Before embarking on a major construction venture, it is imperative that you understand the components and nuances of an All Risk Insurance Policy in order to protect your business interests.
Knowing the ins and outs of your all risk insurance policy (sometimes known as Project Insurance, Construction All Risks Insurance, Contractors All Risks Insurance (CAR), and Erection All Risks Insurance (EAR.)) will ensure there are no nasty surprises in store for you if something goes wrong with a project and you are required to exercise a claim, or rely on the coverage of your policy.
An all risks insurance policy consists of three main components:
- Contract Works
- Public Liability Insurance
- Employers’ Liability Insurance
The contract works section provides cover for the materials and property being worked on.
Public liability insurance covers your legal liability for third party property damage and bodily injury, and employers’ liability insures you against the bodily injury of any employees.
Below are three important facts to be aware of regarding all risk insurance policies for JCT construction contracts.
Being armed with the necessary knowledge regarding what is not covered will assist you in avoiding disputes should you discover your policy is not as comprehensive as you initially thought.
Fact One: ‘All Risk’ Does Not Cover All Risks
In insurance terms, ‘all risk’ means the policy will cover all risks except those excluded under the policy.
An all risk policy benefits both the insurer and the insured by reducing gaps in coverage for the insured and preventing the insurers from underwriting the same risk multiple times.
Common exclusion clauses include:
- Any coverage for the pre-existing structure of any buildings
- Errors in the design of the project
- Defective property
- Destruction of property that is outside the scope of the contract
- Acts of war or terrorism
To avoid finding out that your all risk insurance policy does not cover certain risks, make sure you are fully aware of what factors your policy excludes and insure for them separately.
Fact Two: Under a CAR Subcontractors Are Only Covered For Specified Perils
A CAR policy is defined so as to include subcontractors, either as joint insured or by virtue of a waiver of subrogation, but only for loss and damage caused by one of the ‘specified perils’.
Specified perils are not as wide in scope as all risks. They generally cover catastrophic events that can cause major damage including:
- Earthquakes or other natural disasters
As an employer or contractor, protect your interests by making sure you take out appropriate cover for any damage resulting from the negligent actions of subcontractors.
Fact Three: Employers Require Separate Cover For Non-Negligent Third Party Damage
Projects launched in densely constructed areas such as city centres have unique risks.
One of these is neighbouring properties sustaining damage that cannot be linked to negligence by a contractor, and is therefore not covered by an all risk insurance policy.
Situations where this can occur include cases where the topography of the land causes subsidence to neighbouring properties during excavations, which is something outside a contractor’s control.
This problem was highlighted in the case of Gold v Patman and Fotheringham (1958) in which damage occurred to an adjoining property where the work was being carried out.
The damage suffered was caused by a loss of support to the building. The owner of the works was found liable for the tort of nuisance to his neighbour and sought to reclaim the damages from the contractor.
However, there was no evidence of the contractor’s negligence in carrying out the works, and so the contractor’s obligation to indemnify the employer against damage to other property did not arise.
To avoid be liable in these situations, an employer and contractor can take out a separate insurance policy to cover this type of risk in joint names.
It is important to note that these types of policies contain many exclusions and cover can be restrictive, so make suitable enquiries to ensure you get the widest cover available.
All risk insurance policies can be long and complicated, so it is important to obtain the right advice and have the fine print explained to avoid finding yourself liable for costly, unforeseen events.