Traditional construction insurances rely on the contractor to insure the project and thus protect individual firms, not integrated teams.
Relying on contractors and consultants to protect the client’s interests is a flawed approach, as their insurance policies are designed for their interests and rarely undergo any due diligence by those external parties who may be reliant upon its protection during the build. Real life examples such as the demise of Carillion, and the projects which were left with no coverage ‘overnight’, are unfortunately common.
However, taking a strategic approach and working with a specialist broker to adequately insure construction projects can benefit all parties involved and offers greater protection, control and governance, particularly for the Employer. This is known as an Employer Controlled insurance policy.
What is an Employer Controlled insurance policy?
A policy issued in the joint names of the Employer, Contractor, Sub-Contractors and Suppliers. It enables the Employer to purchase and oversee insurance coverage for all parties involved in the project, ensuring that all parties have adequate coverage tailored to the project’s specific needs. The policy incorporates these main sections:
Construction All Risks
This covers the project’s loss or damage to:
- All Contract Works
- Existing structures
- Professional Fees, Debris Removal Costs, Expediting Expenses following an insured Loss
- Increased Costs of Delay in completing the project following an insured damage event
Third Party Liability
This section of the policy covers the project’s legal liability arising in respect of:
- Injury, illness or death of Third-Party persons
- Loss, destruction or damage to Third Party property
- Non-Negligence Liability (JCT 6.5.1 or equivalent)
- Financial Loss extension available where required – e.g. for a Basic Asset Protection Agreement when working in close proximity to rail or tram lines
Delay in Completion/Consequential Losses
This cover is a vital requirement on project financed transactions. Protection of the revenue stream in the event of an insured delay can be critical. This section can cover:
- Loss of Anticipated Income/Revenue/Rent/Profit Arising from physical damage during construction, supply, testing and commissioning of the work
- Loss of Interest in Borrowed Capital
- Additional Interest payable on Borrowed Capital
- Other Financial Losses Incurred e.g. alternative accommodation
What does an Employer Controlled insurance policy provide?
It provides a single coordinated insurance policy for the entire project, making the insurance process simpler. From the outset, the full scope of cover is known and approved, allowing the policy owner to negotiate better rates and reduce administrative costs. Disputes and claims between parties are avoided and claim settlements are paid directly.
Ultimately, an Employer Controlled insurance policy offers greater control over insurance coverage, contract reviews, claim handling and risk management for the owner or contractor, which can result in better outcomes for all parties involved.
What type of construction projects benefit from an Employer Controlled insurance policy?
All residential, commercial and mixed-use projects can benefit from an Employer Controlled insurance policy. Griffiths & Armour’s Employer Controlled insurance policy is key to mitigate your construction risks and safeguard your financial interest throughout the construction period. Our integrated strategy delivers a bespoke risk and insurance programme tailored to your project requirements.
Do any other insurances complement an Employer Controlled insurance policy?
Our construction team can advise on their insurance recommendations to cover your needs, as these will vary depending on the nature and location of the project. Insurances often purchased alongside Employer Controlled insurance policies include Latent Defects insurance, Professional Indemnity insurance and others such as Legal Indemnities (e.g. rights of light), Contractors Pollution Liability or Bonds.
The Griffiths & Armour Construction team are well placed to discuss any queries you may have regarding an upcoming or existing construction project, and how an Employer Controlled insurance policy can be tailored to your needs. If you would like to talk to one of our experts, please get in touch.
