Specified perils in construction contracts

Construction works involve large amounts of money and are at high risk of damage. As a consequence construction contracts will generally include an obligation to insure:

• The works.
• On-site materials or goods.
• Off-site materials or goods.
• Existing structures and their contents.

This insurance may cover all risks, or may be restricted to certain ‘specified perils.’

Specified perils tend to be significant events that would cause very significant damage, such as fire, explosions, earthquakes, flooding and so on. All-risks insurance will tend to cover a broader range of risks, albeit it may not cover every possible risk.

Policies may be taken out by the contractor or by the client depending on the form of contract and the options selected, and may be for all risks, specified perils, or a combination for different parts of the cover. For example existing structures might be insured against specified perils whilst the construction works might be insured against all risks.

Insurance will generally be in the form of a ‘joint names policy’ in the names of the contractor and the client. This gives both parties their own rights to claim against the insurer. Other parties, such as funders may also be added as a joint name.

Joint-names insurance will generally prevent claims against the co-insured party for an insured loss. Whether or not claims can be made by one party against the other for uninsured losses where one of the parties is at fault will depend on whether the contract permits this or not.

NB See also relevant events.

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