basics of construction insurance

8/10/2019 Basics of Construction Insurance

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Basics of Construction

InsuranceA Presentation to the HKIS


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What are we going to cover

tonight? Introduction

Why do we have Insurance?

Who is who in Construction Insurance?

Categories of Construction Insurances

A Controversial Comment Some APC questions


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Introduction

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Insurance transfers part of a commercialrisk

The risk still remains, it is now beingshared with an insurer

The liability still remains

Insurance does not remove liability Seek balance sheet protection


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Protection of assets

Protection against liability to third parties


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Who is who in Construction

Insurance? The Insured

The Insurance Broker

The Insurance Agent

The Insurance Company

The Loss Adjuster


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Categories of Construction

Insurances Third Party Liability

Does not cover all risks!

Deductibles

Exclusions

Conditions / Memoranda

Limit of Indemnity

Geographical restriction for Legal Jurisdiction


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Insurances Delay in Start Up Insurance

Covers Consequential Loss following an insured

event under the CAR Policy Note consequential losses excluded under CAR

Policy

Contractor frequently gets EOT due to insured event

under CAR Policy Provides Owner protection for delay in start up

High Premium cost


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Insurances Contractors Plant and Equipment

Does not cover all risks!

Deductibles

Exclusions

Conditions / Memoranda

Limit of IndemnityGeographical restriction for territorial limits


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Insurances Professional Indemnity Insurance

Not just for designers

No statutory requirement for construction

professionals in Hong Kong Does not cover all risks!

Deductibles

Exclusions

Conditions / Memoranda Limit of Indemnity

Geographical restriction for Legal Jurisdiction


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Insurances Employees Compensation Insurance

Statutory obligation to insure in Hong Kong

Indemnity to Principal W338

Other Compulsory Insurances

Motor Liability

Aircraft Liability


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A controversial comment"Indemnity to Principal (W338)

It is hereby understood and agreed that this Policy is extended to indemnify ....(hereinafter call the Principal) against Liability under the Law(s) or at Common Law inlike manner to the Insured but only so far as concerned the liability of the Principal toemployees of the Insured engaged in connection with a contract undertaken by theInsured for the Principal.

Provided always that

(1) the Company shall not be liable under this Endorsement at Common Law in

respect of any injury by accident or disease due to or resulting from

any act default or neglect of the Principal, his servants or agents;

(2) the Principal shall as though he were the Insured observe fulfill and

be subject to the terms exceptions and conditions of this Policyinsofar as they can apply;

(3) the Company shall have full conduct and control of all claims in

respect of which indemnity is granted by this Endorsement.

Subject otherwise to the terms exceptions and conditions of this Policy."


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A controversial commentIndemnity to Principal (W338)

It is hereby understood and agreed that this Policy is extended toindemnify .... (hereinafter call the Principal) against Liability under theLaw(s) or at Common Law in like manner to the Insured but only so faras concerned the liability of the Principal to employees of the Insuredengaged in connection with a contract undertaken by the Insured forthe Principal.

Provided always that

(1) the Company shall not be liable under this Endorsement at Common Law

in respect of any injury by accident or disease due to or resulting from anyact default or neglect of the Principal, his servants or agents;


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A controversial comment

Indemnity to Principal W338 Proviso 1The Employer (Principal) has no cover for

Common Law Liability for accident or disease

arising out of his negligence and that of hisservants or agents

The TPL policy will not cover him (See nextslide)

He has a liability under Occupiers LiabilityOrdinance


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Indemnity to Principal W338 Proviso 1Did you provide the Prelims clause wording

stating that a Principals Indemnity clause

W338 was to be included in the ContractorsEC Policy?

Does the Employer know about Proviso 1 toW338?

Are you professionally qualified to be able todraw up a Insurance Specification or provideInsurance advice?

Does your Employers PI Insurance cover theprovision of Insurance Advice?


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Quote from notes to Assessors for APCpaper Autumn 2002

As a side effect of their expertise in contract, QuantitySurveyors are now deemed by the Employer and fellowconsultants as having the responsibility for checking theinsurance policies. While Quantity Surveyors should notprofess themselves as insurance experts, their expertise inproviding advice from the contractual aspect would be an

edge over other consultants and may probably be one ofthe factors why Quantity Surveyors are necessary for aproject


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APC question no. 1

With the presence of the indemnity Clause

18 of the Conditions of Contract, why then

is there a need for Insurance clauses 19and 20 which effectively require the

Employer to bear the costs of the

insurance premium?


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APC question no. 2

What is the differences between the scope

of insurance cover required by clause 20

and that provided by section 1 of the usualContractors All Risks Insurance Policy?


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APC question no. 2

Clause 20 calls for a named perilsInsurance policy. In other words the Policy

only responds if the works have beendamaged by one of the named perils

A usual CAR policy will respond to any

damage to the works, subject toexclusions, conditions etc.


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APC question no. 3

What is the purpose of specifying limits for

insurance excesses in the tender

documents and the implications ofspecifying higher or lower limits?


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APC question no. 3

Purpose of specifying excess levels

Excess level affects the premium

Common basis for pricing, but this can causeproblems as well.

Excess or deductible requires the insured tosuffer the first part of any claim. Makes him

take care and excludes trivial claims whichincur Insurers administration costs greaterthan value of claim.


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APC question no. 3

Consequence of Low Excess levels

Higher premium

Makes smaller claims claimable.

Reduces incentive to take care


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APC question no. 3

Consequence of High Excess levels

Lower premium

Excludes smaller claims

Increases risk, Tender price might be higher


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APC question no. 4

Why is the Insurance of the Works policy

required to be in effect until 14 days after

Practical Completion while the Third PartyLiability Insurance Policy is required to be

in effect until the end of the Defects

Liability Period?


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APC question no. 4

Insurance of the Works (CAR)

This covers damage to the Works

Upon issue of the Certificate of PracticalCompletion Contractor is relieved of his Care

of Works obligation

Grace period of 14 (or sometimes 28) days isto allow Owner to make his own insurance

arrangements


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APC question no. 4

Third Party Liability Insurance

Risk of legal liability to Third Parties continues

as long as Contractor continues to work onsite for any reason, extra works or defect

rectification

Owner should effect his own TPL insurance

with his Property All Risks insurance upon

taking over the works


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APC question no. 5 What is the purpose of specifying a cross

liability clause and which type of insurance is

this applicable to?

This is applicable to Third Party Liability InsurancePolicies

Has the effect of treating each insured (if there is

more than one) as if they were separately insured

Allows one insured to claim against another, whilstInsurers waive subrogation (right of recovery) right

Limit of Indemnity remains the same


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APC question no. 6

Which are the empowering clauses in theConditions of Contract and its

corresponding Standard form of NSCimposing obligations on the Contractorand the NSC to respectively effect ECI?

Under which Insurance Policies are the

Resident Architect / Engineer covered fordeath / injury caused by accident on site?


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APC question no. 6 Which are the empowering clauses?

There is a statutory obligation, even if the Contract issilent

Clause 4 requires Main Contractor to comply with

Law Clause 19(1)(a)(i) requires Main Contractor to insure

for personal injury or death out of the works. Thiscovers workmen and third parties

Clause 4 of NSC requires Main Contractor and NSC

to respectively effect insurances for liability understatute and Common Law for workmen employed bythem


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APC question no. 6

Under which Insurance Policies are the

Resident Architect / Engineer covered for

death / injury caused by accident on site?His employers

The inured person or his insurer can sue the

person causing the accident

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