Insurance Practice in Construction Industry

Essentially insurance is a contract. The Insured pays a sum of money, premium, to the Insurer on the condition that if a specified event occurs the Insurer will recompense the Insured.

Special rules either in addition to, or in place of, those normally applying to the law of contract includes the following:

• Utmost Good faith (uberrimae fidei): In an ordinary contract you must not act  fraudulently. However, you do not have  to disclose all that you know.  The general rule “let the buyer beware” (Caveat  emptor) applies. In an insurance contract the principle of  ‘utmost good faith’ applies. The Proposer  (the person taking out the insurance) must  disclose all material facts to the Insurer.  A material fact is therefore one that an  underwriter, rather than an ordinary person,  would consider material.  The duty of utmost good faith is not  discharged by replying truthfully to all the  questions on the proposed form. There is a  possibility of some slight change concerning  these interpretations by Statute Law.
• Insurable interest: The insured must have an insurable interest in  the subject matter of the insurance. He must bear some relationship recognized by  law to the subject matter whereby he benefits  by the safety of the property, life, limb, or  freedom from liability and is prejudiced by any  loss, damage or injury or creation of liability.
• Subrogation: This means that the insurer after paying a  claim has the right of  standing in the place of  the insured  and availing himself of all the  rights  and remedies of the insured whether  already enforced or not, but only up to  the  amount of the insurer’s payment  to the insured.
• Indemnity:Most policies are indemnity  policies. This means that the  object of these insurance’s is to  place the insured as nearly as  possible in the same position after  a loss as he was immediately  before the happening of insured  event.
• Conditions: Conditions of the insurance may be specified. Policies can be separated into All Risk Policies and Specified Perils Policies.

All Risks - covers against all risks except those specifically excluded

Specified Perils - covers against only those risks specifically stated in the policy

Civil Engineering can be a risky and hazardous business. Insurance is therefore an important facet of Civil Engineering. Risks to be covered include:

1.  the collapse or damage of the  contract  works or neighboring  properties belonging  to third parties
2.  the loss or damage to materials or  plant
3.  the injury or death of employees or  members of the public.

Because of the numerous different bodies involved in a construction project (Client, Engineer, Consultants, Contractor, Sub-contractors, Suppliers, Employees, Members of the Public etc.) it is important for everybody to be sure that insurance is satisfactory and covers the risks satisfactorily without paying for unnecessary cover or duplication of cover.  

Types of Major Civil Engineering Insurances Policies:-

• Professional Indemnity Insurance (PI): is taken out by the Designer, Consultant or Engineer as cover against his liability for acting negligently. Thus in the event of a structure collapsing during construction because of faulty design, the Client would sue the Designer for negligence provided the Client could prove negligence, and provided the PI insurance was valid and adequate then the Client would be reimbursed for the Designer’s negligence and all the resulting costs of the damage etc.  
• Contractor’s All Risk Policy (CAR):This policy covers loss or damage from whatsoever cause to the contract works or materials whilst on the contract site(s) and in use in connection with the contract during the performance of the contract and the period of maintenance. Most conditions of contract require the Contractor to take out such a policy in the joint names of the Client and the Contractor (e.g. FIDIC, ICE,…).
• Contractor’s Third Party Liability Policy: This policy covers loss or damage to third party persons or property arising out of the construction or maintenance of the works. Third party means anyone who is not a part of the insurance contract. The ICE and FIDIC conditions of contract require the Contractor to take out such a policy and it is normally checked by the Engineer. It is in the name of the Contractor, but any claim against the Client is specifically covered.
• Contractor’s Employers Liability Policy: This policy covers damages in respect of injuries to workmen in their employment, or employment of any sub-contractor. This insurance cover is required by State Law for any employer (in almost any country) and is not therefore specified as required by the Conditions of Contract.