We take a look at the different types of insurance that may be required or upheld in connection with a construction and engineering project
What is insurance?
Insurance is an arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium.
The insurer agrees to give the insured some benefit (usually financial compensation) if a specified event occurs. The event must involve some uncertainty about whether or when it will happen.
Why use insurance on a construction project?
There are many risks associated with any construction project. The majority of these risks are usually assumed (and priced) by the contractor during the construction phase. The contractor usually covers this exposure by taking out various insurance policies.
Insurance provides protection both for the insured, and for the party to whom the insured has a liability.
It is for each individual or party to decide upon insurance policies that are appropriate for their circumstances. It is very expensive to over-insure and it could be very expensive to under-insure in the event that a claim is made.
Types of insurance for construction projects
We know it can be easy to get lost in the jargon and minefield of different policies, so we’ve summarised the key types of insurance you need to be aware of.
Construction contracts will normally include a clause requiring the contractor to carry insurance to cover expense, loss, liability, claim or proceedings for personal injury or death arising from the carrying out of the construction works, or loss or damage to property other than the works.
Public liability insurance may cover against claims by:
- Members of the public visiting the business of the insured.
- People taking part in events or activities organised by the insured.
- People watching events or activities organised by the insured.
- Independent sub-contractors.
Personal injuries of employees will be covered by the contractor’s employers’ liability insurance, which is compulsory for all employers under the Employers’ Liability (Compulsory Insurance) Act. All firms who employ staff are legally required to hold Employers Liability Insurance. It’ll cover claims from employees who’ve been injured or become seriously ill as a result of working for you.
Public liability insurance and employer liability insurance are typically offered in a single policy which may also cover office contents and buildings insurance requirements.
Product liability insurance can cover the cost of compensation claims if someone is injured or their property is damaged by a product that you’ve sold. In certain situations, you may be liable even if you haven’t actually manufactured the product.
You don’t need to manufacture a product in order to require product liability. Importing and repairing in some cases is enough to make you liable.
Product liability insurance covers against a compensation case brought against a producer for loss, damage or injury, which can be made any time within three years of using the product. In some cases this can be longer. There is no upper limit to how much the claim can be and is calculated against the severity of the individual case and the scale of loss.
If a faulty product is widely distributed and has wide scale affects the compensation costs can easily be in millions.
Contractors’ All Risk (CAR) insurance
Contractors’ all risks (CAR) insurance is a non-standard insurance policy that provides coverage for property damage and third-party injury or damage claims, the two principal types of risks on construction projects.
Damage to property can include improper construction of structures, damage that happens during a renovation and damage to temporary work erected on-site. Third parties, including subcontractors, may also become injured while working at the construction site. CAR insurance not only covers those associated risks, but also bridges these two types of risks into a common policy designed to cover the gap between exclusions that would otherwise exist if using separate policies.
CAR insurance coverage is common for construction projects such as buildings, water tanks, sewage treatment plans, flyovers and airports.
The goal of a CAR insurance policy is to ensure all parties are covered on a project, regardless of the type of damage to the property or who caused the damage.
Professional indemnity insurance
Professional indemnity insurance can cover compensation payments and legal fees if a business is sued by their client for a mistake they’ve made in their work. The compensation payment will usually take into account the financial loss that the client has suffered.
Professional indemnity insurance can cover you for mistakes including professional negligence, unintentional breaches of confidentiality or copyright, and loss of documents or data.
Structural warranty is insurance for the structure of your new home, normally for a period of 10 years after completion, depending on the provider and policy.
Although structural warranty is purchased by the builder before construction starts, it protects the homeowner from structural defects that may occur during the first ten years after it has been completed.
Structural warranties can include; defects insurance, structural insurance, contaminated land, building control cover and deposit protection.
A structural warranty is not compulsory. However, most lenders will require one, and a homeowner may have issues when it comes to selling a house that is less than ten years old if they don’t have a warranty.
2017/18 health and safety statistics from HSE show:
- 1.4 million working people suffering from a work-related illness
- 2,595 mesothelioma deaths due to past asbestos exposures (2016)
- 144 workers killed at work
- 555,000 injuries occurred at work according to the Labour Force Survey
- 71,062 injuries to employees reported under RIDDOR
- 30.7 million working days lost due to work-related illness and workplace injury
- £15bn estimated cost of injuries and ill health from current working conditions (2016/17).
With figures like these, it’s easy to see that more protection is needed for workers in this industry and that construction insurance is very important.
Choosing a good construction insurance policy and the appropriate additional cover is really important so it’s best not to rush the decision.