Renewables manufacturers risk denial of coverage for subcontractors’ errors, lawyers warn

Renewables manufacturers and contractors have been warned that their insurance coverage is at risk if they fail to ensure sub-contractors fulfil their duties. The warning follows a legal case in Thailand that ruled in favour of the insurer’s denial of coverage for the catastrophic failure of a wind turbine.

Law firm Clyde & Co, which represented the insurers in the trial, said the case “could be a defining point for the [renewables] industry”.

“Going forward, renewables manufacturers and contractors will be required to take greater care to ensure sub-contractors are performing their duties, lest coverage be declined as they are held responsible for not identifying breaches by such sub-contractors,” Clyde said.

The Thai court heard that the subcontractor for a wind turbine nacelle in Thailand failed to tighten the bolts holding 195 tons of the nacelle and blades to the tower, which loosened further over time and caused the nacelle and blades to collapse in 2018. It ruled that the manufacturer and contractor could not rely on ‘industry practice’ to combat the insurers’ argument of gross negligence, an exclusion in the policy.

The court found that while the sub-contractor was responsible for failing to tighten the bolts sufficiently, the main contractor, which was a subsidiary of the manufacturer, did not take sufficient care to ensure the work was properly undertaken. The court upheld the insurer’s argument that it was not liable for the costs of repair.

Ian Johnston, partner at Clyde & Co in Bangkok, said: “This decision highlights the contradiction in turbine supply agreements that say manufacturers will be responsible for the work of sub-contractors, but then allow them to pass the cost of breaches to insurers – with premium ultimately paid by the owner.”

“Manufacturers will now have to take greater care to ensure the sub-contractor performed their tasks with due diligence and up to contractual standard. In terms of renewables insurance, this could be a game changer for holding manufacturers to a higher standard than industry practice,” he added.