Insurance provisions under JCT 1998 and JCT Standard Building Contract 2005

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Insurance provisions under JCT 1998 and JCT
Standard Building Contract 2005

• Brian Lewis QBE CAR

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Introduction

• Most Construction is carried out under a
  standard form of contract with majority of
  commercial work using JCT.
• A Contractors obligations under a Contract to
  indemnify the Employer or to reinstate any damage
  to the Works and Site Materials are of no effect
  unless the Contractor has adequate funds.
• It is normally a requirement of a Contract for
  insurance to be taken out to support the
  indemnity requirements of the Contract.

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Risks in Construction

• Diverse trades working in close proximity
• Physical hazards
• Complicated chains of liability / responsibility
• Can lead to complex claims

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Insurance JCT

• Changes in format but not to the insurance
  provisions which are now included within a
  schedule rather than the body of the contract.
• Joint Names definition and position of
  sub-contractors clarified
• JCT 1998 arbitration, whereas 2005 has
  litigation as a default position with arbitration
  as an agreement between parties

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Indemnity Clauses

• Clause 20.1 - Requires the Contractor to
  indemnify the Employer for injury on site
• Clause 20.2 - Requires the Contractor to
  indemnify the employer for liability for injury
  and damage to real and personal property arising
  out of or in the course of or by reason of the
  carrying out of the works ( taking into account
  the minimum stated in the appendix)

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Clause 21.1.

• Requirement to insure the Contractors liability
  for death and personal injury to
• its own direct employees (The minimum
  insurance cover is as stated in the Employers
  Liability (Compulsory Insurance) Act.), and
• any other person whomsoever arising out of or in
  the course of or caused by the carrying out of
  the Works. (The minimum insurance cover against
  injury and/or death of people other than his own
  employees must comply with the minimum amount of
  cover stated in the Appendix to the Contract.)

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Clause 21.2

• Obligation on the Contractor to take out joint
  names insurance

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Clause Number 22A, 22B or 22C

• For Damage to the Works and Site Materials, there
  are three options under this heading.
• Clause 22A is intended for projects involving new
  work where the intention of the parties is that
  the Contractor is to be responsible for the
  insurance. This is to be a Joint Names Policy
  (i.e. the Contractor and the Employer). The
  minimum amount of cover should be the full
  reinstatement value of the Works plus a
  percentage for professional fees. This percentage
  is to be stated in the Appendix to the Contract.

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• Clause 22B is also intended for new work but
  where it is the Employer who is responsible for
  obtaining the cover. This is also to be a Joint
  Names Policy (i.e. the Employer and the
  Contractor). The minimum amount of cover should
  be the full reinstatement value of the Works plus
  a percentage for professional fees. This
  percentage is to be stated in the Appendix to the
  Contract.

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• Clause 22C is to be used where the work consists
  of refurbishment of, or modifications to, or
  extensions of existing structures. In this
  situation it is the Employer that is responsible
  for the Joint Names All Risk Insurance of the
  Works (under Clause 22C.2). The minimum amount of
  cover should be the full reinstatement value of
  the Works plus a percentage for professional
  fees. This percentage is to be stated in the
  Appendix to the Contract.

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• Each of the above insurances are to be All Risk
  insurances. All Risk insurances are defined in
  Clause 22.2 as insurance which provides cover
  against physical loss or damage to work executed
  and Site Materials. However, a long list of
  exceptions are included, and it is apparent that
  All Risk insurance does not in any way cover
  all risks of damage to the Works and Site
  Materials, and the term All Risk insurance is
  therefore a misnomer

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Clause Number 22C.1

• Damage to existing structures and their contents
  arising from the Specified Perils (applies to
  contracts involving extensions or refurbishment
  of existing structures).
• Under Clause 22C.1, the Employer is to take out
  and maintain a Joint Names Policy against damage
  to the existing structures and their contents
  from the Specified Perils. The Specified Perils
  are defined under Clause 1.3 of JCT 98.

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Clause Number 22D

• The Employers loss of liquidated damages arising
  from extension of time for loss or damage
  occasioned by any one or more of the Specified
  Perils.
• Under Clause 25.4.3 of JCT 98, loss or damage
  caused by any of the Specified Perils is a
  Relevant Event which gives a Contractor the right
  to an Extension of Time. In such a circumstance,
  the Employer would not be able to recover
  Liquidated Damages from the Contractor but would
  still incur losses from the delay in completion.

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• In situations where the Employer cannot avoid
  liability for delay and the risk of delay from
  the Specified Perils is significant, insurance
  may be his best course of action.
• Clause 22D insurance is designed for this type of
  situation. It applies only if it is indicated in
  the Appendix to the Contract that insurance under
  that clause may be required. The maximum period
  of delay to be insured against is also to be
  stated there

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Clause Number 30.3

• Loss or damage to off-site materials or goods
  from the Specified Perils.
• Under Clause 30.3, the value of off-site
  materials that are on the list of materials
  annexed to the Contract Bills and intended for
  the Contract may be included in interim
  certificates. A pre-condition for such inclusion
  is that such materials are insured for their full
  value against damage or loss from the Specified
  Perils. The Specified Perils are defined under
  Clause 1.3 of JCT 98.

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Clause 21.2.1.

• Injury or damage to property due to collapse,
  subsidence, vibrations, weakening or removal of
  support or lowering of groundwater attributable
  to the carrying out of the Works.
• The Contractor is only responsible for damage to
  property due to negligence, breach of statutory
  duty, omissions or default on the part of the
  Contractor or of whom the Contractor is
  responsible in law.

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• Sometimes damage can occur without any fault on
  the part of the Contractor, and Clause 21.2.1
  envisages that a prudent Employer may wish to
  insure against this type of liability.
• If that is the case, it should be indicated in
  the Appendix to the Contract that Clause 21.2.1
  insurance may be required, and the amount of
  cover required, per occurrence or series of
  occurrences arising from the same event, must
  also be stated.
• The insurance must be in the joint names of the
  Contractor and the Employer and must be placed
  with insurers approved by the Employer

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21.2.1 Insurance

• Cover is normally arranged with the Contractor's
  Public Liability insurer rather than in isolation
  and covers injury or damage to any property,
  caused by collapse, subsidence, heave, vibration,
  weakening or removal of support or lowering of
  ground water and arising from the carrying out of
  the works.

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21.2.1 Insurance

• The usual exclusions for these policies include
  but are not limited to
• Damage to the works and materials something
  that should be covered by the Contract Works
  insurance.
• Losses arising from the contractors negligence -
  something that should be covered by the
  Contractor's Public Liability insurance.
• Losses due to errors and omissions in the
  designing of the works - something that should be
  covered by the Architect's Professional Indemnity
  insurance

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Conclusions

• From the above summary it is apparent that the
  insurance provisions remain much the same
• JCT 2005 has been re-scheduled with the intention
  of making it more user friendly, but the
  substance of the contract (particularly in
  respect of the insurance provisions) remains very
  much as JCT 98.
• Although the JCT insurance clauses may still
  appear cumbersome or wordy to some, it is
  obviously very difficult to cover all aspects of
  the insurance provisions in a few words.

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Other Issues for Insurers

• Suitability of insurance Carried
• (Limits / Who with / Security / Evidence)
• BFSC control / evidence that insurances are
  checked?
• Site security / contractors care of their own
  property?

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Comparison of Insurance provisions from JCT 98
to JCT 2005.

• JCT 98 Clause number 21.1.1.1 / JCT 2005 Clause
  number 6.4.1 - Effectively the same insurance
  liability under JCT 2005 as existed under JCT
  98.
• JCT 98 Clause number 21.2.1 / JCT 2005 Clause
  number 6.5.1 - Effectively the same insurance
  liability under JCT 2005 as existed under JCT
  98.
• JCT 98 Clause number 22A, 22B or 22C / JCT 2005
  Clause number Clause 7.6, Schedule 3 Options A.
  B or C. - Effectively the same insurance
  liability under JCT 2005 as existed under JCT
  98.

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• JCT 98 Clause number 22C.1 / JCT 2005 Clause
  number Clause 6.7, Schedule 3 Option C Clause
  C.1 - Effectively the same insurance liability
  under JCT 2005 as existed under JCT 98.
• JCT 98 Clause number 22D / JCT 2005 Clause
  number N/A - The option of insurance for the
  Employers loss of Liquidated Damages in the
  event of delays caused by loss or damage
  occasioned by any of the Specified Perils, does
  not appear in JCT 2005.

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• JCT 98 Clause number 30.3 / JCT 2005 Clause
  number 4.17.2.2 - Effectively the same insurance
  liability under JCT 2005 as existed under JCT
  98.
• JCT 98 Clause number N/A / JCT 2005 Clause
  number 6.11 - Where there is a Contractors
  Designed Portion, the Contractor shall forthwith
  after the Contract has been entered into take out
  a Professional Indemnity insurance policy with a
  limit of indemnity of the type and in an amount
  not less than that stated in the Contract
  Particulars.