Why You Need Contractor’s All Risk and PL Insurance
A large amount of planning and expertise goes into a construction project and for those involved the greatest fear is that disaster could strike, resulting in crippling costs and even possible injury. You need to be sure that you are adequately covered with the right insurance policy to indemnify you against this risk, and give you peace of mind.
Types of Insurance Policies
Typically, there are two types of policies for those in the construction industry:
- Contractors’ All Risks (CAR) insurance provides coverage for material damage to the works under construction, and can be extended to also cater for third-party property damage and injury losses.
- Erection All Risks (EAR) Insurance offers comprehensive coverage for the erection of plant and machinery and can also be extended to include third party liability related to work conducted on site.
Which insurance policy you need will depend largely on the type of building project you are planning. In general terms, if the main purpose of the work is the construction of buildings or other structures such as dams, roofing, foundations or alteration work, a CAR policy is ideal. An EAR policy should be considered if the main purpose of the job is the erection, installation and commissioning of plant machinery or equipment. In some cases, the project involves both types of work in which case the policy could be tailored to your needs.
Let us take an in-depth look at CAR insurance.
Contract Conditions are the back-bone to virtually each and every insurance contract. In the absence of any such Contract Conditions the potential for claims settlements can become a more complicated and frustrating exercise. In some instances, the absence of Contract Conditions could lead to Common Law litigation, something that could ultimately end up costing various parties, a lot of time and money.
Depending on the Conditions of Contract between the parties to the contract, the Contractors’ All Risk insurance is designed in such a way as to ensure that all such parties are indemnified for loss or damage to the property insured caused by sudden, accidental and unforeseen incidents such as but not limited to fire, flood, storm, wind, earthquake, water damage, accidental damage, including negligence. There is indemnity to third-parties, who may be injured while at the construction site.
The Contract Conditions come in many forms, the most commonly used by the South African construction industry, are the Joint Building Contract Committee (JBCC – various versions); FIDIC (5 Books); NEC3 and GCC. Again, depending on many aspects, different Contract Conditions for different types of contracts.
Some specific clauses and indemnity in the Contract Works policies are:
(The policy can be extended to include the following (just to mention a few):
- Damage to surrounding property
- Cost of removal of debris after an incident
- Loss or damage during inland transit
- Loss of or damage to contract works while in temporary storage
- Damage during testing and commissioning of equipment
- Professional Fees
- Property taken over
- Road reserve and servitude
- Fire Brigade / Public Authorities
- Beneficial Occupation
- Difference in Excess / Difference in Conditions (Principal Controlled Insurance)
- Work away
As a general rule, most policies do not provide indemnity for :
- Normal wear and tear
- Wilful negligence or poor / defective workmanship
- Fines and Penalties
- Consequential Loss
- Loss or damage during transit by sea or air
- Loss or damage directly or indirectly arising from pollution or contamination
- War invasion or acts of terrorism causing damages
- Radioactive contamination from any nuclear fuel or nuclear waste
- Damage to any computer or other equipment which processes or stores data
- Confiscation, nationalisation, expropriation and abandonment
- Design of the works
- Professional Indemnity
- Products Liability
- Riot & Strike outside RSA and Namibia
In addition to the above, some very important “add-on” sections / extensions to the Contract Works and Liability Insurance:
- Advanced Consequential Loss / Project Delay
- Removal of Lateral Support
- Spread of Fire
Overview of the Contract Works and Liability insurance
The Contract Works and Liability insurance, is an extremely specialized form of insurance that requires professional input and understanding by the Intermediaries / Brokers and the Insurance Underwriter. The effectiveness and response of the policy will inevitably be brought to test at the time the Insured submits a claim for loss or damage at the Contract Site. From day one, information obtained and supplied needs to be accurate and complete. There are many considerations when underwriting Contract Works and Liability Insurance, which is why we recommend our Intermediaries / Brokers to make use of the correct Proposal Forms when making application for this class of business. Invariably we will need additional information once the completed Proposal Form is received by the Underwriter but this will be called for via the Intermediary / Broker.
The Contract Works and Public Liability is by far the most comprehensive form of insurance designed and available for the Employer, Contractors and / or Sub-Contractors. The policy in intended to provide “all risks” indemnity for the duration of the contract and can be split into two specific scenarios:
Annual Policies – these policies are ideally suited and intended for the “day to day” contract work environment of the Contractors and or Sub-Contractors. The policy operates for a 12 month period from date of inception / commencement and is renewed and reviewed upon expiry of the Period of Insurance. It is a very common form of policy (even though it is tailor made product designed to cater for the needs of the Insured). The policy provides a “sleep easy” situation whereby all contracts undertaken by the Insured (which incept on or after the policy is Period of Insurance) are automatically indemnified subject to the Terms, Conditions and Exceptions of such policy.
One-off Policies– these policies are intended for the more complex type risk that fall outside of the scope of the Annual policy framework. One-off policies are also tailor made and ideally suited for larger risks that need higher sub-limits and more “exclusive” type wordings to cater for the specific contract. In addition to this the Limits and Sub-Limits of the one-off policy are usually increased to accommodate the potential for larger claims and exposures. An important feature of the one-off policy is that does not contain a cancellation clause, therefore, once the policy is issued it remains in force for the duration of the Period of Insurance which runs concurrently with duration of the contract. The only time the policy may be cancelled or becomes voidable, is in the event of non-payment of premium and or any fraudulent aspect.
Specific Add-on Risk Insurance(more commonly occurring under the one-off or project specific policies)
Advanced Consequential Loss / Project Delay
The Advanced Consequential Loss / Project Delay Insurance has become one of the more valuable forms of insurance for protection of the Employer’s potential exposure to financial loss following an indemnifiable event under the Contract Works insurance. The policy is designed and intended to indemnify the Employer against consequential financial strain should the insured contract not be practically complete on the scheduled date of completion. This indemnity is tailor made for specific contracts only and is therefore not available as an annual policy nor can it be added to an annual Contract Work policy. We must reiterate that to trigger this policy, the Employer’s Contract Works material damage section must respond to indemnifiable loss or damage at the contract site which results in the Practical Completion date of the contract being extended.
The Advanced Consequential Loss / Project Delay Insurance needs a great deal of professional attention from an Underwriters perspective and requires accurate and detailed information from the Employer before a policy can be prepared. It is here again that the Intermediary / Broker’s skills and experience are of paramount importance to ensure that the Employer is made aware of the benefits and protection of a potential consequential financial loss that could cripple the start-up of a new business, factory, shopping mall and the like. Ultimately, Consort Technical Underwriters (Pty) Limited has the in-house professional team and expertise to produce the solution when it comes to this form of business.
Removal of Lateral Support Liability
Removal of Lateral Support is a significant risk (absolute liability) attached to the potential exposure of loss or damage to third party property (including first party property) and or death, bodily injury or disease to any person(s). This form of insurance is normally only provided for on a project specific basis, although in rare instances, the Underwriter will consent to adding this indemnity to an Annual policy (Section III of the policy). Removal of Support risks have become a very common exposure particularly related to the civil and earthworks and it is therefore extremely important to understand the legal ramifications when dealing with the Removal of Lateral Support exposure and the consequences thereof. Your Intermediary / Broker should be well equipped to understand the Underwriters expectations and requirements when a risk is presented. Consort Technical Underwriters (Pty) Limited will, as a prerequisite to any Removal of Support risk, require a fully completed Proposal Form along with all other relevant information before the risk can be granted and rated. It is important to note that the late submission of a request for Removal of Support Liability at a contract site could be denied by the Underwriter. In many instances Underwriters may wish to conduct a site survey to evaluate the risk exposure and to get first-hand information from the Consulting Engineers, Project Managers, Architects and or other Professionals engaged on the contract.
Spread of Fire
Understanding the Spread of Fire extension under the Liability Section of the policy, is also a very important aspect for many Employers and Contractor policies. Spread of Fire is a strict liability and therefore when working at a contract site which is adjacent to any form of vegetation, wildlife, agricultural land (crops or grazing) or forestry, the consequences of a spread of fire could be devastating notwithstanding the legal aspects and reputational damage. We strongly recommend that you consider this risk / exposure when it comes to Contractors Liability. Insurers have experienced some rather complicated claims in more recent times.
Consort Technical Underwriters has the products, skills, highly qualified and experienced staff to provide professional support to our Licensed Financial Services Providers. We are here to provide you with the correct Engineering Insurance policyfor your specific needs whether it be residential, commercial or civil engineering infrastructure. Contact us today