The High Court’s recent decision that a roofing firm that caused a fire at a high school in London was not protected by a project policy has raised some serious questions over the worth of these types of insurance policies.
Traditionally, employers on larger construction projects take out a project policy to cover damage to the existing structure and possibly the contract works being undertaken by the sub-contractors appointed to work on site.
A project policy would usually provide protection to named contractors and sometimes all contractors in the contractual chain, in the event of a fire or some other damage caused by contract workers on site.
The project policy insurer would simply cover the loss rather than each sub-contractor going to their own insurers to recover the cost of their own damaged contract works. This means lengthy and costly litigation between sub-contractors can be avoided and ensures the property and works are adequately covered, preventing any delays in the completion of the construction.
However, in a 2018 case the High Court found that a roofing firm wasn’t protected by the project policy because the terms of the sub-contract required that they should maintain their own insurance.
That’s not unusual in itself. Usually a construction contract would contain an insuring clause requiring the individual sub-contractor to take out insurance to cover their own contract works along with Employers Liability and Public Liability. This is even if there is a project policy in place.
Contractors and sub-contractors may no longer rely upon a project insurer to pick up a loss in the event of damage they have caused
The key difference with this case was that the project policy insurer dealt with the property loss, but then sought to recover their outlay from the contractor that caused the loss.
This was very unusual as a project policy is usually taken out in joint names – the policyholder and all sub-contractors. As such the project policy insurer could not seek a recovery as essentially all sub-contractors would be considered a policyholder and covered under the policy.
The Court allowed the project insurer to recover the loss from the sub-contractor on the basis of two key facts:
- The main contract had required that sub-contractor to take out their own insurance
- The sub-contractor was not named at the commencement of the construction project and therefore not factored into the cover by the project policy insurer when the policy was taken out
This ruling has really called into question the effectiveness of project insurance. It has wide ramifications for the insurers of sub-contractors as they can no longer rely on the existence of a project policy to cover any losses caused by those they insure. This could mean higher insurance claims which may have a knock-on effect in premium increases.
Additionally, contractors and sub-contractors may no longer rely upon a project insurer to pick up a loss in the event of damage they have caused.
It’s essential therefore that contractors are aware that a project policy may no longer provide the catchall cover they have previously relied on. Working with their brokers, contractors would be well-advised to take a fresh look at their cover to ensure they are adequately insured for their potential liabilities.
To find out more about ECIC, visit: www.ecic.co.uk