“Knock for knock” is a joint contractual agreement in the oil and gas industry.  The operator of an oil and gas property needs the help and know-how of many types of contractors, including drilling companies, drilling service providers, facility builders, equipment suppliers and caterers. As a general rule, the operator will use these services as part of a master service contract that defines the essential general conditions under which the work is performed. One of these conditions is the distribution of the risk of loss between people and property. In general, a knock-for-knock agreement means that any party working on an oil and gas site – the operator and any contractor – agrees to protect and compensate all other parties against violations by employees and agents of that party as well as the destruction or damage of that party`s property. This allowance is not based on the fault or guilt of the individual whose staff was injured or whose property was damaged. The objective is to effectively defend and pay a debt through the co-responsibility of a single party responsible for the loss. In contract negotiations, it is very important that the drafting is correct and that the company entering into the contract (and its insurers) understand the extent and limitations of the “to klop” rule in order to avoid the “gaps” that lead to unlimited corporate liability – and, if it is not possible to fill these gaps through negotiation, obtain insurance coverage to fill these gaps. The rationale for using the Knock-for-Knock system is that it would be costly and virtually difficult to adopt an “error-based” approach to liability for offshore energy projects. The operator will often have numerous interfaces and subcontractors that work in parallel and object to: (a) the death of an employee of the operator and other subcontractors of the operator and (b) losses and damage to the owner`s property and other subcontractors, would result in several overlapping insurance policies.
This would be economically inefficient and costly for the project, as these costs will ultimately be returned to the operator as part of each subcontracting. Given the considerable impact that a delay will have on an offshore project, it is therefore preferable to know in advance how liability is distributed – for example, there could be a considerable delay if the insurance payment is not made to not resume the project after the outcome of a long investigation, to determine which party was guilty and to resolve all subsequent disputes/disputes between insurers.