Insurance in a building is not only prudent but is also most likely a contract requirement and may be a legal requirement. Some deem it a “necessary evil” and others strongly believe in the protection of their business which it provides. Regardless, any builder without appropriate insurance risks the success of their business and potentially their personal assets.
This article sets out to explain the various types of insurance that you may require as a builder. It is important that you understand clearly any insurance you must have and any that would be advisable.
Public Liability (PL) insurance
- Protects against liability for injury to third parties (not an employee) and/or their property
- You ought to have it if you work near other people and/or their property
- Many building contracts make it an express requirement of the contract so check what it says, and the level of indemnity required
- Some policies include a financial loss extension which covers consequential loss that may occur from a contractual breach such as negligent workmanship or materials
Employer’s Liability (EL) insurance
- Protects against liability for injury to employees
- Legal requirement for an employer. However, there is a specific exclusion to this rule if you are the only director/employee of your company. If there is more than one worker in your business (i.e. if you employ your spouse), you will probably be legally required to carry Employers Liability insurance
- This is required by the 1969 Employers Liability (Compulsory Insurance) Act
- You have to display a Certificate of Insurance at your place of business
- Many building contracts make it an express requirement of the contract so check what it says, and the level of indemnity required
Product Liability insurance
- Protects against liability for injury to people or property arising from products supplied/manufactured/imported
- You ought to have Product Liability insurance if you supply, manufacture, adapt or import products used by other people or on construction sites
Contractor’s All Risk (CAR) insurance
- Protects against fire, theft or damage on and off-site to the contract works, site accommodation/facilities, unfixed materials, tools and equipment (Specified Perils are covered and Excepted Risks are not – these are defined in the contract)
- These kinds of losses are often excluded under a regular Public Liability policy
- Premium will depend on turnover, type of work and previous claims record
- Usually in the joint names of the Employer and Contractor
- May have limited cover for works to existing buildings, but it is critical that the Employer insures existing structures in all cases
- It may include some design cover, but would only be up to Practical Completion and may have significant Design Exclusions – the devil is in the detail
Professional Indemnity (PI) insurance
- Protects against claims for loss or damages arising from professional negligence / negligent advice including breaches or failure of design
- You ought to have PI if you provide advice or have any design responsibilities for a project
- Building contracts with design responsibilities for the Contractor often make it an express requirement of the contract so check what it says, and the level of indemnity required
- Policies may or may not include design work undertaken by direct employees and may only respond if specialist consultants undertake the design work – the devil is in the detail again
- The contract may stipulate that the PI cover is in place not only for the duration of the project but also to cover the Statute of Limitations after practical completion, which can be for up to 12 years if the contract is executed as a deed
- Claims must be notified at the time of the occurrence for a PI policy to respond
Non-negligent liability insurance
- Often referred to as 6.5.1 or 21.2.1 insurance after JCT contract clause references
- Public Liability policies will only indemnify against damage to a third-party property or persons that have resulted from negligence
- Without this policy, the property owner could be held liable
- Non-Negligent Liability insurance plugs the gap to insure against collapse, subsidence, heave, vibration, weakening or removal of support and lowering of groundwater to third party property or persons where the contractor has not been negligent
- Purchased in Joint Names of Employer and Contractor
- There are often exclusions to these policies that ought to be considered
- If a Non-Negligent Liability policy is required by the client, the contract will state as such
Pool re cover insurance
- Pool Reinsurance Company Ltd (Pool Re) is a mutual reinsurance company
- Pool Re was founded in the 1990s in response to insurers’ growing reluctance to insure commercial property against terrorism
- It provides reinsurance on a direct basis (that is, without broker intervention) to its members in respect of damage or business interruption caused by “an act of terrorism” to commercial property located in Great Britain
- Take specialist insurance advice. While a party should be aware of Pool Re and the issues surrounding terrorism insurance, it should still take specialist insurance advice (perhaps from its own brokers) before agreeing to any contract wording
- If Pool Re cover is required, it will be stated in the tender/contract documents
Airside liability insurance
- If work at an airport there may be a requirement for specialist “airside liability” insurance
- “Airside” generally refers to an area on an airport that has restricted access (aprons, taxiways and runways as well as the area past the security gates in terminal buildings)
- Most Public Liability policies will contain an exclusion relating to high-risk locations, including airports and aerodromes
- Some insurers may consider providing liability cover at airports for an additional premium
Procurement and insurance
You also need to ensure that when procuring design or sub-contract services, that the companies you engage also have the appropriate insurance types and level of cover required.
If you are procuring design services either with a specialist consultant or a sub-contractor that will have design responsibilities, ensure they have the appropriate Professional Indemnity insurance policy and, if you are required to by the main contract, ensure they maintain the policy for the appropriate period following practical completion.
Post Grenfell
The world of insurance is ever-changing and the Grenfell tower tragedy in June 2017, is still having a significant impact on the cover available. The insurance industry, as a whole, has reacted by adding significant exclusions to policies and in particular to Professional Indemnity Insurance. Beware!
Conclusion
There are a number of other insurance policies not covered by this Article including Motor Insurance, and Medical Insurance. Buildings Insurance, Personal Accident, Latent defects policies, and other specialised policies.
Make it your business to understand what insurances you ought to have in place and any specific requirements set out in the contract. However, insurances are often a complicated minefield. If this is outside of your comfort zone, get some advice from someone that is familiar with these issues.
