A takaful certificate may be part of a construction or supply package, yet the project parties may assume that it responds in the same way as a conventional insurance policy. The legal analysis must examine the takaful arrangement actually issued, its coverage terms and the treatment of claims and obligations.
Identify the undertaking being purchased
Takaful structures use contractual arrangements and participant funds under a regulated framework. The certificate should describe the risks covered, contributions, limits, exclusions and procedures governing claims. A general statement that a project is 'fully takaful-covered' does not identify the relevant liabilities or the period of protection. The parties should determine whether the covered interest belongs to the owner, contractor, lender or another participant and whether additional insured or beneficiary arrangements are necessary. The operator's role and the relevant regulatory requirements should also be understood.
Coverage should align with project obligations
EPC and project-finance documents may require protection for works, machinery, third-party liability and specific operational risks. Each exposure should be mapped to the corresponding certificate or policy. A contractor's obligation to indemnify the employer for defective performance may extend beyond a takaful operator's promise to respond to accidental loss. The parties should compare the contractual wording and exclusions before relying on the cover to support liability limits. Coverage conditions concerning testing, commissioning or maintenance can be particularly relevant in staged construction projects.
Claims procedures must be operational
The certificate may prescribe notice, evidence, mitigation and cooperation with assessment. When loss occurs, the project team should preserve records of damage, cause, repairs and associated costs. A disagreement over whether damage arose from defective workmanship or an insured event cannot be resolved by the project manager's description alone. Claims personnel may need access to site records, engineering reports and purchase documents. The legal response should distinguish the existence of cover, satisfaction of conditions and quantification of loss.
Financing and dispute documents should be consistent
Lenders may require assignment or acknowledgment of rights to proceeds, subject to the nature of the arrangement and applicable law. The operator's consent, claims payment mechanism and replacement cover following expiry should be examined. A dispute over rejection may involve contractual procedures, regulatory complaint processes or litigation, depending on the governing documents. Parties should not assume that every disagreement is determined solely by reference to religious terminology rather than enforceable contractual rights and statutory requirements.
Coverage must match the certificate
Takaful in commercial projects requires the same discipline as any major risk-transfer arrangement: identify the interest, covered events, exclusions and payment pathway. The arrangement should support the project contracts without promising protection it does not legally provide.
When the issue arises in practice.
Our advice begins with the governing documents, the legal position and the decision that needs to be made.
DISCUSS THIS MATTERThis publication is for general information and does not constitute legal advice on any particular matter.