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Advising on insurance

For the construction practitioner, insurance represents one of the most difficult and potentially
dangerous areas on which they may be called to advise a client. Few construction practitioners
understand the subject in sufficient depth and breadth to advise without external specialist
assistance. Many do understand the limits of their own knowledge and will not advise on
insurance matters without first seeking specialist advice themselves or advising their clients to
do so. Others jump in, unaware of the pitfalls, and suffer the consequences.

Given the changes in the insurance landscape since 2017, it is essential that the correct
advice is sought.

The case of Pozzolanic Lytag Ltd v Bryan Hobson Associates served to highlight the dangers
of a construction practitioner taking on responsibility for insurance matters, even inadvertently.

To protect against these risks, construction practitioners should:

- include a specific exclusion with regard to advising on insurance in their terms of

appointment
- never advise on insurance without qualifying that advice to the extent that it should
be verified by an appropriately qualified and regulated specialist
- never advise on how much insurance should be effected or what level of uninsured
excess is appropriate. It is appropriate to advise on the risks and potential financial
consequences, but a construction practitioner is rarely in a position to advise a client
on the extent to which that risk should be insured.

Obligations

Conditions of contract

The majority of projects with which practitioners are involved are likely to be carried out under
one of the Joint Contract Tribunal (JCT) standard forms of building contract. It is
recommended that all practitioners ensure they are reasonably conversant with the impositions
of these contracts and what is required to meet them.

In particular, it should be appreciated that the main/Design and Build and Intermediate JCT
forms contain options regarding who is responsible for the insurance of the works (Options A,
B or C). It is not appropriate to utilise more than one of these options even if a contract
involves new build works as well as work in or on an existing structure.

- Option A should be used for new build projects where the contractor is to be
required to effect the contract works insurance.
- Option B is for use on new build projects if the employer is to effect the contract
works insurance.
- Option C is for works in or on existing structures and requires the employer to insure
the existing structures and the contract works.
- Those clause numbers are different when works are let under a Minor Works Form
where insurances fall under Clause 5 of the contract.

Joint fire code

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Following a significant number of major and costly fires on contract sites, the insurance and
construction industries met with other interested parties to establish a code of practice aimed
at ensuring a standard approach to minimising fire exposures. The code draws together many
good practice concepts and standardises procedures. Compliance with the provisions of the
code is a requirement of the vast majority of Contractors All Risk policies and non-compliance
can lead to suspension or cancellation of cover.

Insurers are very focused on the use of timber frame and other modern methods of
construction, such as glued laminated timber (glulam) and cross laminated timber.

Joint Code of Practice: Fire prevention on construction sites (10th edition) is available to
download from the Fire Protection Association .

Checking policies

Checking the validity of policies

Unless project specific policies are put in place, most insurance policies are written on an
annually renewable basis. The construction practitioner therefore needs to urge their client to
ensure that the validity and adequacy of the initial policy(ies) is checked carefully and that
such checks continue at each renewal of said policy(ies). This ensures continuity and that any
significant changes to the scope of cover and the conditions applicable are highlighted to the
employer. This checking process should continue for the entire period of the liability ? up to 12
years for professional indemnity (PI) insurance policies.

Checking the scope of policies

When checking the adequacy and scope of insurance policies, particular attention should be
given to ensuring that they meet the contractual obligations as well as to the applicable policy
exclusions, conditions and excesses. Some aspects of cover that insurers may consider as
being particularly high-risk may be the subject of limits of indemnity that are 'in the aggregate'.
This may be true, even on policies where the main limits are on an 'each and every claim' or
an ?any one occurrence? basis. Examples of this may be claims arising out of environmental
damage or contamination, products liability, etc. under a public liability policy.

The ?devil is in the detail? when reviewing the full extent of policy coverage and products can
vary in cover significantly.

Policy extension endorsements or additional, supplementary cover may be necessary for

exclusions that the client does not wish to accept. This will generally involve additional
premium(s).

Claiming against insurance policies

When claiming against insurance policies it is necessary for the insured party to demonstrate
both that it has incurred a loss as a direct result of the insured event and that the loss has
been reasonably incurred. It is particularly important to remember this principle when settling a
number of claims, some of which may relate to insured events and some of which may not.

Insurers are increasingly sharp on the application of policy claims conditions and when these
are correctly notified under the policy.

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Failure to correctly notify a claim under the relevant policy could, at worse, lead to that claim
being declined and even any policy voided.

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