What type of contract is this project being carried out under? Am I using subcontractors and, if so, what type? What general terms and conditions imposed by my insurers should I be taking into consideration?
These are just some of the questions you should be asking yourself as you start to think about the cover you will need from your construction liability insurance policy. Let us look at some of the details surrounding each of these questions in turn.
1. What type of contract is this project being carried out under?
Different contracts carry different levels of exposure for you as the main contractor. Let us examine some examples;
The most commonly used is the Joint Contracts Tribunal (JCT) which is a suite of contracts devised to simplify responsibilities between various parties during the course of a construction project. In the case of new build projects the employer or contractor takes responsibility for insuring the works under a joint names policy. With refurbishment projects, where the contractor has an increased exposure due to the possibility of causing damage to existing structures, the employer arranges cover on behalf of the contractor for ‘all risks’ against damage to the works and ‘specified perils’ in respect of damage to the existing structure. The contractor must have a public liability policy in force.
Under New Engineering Contract (NEC) Provisions, the contractor is liable for any risks that are not specifically carried by the employer.
With FIDIC (The International Federation of Consulting Engineers), the contractor is required to insure against liability death, personal injury and damage to third party property arising out of the performance of the contract. The contractor also needs to take out employers’ liability insurance. The contractor and the employer indemnify each other against third party claims arising out of death, personal injury and damage to other property for which the indemnifying party is responsible.
2. Am I using subcontractors and, if so, what type?
The use of subcontractors can be advantageous in certain situations as it allows both flexibility and access to different skill sets. However, it is important to ensure that your insurer is aware that you are using subcontractors. You should also specify the type of subcontractors that you are using so that the insurance implications can be correctly applied to each type.
Labour only subcontractors need to be added to your current employers’ liability policy as they work under your supervision and use materials and tools provided by you. It is a legal requirement that you cover them under your employers’ liability policy.
Bona-fide subcontractors usually work under their own supervision and provide their own tools, equipment and materials. They should have their own EL and PL cover in force and this should always be verified before you appoint them on a contract. They would be considered third parties so any payments made to them would be added under the public liability section and would usually be rated separately from the turnover. Insurers would usually apply a bona-fide subcontractors condition which stipulates that these subcontractors must have insurances checked for the same limit as the insured, or sometimes less.
3. What general terms and conditions imposed by my insurers should I be taking into consideration?
There are a number of factors to consider and it is important to note that these can vary tremendously from one insurer to another. I have outlined below some of the general terms and conditions that you should consider when taking out a construction liability policy.
Height and Depth Limits
Firstly, you must check that the height and depth limits specified in your policy are adequate for your needs. You must advise your insurers of any work you are undertaking where these limits may be exceeded. Usually, they will be able to increase the limits for a one-off contract, although they may charge an additional premium. If you exceed the height and depth limits specified in your policy without having previously advised your insurers they could repudiate any claims that may occur.
Burning and Welding Conditions
If you have not advised your insurers that you undertake any heat work then this may be excluded under the policy. Insurers will apply specific terms and conditions to heat work so you will need to check the wording of the condition to ensure that it is suitable for your requirements. This will specify what heat equipment you are permitted to use along with the safety precautions that should be in place when using heat.
If you are digging or using excavation equipment your policy may stipulate that you will need to check for any gas or electricity cables in the area prior to the work commencing.
Concrete and Formwork
Your policy may contain an exclusion relating to the replacement and repair of cracked or defective concrete. This is more commonly known as a ‘Rip and Tear’ Exclusion. If cover is given for this it may be subject to a lower limit than is given under the Public / Products Liability section of the policy.
Your policy may exclude demolition activities or stipulate that this must be undertaken by fully insured bona-fide subcontractors. In general, soft strip demolition, where only handheld tools are used, may be permissible but you should always check your policy.
Your policy may exclude asbestos. If you discover that asbestos is present this should be immediately referred to a licenced asbestos removal contractor.
Only cladding that is compliant with building and safety regulations can be used. The use of any polyethylene core cladding is strictly excluded.
Piling and Underpinning
Some insurers may not cover piling and underpinning activities or if they do it may be subject to specific terms and conditions.
Minimum and Deposit Premiums
In many cases your liability policy will be based on a minimum and deposit premium. This stipulates that once cover incepts underwriters are under no obligation to provide any refund of premium if the policy is subsequently cancelled. Insurers may be flexible on this but are unlikely to refund any premium if a claim has been notified under the policy. Also, these premiums are calculated on your estimated wage roll and turnover so if you exceed these projections you may have to pay an additional premium to insurers at the end of the policy period. If you have had a good claims record and you renew with your existing insurers this may be reduced or, in some cases, completely waived. It depends on the amounts due.
What are the next steps?
The guidance outlined above should provide you with a good starting point as you consider the construction liability insurance you will require for your next construction project. Generally speaking your insurers would only need to be specifically notified of any contracts that are outside of your normal activities or your business description as defined in your documentation, or of any contracts that were awarded during the policy period that have not been factored into the declaration of wages and turnover that you made at inception of the policy. Also, any contract that has onerous terms and conditions or requires alterations to some of the limits or conditions currently imposed MUST be advised to your insurers. If you are in any doubt always be sure to notify your insurer or broker.