Contractors’ Insurance covers the risk of damage to property which is in the course of construction or alteration. Primarily, it covers the new materials – from delivery, through the construction process to final testing and handover. It can also cover the plant that may be used in the process.
Contracts will be specific to a particular project, but often follow standardised market forms; for example, those produced by the Joint Contracts Tribunal (JCT) for building projects or the Institute of Civil Engineers (ICE) for civil engineering works.
Contractors’ Insurance does not automatically cover a building’s pre-existing and original fabric that may be being altered. This can be added as a separate item, but it is more often protected under separate material damage or property insurance.
Types of Contract Work
Types of project covered can be very varied. Traditionally, the subject matter will fall into either ‘construction risks’ or ‘erection or engineering risks’.
- Construction risks – new buildings, building alterations and civil engineering projects such as roads, bridges and tunnels
- Erection or engineering risks – the installation and testing of machinery
- Combined risks – often used in major building contracts when both building and engineering work will be carried out
Construction contracts drawn up between employers and contractors usually follow standard wordings, but some alterations have implications for insurers. When asked for a quote, insurers will want clear definitions on issues such as who is contractually responsible for which risks, and who the insurance will be required to indemnify.
In addition to insurance requirements during the construction period, many contracts require insurance to cover defects caused during construction but which may only come to light when damage occurs, protecting liabilities over a specified period.
Policy Types and Premiums
Cover can either be arranged on a specific contract basis for a particular project, or an ‘open cover’ basis, covering all jobs a contractor carries out in a year, within parameters agreed with insurers.
Insurers are usually required to provide “all risks” cover.
Individual project premiums will be calculated based on planned costings and timings, then adjusted when work is completed. Open cover premiums will be based on turnover derived from the insured jobs the contractor expects to do in the coming year, then adjusted at the end of the year.
Some damage to contract works will not be covered. Typical exclusions are wear and tear, terrorism, and specified activities including multiple lifts or overload testing. Different policies provide varying levels of cover for defective materials or workmanship.
Extra Benefits and Maintenance Periods
Extra covers can be arranged to include debris removal following a loss, fees for professional architects or surveyors and public authority requests.
Tools and Construction Plant
Owned or hired plant are generally not included in standard wordings but can be added as an additional item or section, varying with different insurers. Cover can include employee’s tools and effects, construction plant, owned and hired plant and off-site cover.
Contracts must clearly set out who is responsible for injury or damage liability risks to persons legitimately on the site, such as a council building surveyor, or to passers-by. If contractors are found to have been negligent, or caused by the actions of a sub-contractor which the main contractor has appointed, a claim for compensation is likely to be brought against the main contractor
You must comply with policy terms to make a successful claim. You have a duty to take reasonable precautions to prevent injury or damage occurring. If any aspect of working conditions or risk changes, you must notify your insurer and take actions to reduce the hazard.
Sometimes known as Contract Works, Contractors All Risks Insurance can protect:
- Hired or owned plant, tools and equipment
- Theft, damage or loss of materials
- Damage to contraction works
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