Last edited 25 Jul 2014

JCT 98 Contract Insurances

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Contents

[edit] JCT 98

[edit] Relevant Provisions in Main Contract

[edit] Clause 20 - Injury to persons and property and indemnity to employer

  • contractor to indemnify the employer for any expense, liability, loss, claims or proceedings arising by virtue of statute or common law in respect of death or personal injury caused by the carrying out of the works except as a result of negligence of the employer or of any person for whom the employer is responsible
  • duty to indemnify the employer also covers damage to property (property owned by third parties, parts of contract works for which certificate of practical completion has been issued, and exiting property owned by the employer) but only when damage was due to negligence, breach of statutory duty, omission or default by the contractor, or those for whom he is responsible
  • not caused by specific perils (fire, lightening, explosion, storm, tempest, flood, burst pipes, earthquake, aircraft and riot)
  • contractor can recover from any third party at fault

[edit] Clause 21 - Insurance against injury to persons and property

[edit] Clause 22 - Insurance of the works

[edit] Clause 22A - Erection of new buildings - all risks insurance of the works by the contractor

Requirement

Exclusions

Failure of contractor to take out policy

Payment of insurance proceeds

Partial completion

  • employer takes responsibility of the works taken back

Site materials

  • all unfixed and goods delivered to, placed on, or adjacent to the works and intended for incorporation in them

[edit] Clause 22B - Erection of new buildings - all risks insurance of the works by the employer

Requirement

Exclusions

  • as above

Failure of employer to take out policy

  • contractor can take out his own policy and increase the contract sum by the amount of premiums he has to pay.

Payment of insurance proceeds

  • no requirement
  • restoration of any loss or damage is treated as a variation

[edit] Clause 22C - Insurance of existing structures - insurance of works in or extensions to existing structures

[edit] Clause 22D - Insurance for employer's loss of liquidated damages

[edit] Clause 22FC - Joint Fire Code compliance

  • employer and contractor to comply with the Joint Code of Practice on the Protection from fire of Construction Sites and Buildings Undergoing Renovation if stated in the appendix
  • contractors obliged to rectify breaches of the code if drawn to their attention by the contract works insurer
  • contractors liable to the employer if a breach causes damage to the works

[edit] Sub-Contractors

  • required to observe, perform and comply with the provisions or the main contract
  • indemnify the contractor against breaches by them of specific provisions in the main contract
  • required to carry and maintain insurance to cover its liabilities in respect of personal injury or death ensuing from work carried out by it

[edit] CONTRACT INSURANCE UNDER JCT 98 WITH CONTRACTOR'S DESIGN

[edit] General

[edit] Contract Works Insurance

  • similar to JCT 98

[edit] Professional Indemnity Insurance: Design and Construct


[edit] CONTRACT WORKS INSURANCE POLICY

[edit] Damage to Works

  • the indemnity may be the repair, reinstatement or replacement of any property lost or damaged, or a monetary payment of the same amount
  • the insured will be the employer and the main contractor, and possible sub-contractors
  • loss or damage are covered, subject to a number of exceptions
  • the property insured is described in the policy schedule
  • the loss or damage must occur during the currency of the policy
  • the cover only applies to the contract site

[edit] Cover

  • usually arranged on an annual basis by a contractor, thus covering all contracts
  • possible for cover to be arrange on a single contract basis but more expensive

[edit] Extensions to the policy

Transit

  • anywhere within the territorial limits
  • excludes sea and air transit (heavier risk)
  • excludes motor vehicles (insures under motor vehicle policy)
  • excludes employees tools (too many small claims)

Principals

Architects', Surveyors' and Consulting Engineers' fees

  • incurred in the reinstatement of the property insured consequent on its loss or damage

Removal of debris

  • removing debris
  • transportation to dumping ground
  • dismantling or demolishing
  • shoring up or propping of the portions or property lost or damaged

Off-site storage

  • materials and goods whilst not on the site but intended for inclusion in any contract works covered by the policy

[edit] Exceptions to the policy

Excess

  • means of encouraging the contractor to take care and of
  • eliminating small claims

Post-completion risks

  • contract works policy to cover risks of loss or damage during construction: once contract completed, risk of damage passes over to employer
  • cover ceases at practical completion, except to the extent that it is necessary to cover the contractor's liability under the defect liability clause

Existing Structure

  • contract works policy to cover risks of loss or damage to contract works, but not to employer's existing property
  • if the employer's existing property is damaged then the employer will only have legal redress against the contractor if he can prove negligence
  • the employer may have already insured the risk under existing insurance arrangements
  • or may effect special cover under clause21.2.1 against the specific risks of collapse, subsidence, vibration, weakening or removal of support, or lowering of ground water

Other exceptions

[edit] General Conditions

  • reasonable precautions
  • disclosure of material facts
  • adjustment of the premium
  • contribution - if there is another policy, the policy will not pay until the first policy has been exhausted
  • cancellation - insurer's, but not the insured, have the right to cancel

[edit] Claims Conditions

  • notify insurer within three months of any events that may give rise to a claim
  • refrain from repairs until the insurer has had time to inspect
  • notify and assist the police in case of theft, loss or wilful damage to property

[edit] CLAIMS

  • dealt with by loss adjusters

[edit] OTHER LIABILITIES

[edit] Employers and Public

  • Contractors' Liability Insurance covers Employer's Liability, Public Liability, Product Liability or Completed Works cover in respect of injury to third parties or damage to their property, as required by JCT 98
  • Excludes Professional Liabilities (covered elsewhere)

[edit] Clause 21.2.1


[edit] LATENT DEFECTS (DECENNIAL) INSURANCE

[edit] General

  • ten-year non-cancellable policy to indemnify the insured against the cost of repairing defects in the design, material or construction of the building which were not discovered until after the building had been completed
  • once a building passes to the owner, he insures it under a fire and perils policy
  • the cost of rectifying latent defects is not covered by a fire and perils policy
  • underwriters will only accept risk if satisfied by design - technical control undertaken by specialists, who issue a certificate of (qualified) acceptance

[edit] The Insured

  • any person who acquires the freehold or leasehold interest in the premises during the period of insurance therefore subsequent owners/tenants can be insured

[edit] What the policy covers

Inherent defects

  • if there is no physical damage but an inherent defect in the structure is threatening its stability the policy will cover the cost
  • damage to premises caused by subsidence, heave or slip of land is not covered unless it arises from an inherent defect in the foundations
  • discovery of an inherent defect does not in itself constitute a claim since there must be damage or threat of collapse

Policy exceptions

  • damage arising from fire and the perils normally insurable under a fire policy
  • damage arising from alterations, modifications or additions during the period of insurance
  • damage caused by or contributed to by inadequate maintenance
  • damage exceeded from any process for which the building was not designed
  • faulty or inadequate weatherproofing unless requested at the outset

[edit] Period of Insurance

  • ten-year policy starts from the date of practical completion
  • but issued at the start of construction to enable compliance with Technical Control
  • policy contains no cancellation cause

Maintenance Period

  • contract works policy is extended to give cover during the maintenance (defects liability) period
  • risk of duplication of cover during that period
  • if during that period damage occurs that is covered by both policies, decennial policy will only pay in excess of the amount payable under contract works policy

[edit] Sum Insured

  • a full value sum is total estimated cost of re-building the premises, including provision for professional fees and removal of debris
  • a first loss sum is lower that the full value when the risk of a total loss may be low

[edit] Premium affected by:

  • type of building and intended usage
  • design and type of construction
  • foundations and site (soil) conditions
  • project location
  • amount of excess and indexation
  • basis of cover (full value or first loss)