The team at Ravenhall Risk Solutions have many years’ experience in construction of all types, from large scale commercial and residential builders to contractors’ firms specialising in specific parts of the construction process all the way through to individual contractors. The world of construction insurance can be confusing; therefore, we have collated this article to help construction businesses better understand insurance.
This construction guide aims to summarise the main types of cover and provide in-depth explanations into speciality construction insurance and why it is important to construction firms of all sizes.
Public liability (PL) insurance protects against liabilities for injury to third parties (non-employees) or their property. It protects businesses against actions brought against them by third parties and will normally cover the defence costs as well as any legitimate awards for your legal liability for negligent acts. Limits of indemnity normally start at £1M and can increase from there. Recent changes to the way serious injury claims are calculated mean that considering carefully the limit of indemnity is even more critical.
If you work near other people and/or their property, this includes other contractors, which is basically anyone in construction, you should consider having PL insurance. This will ensure you are covered against any potential claims for damage to people and/or their property.
Product Liability Insurance protects against liability for injury to people or property arising from products you supply, manufacture or even import. This normally comes bundled with your public liability insurance and various nuances in UK law do not make products liability as straight forward in construction as they are in other industries but If you supply, manufacture, adapt or import (particularly from outside the EU) products used by other people or on construction sites then you should consider this cover.
Employers Liability (EL) insurance protects against liabilities to employers for injuries or illness. If you are an employer, EL insurance is compulsory and a legal requirement. You may also want to look into EL insurance if you are building your own home as injury to volunteers or sub-contractors could spark a claim against you as an ‘employer’.
Contractors All Risk (CAR) insurance is an umbrella term of various heads of cover that are designed to protect construction companies’ physical risks. The main heads of cover under CAR are Contract works cover, Hired in Plant cover and Own Plant and tools cover.
Professional Indemnity Insurance (PII) is becoming more important to smaller contractors in the trade sector. For many disciplines it is compulsory, many clients insist on it, and for all it is desirable as most contractors large or small have an exposure to financial loss claims, even from the most benign works. Here we try and explain why it’s important to most if not all trades.
When you undertake contracts, it is normally the contractor who will be the client’s first port of call in the event of a problem. Even if a claim is ultimately the responsibility of another party, the costs of redirecting liability can be high and success is far from guaranteed. You will be responsible regardless of your ability to enforce an action against the negligent party, but most importantly you will be responsible whether you have insurance or not.
This is where a Design and Construct (D&C) Professional Indemnity Insurance (PII) policy comes into play, protecting both your finances and your relationship with your client. When problems do occur a swift and realistic approach is needed, particularly when the problem arises during the construction period. Holding a PII policy can also be a competitive advantage to your business when competing against less well covered businesses.
Policies in this area can cover claims made against the Insured arising from; Any negligent act error or omission, Dishonesty of employees, Libel or slander, Unintentional breach of confidentiality, Unintentional infringement of intellectual property rights, Loss of or damage to documents, The legal costs of prosecuting claims for infringement of intellectual property rights, Defence costs in dealing with certain criminal proceedings, Costs of representation at certain other inquiries or proceedings, Collateral Warranties, Costs and expenses taken to mitigate a loss, Defence costs (lawyers, court costs, experts etc.)
The type of work conducted is one of the key features when assessing a risk and is worth looking at in a little more detail. This includes:
PII policies (which are annually renewable) are written on a claims made basis, in contrast to many other types of insurance. This means that the insurers who pay the claim are those providing cover when the claim, or a circumstances which might give rise to a claim, is first notified to insurers, rather than when the work was undertaken or the mistake made. The significance of this can be seen: the cover might be wider when a contract is entered into than when a claim is made.
Essentially this is a complex area of insurance, and as such some insurance providers steer away from providing advice on the subject. At Ravenhall, we have a team of highly skilled professionals who can help guide you through this area and ensure that you are not leaving yourself open to exposures that you simply didn’t know you had. Call us if you want to know more.
Whether you are a builder or you are building a new home, there’s a lot to think about from getting planning approval, hiring an architect to what materials to use. One of the things that may get forgotten until the last minute, but is just as important, is a structural warranty or latent defects insurance
As an insurance broker with many years’ experience in construction and specialist covers we have outlined what a warranty is and what protection you need for your build or business
A structural warranty is an insurance policy designed to protect against defects in new buildings, for a defined period known as the policy term.
Whilst a structural warranty is purchased by the builder or project owner before construction starts, it actually protects the homeowner from structural damage that may occur during the period of insurance following its completion. Warranties can also be transferrable in the period of insurance to benefit any change in owners.
The cover provided by a structural warranty varies greatly by provider but can include:
Structural insurance – this makes up the main part of the warranty and covers against structural issues after the defects period expires
Deposit protection – should the developer become insolvent during the build this protects the homeowner’s deposit
Defects insurance – leading providers of structural warranties include a defects period for the first two years of cover. This provides protection against non-compliance with the warranty provider’s technical manual and may include non-structural issues.
Contaminated land – protects against the cost of removing contamination from the housing plot
Building Control cover – if elements of the house were not built in compliance with Building Regulations and are a hazard to the health of residents this can cover the costs to put things right
If you are building or converting new homes you can also purchase a structural warranty prior to construction, in addition to building regulation approval. The main reason you will need to invest in a structural warranty is to help you sell your property once it is completed. Most mortgage lenders and banks require a structural warranty to be in place before they will provide a mortgage on a property. There are also several warranties on the market, which can make it difficult to work out which one has the best cover to suit you. UK Finance, formerly The Council of Mortgage Lenders report on their website the main factors mortgage lenders look for in structural warranties:
Lenders consider (Source UK finance Website Aug 2018):
Arranging insurance where you have not been negligent may seem rather unusual, but depending on the type of Contract you are undertaking and as the property owner, you may need to arrange this insurance, in JCT contracts this was normally dealt with by the 21.2.1 clause, now it is often referred to in clause 6.5.1.
A standard Public Liability Insurance policy will only indemnify the Insured Party (usually the Contractor) against damage to third party property or persons which has resulted from their negligence. But what if the Works damage a neighbouring property and the Contractor was not negligent?
The law currently states the property owner could be held liable and have to face the inevitable financial consequences.
Various JCT Contract Conditions require such insurance to be arranged to protect the client (Property Owner/Householder) in respect of their legal liability for damage to adjacent or surrounding property. Such a requirement has arisen following the 1958 Court Case (Gold v Patman & Fotheringham) which established the legal principle that the client has a liability in tort for damage to third party property, where this does not flow as a result of the negligence of the Contractor.
The insurance is usually purchased by the Contractor on behalf of the client because the Contractor’s annual Public Liability policy is better suited to providing such an indemnity. Some Insurers will endorse the Contractor’s annual policy whereas others will issue an entirely separate non-negligence policy alongside the Contractors own Public Liability Insurance.
The cover can be arranged in joint names of the contractor and customer or it can form part of the contractors liability cover with a generic indemnity to principle clause and will protect both against liability for loss, claims or proceedings that arise due to ‘non-negligent’ damage to adjacent property whilst undertaking a building contract.
The risks covered are quite specific and are actually named within the JCT Contract as:-
Non-negligence Insurance is not always required, for example where construction is on a green field site. However, in suburban or built-up areas where piling, excavation, underpinning or basement works are being undertaken, it must be seriously considered in view of the liability to which the Employer is exposed.
It should be noted that the insurance has several key exclusions which are:-
An Insurance Backed Guarantee (IBG) is a guarantee issued by an Insurer that will honour the terms of a warranty originally issued by the contractor giving their customer peace of mind that in the event the works they have undertaken are defective and the contractor ceases to trade; then the Insurer will honour any bona-fide claim for the remainder of the original guarantee.
Many Contractors will offer guarantees on their work, but what would happen to their customers, should a business have to close? No one likes to think about closing a business, we all wish them to thrive and grow, but in these ever-changing times and economic climate, there is such uncertainty.
As well as providing peace of mind to your customers an Insurance Backed Guarantee demonstrates your confidence in the quality of workmanship and materials provided. These can be arranged on a programme basis or on an adhoc project basis,