Damage waiver clauses on equipment hire contracts – common pitfalls

Many businesses hire in equipment (“hiree”) including motor vehicles, mobile plant, tools, and electrical equipment. A hire agreement will operate to set out the obligations between the owner of the equipment (the “hirer”) and the hiree which will include:

  1. ownership of the equipment;

  2. the terms of use;

  3. responsibility whilst in use;

  4. liability for misuse, damage or loss; and

  5. damage waivers and insurance obligations.

In the context of liability, the agreements may contain express assumptions of risk for the hiree.

Examples of contractual liabilities in hire contracts

Some common language evidencing contractually assumed liabilities in hire contracts include:

  • ‘The customer agrees to indemnify the hirer for all loss and damage.’

  • ‘The customer is liable for all loss and damage to or arising from use of the equipment’. For more information on no fault indemnity clauses please refer to our article here.

  • ‘The hirer’s liability for loss, damage and bodily injury claims arising out of or in connection with the contract is limited to the contract sum’.

Liabilities so assumed may exceed the scope of insurance coverage of the hired good. These assumptions may also prejudice insurers, for instance, by limiting their rights to recover (see our article here).

Damage waiver

These provisions limit the hirees’ liability for loss or damage to the hired item. The hiree will pay the hirer an additional fee for this protection. Many companies require the hirer to pay a ‘damage waiver’ unless proof of coverage is provided for the hired in equipment.

Hirees may be comforted by the damage waiver, that they have no further liability for loss, if the item is stolen or damaged. However, the protection is limited to loss where items are stolen, or damaged by fire, storm, collision or accident.

The ‘damage waiver’ may not however protect the hiree for other losses such as breach of the hire agreement; negligence of the hiree; theft where the item is not stored in a locked building, or reasonably locked and secured; damage to glass; vandalism; overloading of the equipment; use of the equipment in certain environments; hires failing to take adequate precautions to safeguard equipment; damage during transportation’ overhead damage or underbody damage; or water damage resulting in total or partial inundation or immersion of the item.

In the above circumstances the hiree will remain responsible under the agreement for loss despite paying for the damage waiver. Otherwise, if the hiree holds insurance, it may be that given the assumption of liability in the hire agreement the hiree may have prejudiced or otherwise had voided their coverage.

Insurance policies

Various policies exist that may provide benefits for hires. Hirers may also benefit from their own annual policies that cover material damage, consequential loss and legal liability for goods hired. It is important however to check your policy as there are insurers who expressly exclude cover for hired in equipment. Specific extensions and or endorsements are required to ensure policies respond, by way of example:

  • In the case of plant, equipment and motor vehicles, consider ‘hired in plant’ or ‘hired in vehicle’ coverage extensions.

  • In circumstances where the agreement transfers the risk of liability for bodily injury or property damage to the hiree, include ‘road risk liability’ extension to use of the hired in equipment.

Key takeaways

Hiree’s should always check the scope of liability they assume under hire agreements. The scope of any liability assumed should be offset against the damage waiver and potentially complemented by insurance.

If you are a commercial enterprise regularly hiring in equipment, ensure that you have a blanket coverage that offers legal liability for goods in your care, custody and control. Ensure the sub-limit is adequate in consideration of the equipment you are hiring, consequent financial loss and work you are doing with the equipment. Otherwise consider endorsing policies accordingly to ensure appropriate protection.

Arranging appropriate coverage may absolve a hiree from being charged a damage waiver by the hirer. This in turn can significantly reduce the hiree’s annual spend on hire equipment fees.

To learn how to protect your business as a hirer or hiree of goods, please contact a Bellrock advisor.

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