June 27, 2024

Construction law and the issue of insurance

News Article

Insurance is a topic which can have a negative reputation, whether at a personal or commercial level – but it is an essential consideration in the construction sector.

The importance of insurance – a legal policy which ensures compensation in the event of certain delays, errors or disruptions – grows with the level of risk associated with a project.

Construction projects can carry a high level of risk due to the high cost, legal obligations such as permits, and potentially long supply chains. These factors pose the risk of delays or other disruptions which can lead to financial loss.

Additionally, many developments have safety concerns and the potential for injury or damage to materials or equipment, issues which typically require their own policies.

Types of insurance

Commercial construction projects carry higher insurance requirements than other commercial work because of their complexity, cost and potential for safety concerns.

For this reason, your project may require:

  • Public liability insurance – Covers claims of personal injury or property damage caused by the construction activities to third party property and persons
  • Employer’s liability insurance – Mandatory in the UK for certain companies and businesses, this protects against claims from employees injured or made ill at work.
  • Professional indemnity insurance – Covers contractors, sub-contractors and professionals against claims of negligence or failure to perform their professional duties in respect of the design and selection of materials.
  • Contract works insurance – Also known as ‘construction all risks insurance’, it covers the construction work against damage or destruction, including materials and the works in progress. However, this does not usually cover damage to existing structures.
  • Plant and machinery insurance – Protects the equipment used on site, either owned or hired.

Whether you are responsible for obtaining these policies will depend on your assigned role and responsibilities and what the contractual terms say about insurance, but it is good practice to confirm that relevant insurance is in place before proceeding.

Policies may be taken out on a ‘joint names’ basis – meaning two or more parties take out the insurance in all their names, allowing direct coverage and claims for the entire project.

Insurance disputes

Despite best efforts, you may need to make a claim on a policy, and this can lead to disputes. Issues may arise due to:

  • Ambiguities – You and your insurer may interpret the coverage of your policy differently
  • Misrepresentation – You must disclose all relevant information when taking out the policy, or an insurer can deny or reduce the value of a claim
  • Breach of conditions – Your insurer may dispute a claim if you have failed to follow the conditions of your policy
  • Policy limits – You should ensure you aren’t underinsured, as costs can quickly exceed the limits of your policy
  • Shared responsibility – Parties may dispute who is responsible for making a claim and who can do so under the policy terms.

We advise you to seek legal advice before taking out an insurance policy for a commercial construction project, to make sure that your coverage meets your needs and allows for unforeseen difficulties.

Contact our Construction Law team today to discuss your requirements.