11 September 2016Problem Clauses – aligning the contractor and sub-contractor insurance policies
At the start of a new contract, there is always an intense flurry of activity to get tenders out, and once the main contractor has been appointed there is a major push to get sub-contractors appointed, get the contract signed, agreed and turn up on site to start the work.
Unfortunately, whilst everyone is concentrating on getting the contract finalised (or working on a letter of intent), quite often, the insurance cover is something which is either overlooked or only given a cursory glance.
The Joint Contract Tribunal (JCT) sets out very clearly who is responsible for insuring what, but how much thought is given to the actual terms of insurance? Checking that the insurance is in force, and what limits apply for Public Liability and Professional Indemnity is all very well, but what about the clauses and policy conditions which must be complied with to allow a claim to be dealt with if necessary?
All insurance policies have terms and conditions, extensions of cover and exclusions, some of which are very obviously stated in the schedule and others which are simply incorporated within the policy wording itself, but failure to follow these can mean the difference between insurers settling the claim or declining it.
Limits of indemnity
As a sub contractor, the first things to consider is what limits are being requested by the main contractor or the client – are they proportionate to the size of the contract and the risk which you pose to the safe completion of the project.
For example, if you are a ground worker or a heating contractor, the very nature of your work creates a greater potential risk to the building than a joiner or a bricklayer, so you would expect to be asked for higher limits of indemnity.
However, as a sole trader or small company, even when working on a major building project, the limit of liability you are asked to insure for should not be out of proportion to the type of work you are doing and the value of your contract with the main contractor.
Indemnity to principal clause
Often, employers and their funders will ask to be included as Joint Insured’s under a contractor’s liability cover, but this can be challenging as you do not want to include cover for your employer which they would not normally be entitled to benefit from. Most well written construction policies will include an Indemnity to Principals clause, which automatically does the same thing, so Joint Insured’s is not necessary.
Sometimes however, it takes a few letters of explanation to a client that this is the case and even once they understand it they might simply dig their heels in because they prefer to see their names on there in writing.
JCT Options A B and C
Under Option B and C, the Employer arranges insurance of “the Works” but this might not necessarily be written for the benefit of the contractor and the sub contractors. It is however possible to arrange this for the benefit of all parties, by including a subrogation waiver, and this would then mean that you would not need to arrange cover for this contract yourself, and particularly where damage is caused and it is not apparent exactly what or who caused the damage, it saves costly and fractious debates between the parties and their insurers who all try to pin the blame on someone else.
If you are involved in a contract which is under Options B or C, then check whether you are, or can be, included in the Employer’s cover.
Co-ordinate the main contract and the sub contracts
It might sound a little obvious, but surprisingly few people check that the sub contracts mirror the main contract, and therefore, the risks which each party is responsible for may differ, and sometimes can be completely contradictory, leaving the potential for the risk to either be insured twice, or worse still, not at all!
Make sure that you understand what requirements are being imposed on you, and what limits are being applied, but also, what you are able to pass on to other people.
Complying with the policy terms
Many Construction policies may have terms and conditions which may appear pretty onerous . Insurers are willing to change their wording if asked, but this has to be done at the outset. The point when you are notifying your insurers of a potential claim is not the best time to point out that you have not been able to comply with the policy, particularly if it is likely to be large or complex.