Construction Insurance FAQ

Construction Insurance QuestionsThe 6 questions are frequently asked about Construction Insurance.

What are the main types of construction insurance?

The first type covers damage to property, such as building works, other premises or a business, such as a contractor’s all risks policy, a latent defects policy, and a policy to cover loss of rent or profit.

The second category covers liability to another party, and includes professional indemnity insurance, employers’ liability insurance, and public liability insurance.

What is joint names insurance? Is it the same as having an interest noted on a policy?

Joint names insurance is where two parties – for example an employer and a contractor – are jointly insured under a single policy. Each party has legal rights under the policy and can claim against the insurer, but the insurer has no right of subrogation against the other insured party.

It is important to remember that each party is bound by the normal rules, and to avoid any difficulties each should individually comply with the duties of disclosure and notification. Having an interest noted on a policy is very different and is rarely an acceptable substitute for a joint names policy.

The third party is not a party to the contract of insurance, and thus cannot claim against the insurer. Similarly, it does not prevent the insurer from exercising rights of subrogation against the third party.

Are the JCT insurance clauses adequate?

JCT contracts contain detailed provisions for property and liability insurance.

In particular, there are three options relating to insurance of the building works, depending upon who is to take on the responsibility for taking out insurance.

One criticism of the JCT insurance provisions generally is that they are unnecessarily long, especially when compared with similar provisions in for example, NEC 3.

The most recent edition, JCT 2005, has to some extent addressed this point.

Generic amendments to the JCT insurance provisions are not essential, however, discreet changes may be required depending on the nature of the project (for example, amending the definition of joint names insurance policy to include funders, or to reconcile the standard provisions with a project insurance policy).

Is project insurance better than a contractor’s all risk policy?

Project insurance is usually taken out by the employer, with the contractor (and possibly subcontractors and consultants) as joint insured. It will be designed to cover a particular project and in addition to the coverage provided by contractors all risks insurance may provide other types of cover – such as product liability or latent defects cover.

Advantages for employers include control over the policy terms and the extent of insured risks.

What are the most common problems with insurance policies?

Failure to make full disclosure of all material facts when taking out a policy and failure to promptly notify possible claims are perennial problems. Any party taking out insurance should always carefully consider the policy wording to check that it is adequate for purpose.

Policies are all too often unclearly or inconsistently worded and may contain exclusions which limit their usefulness.