Understanding Construction Insurance

What is construction insurance?

Construction insurance is a broad categorisation of insurance policies that provide protection during construction projects.  A variety of factors dictate the type of construction insurance coverage one would need for a given project or business.  These factors include the proposer’s relationship to the project, i.e., contractor, property owner, subcontractor, etc.  The type of proposer buying the insurance, i.e., business or individual; and the type of property to be covered.

There are many different types of insurance designed to protect property owners, developers, and contractors through the various phases of a construction project.  In fact, certain types of construction insurance policies are almost mandatory for certain projects.

What are the types of cover?

Public liability insurance

Public Liability (PL) insurance is a common type of business insurance that protects against liabilities for injury to third parties (non-employees) or their property, as well as legal defence fees.  If you work near other people and/or their property, which is usually anyone in construction, you should consider having PL insurance.  This will ensure you are covered against any potential claims for damage to the person and/or their property.

Product liability insurance

Product Liability insurance protects against liability for injury to people or property arising from the products you supply, manufacture or even import.  If you supply, manufacture, adapt or import any products used by other people then you should consider this cover.

Employer liability insurance

Employer Liability (EL) insurance protects against liabilities of employers for injuries or illness caused to employees in the course of their employment.  If you are an employer, EL insurance is compulsory.  You may also want to investigate EL insurance if you are building your own home.  Injury to volunteers or sub-contractors could spark a claim against you as an ‘employer’.

Contractors all risk insurance

Contractors All Risks (CAR) insurance protects against physical damage to works and site materials that you were contracted to undertake.  This insurance covers the actual work that has been done prior to a construction project being completed.  For example, if an insured loss occurs part way through a project, the cost of the works including materials used to that point would be covered.  These policies can be taken out on a project basis or an annual basis.

Contractors All Risks policies include not only the contract works but can be extended to include cover for own plant, equipment and tools, as well as hired in plant.

Hired-in plant and equipment

This insurance provides cover for equipment that you are leasing in and for which you are responsible if it is lost, damaged or stolen.  When you lease items of plant, you enter into a contract with the hiring company, which means you are responsible for the plant while it is in your control.

Hired-in plant is like any contract hire agreement in which you assume legal responsibility for third party-owned property.  Please note that this insurance may not provide cover if the equipment breaks down, although specialist covers are available to provide insurance for machinery and equipment breakdown and statutory inspection of machinery, such as, fork lift trucks.

Own plant and equipment

Contractors All Risks insurance provides cover for any plant which you own that needs to be repaired or replaced, following a loss within UK territory, including while in transit (other than by sea or air).  This cover can include temporary site buildings and security devices.  In circumstances where such plant is hired out to a third party, under certain conditions this cover can be extended to cover your plant while in their care.

Professional indemnity insurance

Professional Indemnity insurance protects against claims for loss or damages arising from professional negligence or negligent advice.  If you provide advice or hold drawing or design responsibility as part of your contracting work, then you should consider taking out Professional Indemnity insurance.  If you are an architect, structural engineer, project manager, interior designer, or building services firm involved in any form of design work, professional indemnity should be seen as an essential insurance cover which may be required for years after the project has been completed.

Other covers

There are a number of specialist covers available depending upon the nature of the construction contract, including joint names policies known as JCT or Joint Contracts Tribunal policies; JCT 21.2.1 or non-negligence or party wall insurance covers, taken out by the contractor for the benefit of the property owner.

Delay in start-up insurance may be available for largescale projects.  Also, structural warranty cover provides building owners with ten years of protection from ‘latent defects’ to the structure of a building.  These are defects that occur during the build period but are not discovered until after completion.  Structural warranties are usually bought by the builder or developer but the warranty itself will provide cover for the person who purchases the completed building.

Additionally, specialist policies are available for individuals who are building their own homes, e.g., self-build or renovating a property.

For more information about contract works insurance, please contact RS Risk Solutions by phoning 01342 580106 or you can email us at info@rsrisk.solutions and we will be happy to help.

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