Insurance gaps in Iraqi projects arise when the risks a party has accepted under its contracts are not covered by the insurance it actually holds. Construction, energy and infrastructure contracts allocate risk through indemnities, liability provisions and insurance obligations. Employers require contractors to insure the works, third-party liability and employees. Contractors pass obligations down to subcontractors. Lenders impose their own insurance requirements. Yet the policies eventually placed may contain exclusions, limits, deductibles and conditions that do not match what the contracts require. The gap remains invisible until a loss occurs.
For project participants, the consequences can be severe. A contractor may find itself liable under an indemnity for a loss its insurer will not pay. An employer may discover that the contractor’s policy does not name it as an insured or does not cover the risk it assumed was insured. Lenders may find that their security is weaker than expected. Reconciling contractual risk with actual coverage before work begins, and as the project evolves, is a core part of project risk management.
The Iraqi Civil Code No. 40 of 1951 governs construction contracts, including the contractor’s and architect’s liability for defects, indemnities and insurance contracts. Public works contracts are commonly based on the general conditions applicable to civil engineering works and the government contracts instructions, which contain insurance requirements. The Insurance Business Regulation Law No. 10 of 2005 governs insurers. Local placement obligations should be checked against the particular policy class, public procurement rules and project contract. Labour and social security legislation, including the Workers Retirement and Social Security Law No. 18 of 2023, affects employer liability for work injuries.
Mapping contractual insurance obligations in Iraqi projects
The first step is to extract every insurance-related obligation from the project contracts:
- Required policies. Contractor’s all risks, third-party liability, employer’s liability, professional indemnity, motor, marine cargo and others.
- Required terms. Minimum limits, maximum deductibles, insured parties, waivers of subrogation, cross-liability clauses and notice of cancellation.
- Duration. Cover during construction, testing, maintenance and defects liability periods.
- Indemnities. Risks the party has agreed to indemnify, which may or may not be insurable.
- Flow-down obligations. Requirements imposed on subcontractors and suppliers.
This map shows what the contracts expect the insurance to do.
Comparing obligations with actual policies
Next, each policy should be reviewed against the map. Common gaps include:
- Exclusions. Design defects, faulty workmanship, existing property, contractual liability, political violence or terrorism.
- Limits and sub-limits. Overall limits below contractual minimums, or sub-limits for specific risks such as testing or flood.
- Deductibles. Deductibles higher than the contract permits, leaving the contractor to bear losses below the threshold.
- Insured parties. Employers, lenders or subcontractors not named as additional insureds.
- Period. Cover ending at completion, leaving the maintenance period uncovered.
- Territorial or project scope. Cover limited to particular sites while the project extends further.
Each gap should be recorded with its potential consequence and a proposed solution.
Political violence and security risks
Projects in Iraq may be exposed to political violence, terrorism and civil unrest. Standard construction policies may exclude these risks, requiring separate cover. Contracts should state clearly who bears these risks, whether as force majeure, employer’s risk or contractor’s risk, and insurance should be arranged accordingly. Availability and pricing of political violence cover should be checked early.
Local placement and international programmes
Contracts with Iraqi employers may require insurance placed with Iraqi insurers. International contractors often have global programmes. Fronting arrangements can reconcile these requirements, but the local policy must meet contractual requirements and the reinsurance must respond. Differences between local policy wordings and global programme terms are a common source of gaps.
Indemnities that exceed insurance
Some indemnities cover risks that are uninsurable or not insured, such as liquidated damages, consequential losses or penalties. Parties should recognise these as retained risks and manage them through contract negotiation, limitation of liability clauses and financial planning, rather than assuming insurance will respond. Commercial contract advice in Iraq can help negotiate risk allocation that is consistent with insurable risk.
Subcontractor insurance
Main contractors often require subcontractors to insure their own work and liabilities, but rarely verify the cover. Gaps at subcontractor level may lead to claims against the main contractor. Certificates of insurance should be collected and reviewed, and key subcontractor policies examined, not just certificates.
Employer and lender verification
Employers and lenders should require evidence of insurance before work begins and at renewal. Reviewing policy wordings, not only certificates, allows them to identify gaps. Lenders may appoint insurance advisers to review project insurance as a condition of drawdown.
Updating the review as the project changes
Variations, extensions of time, changes in scope and new subcontractors can create new gaps. Insurance should be reviewed at key project milestones and whenever contracts are amended. Insurers must be notified of material changes in risk, failing which cover may be affected.
Building an insurance responsibility matrix
A practical tool for large projects is an insurance responsibility matrix. It lists each required policy, the party responsible for procuring it, the parties to be insured, the required limits and deductibles, the policy period, the evidence required and the person responsible for verification. Maintained by the project’s commercial or risk team and updated as subcontractors are appointed, the matrix provides a single view of how insurance responsibilities are distributed across the project. It also helps when a loss occurs, because it identifies quickly which policy should respond and who must notify the insurer.
Coordinating claims across multiple policies
When a loss affects several parties, more than one policy may respond: the contractor’s all risks policy, a subcontractor’s liability policy and the employer’s property insurance, for example. Each insurer will examine its own policy and may argue that another should pay first. Clear contractual allocation of risk, cross-liability clauses and waivers of subrogation help reduce these disputes. Prompt notification to every potentially relevant insurer protects all parties’ positions while responsibility is determined.
Illustrative example. A contractor building a water treatment plant for a governorate council is required by its contract to insure the works for full reinstatement value with a maximum deductible and to name the employer as co-insured. The local policy, placed under a fronting arrangement, has a higher deductible, excludes damage during testing and does not name the employer. A flood during commissioning causes extensive damage. The insurer declines most of the claim under the testing exclusion. A pre-construction review would have identified these gaps and allowed the contractor to negotiate an endorsement or seek a contractual adjustment.
Key takeaways
- Insurance gaps in Iraqi projects arise when policy terms do not match contractual insurance obligations and indemnities.
- A structured comparison of contracts and policy wordings, not just certificates, is needed to identify gaps.
- Political violence, testing, design and maintenance period risks are frequent problem areas.
- Reviews should be repeated as the project and its contracts change.
How Etihad Can Help
Addressing insurance gaps in Iraqi projects before losses occur protects contractors, employers and lenders from unexpected exposure. A disciplined reconciliation of contractual risk and policy coverage is one of the most valuable risk management steps a project can take.
Etihad Law Firm advises contractors, employers, lenders and insurers on project insurance requirements, coverage reviews and claims in Iraq. We help clients align their contracts and insurance so that risks are covered where they are expected to be.