Background
The knock-for-knock principle developed in the offshore oil and gas industry in the North Sea and Gulf of Mexico in the 1960s and 1970s as a response to the practical difficulties of allocating liability among the many contractors operating simultaneously on a drilling rig or production platform. A typical offshore operation involves an oil company (the operator), a drilling contractor, a well services contractor, a supply boat operator, an anchor handler, a helicopter operator, an inspection contractor, and a host of subcontractors. Conventional fault-based liability would produce endless cross-claims and counter-claims; knock-for-knock substitutes a clear and predictable allocation that allows each party to insure its own exposures with confidence.
This article examines the knock-for-knock principle in detail: its operation as a mutual indemnity allocation between offshore parties, its application in BIMCO SUPPLYTIME and TOWCON forms, the BIMCO SUPPLYTIME 2017 revisions, the comparison with traditional fault-based liability allocation, the exceptions for gross negligence and wilful misconduct, the insurance and P&I-related implications, the principal case law in English and US courts, the practical drafting issues, the comparative jurisprudence between English law, US law, and civil law jurisdictions, and the contemporary application of knock-for-knock in offshore and project cargo work.
The Knock-for-Knock Principle
The knock-for-knock principle has three operational components. First, each party waives its claims against the other party for damage to its own property and for injury or death of its own personnel. Second, each party indemnifies the other party against claims by the indemnifying party’s own personnel and property (so that, for example, the supply boat operator indemnifies the oil company against claims by the supply boat crew, even where the oil company was at fault). Third, each party procures that its insurances contain a waiver of subrogation in favour of the other party, so that the insurer cannot pursue the other party in the indemnified party’s name.
The combined effect is that each party bears its own losses and pays for its own insurance, regardless of fault. The benefits are: simplicity (no fault allocation), predictability (each party knows its exposure), insurability (each party can confidently quote a fixed insurance premium), and litigation cost reduction (no internal contractor-to-contractor disputes). The costs are: each party may end up paying for losses caused by the other party’s fault, and the principle requires careful drafting and broad interpretation to function as intended.
The principle is reciprocal but not necessarily symmetrical. In a contract between an operator and a contractor, the operator’s “group” (the operator, its co-venturers, its other contractors, its subcontractors) is typically defined more broadly than the contractor’s “group” (the contractor, its subcontractors). This asymmetry reflects the operator’s broader liability exposure and is generally accepted as commercially reasonable.
Mutual Indemnity Allocation Between Offshore Parties
The knock-for-knock allocation in an offshore contract typically distinguishes between “group A” and “group B”: group A is the operator and its affiliates, co-venturers, other contractors, and the personnel and property of all of them; group B is the contractor and its subcontractors and their personnel and property. The mutual indemnity provides that each group bears its own losses, regardless of which group caused them.
The “group” definition is the heart of the clause. A typical drafting issue is the inclusion of higher-tier subcontractors and lower-tier subcontractors in the relevant group: the operator typically wants its co-venturers and other contractors included in its group; the contractor typically wants its subcontractors included in its group. The interlocking of group definitions across multiple contractors produces a contractual matrix in which each contractor is in the operator’s “group” relative to all other contractors, with corresponding mutual indemnities.
The principal sub-categories of loss covered are: (a) personal injury or death of personnel, (b) damage to or loss of property, (c) consequential losses (loss of production, loss of use, business interruption), and (d) pollution. Pollution is sometimes carved out and dealt with under a separate “pollution from the contractor’s own equipment / from the operator’s own facility” allocation, reflecting the special insurance and statutory regime for pollution liability.
SUPPLYTIME and TOWCON Application
The BIMCO SUPPLYTIME 2017 form is the dominant standard contract for offshore supply vessel work, used worldwide for platform supply vessels (PSVs), anchor-handling tug supply vessels (AHTS), emergency response and rescue vessels (ERRVs), and similar craft. The form is a time charter party hybrid: the vessel is hired on time-charter principles, with the charterer paying hire and bunkers, but the operational structure (orders, scope of work, indemnities) is offshore-specific. SUPPLYTIME contains a comprehensive knock-for-knock regime in Clause 14 (Liabilities and Indemnities).
The BIMCO TOWCON 2008 (revised 2021) is the international ocean towage contract used for lump-sum heavy tows, project cargo movement, and rig moves. TOWCON is structured as a contract for services rather than a charter party, but it contains a knock-for-knock regime in Clauses 18 and 25 modelled on the SUPPLYTIME approach. The companion BIMCO TOWHIRE 2008 (revised 2021) is the daily-hire equivalent of TOWCON and contains essentially the same indemnity structure.
The HEAVYLIFTVOY and HEAVYCON forms, used for project cargo carriage and for heavy-lift transportation, contain similar knock-for-knock provisions. The BIMCO SHIPMAN 2009 (revised 2024) ship management agreement contains a more limited mutual indemnity reflecting the different commercial relationship.
BIMCO SUPPLYTIME 2017
SUPPLYTIME 2017 was the second major revision (after the 1989 version and the 2005 version) and introduced several significant changes. The knock-for-knock regime in Clause 14 is structured around three definitions: “Owners’ Group”, “Charterers’ Group”, and “Knock-for-Knock”. The Owners’ Group includes the owner and its parent, subsidiaries, affiliated companies, and the directors, officers, employees, and contractors of all of them; the Charterers’ Group is similarly defined, including in particular the charterer’s co-venturers and other contractors at the offshore field.
Clause 14(b)(i) provides for personal injury and death indemnity: each party indemnifies the other against claims by personnel of the indemnifying party’s group, regardless of cause. Clause 14(b)(ii) provides for property damage indemnity: each party bears damage to its own property regardless of cause. Clause 14(b)(iii) provides for consequential loss indemnity: each party waives consequential losses against the other party regardless of cause.
Clause 14(c) carves out the indemnity in cases of “wilful misconduct” or “gross negligence” of the senior management of the indemnified party. The 2017 revision introduced a clearer definition of “senior management” and a clearer threshold for gross negligence than the 2005 version, in response to concerns from the offshore community about the uncertain scope of the carve-out.
Clause 14(d) addresses pollution: pollution from the vessel itself is the owner’s responsibility; pollution from the offshore facility is the charterer’s responsibility. Clause 14(e) addresses wreck removal, with similar allocation.
Knock-for-Knock vs Traditional Liability Allocation
Traditional fault-based liability allocation under English common law (and similar systems) provides that the party at fault pays for the loss it has caused. The principle is intuitive but produces several practical problems in the offshore context: (a) fault may be difficult to establish where multiple contractors are working simultaneously; (b) fault investigation is expensive and time-consuming; (c) the fault-finder (court or arbitrator) may apportion fault in ways the parties had not anticipated; (d) insurance pricing becomes difficult because each party’s exposure depends on the fault profile of the others.
Knock-for-knock substitutes simplicity and predictability for fault-based fairness. The trade-off is generally accepted in the offshore industry, but it has been criticised in academic and regulatory circles, particularly where the consequence is that an injured worker’s compensation depends on the worker’s employer rather than on the party at fault. Some jurisdictions have responded by prohibiting or limiting knock-for-knock in personal injury contexts, while permitting it in property damage contexts.
The Norwegian Continental Shelf has retained knock-for-knock as a matter of industry practice. The UK Continental Shelf has done likewise. The US Outer Continental Shelf has retained knock-for-knock subject to state anti-indemnity statutes (see below). The Gulf of Mexico oil and gas region has been the principal source of judicial gloss on the principle.
Exceptions: Gross Negligence and Wilful Misconduct
Almost all knock-for-knock clauses carve out gross negligence and wilful misconduct of the indemnified party. The carve-out reflects two policy considerations: first, that an indemnity for one’s own gross misconduct may be unenforceable as a matter of public policy; second, that the parties did not intend the indemnity to extend to deliberate or reckless conduct.
The drafting of the carve-out is critical. A carve-out for “gross negligence or wilful misconduct” without further definition leaves the threshold to the tribunal’s discretion. A carve-out for “gross negligence or wilful misconduct of senior management” narrows the carve-out by requiring that the misconduct be at a defined organisational level. A carve-out for “gross negligence or wilful misconduct as defined in Clause [X]” with a precise contractual definition (typically “an intentional act or omission, with knowledge that the act or omission would result in damage, or with reckless disregard of the consequences”) narrows the carve-out further.
The English courts in The Eurus (No 2) (1998), Great Lakes Reinsurance v Western Trading (2016), and most recently in Itochu v Federal Insurance (2023) have generally upheld carefully drafted knock-for-knock clauses, including against challenges based on public policy. The US courts, particularly the Fifth Circuit Court of Appeals in cases applying Louisiana and Texas law, have produced a substantial body of case law on the gross negligence carve-out.
Insurance Requirements
Knock-for-knock requires that each party’s insurance regime be aligned with the contractual allocation. The principal insurance requirements are:
- Hull and machinery insurance: each party insures its own assets, with the other party named as additional insured to the extent of the indemnity, and with waiver of subrogation in favour of the other party.
- Protection and indemnity (P&I) insurance: the vessel’s P&I cover must include the contractual liabilities under the SUPPLYTIME or TOWCON, including the indemnities given to the charterer’s group; the P&I club’s terms must permit the cover.
- Employers’ liability insurance: each party insures its own personnel for employer’s liability, with waiver of subrogation against the other party.
- Operator’s extra expense / control of well insurance: the operator carries this for its own facility risk.
- Pollution liability insurance: each party carries pollution cover appropriate to its allocated pollution responsibility.
The insurance package is typically referenced expressly in the contract by way of an insurance schedule, and the parties exchange certificates of insurance at the start of the contract. Failure to maintain the required insurance is typically a material breach.
P&I Implications
P&I clubs play a central role in knock-for-knock contracting. The standard P&I cover (under the rules of the International Group clubs) excludes contractual liabilities beyond those provided by Hague-Visby or similar carriage regimes, but the clubs have for many decades extended cover to the SUPPLYTIME and TOWCON knock-for-knock indemnities by way of a “specialist operations” extension or an “approved offshore contracts” rule.
The International Group’s “Approved Towage Contracts” list and the equivalent “Approved Offshore Contracts” list determine which standard forms benefit from automatic P&I cover. SUPPLYTIME 2017, TOWCON 2008/2021, TOWHIRE 2008/2021, and HEAVYCON are all on the approved lists. Variations from the approved forms (in particular, deletions of the gross negligence carve-out or expansions of the indemnity beyond the standard scope) may require club approval and may attract additional premium or be excluded from cover.
The interaction of the P&I regime with the contractual indemnity is one of the principal practical complications of knock-for-knock work. Owners typically seek P&I confirmation before signing any non-standard offshore contract, and clubs typically maintain dedicated offshore departments to handle the volume of approval requests.
Related Case Law
The English courts have produced a substantial body of case law on knock-for-knock indemnity. The leading modern authority is Caledonia North Sea v British Telecommunications [2002] UKHL 4 (the Piper Alpha disaster litigation), in which the House of Lords held that a knock-for-knock indemnity in a contractor-to-operator contract was effective as between the contractor and the operator, even where the operator’s negligence had caused the contractor’s personnel injury and death. The decision established the principle that knock-for-knock could indemnify an operator’s negligence in the absence of clear words to the contrary, provided the indemnity was clearly drafted.
Other significant English decisions include: Smedvig Ltd v Elf Exploration UK plc [1998] 2 Lloyd’s Rep 659 (knock-for-knock and consequential loss); EE Caledonia Ltd v Orbit Valve plc [1995] 1 All ER 174 (knock-for-knock and indemnity drafting); A Turtle Offshore SA v Superior Trading Inc [2008] EWHC 3034 (Comm) (TOWCON 1985 indemnity construction).
The US Fifth Circuit cases, applying Louisiana, Texas, and federal maritime law, include: Houston Exploration v Halliburton (5th Cir 2001); In re Deepwater Horizon (5th Cir, multiple decisions following the 2010 Macondo blowout); and a substantial body of pre-2010 case law on the application of state anti-indemnity statutes to offshore contracts.
Practical Drafting Issues
The practical drafting issues in knock-for-knock clauses include:
- Group definitions: scope of “Owners’ Group” and “Charterers’ Group”, inclusion of subcontractors, co-venturers, affiliates.
- Carve-outs: gross negligence and wilful misconduct definitions, senior management threshold, exclusivity (whether the carve-out is the sole exception).
- Pollution allocation: alignment with statutory regimes (OPA 1990 in the US, the Civil Liability Convention internationally, MARPOL Annex I and Annex II).
- Wreck removal allocation: alignment with the Nairobi Wreck Removal Convention.
- Consequential loss: scope of consequential loss waiver, treatment of liquidated damages, treatment of regulatory fines.
- Insurance schedule: alignment of insurance requirements with the contractual allocation.
- Severability: the consequences of a court finding any part of the indemnity unenforceable.
The drafting must also address the interaction with force majeure, with statutory limits on indemnification (e.g. for fines), and with the parties’ insurance terms.
Comparative Jurisprudence
The treatment of knock-for-knock varies across jurisdictions. English law (and the laws of most Commonwealth common-law jurisdictions) takes a permissive approach: knock-for-knock indemnities are enforceable subject to clear drafting and to the carve-outs for gross negligence and wilful misconduct. Singapore law and Hong Kong law follow the English approach.
US law is more complex. Federal maritime law generally permits knock-for-knock, but several state anti-indemnity statutes (notably Louisiana’s Oilfield Indemnity Act, Texas’s Oilfield Anti-Indemnity Act, Wyoming, New Mexico) prohibit indemnification for the indemnitee’s own negligence in oilfield contracts. The interaction between federal maritime law and state anti-indemnity statutes has been the subject of extensive litigation, particularly in the Fifth Circuit.
Norwegian law has a special regime for the Norwegian Continental Shelf: the Norwegian Maritime Code permits knock-for-knock subject to the Workers’ Compensation Act regime for personal injury. The Norwegian Standard Contracts (NF, NTK) used in the Norwegian sector contain an indemnity regime aligned with this statutory framework.
Brazilian law and Mexican law, in their respective offshore sectors, have historically been more restrictive of knock-for-knock, particularly in personal injury contexts. Recent reforms in both jurisdictions have moved towards greater acceptance of the principle.
Contemporary Application in Offshore and Project Cargo
Contemporary knock-for-knock practice extends beyond traditional oil and gas offshore work into:
- Offshore wind installation and maintenance: SUPPLYTIME and the BIMCO WINDTIME 2013 (revised 2024) are widely used for wind-farm work, with knock-for-knock as the default allocation.
- Subsea cable installation: bespoke contracts modelled on SUPPLYTIME or HEAVYCON, with knock-for-knock allocation.
- Decommissioning: late-life platform removal contracts use SUPPLYTIME-derived terms with knock-for-knock.
- Project cargo and heavy-lift transportation: HEAVYCON and HEAVYLIFTVOY for the carriage; bespoke installation contracts for the lift; knock-for-knock typically extends across the contract chain.
- Salvage: LOF 2020 and the Lloyd’s Standard Form salvage agreements have a separate liability regime, but knock-for-knock principles apply to ancillary services.
The decarbonisation drive has not materially altered knock-for-knock practice, but the growth of offshore wind has substantially expanded the volume of knock-for-knock contracting beyond traditional oil and gas.
Related Wiki Articles
- Time Charter Party
- Voyage Charter Party
- Bareboat Charter Party
- Force Majeure in Shipping
- Classification Society
- SOLAS Convention
- MARPOL Convention
- ISM Code
References
- BIMCO SUPPLYTIME 2017
- BIMCO SUPPLYTIME 2005 (predecessor)
- BIMCO TOWCON 2008 (revised 2021)
- BIMCO TOWHIRE 2008 (revised 2021)
- BIMCO HEAVYLIFTVOY
- BIMCO HEAVYCON 2007
- BIMCO WINDTIME 2013 (revised 2024)
- BIMCO SHIPMAN 2009 (revised 2024)
- LOF 2020 (Lloyd’s Standard Form of Salvage Agreement)
- Caledonia North Sea Ltd v British Telecommunications plc [2002] UKHL 4
- Smedvig Ltd v Elf Exploration UK plc [1998] 2 Lloyd’s Rep 659
- EE Caledonia Ltd v Orbit Valve plc [1995] 1 All ER 174
- A Turtle Offshore SA v Superior Trading Inc [2008] EWHC 3034 (Comm)
- The Eurus (No 2) [1998] 1 Lloyd’s Rep 351
- In re Deepwater Horizon (5th Cir, multiple decisions)
- Houston Exploration v Halliburton, 269 F.3d 528 (5th Cir 2001)
- Louisiana Oilfield Indemnity Act, La. R.S. 9:2780
- Texas Oilfield Anti-Indemnity Act, Tex. Civ. Prac. & Rem. Code Ch. 127
- US Outer Continental Shelf Lands Act
- US Oil Pollution Act 1990 (OPA 1990)
- International Convention on Civil Liability for Oil Pollution Damage 1969 (as amended)
- Nairobi International Convention on the Removal of Wrecks 2007
- Norwegian Maritime Code
- Norwegian Standard Contracts NF and NTK
- International Group of P&I Clubs, Approved Towage Contracts
- International Group of P&I Clubs, Approved Offshore Contracts
- Force et al, Admiralty and Maritime Law
- Mandaraka-Sheppard, Modern Maritime Law