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Last edited 27 Oct 2020

JCT 98 Contract Insurances

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1 JCT 98
2 CONTRACT INSURANCE UNDER JCT 98 WITH CONTRACTOR'S DESIGN

[edit] JCT 98

[edit] Relevant Provisions in Main Contract

Clause 20 - Injury to persons and property and indemnity to employer
Clause 21 - Insurance against injury to persons and property
Clause 22 - Insurance of the works
Clause 22A - Erection of new buildings - all risks insurance of the works by the contractor
Clause 22B - Erection of new buildings - all risks insurance of the works by the employer
Clause 22C - Insurance of existing structures - works in or extensions to existing structures
Clause 22D - Insurance for employer's loss of liquidated damages
Clause 22FC - Joint Fire Code compliance

[edit] Clause 20 - Injury to persons and property and indemnity to employer

contractor to indemnify the employer for any expense, liability, loss, claims or proceedings arising by virtue of statute or common law in respect of death or personal injury caused by the carrying out of the works except as a result of negligence of the employer or of any person for whom the employer is responsible
duty to indemnify the employer also covers damage to property (property owned by third parties, parts of contract works for which certificate of practical completion has been issued, and exiting property owned by the employer) but only when damage was due to negligence, breach of statutory duty, omission or default by the contractor, or those for whom he is responsible
not caused by specific perils (fire, lightening, explosion, storm, tempest, flood, burst pipes, earthquake, aircraft and riot)
contractor can recover from any third party at fault

[edit] Clause 21 - Insurance against injury to persons and property

insurance to be taken out and maintained by the contractor for indemnities given under Clause 20 to the employer
contractor does not take responsibility for a sub-contractor maintaining its insurance, but will need to ensure that the sub-contractor carries such a policy under the relevant sub-contract
contract administrator can instruct the contractor to take out and maintain an additional joint names policy to indemnify the employer both against strict liability to third parties and against any damage caused to the employer's own property resulting from collapse, subsidence, heave, vibration, withdrawal of support, lowering or ground water etc.

[edit] Clause 22 - Insurance of the works

insurance to remain in force until the issue of certificate of practical completion or determination of the contractor's employment

[edit] Clause 22A - Erection of new buildings - all risks insurance of the works by the contractor

Requirement

contractor to take out and maintain a joint names policy for all risks insurance providing cover against physical loss or damage to work executed and site materials

Exclusions

damage to property arising from wear and tear, obsolescence, deterioration
work carried out as a result of design defects
professional negligence risk - insured separately
fitness for purpose risk

Failure of contractor to take out policy

employer can take out his own policy and set off the costs against monies due to the contractor

Payment of insurance proceeds

contractor authorises the insurers to pay all insurance proceeds to employer
employer has to pay monies (less professional fees) to the contractor by installments
issued under architects' certificates at interim certificate periods

Partial completion

employer takes responsibility of the works taken back

Site materials

all unfixed and goods delivered to, placed on, or adjacent to the works and intended for incorporation in them

[edit] Clause 22B - Erection of new buildings - all risks insurance of the works by the employer

Requirement

employer to take out and maintain a joint names policy for all risks insurance
providing cover against physical loss or damage to work executed and site materials

Exclusions

as above

Failure of employer to take out policy

contractor can take out his own policy and increase the contract sum by the amount of premiums he has to pay.

Payment of insurance proceeds

no requirement
restoration of any loss or damage is treated as a variation

[edit] Clause 22C - Insurance of existing structures - insurance of works in or extensions to existing structures

for contract works, employer to take out a joint names policy and protect all sub-contractors
for existing structures, employer to only insure against specific perils
insure existing structures and their contents if owned by him, or for which he is responsible

[edit] Clause 22D - Insurance for employer's loss of liquidated damages

employer to inform the contractor whether he should obtain a quote to insure the employer's potential loss of liquidated damages
only in respect of damage by an specific peril - contractor will be entitled to extension of time, but employer will not be able to claim liquidated damages

[edit] Clause 22FC - Joint Fire Code compliance

employer and contractor to comply with the Joint Code of Practice on the Protection from fire of Construction Sites and Buildings Undergoing Renovation if stated in the appendix
contractors obliged to rectify breaches of the code if drawn to their attention by the contract works insurer
contractors liable to the employer if a breach causes damage to the works

[edit] Sub-Contractors

required to observe, perform and comply with the provisions or the main contract
indemnify the contractor against breaches by them of specific provisions in the main contract
required to carry and maintain insurance to cover its liabilities in respect of personal injury or death ensuing from work carried out by it

[edit] CONTRACT INSURANCE UNDER JCT 98 WITH CONTRACTOR'S DESIGN

[edit] General

contractor to carry out not only duties and obligations of a building contractor, but also obligations as a designer

[edit] Contract Works Insurance

similar to JCT 98

[edit] Professional Indemnity Insurance: Design and Construct

under clause 2.5.1 , the liability of the contractor as a designer is limited to the liability of an architect (reasonable skill and care, not fit for purpose)
this liability can be covered by a Contractor's Design and Construct PI policy
ensure that the design and build contractor carries PI cover as Clause 22 imposes no requirement

[edit] CONTRACT WORKS INSURANCE POLICY

[edit] Damage to Works

the indemnity may be the repair, reinstatement or replacement of any property lost or damaged, or a monetary payment of the same amount
the insured will be the employer and the main contractor, and possible sub-contractors
loss or damage are covered, subject to a number of exceptions
the property insured is described in the policy schedule
the loss or damage must occur during the currency of the policy
the cover only applies to the contract site

[edit] Cover

usually arranged on an annual basis by a contractor, thus covering all contracts
possible for cover to be arrange on a single contract basis but more expensive

[edit] Extensions to the policy

Transit

anywhere within the territorial limits
excludes sea and air transit (heavier risk)
excludes motor vehicles (insures under motor vehicle policy)
excludes employees tools (too many small claims)

Principals

means the employer to comply with the contract condition that the policy should be in joint names

Architects', Surveyors' and Consulting Engineers' fees

incurred in the reinstatement of the property insured consequent on its loss or damage

Removal of debris

removing debris
transportation to dumping ground
dismantling or demolishing
shoring up or propping of the portions or property lost or damaged

Off-site storage

materials and goods whilst not on the site but intended for inclusion in any contract works covered by the policy

[edit] Exceptions to the policy

Excess

means of encouraging the contractor to take care and of
eliminating small claims

Post-completion risks

contract works policy to cover risks of loss or damage during construction: once contract completed, risk of damage passes over to employer
cover ceases at practical completion, except to the extent that it is necessary to cover the contractor's liability under the defect liability clause

Existing Structure

contract works policy to cover risks of loss or damage to contract works, but not to employer's existing property
if the employer's existing property is damaged then the employer will only have legal redress against the contractor if he can prove negligence
the employer may have already insured the risk under existing insurance arrangements
or may effect special cover under clause21.2.1 against the specific risks of collapse, subsidence, vibration, weakening or removal of support, or lowering of ground water

Other exceptions

motor vehicles, vessels and crafts
breakdown and explosion of construction plant
trade risks: defective materials or workmanship, normal wear and tear
professional negligence risks: design defects
confiscation by government
losses due to unexplained disappearances
contract penalties for delay, non-completion or consequential loss or damage
cessation of work: failure to take precautions to protect the property
testing and commissioning

[edit] General Conditions

reasonable precautions
disclosure of material facts
adjustment of the premium
contribution - if there is another policy, the policy will not pay until the first policy has been exhausted
cancellation - insurer's, but not the insured, have the right to cancel

[edit] Claims Conditions

notify insurer within three months of any events that may give rise to a claim
refrain from repairs until the insurer has had time to inspect
notify and assist the police in case of theft, loss or wilful damage to property

[edit] CLAIMS

dealt with by loss adjusters

[edit] OTHER LIABILITIES

[edit] Employers and Public

Contractors' Liability Insurance covers Employer's Liability, Public Liability, Product Liability or Completed Works cover in respect of injury to third parties or damage to their property, as required by JCT 98
Excludes Professional Liabilities (covered elsewhere)

[edit] Clause 21.2.1

insurance to be arranged in the name of the employer to protect him in respect of his legal liability for damage to adjacent or surrounding property which is caused other than by the negligence of the contractor or his sub-contractors (employer already protected against negligence under clause 20.2)

[edit] LATENT DEFECTS (DECENNIAL) INSURANCE

[edit] General

ten-year non-cancellable policy to indemnify the insured against the cost of repairing defects in the design, material or construction of the building which were not discovered until after the building had been completed
once a building passes to the owner, he insures it under a fire and perils policy
the cost of rectifying latent defects is not covered by a fire and perils policy
underwriters will only accept risk if satisfied by design - technical control undertaken by specialists, who issue a certificate of (qualified) acceptance

[edit] The Insured

any person who acquires the freehold or leasehold interest in the premises during the period of insurance therefore subsequent owners/tenants can be insured

[edit] What the policy covers

Inherent defects

if there is no physical damage but an inherent defect in the structure is threatening its stability the policy will cover the cost
damage to premises caused by subsidence, heave or slip of land is not covered unless it arises from an inherent defect in the foundations
discovery of an inherent defect does not in itself constitute a claim since there must be damage or threat of collapse

Policy exceptions

damage arising from fire and the perils normally insurable under a fire policy
damage arising from alterations, modifications or additions during the period of insurance
damage caused by or contributed to by inadequate maintenance
damage exceeded from any process for which the building was not designed
faulty or inadequate weatherproofing unless requested at the outset

[edit] Period of Insurance

ten-year policy starts from the date of practical completion
but issued at the start of construction to enable compliance with Technical Control
policy contains no cancellation cause

Maintenance Period

contract works policy is extended to give cover during the maintenance (defects liability) period
risk of duplication of cover during that period
if during that period damage occurs that is covered by both policies, decennial policy will only pay in excess of the amount payable under contract works policy

[edit] Sum Insured

a full value sum is total estimated cost of re-building the premises, including provision for professional fees and removal of debris
a first loss sum is lower that the full value when the risk of a total loss may be low