Construction all risks Contractors also carry annual construction or Contractor’s ‘All Risk’ cover (CAR) which insures against physical damage to the actual works being undertaken. Work that is merely defective is not covered and is part of the contractors own commercial risk. Policies typically insure not only the named contractor policy holder but also subcontractors of every tier (but not sub-consultants). The term ‘all risk’ is a slight misnomer as CAR policies contain complex exclusions. The most important of these is the exclusion for damage caused by a defect in design, workmanship or materials. These exclusions are always included but may be written back in to varying degrees (known as the LEG1-3 and DE1-5 exclusions). Cover may be extended in a number of ways including free issue materials, increased cost of working, hired-in plant and employees’ tools/personal effects. Erection all risks This policy (EAR) is taken out to cover permanent and temporary contract works involving the erection, installation or testing and commissioning of plant, machinery or equipment. It will also cover third party personal injury and property damage. Delay in start up Delay in start-up (DSU), also known as advanced loss of profits (ALOP), provides cover to the employer/developer for the financial consequences/loss of future earnings from the use of the building/ structure which arise from delay in the completion of the project caused by physical damage to the construction works. It is usually purchased alongside CAR which covers damage to the works themselves.
Professional indemnity Professional indemnity (PI) insurance covers claims for negligence/breach of professional activity or duty. For members of professional bodies such as RIBA, RICS and ACE, the carrying of PI is compulsory and failure to do so is a matter of professional misconduct. It is normal for consultant appointments to require PI to be held for minimum periods and with minimum indemnity limits. PI is also purchased by contractors who take on professional obligations, such as under a design and build contract, or who take on a design portion supplement. There are important policy distinctions between PI for consultants and PI for contractors. Policies are written on a ‘claims made’ basis which means they only respond to claims made during the policy period or which arise from circumstances notified to insurers in the policy period. Latent Defects Insurance Latent Defects Insurance (LDI) is a first party policy which covers the building owner against losses arising from defects in construction, design or materials which were latent during the construction period. Such losses are otherwise usually excluded from property insurance. LDI is a 10 or 12 year transferrable policy and will usually involve insurers undertaking a technical audit during the construction phase to identify and correct any defects. For residential schemes, some form of LDI, such as that available through NHBC or Zurich Insurance, whilst not compulsory, is essential for mortgage purposes.
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