What is a Contractors’ All Risks Policy?
Contractors’ All Risks Insurance is a policy designed to cover you during any construction projects which you might undertake. Such works may include alteration works involving civil engineering to your existing residence or business such as inclusion of new rooms, additional floors or lifts and construction of new buildings. Cover is for damage to the contract works and damage or injury for which you might become liable for against third parties.
The Contractors’ All Risks policy is a project based policy issued only for the duration of the contract works. There may also be instances were Contractors issue an Annual Contractors All Risks Policy covering various contract usually capped at a limit for any one single Contract.
Is there a legal requirement to issue a Contractors All Risk policy when undertaking a construction project?
The law (Legal Notice 72 of 2013 of the Laws of Malta) requires developers to ensure that demolition, excavation and construction works which fall under the provisions of the regulations are appropriately and adequately insured to cover any single occurrence or recurrence of damages sustained by third party property, disability to persons or death as a result of the construction works or activity being undertaken by the developer and the contractors working on the site. The insurer is required to carry out an appropriate and adequate assessment of the risks involved in each particular case and provide insurance cover amounting to not less than €500,000.
The law defines “developer” as
- the person on whose behalf the development application in terms of law has been submitted for the works on site or,
- for construction activities which do not require a development permit, any person, entity or company on whose behalf the construction activity is undertaken.
Therefore, if you are undertaking any type of construction work, whether under a development permit or otherwise, it is advisable that you double-check with your architect and construction company whether you need to have a separate policy of insurance to cover the risk of damages to third party property or injury to persons that may result through the proposed works.
In any case, your construction company should have its own insurance cover.
What does a Contractors’ All Risks Policy cover?
Cover under the policy is split in two parts:
- Cover in respect of any damages to the contract works including materials such as tiles, stones and fittings both whilst stored on site and after being installed/used on the construction. Cover is on an All Risk basis, subject to the exclusions under the policy. The policy may include cover for property which is owned by the insured on the contract site and which will not be part of the works such as during alteration works. This is called ‘own surrounding property’ extension and a separate sum insured needs to be provided, usually by an architect, for such cover to apply.In addition to the above, this section may also cover costs for removing debris should there be an accident on site, architects and Planning Authoirty fees and cover for tools and equipment belonging to the contractor if the latter is included under the policy cover as joined insured.However, it is important to note that expenses for rectifying deficiencies that would have been incurred anyway – without the occurrence of such loss or damage such as architect fees to alter the plans due to Planning Authority orders or removal of debris after demolition due to inadequate works – are not indemnified/covered.
- Cover in respect of any legal liability at law towards third party bodily injury and/or death and/ or property damage up to a limit as specified in the policy. This would cover any additional legal fees subject to the approval of your insurance company. The policy may also be extended to cover vibration, removal or weakening of support; however such section might attract additional premium, a separate higher excess and usually a separate limit.It is important to note that both in respect of Own and Third party property damage it is not the intention of the policy to cover small cracks, settlement cracks and other small damages which normally occur on existing and neighbouring properties during and after the contract works are ready. This is also reflected in the usually high excess which is imposed under the policy.Also, the insured cannot choose to cover only the most hazardous aspects of the projects such as excavation. The whole project, from demolition to excavation and construction stages, need to be included. If required, the finishing (plastering, electrical installations, tiling etc…) works may also be covered under the policy; however such cover is optional and usually incurs an additional premium. This of course is not applicable when the policy is taken out for alteration works only.
What values would be insured under the policy?
The sum insured must be equal to the amount stated in the building contract, plus the value of any construction material supplied and/or additional work performed by the principal. The sum insured for these needs to be provided by you (with assistance from your architect) and can be calculated by checking the total cost of the works either up to shell form or including all the finishing works (depending on the agreement reached with the insurer).
Any increase in the contract sum must be notified immediately to the insurers in order to avoid underinsurance. If it is found out at the end of the construction period that the sum insured has increased, an additional premium may be charged at the discretion of the insurer.
In respect of Third Party property damage and bodily injury, a limit would usually be provided by the insurer. It is of utmost importance to always ask you insurer the value of this limit as well as if it applies in respect of each claim or for the duration of the policy.
Who would be covered under the policy?
You, as principal who commissioned the works, would be the main insured under the policy. There is also the option to include the contractor and any sub-contractors under the policy. This may be needed due to the ultimate liability (the person/party ultimately responsible for any damage) in the event of accident falling with the principal who is responsible for the site and it is therefore ideal to cover all the parties involved in the works.
It is always important to ask the contractors and sub-contractors if they already have an insurance covering themselves in force. In order to prevent overlaps or gaps in the cover provided, CAR insurance should ideally be concluded for all parties concerned after discussing the matter together and possibly prior to signing the works contract.
When do I need to take up the policy and for how long?
It is important that you always issue the policy prior to the commencement of the works. Insurers usually refuse to issue a policy after the works have started as it would be difficult to conclude if damage was caused prior or after the inception of the policy thus causing problems at claims stage.
Unlike other insurance policies which are issued for a period of 12 months and renewed yearly, a Contractors’ All Risks Policy is only issued for the duration of the project only which can vary from as little as days or a few weeks to years for more complex projects.
What if there is a delay and works are not finished at expiry date of the policy?
If there is any delay in the works, the policy can usually be extended, at the discretion of the insurer and subject to full information to be provided by you. Additional charges may apply to extend the policy depending on the nature of the remaining works and duration for which the extension is required.
Can I choose to cover only third parties without covering the contract works?
No, it is not possible to cover only your liability towards third parties since both covers (own and third party damage/injury) are offered together under one policy and selection is not available.
What information would I need to obtain a quotation for this policy?
Given the sensitive nature of the cover the insurer would usually require more information than provided for on the proposal form mainly:
A Method Statement compiled by the architect noting the nature and methodology of the works and how they are to proceed including time frames for each stage, equipment to be used and work practices.
- A report on the third party properties adjacent to the works which identifies any existing defects. Such a report usually includes photos and detailed premises description. This report would again be compiled by the architect after inspecting with you and the owner each adjacent premises. This report should be carried out prior to commencement of any works.
- Planning Authority permits and site plans
- Some insurers also ask for an engineer’s report for any cranes/ tower cranes which are to be used on site. All owners of such equipment are required to inspect their vehicles yearly and should therefore have a report available.
Insurers usually are very reluctant to quote unless they have all the required information and therefore it is very important to provide all the requested information to enable Insurer’s to underwrite and assess the risk.
Site inspection by an Insurer’s appointed architect may also be required in which case the insurer would pay for any survey it commissions (this in addition to providing the reports and statement that would need to be prepared by your architect). During such surveys, it is important that your architect is present on site.
What will affect the premium under the policy?
The factors which usually affect premium include the duration and nature of the works (such as if it includes large portions of excavations or alterations to premises which will remain in use during the works) being undertaken and the situation of the contract site (mains roads, sites in a clay and/or flood areas usually attract higher premiums). Insurers will also assess the liability risk which would have a bearing on the premium being charged. This together with past claims history for the same type of risks for both you and the contractor and the cost of the whole project. The more complete the information given to the insurers, the more accurate the assessment of the risk will be, and the more advantageous the premium will be for you. Therefore, it is of utmost importance to provide all the information the insurer will require at underwriting stage.
Would there be a return premium if the works are finished earlier than estimated?
No this type of policy is not usually subject to a return premium, however this is at the discretion of the insurer as is any additional premium which may be due should the policy need to be extended or the contract value needs to be increased. It is important to notify the insurer in writing when the works are ready.
Are there usually any particular terms and conditions included under such policies?
Yes. Some contractors would have an annual policy which covers all their work on the different sites at which they might be undertaking and subject to their insurer’s underwriting consideration, you may be included under this policy. In such instances, one should always ask for a copy of the documents noting your inclusion as Principal or Employer (the terminology varies in different Contracts) together with a copy of the policy which would be required in the event of a claim. This should always be discussed with your architect to make sure that all is in order. An additional premium might still be charged which may be more or less than required when issuing a policy yourself to cover your works. It is important that you always try and get different quotations in order to be able to compare prices with the terms and conditions being offered. If the renewal date of the policy is during the contract works, it is important to ask the contract or his insurer for a copy of the renewal document to ensure that the policy is still in force.
