortfalls.
3. Professional Indemnity (PI) Insurance: PI insurance is typically required for projects involving professional services, such as architectural, engineering, or design work. It offers coverage against claims arising from errors, omissions, professional negligence, or wrongful advice provided by project professionals.
4. Liability Insurance: General Liability and Public Liability insurance are commonly required to protect against claims for bodily injury or property damage to third parties that may arise during the project’s construction or operation. These policies cover legal defense costs and damages awarded to claimants.
5. Business Interruption Insurance: This insurance coverage helps protect against financial losses resulting from project interruptions due to insured events, such as natural disasters, equipment failures, or political instability. Business Interruption insurance typically compensates for lost revenue, ongoing expenses, and additional costs incurred during the interruption period.
6. Environmental Liability Insurance: For projects with potential environmental risks, such as energy or infrastructure projects, Environmental Liability insurance may be required. It provides coverage for costs associated with pollution incidents, environmental damage, and cleanup expenses.
7. Force Majeure Clause: A Force Majeure clause is commonly included in insurance policies. It relieves the insured parties from liability or obligations under the policy if unforeseen events beyond their control occur, such as natural disasters, political unrest, or acts of terrorism.
8. Subrogation Waiver: Project finance agreements may require a subrogation waiver clause, which prevents insurers from seeking recovery or subrogation against the project sponsors, lenders, or other project parties. This clause protects the project stakeholders from potential legal actions by insurers in the event of a loss.

It’s important to note that the specific insurance requirements and clauses can vary significantly based on the project type, location, size, and stakeholder preferences. Project finance lenders, sponsors, and other stakeholders typically work closely with insurance brokers and legal advisors to tailor insurance policies and clauses to the specific needs of the project.

Lenders Endorsement

Here are some insurance clauses commonly found in Lenders Endorsement:

1. Loss Payee Clause: A Loss Payee clause is often included in Marine Cargo Insurance policies to protect the interests of a third-party entity, such as a lender or financier, who has a financial interest in the insured cargo. It ensures that any insurance proceeds for a covered loss are paid directly to the designated loss payee.
2. Claim Reporting with Loss Amount Threshold: Some Marine Cargo Insurance policies may include a clause specifying that claims must be reported to the insurer only if the loss amount exceeds a certain predetermined threshold. This clause helps streamline the claims handling process by focusing on significant losses and minimizing administrative burden for smaller claims.
3. Additional Insured (Lenders) Clause: In Marine Cargo Insurance, an Additional Insured (Lenders) clause is often included to extend coverage to lenders or financial institutions who have an insurable interest in the cargo. This clause provides protection to the lenders in case of loss or damage to the cargo during transit.
4. Non-Cancellation Clause: A Non-Cancellation clause ensures that the insurance policy cannot be canceled by the insurer before the expiration date, except for specific reasons mentioned in the policy. This clause provides stability and security to the insured party by guaranteeing that the coverage will remain in force for the agreed-upon period.
5. Survey Warranty Clause: A Survey Warranty clause in Marine Cargo Insurance requires the insured party to provide accurate and complete information regarding the cargo’s condition, packaging, and any other relevant details. It may also require the insured to undergo surveys or inspections by authorized surveyors. This clause helps ensure that the cargo meets the required standards and reduces the risk of disputes during claims settlement.
6. Sue and Labor Clause: The Sue and Labor clause allows the insured party to take reasonable measures to protect the cargo from further damage or loss after an insured event has occurred. The insurer may cover the expenses incurred by the insured in undertaking these measures, with the objective of minimizing the overall loss.