A brief overview of insurance on construction projects
Susan Wells, an associate in our construction team, provides a brief overview of the different types of insurance that may be required on a construction project.
There are many types of insurance products designed to protect property owners, developers, contractors and professional consultants involved on a construction project and it is paramount that adequate insurance cover are in place to protect both parties to a construction contract.
The most common type of insurance on construction projects are:
All risks insurance
This insurance is also referred to as ‘Contractor’s All Risks Insurance’ or ‘Contract Work Insurance’ and covers physical damage to the works and site materials. The insurance is commonly issued in the joint names of the contractor and employer and it is often maintained by the contractor as it usually carries such cover in the course of its business.
Professional Indemnity Insurance
Professional indemnity insurance (PII) protects contractors, professional consultants and specialist subcontractors against allegations relating to errors in their work or design defects. A PII policy will cover financial loss and losses associated with property damage resulting from the party’s negligent act, including legal costs and expenses that are incurred for defending the claim. The construction contract appointing such contractor, consultant or subcontractor usually includes a contractual liability equivalent to professional negligence, requiring the party to perform its obligations when carrying out the design with reasonable skill, care and diligence.
The Grenfell tragedy and the collapse of Carilion have contributed to the hardening of the PII market and it is becoming increasing more difficult for construction professionals to take out and maintain adequate PII cover. Insurers are considering more ways of limiting its exposure through the exclusions in the PII policy, aggregate caps and wide-ranging sub-limits, forcing the entire supply chain to recalculate and allocate the risks they face on a particular project.
Product liability insurance
This insurance protects against injury or property claims by third parties arising out of products supplied by a business and will cover any legal costs associated with defending the claim and any compensation awarded. Suppliers of equipment on a construction project are often required to maintain such insurance in respect of the equipment or materials provided, such as lifts or escalators. A clause in a construction contract requiring a party to maintain product liability insurance can be an alternative to a clause requiring the party to maintain PII cover.
Public liability insurance
Public liability insurance protects against claims arising from death or personal injury to third parties other than the insured’s own employees or damage to property belonging to third parties. Unlike the above-mentioned insurances, public liability insurance is only maintained for the duration of the construction project. Public liability and employer’s liability insurance are often offered in a single policy by insurers.
Employer’s liability insurance
Employers have a responsibility to protect their employees, which includes a legal requirement to maintain employer’s liability insurance. This insurance protects a party against liability for injury or disease to its employees arising out of their employment and also applies to former employees who have become ill as a result of their work provided they can proof that it was a direct result of their employer’s negligence. Employers are required to maintain cover of at least £5 million on an each and every claim basis, but many employers opt for a higher cover.
While your insurance broker should be your first port of call when seeking advice on the insurance you require in connection with a construction project, if you would like to discuss the insurance obligations in a building contract or professional appointment, please contact Susan Wells or Cathrine Ripley in FSP’s construction team.