Knock-for-knock indemnity is the contractual rule under which each party to an offshore or marine services contract bears its own loss: property damage to its own assets, casualties among its own personnel, and its own consequential losses. It doesn’t matter who caused the loss. The supply vessel owner absorbs the loss if its vessel is damaged, even if the charterer’s crane operator dropped the load. The oil company absorbs the loss if its platform deck equipment is destroyed, even if the vessel master misjudged the approach. Each party “knocks for its own.”
The regime arose in the North Sea and Gulf of Mexico offshore industry in the 1960s and 1970s to solve a specific problem: a drilling platform at the height of activity might host the oil company, a drilling contractor, three or four well-services contractors, a supply boat operator, an anchor handler, a helicopter operator, and a dozen subcontractors, all working simultaneously. If any incident triggered conventional fault-based cross-claims among all of them, the litigation costs would exceed the losses. Knock-for-knock cuts through that by making each party’s insurer pay for that party’s loss, full stop.
Today the regime is codified in the BIMCO SUPPLYTIME 2017 form (Clause 14), TOWCON 2021 / TOWHIRE 2021 (Clauses 18 and 25), HEAVYCON, WINDTIME, and in the LOGIC General Conditions of Contract used on the UK Continental Shelf. It’s enforceable under English law subject to the Canada Steamship / Smith v South Wales Switchgear principles for indemnities against negligence, and its outer limits have been tested in House of Lords and Court of Appeal decisions from Caledonia North Sea [2002] through Transocean Drilling v Providence Resources [2016].
Structural logic of knock-for-knock
Knock-for-knock rests on two interlocking principles. The first is a mutual waiver: each party waives its right to pursue the other for damage to its own property and casualties among its own personnel. The second is a mutual indemnity: each party actively indemnifies the other against claims brought by its own personnel, so the indemnifying party’s insurer stands behind even a claim where the other party’s fault is established.
Those two moves together cut off both direct claims and claims routed through injured personnel. Without the waiver, each party could sue the other directly for negligence. Without the indemnity, each party’s employees could still sue the other party, and that other party could seek contribution back. The combination removes the incentive for any claim to travel across the contractual boundary.
A third structural element, required to make the first two commercially coherent, is the insurance obligation. Each party must carry adequate insurance for its own group’s exposures, and each party’s insurer must waive subrogation against the other party. Without the subrogation waiver the insurer who pays a claim simply steps into the insured’s shoes and sues the other party: the knock-for-knock protection dissolves from outside the contractual relationship.
Group definitions and the contractual matrix
In a two-party bilateral contract the “groups” are straightforward. In practice, offshore operations involve chains of contracts: the oil company (the operator) contracts with a drilling contractor, separately with a supply boat owner, separately with a well-services company; each of those contractors in turn subcontracts. The knock-for-knock regime binds all of them only if the group definitions in each bilateral contract extend to the full network.
SUPPLYTIME 2017 defines “Owners’ Group” as the owners, their parent, subsidiary, and affiliated companies, and the directors, officers, and employees of any of them, plus any person for whose acts or omissions the owners are responsible. “Charterers’ Group” is identically structured, and crucially includes the charterer’s co-venturers and their contractors and subcontractors. The co-venturer inclusion is what ties in the other oil companies on a joint-venture offshore block: they sit in the charterer’s group and benefit from the indemnity given by the vessel owner, and reciprocally they bear losses to their own personnel and property.
The depth of the group definition determines how far the contractual matrix extends. If a well-services contractor’s subcontractor is not included in the relevant group, a loss among the subcontractor’s personnel falls outside the knock-for-knock net and into conventional tort. Experienced offshore contract lawyers spend considerable time on the group definitions for exactly this reason.
The consequential loss waiver
Alongside the personal injury and property indemnity, most offshore knock-for-knock regimes include a mutual waiver of consequential losses: loss of production, loss of use, business interruption, loss of revenue, loss of contract. This waiver is commercially important because the consequential losses in an offshore context dwarf the physical losses. A platform producing 50,000 barrels per day at 4 million per day in lost revenue if shut in; the physical cost of the incident that caused the shutdown might be $1 million. Without a consequential loss waiver the knock-for-knock regime on physical property achieves little because the dominant exposure remains open.
The consequential loss waiver is typically drafted as a separate limb of Clause 14 in SUPPLYTIME 2017, applying “regardless of cause and regardless of whether arising from negligence or any other cause whatsoever.” Its interaction with liquidated damages clauses (particularly off-hire provisions in time charters) requires care. Off-hire is a contractual withholding of hire for periods when the vessel is unavailable; it is not a consequential damages claim, and the consequential loss waiver does not extinguish off-hire rights. The Court of Appeal confirmed this distinction in Transocean Drilling UK Ltd v Providence Resources plc [2016] EWCA Civ 372, addressed in detail below.
BIMCO SUPPLYTIME 2017: Clause 14 in detail
SUPPLYTIME 2017 replaced SUPPLYTIME 2005 after a sustained industry consultation process. The knock-for-knock regime was revised to address several problems that had emerged in practice, particularly around the gross negligence carve-out and the definition of consequential loss.
Clause 14(a) sets out definitions: “Owners’ Group,” “Charterers’ Group,” and the scope of “personnel” (which includes agency workers and contractors on site). The 2017 revision added a specific provision addressing cyber incidents: a loss caused by a cyber attack on the vessel’s systems is not automatically excluded from the knock-for-knock regime, which had been a disputed point under the 2005 form.
Clause 14(b)(i) is the personal injury and death indemnity. Each party indemnifies the other against all claims brought by members of the indemnifying party’s group for personal injury, illness, or death, regardless of cause. So the supply boat owner indemnifies the charterer against a claim brought by a member of the owner’s crew, even if the charterer’s negligence caused the accident. The vessel owner’s P&I insurer covers this indemnity obligation.
Clause 14(b)(ii) is the property damage indemnity. Each party bears damage to its own property and indemnifies the other against claims arising out of that damage. “Property” includes the vessel itself (owner’s side) and the charterer’s cargo, equipment on deck, and offshore installation equipment (charterer’s side).
Clause 14(b)(iii) is the consequential loss waiver. Each party waives consequential losses against the other, defined to include loss of production, loss of use, loss of revenue, business interruption, loss of contract, and any other indirect or consequential loss. The 2017 revision expanded the definition relative to the 2005 form to address the argument, occasionally run in arbitration, that certain heads of production loss were “direct” rather than “consequential.”
Clause 14(c) is the gross negligence and wilful misconduct carve-out. The indemnity does not apply to the extent that loss is caused by the gross negligence or wilful misconduct of the “senior management” of the indemnified party. “Senior management” is defined to mean the board of directors, managing director, chief executive, and persons reporting directly to them. The 2017 revision tightened this definition from the looser 2005 version, which had referred to “senior management or supervisory personnel” and generated disputes about whether offshore installation managers and chief engineers were covered.
Clause 14(d) addresses pollution. Pollution from the vessel itself (bunkers, lubricants, bilge water) is the owner’s responsibility. Pollution from the charterer’s cargo or from the offshore facility is the charterer’s responsibility. The clause aligns with the statutory pollution regimes (MARPOL, OPA 1990) but does not displace them: statutory liability to third parties and government authorities follows the relevant statute, not the contractual allocation between the contracting parties.
Clause 14(e) addresses wreck removal. The cost of removing the wreck of the vessel is the owner’s responsibility. The cost of removing the charterer’s cargo or equipment from the seabed is the charterer’s responsibility. The clause aligns with the Nairobi International Convention on the Removal of Wrecks 2007.
Platform supply vessels working under SUPPLYTIME 2017 are a central element of offshore logistics. For the operational and capacity calculations involved, see the offshore PSV deck capacity calculator and the AHTS bollard pull calculator.
TOWCON 2021 and TOWHIRE 2021
BIMCO revised TOWCON and TOWHIRE in 2021, updating both forms from the 2008 editions that had replaced the original 1983/1985 versions. TOWCON 2021 is the lump-sum ocean towage contract; TOWHIRE 2021 is the daily-hire equivalent. Both are used for rig moves, heavy tows, project cargo movements, and similar assignments. The towage and salvage operations article covers the operational framework; this article focuses on the indemnity regime.
TOWCON 2021 Clause 18 (Liabilities) follows the same structural logic as SUPPLYTIME Clause 14: owners’ group bears its own losses; charterers’ group bears its own losses; mutual consequential loss waiver; gross negligence and wilful misconduct carve-out at senior management level.
One significant difference from SUPPLYTIME: TOWCON deals with a tow that is the charterer’s own property, so the property allocation is not symmetrical in the way it is in the supply vessel context. The tow itself sits in the charterer’s group for knock-for-knock purposes. If the tow sinks during the voyage because of the master’s negligence on the tug, the loss of the tow still falls on the charterer under the knock-for-knock regime, subject to the gross negligence carve-out. This allocation reflects the commercial logic that the charterer insures its own tow (cargo insurance or hull insurance on the towed object) and the tug owner insures its own vessel.
TOWCON 2021 Clause 25 (Insurance) aligns the insurance requirements with the Clause 18 allocation: each party maintains appropriate cover for its own group’s exposures, with waiver of subrogation against the other party. The tug owner carries P&I cover under an approved towage contract; the charterer carries hull and cargo cover on the tow.
HEAVYCON and WINDTIME
HEAVYCON (BIMCO’s contract for transportation and installation of offshore units and heavy-lift work) contains a knock-for-knock regime modelled closely on SUPPLYTIME. The regime is particularly important in the HEAVYCON context because the losses from a heavy-lift incident during installation of a large offshore structure can be enormous: the installed structure may be worth hundreds of millions of dollars, and a failed lift can destroy the cargo, the crane vessel, and create third-party pollution and obstruction liabilities simultaneously.
WINDTIME (the BIMCO time charter party for wind-farm installation and service operations, issued 2013 and revised to reflect the growth of the sector) carries knock-for-knock provisions adapted from SUPPLYTIME. The wind-farm sector has adopted knock-for-knock practice from the oil and gas industry, including the group definitions and the consequential loss waiver. The consequential loss of a delayed wind-farm commissioning can run to tens of millions of dollars per month in contracted power revenues; the waiver is commercially essential.
LOGIC and the North Sea mutual indemnity
LOGIC (Leading Oil and Gas Industry Competitiveness) is an industry body created in 1999 by the UK oil and gas industry to standardize contracting practice on the UK Continental Shelf. Its suite of General Conditions of Contract (the current editions are the fourth for construction and the second for services) implements a mutual indemnity / mutual hold-harmless regime (commonly called IMHH in the North Sea industry) for all contracts awarded by LOGIC-participant operators.
The LOGIC IMHH operates on the same structural logic as SUPPLYTIME Clause 14 but is drafted for construction and services contracts rather than vessel charters. “Company Group” and “Contractor Group” are the relevant groups; each group bears its own losses. The LOGIC framework is the standard allocation mechanism for North Sea field development contracts, well intervention contracts, and decommissioning contracts.
The LOGIC regime interacts with the UK Continental Shelf’s statutory framework. Section 138 of the Petroleum Act 1998 imposes a duty of care on offshore installations operators; the knock-for-knock indemnity between contracting parties does not affect that statutory duty to third parties. Similarly, the liability regime under the Offshore Installations (Safety Case) Regulations 2015 applies independently of any contractual indemnity.
English law treatment: the Canada Steamship principles
English courts approach indemnity clauses against negligence through the three-stage test set out by the Privy Council in Canada Steamship Lines Ltd v The King [1952] AC 192. The test asks: (1) does the clause expressly exempt liability for negligence? (2) if not, do the words used cover negligence by necessary implication? (3) if the words are wide enough to cover negligence but are also wide enough to cover liability on other bases (breach of contract, strict liability), the clause will not be read to cover negligence unless the clause is meaningless without it.
For knock-for-knock clauses, the first stage is usually satisfied because SUPPLYTIME Clause 14 and equivalent provisions expressly state “regardless of cause” and “regardless of negligence.” The House of Lords confirmed in Smith v South Wales Switchgear Co Ltd [1978] 1 WLR 165 that an express reference to negligence is required in an indemnity clause to cover the indemnitee’s own negligence; the BIMCO forms satisfy that requirement. The question after Smith is whether the negligence protection is limited to “negligence” as such or extends to gross negligence.
Caledonia North Sea v British Telecom [2002] UKHL 4
This is the leading House of Lords authority on knock-for-knock in the offshore context. The case arose from the Piper Alpha disaster of 6 July 1988, in which an explosion and fire on Occidental Petroleum’s Piper Alpha platform in the UK North Sea killed 167 people. Among the dead were employees of various contractors who were working on the platform under service contracts with Occidental that contained knock-for-knock indemnity clauses.
The survivors and estates of the contractor employees brought claims against Occidental for negligence. Occidental settled those claims. The issue in Caledonia North Sea was whether Occidental could recover under the knock-for-knock indemnities in its contracts with the relevant contractors, given that Occidental’s own negligence had caused the deaths. The contractors resisted: they argued that it would be contrary to public policy and to the proper construction of the clauses to require them to indemnify Occidental for deaths caused by Occidental’s own fault.
The House of Lords (Lord Bingham, Lord Mackay, Lord Nicholls, Lord Millett, Lord Scott) held unanimously that the indemnity clauses were effective. The clauses satisfied the Canada Steamship / Smith v South Wales Switchgear requirements: they expressly referred to negligence and applied “regardless of cause.” Public policy did not prevent enforcement of an indemnity against one’s own negligence in a commercial context between parties of equal bargaining power. The insurability rationale reinforced the commercial purpose: the contractors had agreed to insure against these liabilities, and their insurers had received the premium. Rescuing the contractors from their contractual obligations after the loss would give them a windfall.
Caledonia North Sea remains the authoritative statement that a properly drafted offshore knock-for-knock indemnity will cover the indemnitee’s ordinary negligence. Its holding has been followed in every subsequent English case on the point.
Transocean Drilling v Providence Resources [2016] EWCA Civ 372
This Court of Appeal decision is the leading authority on consequential loss waivers in offshore contracts and on the interaction between the waiver and off-hire provisions.
Transocean Drilling UK Ltd operated the semi-submersible drilling rig GSF Arctic III under a drilling contract with Providence Resources. Providence terminated the contract, alleging that Transocean had caused delay by failing to provide the contracted drilling capacity. The drilling contract contained a knock-for-knock consequential loss waiver. Transocean claimed that Providence’s loss of production caused by the delay was caught by the waiver; Providence argued that its production losses were not “consequential” within the meaning of the clause.
The Court of Appeal (Moore-Bick LJ, Christopher Clarke LJ, Hamblen LJ as he then was) held that the consequential loss waiver applied. The court adopted a natural reading of the clause, noting that the parties in an offshore drilling contract understand “consequential loss” to include loss of production, and that a commercially sensible reading required the waiver to catch exactly the losses that Providence claimed. The decision also confirmed that off-hire provisions in a charter party survive alongside consequential loss waivers because off-hire is a contractual adjustment of hire, not a claim for damages.
The Transocean Drilling approach to consequential loss waiver interpretation has been applied in subsequent arbitrations and decisions. Its importance for practitioners is the confirmation that courts will read offshore knock-for-knock clauses commercially, giving effect to the parties’ evident intent to allocate production-loss risk to the party whose own operations generate it.
Persimmon Homes and the current approach to exclusion clauses
The Supreme Court in Persimmon Homes Ltd v Ove Arup & Partners Ltd [2017] UKSC 35 reformulated the approach to construing exclusion clauses and indemnities. The court held that the Canada Steamship principles are tools of construction, not rigid rules of law: the court should give the clause its natural meaning in its contractual context, and only treat the Canada Steamship principles as a residual guide where natural meaning is genuinely unclear.
For knock-for-knock clauses that clearly and expressly cover negligence, Persimmon changes little in practice: the clause means what it says. But Persimmon has affected the approach to more ambiguously drafted bespoke indemnities. If a bespoke offshore services contract contains a mutual indemnity that does not expressly mention negligence, the Canada Steamship second-stage question (necessary implication) is now applied in a less restrictive way than the pre-Persimmon authorities suggested.
The Triple Point Technology Inc v PTT Public Co Ltd [2021] UKSC 29 decision, on exclusion of liability clauses in a technology contract, reinforced the Persimmon approach. While not an offshore case, Triple Point is cited in offshore contract disputes for the proposition that commercial parties intend their exclusion and limitation clauses to have commercial effect, and that courts should not use technical rules of construction to defeat that intent.
The gross negligence carve-out
Every standard offshore knock-for-knock form carves out gross negligence and wilful misconduct. The carve-out is not merely a matter of public policy caution; it reflects a genuine commercial judgment that the indemnifying party shouldn’t be required to indemnify the other for reckless or deliberate misconduct.
The meaning of “gross negligence” under English law is not settled with the precision it has in some civil law systems. English courts have traditionally been reluctant to treat “gross negligence” as a legally distinct category: Lord Cranworth in Wilson v Brett (1843) 11 M&W 113 said “gross negligence is ordinary negligence with a vituperative epithet.” Later authorities (The Hellespont Ardent [1997] 2 Lloyd’s Rep 547; Cavanagh v Ulster Weaving [1960] AC 145) have confirmed that gross negligence in a commercial contract context means conduct that falls substantially below the standard of a reasonable person, more than a lapse but short of deliberate wrongdoing.
SUPPLYTIME 2017 Clause 14(c) does not define “gross negligence” but limits the carve-out to the gross negligence or wilful misconduct of “senior management.” This senior management limitation does the commercial work: routine negligence by a deck officer doesn’t strip the indemnity; only conduct at a level where it amounts to a systemic failure by those directing the enterprise can defeat the knock-for-knock protection.
The gross negligence carve-out produces the hardest drafting questions. If the tug master makes a grossly negligent navigation decision during a rig move and the rig is damaged, does the carve-out apply? The tug master isn’t senior management. Under a strict reading of TOWCON 2021, the carve-out doesn’t apply: the rig owner absorbs the loss. Owners who find that result commercially unacceptable negotiate a bespoke extension of the carve-out to cover gross negligence at any level of personnel, not just senior management, but that modification requires P&I club approval because it expands the indemnity exposure beyond the standard approved form.
The insurance interface
Knock-for-knock’s commercial viability depends on the insurance structure around it. The principle that “each party insures its own group” requires each party to carry insurance that actually covers the relevant losses.
The vessel owner’s P&I club cover is central. Standard P&I cover under International Group club rules extends to cover the indemnities given under approved offshore standard forms. The clubs maintain an “Approved Offshore Contracts” list; SUPPLYTIME 2017, TOWCON 2021, TOWHIRE 2021, and HEAVYCON are all on the list. The club cover extends to the indemnity obligation under Clause 14(b)(i) of SUPPLYTIME: the owner’s P&I insurer covers the owner’s obligation to indemnify the charterer against claims by members of the owner’s group, including crew claims under employer’s liability and personal injury.
For P&I clubs and the International Group, the knock-for-knock approved-form regime is operationally important because it limits the scope of disputes about whether a particular offshore indemnity falls within standard club cover. Where an owner proposes to sign a non-standard offshore contract that deletes the gross negligence carve-out or extends the indemnity to cover pollution from third-party equipment, club approval is required before signing, and the club may decline to extend cover or may charge additional premium.
The charterer’s insurance package must align symmetrically. The charterer carries operators’ extra expense (OEE) or operators’ liability cover for the offshore facility, hull and machinery cover on its own equipment, employers’ liability for its own personnel, and cargo cover for goods being transported. The subrogation waiver in each of these policies prevents the charterer’s insurers from pursuing the vessel owner in the charterer’s name.
The offshore rig day rate calculator reflects the cost structure of offshore operations; insurance costs are a material component of the day rate agreed between the vessel owner and charterer.
Comparison of knock-for-knock vs fault-based liability
The table below sets out the key operational differences between knock-for-knock allocation and the fault-based default under English common law:
| Feature | Knock-for-Knock | Fault-Based Liability |
|---|---|---|
| Basis of liability | Loss ownership (whose asset was damaged / whose personnel were hurt) | Causation and fault (who caused the loss) |
| Who pays for crew injury | Employer of the injured person, regardless of cause | The party whose negligence caused the injury |
| Who pays for cargo / property damage | Owner of the property, regardless of cause | The party whose negligence caused the damage |
| Consequential loss / loss of production | Waived by the party that suffers it | Recoverable from the negligent party (subject to remoteness) |
| Need for fault investigation | None in standard cases | Required to establish liability |
| Insurance basis | Each party insures own exposures; subrogation waived | Each party insures to cover potential third-party claims |
| Litigation risk | Minimal between the contracting parties | Substantial; cross-claims in multi-party operations |
| Gross negligence | Usually carved out at senior management level | Ordinary standard of care; no special gross-negligence category |
| Predictability | High | Low in multi-contractor operations |
| Corrective justice alignment | Low (loss may fall on an innocent party) | High (wrongdoer pays) |
| Standard forms | SUPPLYTIME 2017, TOWCON/TOWHIRE 2021, HEAVYCON, WINDTIME, LOGIC GCC | Default common law; BIMCO GENCON (modified); liner bills of lading |
The corrective-justice critique of knock-for-knock is not without force. Where an oil company’s platform manager gives a negligent order that kills a supply boat crew member, the knock-for-knock regime requires the supply boat owner to bear the loss. The crew member’s family may be compensated from the supply boat owner’s P&I or employer’s liability insurer, but the oil company pays nothing. That result offends intuitive notions of accountability.
The industry’s answer is practical: the alternative is worse. Multi-party offshore operations cannot function if every casualty triggers years of cross-claim litigation. The supply boat owner prices the risk into its insurance and contract rate; if the oil company is chronically negligent its field operations become uninsurable and uncontractable, which is the market correction. The gross negligence / senior management carve-out addresses the most egregious cases without destroying the general predictability of the regime.
The BIMCO forms using knock-for-knock: summary
The following BIMCO forms incorporate knock-for-knock indemnity regimes as their standard liability allocation:
| Form | Use | Indemnity clause | Notes |
|---|---|---|---|
| SUPPLYTIME 2017 | Offshore service vessel time charter (PSV, AHTS, ERRV, wind-farm service) | Clause 14 | Full knock-for-knock with senior management carve-out; consequential loss waiver; pollution allocation |
| TOWCON 2021 | Ocean towage, lump-sum | Clause 18 | Knock-for-knock adapted for tow-ownership allocation |
| TOWHIRE 2021 | Ocean towage, daily hire | Clause 18 | Same as TOWCON 2021 |
| HEAVYCON | Heavy-lift transportation and installation | Clause 14 | Modelled on SUPPLYTIME; large-structure installation context |
| WINDTIME | Wind-farm installation and service time charter | Clause 14 | SUPPLYTIME-derived; consequential loss waiver important for power-revenue risk |
| BIMCO SHIPMAN 2009 (2024) | Ship management | Clause 5 | More limited mutual indemnity reflecting management relationship |
The time charter party article covers the general structure of time charters; the knock-for-knock indemnity is an overlay specific to offshore and specialist service contracts rather than the standard dry-cargo or tanker time-charter market.
Practical drafting and negotiation issues
Group definition scope
The group definitions are the first point of negotiation in any offshore services contract. The operator’s commercial team typically wants its co-venturers, its other contractors, and its subcontractors included in the charterer’s group, because any loss among those parties then falls on the relevant party’s own knock-for-knock cover. Contractors are usually willing to include their own subcontractors in their group but may resist including co-venturers or upstream contractors over whom they have no contractual control and whose safety standards they cannot audit.
The practical solution in large North Sea field developments is the LOGIC GCC framework, under which all contractors and subcontractors on the field adopt the same group definitions by reference to the operator’s master contract. A field-wide indemnity matrix is established once; each bilateral contract cross-references it.
Carve-out scope and senior management definition
The gross negligence / senior management carve-out is the second major negotiation point. Owners typically want the carve-out narrow (limited to the board of directors); operators want it wider (extending to offshore installation managers and chief engineers). The SUPPLYTIME 2017 definition is a compromise that has been broadly accepted in the market.
A related drafting issue is the “sole” carve-out question: is the gross negligence carve-out the sole exception to the indemnity, or does the indemnitee retain other defenses? SUPPLYTIME 2017 is drafted so that the gross negligence / wilful misconduct carve-out is the exclusive limitation on the otherwise absolute indemnity. Some operators seek to add additional carve-outs for fraud, criminal conduct, or breach of specific safety regulations; these require careful drafting to avoid unintentionally widening the carve-out beyond what the P&I club will cover.
Consequential loss definition precision
After Transocean Drilling, courts read “consequential loss” broadly in offshore contracts. But disputes still arise where the consequential loss definition doesn’t expressly list all the heads of loss the operator faces, or where a head of loss (for example, a contractual bonus payment that the operator loses because the well is delayed) doesn’t obviously fit within “loss of production” or “loss of revenue.”
The 2017 revision of SUPPLYTIME addressed this by expanding the definition and adding a sweeper clause, but bespoke projects with unusual revenue structures (power purchase agreements, production-sharing contracts, project-finance step-in events) need a tailored consequential loss schedule.
Alignment with statutory regimes
The contractual knock-for-knock allocation doesn’t displace statutory liability to third parties or government authorities. MARPOL enforcement, OPA 1990 responsible party liability, Nairobi Wreck Removal Convention compliance cost, and UK Continental Shelf safety enforcement costs are all imposed by statute and can’t be indemnified away as between the parties at the expense of the regulator or the public.
This creates a mismatch: the contractual allocation assigns pollution liability from the vessel to the vessel owner, but OPA 1990 makes the Responsible Party (the oil company that holds the lease) strictly liable to the US government. The TOWCON and SUPPLYTIME pollution allocation clauses operate between the contracting parties, so the oil company can recover from the vessel owner under the contractual indemnity even if the oil company paid the government first. But that recovery depends on: (a) the vessel owner being solvent and insured; (b) the claim falling within the contractual indemnity’s scope; and (c) no gross negligence carve-out applying.
Jurisdictional variations
English law
English law is the governing law for most BIMCO-form offshore contracts and for Lloyd’s arbitration under LMAA rules. The combination of Caledonia North Sea, Transocean Drilling, Persimmon, and Triple Point gives English law the clearest and most predictable framework for knock-for-knock enforcement. An expressly drafted, clearly worded mutual indemnity covering negligence will be enforced between sophisticated commercial parties.
US law: the anti-indemnity statutes
The US position is more complex. Federal maritime law (US general maritime law, applied by the Fifth Circuit to the Outer Continental Shelf) is generally permissive of knock-for-knock. But several Gulf of Mexico states have enacted oilfield anti-indemnity statutes that override the contractual allocation in some circumstances.
Louisiana’s Oilfield Anti-Indemnity Act (La. R.S. 9:2780, enacted 1981) invalidates indemnity agreements in “oilfield contracts” to the extent that the indemnitee seeks indemnification for losses caused by the indemnitee’s own negligence. The Texas Oilfield Anti-Indemnity Act (Tex. Civ. Prac. & Rem. Code Chapter 127) is broadly similar. The applicability of these statutes to federally-regulated Outer Continental Shelf activities has been the subject of extensive Fifth Circuit litigation; the position depends on whether the “situs” of the contract is state or federal territory.
After Transco Exploration & Production Inc v Pacific Enterprises Oil Co Inc (5th Cir 1993), the courts apply an “adjacency” test: if the contract is performed on the OCS rather than on state waters or land, federal maritime law preempts the state anti-indemnity statute and knock-for-knock survives. If the contract is performed partly on state territory, the statute may apply. The practical consequence is that SUPPLYTIME charters operating purely on the OCS are treated as federal maritime contracts; those operating partly in state waters need specific US legal advice.
The In re Deepwater Horizon litigation (multiple Fifth Circuit decisions from 2011 onwards, arising from the Macondo blowout of 20 April 2010) generated a large body of case law on indemnity allocation in a catastrophic offshore incident. The knock-for-knock and indemnity provisions in the Deepwater Horizon drilling contract between BP and Transocean were extensively litigated. The Fifth Circuit held that BP could not seek indemnity from Transocean for punitive damages arising from BP’s own gross negligence, but that contractual indemnities for ordinary negligence survived. The Deepwater Horizon decisions are the most widely cited modern US authorities on the limits of offshore indemnity.
Norwegian law
Norwegian law applies to contracts on the Norwegian Continental Shelf. The Norwegian Maritime Code (Sjøloven) and the Norwegian Standard Contracts (NF 15 and NTK 15) incorporate a knock-for-knock regime aligned with the LOGIC approach. A key difference is the interaction with Norway’s mandatory workers’ compensation system: under Norwegian law, injured workers receive statutory compensation regardless of fault, and the knock-for-knock allocation of employer’s liability indemnities operates on top of the statutory floor. Attempts to use knock-for-knock to reduce below the statutory compensation level are unenforceable.
Civil law jurisdictions
French, Dutch, Brazilian, and West African civil law systems vary considerably in their treatment of knock-for-knock. Dutch law (the Netherlands being a major hub for offshore installation and pipeline work) is generally permissive; French law is more restrictive, particularly regarding indemnification for faute lourde (gross fault). Brazilian law has historically imposed limitations on offshore indemnities, particularly in PETROBRAS contracting practice, but reforms since 2017 have moved towards greater acceptance.
The marine dynamic positioning systems connection
Dynamic positioning (DP) vessels are a major category of offshore service vessels operating under SUPPLYTIME 2017 and similar forms. A DP drive-off or drift-off incident, where the vessel loses station and collides with a platform or subsea structure, is one of the most serious risk scenarios covered by knock-for-knock: the vessel owner bears the loss to the vessel, the operator bears the loss to the platform, regardless of whether the DP failure resulted from vessel-side or facility-side power disruption.
The DP watch levels (green / yellow / red) and the decision tree for emergency disconnection directly affect the knock-for-knock exposure analysis. A disconnect executed at the correct watch level eliminates certain categories of damage; a delayed disconnect that causes structural damage to the riser or wellhead may give rise to a gross negligence argument that the DP officer failed to follow procedures, potentially engaging the carve-out. DP vessel operators in the offshore sector routinely train crew on the knock-for-knock implications of delayed disconnect decisions.
The salvage convention and SCOPIC interface
Salvage under the International Convention on Salvage 1989 and the Special Compensation P&I Club (SCOPIC) clause operates on a separate liability basis from knock-for-knock. Salvage is a voluntary service rendered to property in peril, and the salvor’s remuneration is assessed under Article 13 of the Salvage Convention (no-cure no-pay, with the 1989 improvements for the threat of environmental damage). SCOPIC provides a safety net for the salvor where Article 14 special compensation might not apply.
The knock-for-knock regime in a SUPPLYTIME or TOWCON contract doesn’t directly cover salvage scenarios because salvage (as a voluntary service rendered outside the existing contract) creates a separate legal relationship. If the supply vessel owner engages a salvor to refloat a vessel that has grounded while performing under SUPPLYTIME, the cost of that salvage is a ship owner’s cost and falls on the owner side of the knock-for-knock allocation. If the owner’s P&I club covers the salvage award depends on the specific club rules; most International Group clubs cover salvage contributions under the hull policy or P&I rules as appropriate.
Limitations
Knock-for-knock is not universally applicable, and practitioners should be aware of the following limitations before relying on a standard form allocation:
Statutory override. The contractual indemnity cannot override statutory liability to third parties, government authorities, or claimants who are not parties to the contract. OPA 1990 Responsible Party liability, MARPOL enforcement, and UK Health and Safety at Work Act liability fall outside the contractual matrix.
Governing law mismatch. A contract governed by US state law may be subject to an anti-indemnity statute that invalidates the knock-for-knock regime for the indemnitee’s own negligence. Choice of English law or federal maritime law avoids this, but choice-of-law clauses are sometimes unenforceable against statutory protections.
P&I club cover limitations. Cover for indemnity obligations under offshore contracts is available under approved-form rules, but bespoke modifications, extensions, or deletions may fall outside standard cover. Failure to obtain club approval before signing a modified offshore contract can leave the owner uninsured for the indemnity obligation it has undertaken.
Group definition gaps. If a sub-subcontractor or a hired-in specialist is not included in the relevant group definition, a loss involving that party’s personnel or equipment falls outside the knock-for-knock net into conventional tort. In complex offshore operations with multiple contracting tiers the group definitions require active management.
Gross negligence threshold. The senior-management limitation on the gross negligence carve-out means that systemic negligence at operational level doesn’t engage the carve-out, even if the actual conduct is objectively reckless. The practical effect is that knock-for-knock gives vessel owners broader protection than many operators recognise until after an incident.
Consequential loss scope. Despite the Transocean Drilling guidance, disputes about whether a specific head of financial loss falls within the consequential loss waiver continue to arise in offshore arbitration. Bespoke consequential loss schedules reduce this risk but require skilled drafting in the context of the specific project’s commercial structure.
Insolvency of the indemnifying party. The knock-for-knock regime relies on the indemnifying party being solvent and insured. If the party obligated to indemnify has failed to maintain required insurance or becomes insolvent, the contractual protection evaporates. Insurance certificate exchange and ongoing compliance verification at regular intervals are the practical mitigation.
Regulatory prohibitions. Several jurisdictions, notably some Latin American countries and West African states, limit or prohibit certain categories of offshore indemnity in domestic-contractor scenarios. Foreign operators working in those jurisdictions through local joint ventures cannot rely on standard BIMCO-form knock-for-knock without local legal review.
See also
Related wiki articles
- Towage and Salvage Operations
- Marine Dynamic Positioning Systems
- Time Charter Party
- P&I Clubs and the International Group
- Salvage Convention 1989 and SCOPIC
- Force Majeure in Shipping
- Letter of Indemnity in Shipping
- MARPOL Convention
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