CONSTRUCTION
INSURANCE
A Z A D E H J A FA R I
THIS SESSION
C OV E R S
CONSTRUCTION INSURANCE
TYPES OF CONSTRUCTION INSURANCE
INSURANCE OPTIONS UNDER A JCT CONTRACT
SURETY BOND
TYPES OF BONDS
INTRO
Black Book of RICS on Construction Insurance states:
insurance is probably one of the most complex classes of
business there is. A construction site has been described as a
place that often brings together many people, with different
ideas, who have never worked together before, to build
something that has never been built before, and often in adverse
conditions.
Insurance is a contract in which:
The insured pays a premium to the insurer.
The insurer agrees to give the insured some benefit (usually
CONSTRUCTION INSURANCE
Insurance is a mystery to many people and construction
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financial compensation) if a specified event occurs
The party receiving a
benefit on the
occurrence of a
specified event.
The period of time
during which the policy
operates to provide
cover.
Excess/
Policy Limit/
Primary Layer;
Deductibles
Indemnity
Excess Layers
Total amount payable
by Insurers under the
Policy; on an each and
every claim or
aggregate basis
[enabling two or more
losses covered by the
policy to be treated as
a single loss for policy
limit and other
purposes when they’re
linked by a specified
unifying factor of some
kind].
Policy cover may be
arranged in layers.
When the primary
layer is used up, this
triggers the next layer,
and so on.
Amount of each loss
borne by the Insured.
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The Insured
Period of
Insurance
CONSTRUCTION INSURANCE
INSURANCE TERMINOLOGY
LATENT DEFECTS INSURANCE
CONSEQUENTIAL LOSS
NON-NEGLIGENCE INSURANCE
DIRECTORS’ AND OFFICERS’ (D&O) LIABILITY
PROFESSIONAL INDEMNITY (PI) INSURANCE
INSURANCE
PUBLIC LIABILITY (PL) INSURANCE
EMPLOYERS' LIABILITY (EL) INSURANCE
SURETY BONDS
ENVIRONMENTAL INSURANCE
UNEXPECTED ARCHAEOLOGY DISCOVERY
EXISTING BUILDINGS
INSURANCE
CONSTRUCTION INSURANCE
CONTRACTORS’ ALL RISKS INSURANCE
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TYPES OF
CONSTRUCTION
INSURANCE
CONTRACTORS’ ALL RISKS
Covers physical damage to contract works and site materials
e.g. funder (e.g. JCT Standard Building Contract)
Maintained until Practical Completion
Contractors also usually carry contractors’ all risks insurance in course of their business
Cover is on an ‘all-risks basis’ i.e. covered unless otherwise excluded
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In joint names of employer, contractor and any other party with interest,
CONSTRUCTION INSURANCE
A contract may specify whether the contractor or employer carries the insurance
PROFESSIONAL INDEMNITY (PI)
Covers professional negligence
Cover on a claims made basis, i.e. claims made during period of insurance
(even if damage/loss occurred earlier).
Example of common policy wording: “any one claim” or “each and every claim” basis
Defense Costs usually in addition to limit of indemnity
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and destruction/loss of documents
CONSTRUCTION INSURANCE
May include cover for infringement of intellectual property rights, breach of confidentiality
Level of indemnity required
£100,000 or less
£250,000
£100,001 to £200,000
£500,000
£200,001 and above
£1,000,000
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Firm Turnover (Previous Year)
CONSTRUCTION INSURANCE
P I I L E V E L S O F C OV E R
PUBLIC LIABILITY (PL)
Covers:
Cover on a losses/events occurring basis, i.e. covers damage, death and personal
injury occurring during period of insurance.
Example of common policy wording: “each and every occurrence or series of occurrences
consequent upon or attributable to one source or original cause” basis.
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Death and personal injury to third parties excluding insured’s employees
CONSTRUCTION INSURANCE
Damage to third party property
INSURANCE OPTIONS UNDER A
JCT DESIGN AND BUILD
CONTRACT
• CLAUSE 6 - Generally
• SCHEDULE 3 - Works (All Risks) Insurance – the applicable option
- Public liability
Option A – By the Contractor (New Build)
Option B – By the Employer (New Build)
- Employers’ liability
- Insurance against non-negligent withdrawal of support
- Insurance of the works and insurance of existing structures
- Professional indemnity insurance
Option C – By the Employer of Existing
Structures and Works in or Extensions to them
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Types of insurance required:
CONSTRUCTION INSURANCE
Section 6 and Schedule 3 [ 2016 Edition ]:
SURETY BOND
A surety bond is a financial guarantee that the contractual obligation of a principal will be fulfilled.
of the two.
Surety bonds do not reduce the working capital of the principal or restrict its borrowing capability.
Key issues
The requirement for bonds needs to be considered early as the benefits of these may need to be
compared to those issued by banks before irreversible decisions are made.
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Bonds offer an alternative to bank guarantees so the benefits are best understood by a comparison
CONSTRUCTION INSURANCE
Issued by insurers, they are an alternative to bankers’ guarantees.
TYPES OF BONDS
C O M M O N LY F O U N D B O N D S I N
T H E C O N S T R U C T I O N I N D U S T R Y:
• Advance payment bonds
• Maintenance bonds
• International bonds
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• Retention bonds
CONSTRUCTION INSURANCE
• Performance bonds
CONSTRUCTION INSURANCE
THANK YOU
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“
”
Azadeh J
QUESTIONS
Which one of the insurances covers the physical
damage?
•
Contractors’ all risks insurance
•
Non-negligence insurance
•
Professional indemnity (PI) insurance
•
Public liability (PL) insurance
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What does the level of indemnity depend on? And
what are the figures?
CONSTRUCTION INSURANCE
Name 5 different types of Construction Insurance?
CONSTRUCTION INSURANCE
Azadeh Jafari
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T H A N K YO U