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Last edited 30 Jun 2017
JCT 98 Contract Insurances
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 Relevant Provisions in Main Contract
- Clause 20 - Injury to persons and property and indemnity to employer
- Clause 21 - Insurance against injury to persons and property
- Clause 22 - Insurance of the works
- Clause 22A - Erection of new buildings - all risks insurance of the works by the contractor
- Clause 22B - Erection of new buildings - all risks insurance of the works by the employer
- Clause 22C - Insurance of existing structures - works in or extensions to existing structures
- Clause 22D - Insurance for employer's loss of liquidated damages
- Clause 22FC - Joint Fire Code compliance
- 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
- insurance to be taken out and maintained by the contractor for indemnities given under Clause 20 to the employer
- contractor does not take responsibility for a sub-contractor maintaining its insurance, but will need to ensure that the sub-contractor carries such a policy under the relevant sub-contract
- contract administrator can instruct the contractor to take out and maintain an additional joint names policy to indemnify the employer both against strict liability to third parties and against any damage caused to the employer's own property resulting from collapse, subsidence, heave, vibration, withdrawal of support, lowering or ground water etc.
- insurance to remain in force until the issue of certificate of practical completion or determination of the contractor's employment
 Clause 22A - Erection of new buildings - all risks insurance of the works by the contractor
- contractor to take out and maintain a joint names policy for all risks insurance providing cover against physical loss or damage to work executed and site materials
- damage to property arising from wear and tear, obsolescence, deterioration
- work carried out as a result of design defects
- professional negligence risk - insured separately
- fitness for purpose risk
- contractor authorises the insurers to pay all insurance proceeds to employer
- employer has to pay monies (less professional fees) to the contractor by installments
- issued under architects' certificates at interim certificate periods
- all unfixed and goods delivered to, placed on, or adjacent to the works and intended for incorporation in them
- employer to take out and maintain a joint names policy for all risks insurance
- providing cover against physical loss or damage to work executed and site materials
- as above
- contractor can take out his own policy and increase the contract sum by the amount of premiums he has to pay.
 Clause 22C - Insurance of existing structures - insurance of works in or extensions to existing structures
- for contract works, employer to take out a joint names policy and protect all sub-contractors
- for existing structures, employer to only insure against specific perils
- insure existing structures and their contents if owned by him, or for which he is responsible
 Clause 22D - Insurance for employer's loss of liquidated damages
- employer to inform the contractor whether he should obtain a quote to insure the employer's potential loss of liquidated damages
- only in respect of damage by an specific peril - contractor will be entitled to extension of time, but employer will not be able to claim liquidated damages
 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
- 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
- contractor to carry out not only duties and obligations of a building contractor, but also obligations as a designer
- similar to JCT 98
 Professional Indemnity Insurance: Design and Construct
- under clause 2.5.1 , the liability of the contractor as a designer is limited to the liability of an architect (reasonable skill and care, not fit for purpose)
- this liability can be covered by a Contractor's Design and Construct PI policy
- ensure that the design and build contractor carries PI cover as Clause 22 imposes no requirement
 CONTRACT WORKS INSURANCE POLICY
- 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
- 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
 Extensions to the policy
- 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)
Removal of debris
- removing debris
- transportation to dumping ground
- dismantling or demolishing
- shoring up or propping of the portions or property lost or damaged
- materials and goods whilst not on the site but intended for inclusion in any contract works covered by the policy
 Exceptions to the policy
- 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
- 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
- motor vehicles, vessels and crafts
- breakdown and explosion of construction plant
- trade risks: defective materials or workmanship, normal wear and tear
- professional negligence risks: design defects
- confiscation by government
- losses due to unexplained disappearances
- contract penalties for delay, non-completion or consequential loss or damage
- cessation of work: failure to take precautions to protect the property
- testing and commissioning
- 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
- 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
- dealt with by loss adjusters
 OTHER LIABILITIES
- 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)
- insurance to be arranged in the name of the employer to protect him in respect of his legal liability for damage to adjacent or surrounding property which is caused other than by the negligence of the contractor or his sub-contractors (employer already protected against negligence under clause 20.2)
 LATENT DEFECTS (DECENNIAL) INSURANCE
- 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
 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
 What the policy covers
- 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
- 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
- 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
- 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
 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
 Premium affected by:
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