EM Law are experts in advising clients on insurance for construction projects. Our lead construction lawyer is Anna Rabin who has extensive experience in advising clients on a wide range of construction law matters.
Insurance is a contract in which the insured agrees to pay a premium and the insurer agrees to give the insured some benefit if a specified event occurs. The benefit is usually financial compensation and the specified event must involve some uncertainty about whether or when it will happen.
Why do I need insurance for construction projects?
The main purpose of insurance for construction projects is to allocate risk and liability between the parties. The allocated liability may be substantial and the party accepting a risk often chooses to cover its liability with insurance. Insurance also protects the party to whom liability is owed: the party accepting the risk may be unable to discharge its liability unless it has insured against the risk. For example, a contractor may not have the financial resources to rebuild damaged works, unless it gets appropriate insurance. As a result, specific insurance provisions are common in all standard construction and engineering contracts.
Types of insurance for construction projects
There are five common types of insurance that are usually considered when parties carry out construction or engineering projects. These are:
• All risks insurance
• Professional indemnity insurance
• Product liability insurance
• Public liability insurance
• Employers’ liability insurance
A party to a construction contract will often secure cover for multiple types of liability under one, over-arching policy.
All risks insurance for construction projects
All risks insurance covers ongoing work on a construction site, including physical damage to the works and site materials. If there is an unforeseen event such as a flood or a fire, the contractor’s all risks insurance will pay to have the work repaired or re-done, so the contractor does not end up out of pocket. All risks insurance may be maintained by the contractor or the employer, and the party responsible for this should be specified in the construction contract. Typically, a construction contract will require all risks insurance to be maintained until practical completion of the project.
Professional indemnity insurance for construction projects
Professional indemnity insurance aims to protect a policyholder against their legal liability (whether in contract of tort) for damages arising out of an error in the professional services provided by them. In a construction contract, such errors can arise from negligent design and from negligent performance of other professional services, such as surveying, project management or contract administration. Professional indemnity insurance is usually required from a professional consultant, a contractor with design responsibility and sub-contractors whose duties include significant design elements.
Product liability insurance for construction projects
Product liability insurance protects a policyholder against liability resulting from defects in products used in construction projects. Manufacturers and/or suppliers of products which are to be incorporated in construction projects are at risk of claims being made against them for damages in the event that defects in those products result in damage or injury. Damage or injury could be caused by a product itself or a product design fault: problems can occur as a result of negligence during the production process or may result from issues with a product that do not come to light when the product is tested. Where products are concerned the smallest design or manufacturing fault can leave a company in a very vulnerable position. A clause requiring a party to maintain products liability insurance is usually similar to a clause requiring professional indemnity insurance.
Public liability insurance for construction projects
Public liability insurance covers liability arising from death or personal injury to third parties other than the insured’s own employees and damage to their property. Public liability insurance would cover, for example, members of the public visiting the site, customers or independent sub-contractors. Public liability insurance is usually maintained on an “events occurring” basis, meaning that there is no need for it to be maintained after the project has been completed.
Employers’ liability insurance for construction projects
Employers’ liability insurance protects a party against liability for injury or disease to its employees arising out of their employment. Employers’ liability insurance is compulsory for all employers under the Employers’ Liability (Compulsory Insurance) Act. All firms who employ staff are legally required to hold employers’ liability insurance. As employers’ liability insurance is mandatory, specific provisions dealing with employer’s liability insurance are usually unnecessary. In practice, specific provisions will only be necessary if the project has an international element, where the insured may be subject to foreign laws or the nature of the project justifies a level of insurance greater than the statutory minimum.
When negotiating insurance requirements in construction contracts, parties should ensure that the insurance requirements are “back to back” with the actual cover maintained by the insured. Parties often fail to reflect the amount of insurance accurately. In addition, there should be a mechanism for checking whether the insured party is in fact maintaining the required level of insurance.
For any questions you may have concerning insurance for construction projects contact Anna Rabin.
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