Insurance provisions under JCT 1998 and JCT Standard Building Contract

2005

Brian Lewis – QBE CAR

Introduction

Most Construction is carried out under a standard form of contract with majority of commercial work using JCT.

A Contractor’s 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.

Risks in Construction

• Diverse trades working in close proximity

• Physical hazards

• Complicated chains of liability / responsibility

• Can lead to complex claims

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

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)

Clause 21.1.

Requirement to insure the Contractor’s liability for death and personal injury to:

• its own direct employees (The minimum insurance cover is as stated in the Employer’s 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.)

Clause 21.2

• Obligation on the Contractor to take out joint names insurance

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.

• 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.

• 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.

• 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

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.

Clause Number: 22D

• The Employer’s 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.

• 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

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.

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.

• 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

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.

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

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.

Other Issues for Insurers

• Suitability of insurance Carried

(Limits / Who with / Security / Evidence)

• BFSC – control / evidence that insurances are checked?

• Site security / contractor’s care of their own property?

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.

• 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 Employer’s 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.

• 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 Contractor’s 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.