basics of construction insurance
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Basics of Construction
InsuranceA Presentation to the HKIS
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What are we going to cover
tonight? Introduction
Why do we have Insurance?
Who is who in Construction Insurance?
Categories of Construction Insurances
A Controversial Comment Some APC questions
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Introduction
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Why do we have Insurance?
Insurance transfers part of a commercialrisk
The risk still remains, it is now beingshared with an insurer
The liability still remains
Insurance does not remove liability Seek balance sheet protection
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Why do we have Insurance?
Protection of assets
Protection against liability to third parties
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Who is who in Construction
Insurance? The Insured
The Insurance Broker
The Insurance Agent
The Insurance Company
The Loss Adjuster
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Categories of Construction
Insurances Third Party Liability
Does not cover all risks!
Deductibles
Exclusions
Conditions / Memoranda
Limit of Indemnity
Geographical restriction for Legal Jurisdiction
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Categories of Construction
Insurances Delay in Start Up Insurance
Covers Consequential Loss following an insured
event under the CAR Policy Note consequential losses excluded under CAR
Policy
Contractor frequently gets EOT due to insured event
under CAR Policy Provides Owner protection for delay in start up
High Premium cost
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Categories of Construction
Insurances Contractors Plant and Equipment
Does not cover all risks!
Deductibles
Exclusions
Conditions / Memoranda
Limit of IndemnityGeographical restriction for territorial limits
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Categories of Construction
Insurances Professional Indemnity Insurance
Not just for designers
No statutory requirement for construction
professionals in Hong Kong Does not cover all risks!
Deductibles
Exclusions
Conditions / Memoranda Limit of Indemnity
Geographical restriction for Legal Jurisdiction
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Categories of Construction
Insurances Employees Compensation Insurance
Statutory obligation to insure in Hong Kong
Indemnity to Principal W338
Other Compulsory Insurances
Motor Liability
Aircraft Liability
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A controversial comment"Indemnity to Principal (W338)
It is hereby understood and agreed that this Policy is extended to indemnify ....(hereinafter call the Principal) against Liability under the Law(s) or at Common Law inlike manner to the Insured but only so far as concerned the liability of the Principal toemployees of the Insured engaged in connection with a contract undertaken by theInsured for the Principal.
Provided always that
(1) the Company shall not be liable under this Endorsement at Common Law in
respect of any injury by accident or disease due to or resulting from
any act default or neglect of the Principal, his servants or agents;
(2) the Principal shall as though he were the Insured observe fulfill and
be subject to the terms exceptions and conditions of this Policyinsofar as they can apply;
(3) the Company shall have full conduct and control of all claims in
respect of which indemnity is granted by this Endorsement.
Subject otherwise to the terms exceptions and conditions of this Policy."
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A controversial commentIndemnity to Principal (W338)
It is hereby understood and agreed that this Policy is extended toindemnify .... (hereinafter call the Principal) against Liability under theLaw(s) or at Common Law in like manner to the Insured but only so faras concerned the liability of the Principal to employees of the Insuredengaged in connection with a contract undertaken by the Insured forthe Principal.
Provided always that
(1) the Company shall not be liable under this Endorsement at Common Law
in respect of any injury by accident or disease due to or resulting from anyact default or neglect of the Principal, his servants or agents;
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A controversial comment
Indemnity to Principal W338 Proviso 1The Employer (Principal) has no cover for
Common Law Liability for accident or disease
arising out of his negligence and that of hisservants or agents
The TPL policy will not cover him (See nextslide)
He has a liability under Occupiers LiabilityOrdinance
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A controversial comment
Indemnity to Principal W338 Proviso 1Did you provide the Prelims clause wording
stating that a Principals Indemnity clause
W338 was to be included in the ContractorsEC Policy?
Does the Employer know about Proviso 1 toW338?
Are you professionally qualified to be able todraw up a Insurance Specification or provideInsurance advice?
Does your Employers PI Insurance cover theprovision of Insurance Advice?
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A controversial comment
Quote from notes to Assessors for APCpaper Autumn 2002
As a side effect of their expertise in contract, QuantitySurveyors are now deemed by the Employer and fellowconsultants as having the responsibility for checking theinsurance policies. While Quantity Surveyors should notprofess themselves as insurance experts, their expertise inproviding advice from the contractual aspect would be an
edge over other consultants and may probably be one ofthe factors why Quantity Surveyors are necessary for aproject
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APC question no. 1
With the presence of the indemnity Clause
18 of the Conditions of Contract, why then
is there a need for Insurance clauses 19and 20 which effectively require the
Employer to bear the costs of the
insurance premium?
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APC question no. 2
What is the differences between the scope
of insurance cover required by clause 20
and that provided by section 1 of the usualContractors All Risks Insurance Policy?
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APC question no. 2
Clause 20 calls for a named perilsInsurance policy. In other words the Policy
only responds if the works have beendamaged by one of the named perils
A usual CAR policy will respond to any
damage to the works, subject toexclusions, conditions etc.
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APC question no. 3
What is the purpose of specifying limits for
insurance excesses in the tender
documents and the implications ofspecifying higher or lower limits?
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APC question no. 3
Purpose of specifying excess levels
Excess level affects the premium
Common basis for pricing, but this can causeproblems as well.
Excess or deductible requires the insured tosuffer the first part of any claim. Makes him
take care and excludes trivial claims whichincur Insurers administration costs greaterthan value of claim.
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APC question no. 3
Consequence of Low Excess levels
Higher premium
Makes smaller claims claimable.
Reduces incentive to take care
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APC question no. 3
Consequence of High Excess levels
Lower premium
Excludes smaller claims
Increases risk, Tender price might be higher
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APC question no. 4
Why is the Insurance of the Works policy
required to be in effect until 14 days after
Practical Completion while the Third PartyLiability Insurance Policy is required to be
in effect until the end of the Defects
Liability Period?
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APC question no. 4
Insurance of the Works (CAR)
This covers damage to the Works
Upon issue of the Certificate of PracticalCompletion Contractor is relieved of his Care
of Works obligation
Grace period of 14 (or sometimes 28) days isto allow Owner to make his own insurance
arrangements
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APC question no. 4
Third Party Liability Insurance
Risk of legal liability to Third Parties continues
as long as Contractor continues to work onsite for any reason, extra works or defect
rectification
Owner should effect his own TPL insurance
with his Property All Risks insurance upon
taking over the works
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APC question no. 5 What is the purpose of specifying a cross
liability clause and which type of insurance is
this applicable to?
This is applicable to Third Party Liability InsurancePolicies
Has the effect of treating each insured (if there is
more than one) as if they were separately insured
Allows one insured to claim against another, whilstInsurers waive subrogation (right of recovery) right
Limit of Indemnity remains the same
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APC question no. 6
Which are the empowering clauses in theConditions of Contract and its
corresponding Standard form of NSCimposing obligations on the Contractorand the NSC to respectively effect ECI?
Under which Insurance Policies are the
Resident Architect / Engineer covered fordeath / injury caused by accident on site?
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APC question no. 6 Which are the empowering clauses?
There is a statutory obligation, even if the Contract issilent
Clause 4 requires Main Contractor to comply with
Law Clause 19(1)(a)(i) requires Main Contractor to insure
for personal injury or death out of the works. Thiscovers workmen and third parties
Clause 4 of NSC requires Main Contractor and NSC
to respectively effect insurances for liability understatute and Common Law for workmen employed bythem
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APC question no. 6
Under which Insurance Policies are the
Resident Architect / Engineer covered for
death / injury caused by accident on site?His employers
The inured person or his insurer can sue the
person causing the accident