What insurances are the parties required to hold? And how long for?
Insurance for the decennial liability of building contractors and other service providers (such as architects, security coordinators, land surveyors and consultancy agencies) is mandatory as from July the 1st of 2018.
As for public construction projects, the Royal decree of 14 January 2013 on the general rules of performance of public procurement contracts requires contractors to be insured against industrial accidents and accidents which cause damages to third parties.
Besides the abovementioned insurance obligations, Belgian law does not impose any additional insurances on contractors and/or employers. Very often though, especially for important projects, a CAR (Construction All Risks) is put into place.
Omani law does not specify the insurance policies required for the performance of a construction contract. However, the following policies are considered mandatory:
- third party liability insurance;
- workman’s compensation insurance;
- vehicle insurance (third party); and
- professional liability insurance.
It is market practice for construction contracts also to require::
- commercial general and umbrella liability insurance (including third party liability); and
- loss or damage to the property for its full replacement value.
Under AB 92/ABT 93, the employer must take out insurance that covers damage due to fire and storms with an insurance period from the commencement of the work and until the time when all defects discovered at the hand-over have been rectified.
The employer may choose an all-risk insurance instead; however, an all-risk insurance does not cover all types of damage.
The contractor must obtain statutory liability insurance. Furthermore, any company with employees must obtain statutory industrial injuries insurance.
There are three compulsory insurance policies that need to be subscribed:
- During the first year following the reception of the construction, the constructor is obliged to subscribe an insurance policy covering the material damages derived from a poor execution. He is allowed to replace it by letting the promoter retain the 5% of the cost of the execution of the construction.
- During the three years following the reception of the construction, the promoter needs to maintain an insurance policy covering the material damages derived from defects in the construction affecting livability. The minimum warrantied amount will be of 30% of the cost of execution of the construction.
- During the ten years following the reception of the construction, the promoter needs to maintain an insurance policy covering the material damages derived from defects in the foundations, beams, forges, load bearing walls or other elements affecting directly mechanic resistance and the stability of the building. The minimum warrantied amount will be of 100% of the cost of execution of the construction.
The Construction Law does not specifically contain an obligation for insurances that the parties are required to hold. One of the implementing regulations, being Government Regulation No. 29 of 2002 regarding the Undertaking of Construction Services only provide that the implementation of compensation in the event of a building failure may be conducted (amongst others) by insurance.
Therefore, based on the wording above, insurance is optional and not mandatory.
For construction contracts funded by APBN, the Ministry of PWPH standard form contract (which may be used as a reference), contains a clause for the service provider to provide the necessary insurance for:
a. All goods and equipment that has a high risk for accident, implementation of work, all risks associated with the implementation of the contracted work by the employees relating to accidents, damages, loss, including all other unpredicted risk; and
b. Third parties as the result of accidents in the work place.
In most of the cases, all risk insurance, civil liability insurance and in certain situations, auto and professional liability insurances are requested. All these insurances have to remain valid during the term of the contract.
Regularly, in private contracts the parties mutually agree insurances. The most common of them are performance guarantee, a payment of salaries and social assistances guarantee, quality of the works guarantee, as well as their stability. Normally, the duration of the coverage includes the time of construction plus 3 years after the termination.
In public procurement, contracts for the development of infrastructure must include by regulation those insurance policies described for private contracts.
Parties are required to hold different insurances: the principal shall hold a principal’s civil liability insurance as well as construction works insurance. The contractor shall hold a contractor’s civil liability insurance, a building insurance, a fire and elementary damages insurance, and insurance for materials and tools brought on the worksite by the contractor. Those need to be in place during performance of the works. A ground-up insurance is sometimes put in place in long construction sites.
By law, parties to a construction contract are required to hold workers' compensation insurance and motor vehicle third party personal injury insurance for registered plant and motor vehicles. Contract terms will often require parties to hold other insurances for the duration of the project (in descending order of prevalence):
- contract works insurance;
- public liability insurance for on and offsite work;
- professional indemnity insurance for consultants or where a contractor undertakes design obligations (usually required to be held for 6 years after practical completion, because of the 'claims made' nature of such insurance);
- transit insurance for items transported to the site for incorporation into the works (optional);
- insurance of contractor's plant and equipment
- advance loss of profits insurance (optional).
The principal will insure any existing buildings, and is responsible for the finished works from the date of practical completion. On very large infrastructure projects, a project-specific program of insurance will usually be put in place by the principal.
The parties are free to agree upon what insurances to hold.
According to the NS contracts, the contractor must maintain insurance over the contract work until delivery of the contract work. The employer shall be co-insured.
The NS contracts also require the contractor to hold a liability insurance to cover any property damage, financial loss or bodily injuries, including those concerning a third party, caused during the contract work.
There is no specific legislation that regulates the insurance requirements in construction projects. The parties are free agree on this in their contracts. Under the dominant standard forms (AB 04 and ABT 06), the contractor is required to maintain all-risk insurance and general liability insurance during the construction period and for two years following final completion. In the Swedish insurance market, there are special insurance policies which are designed to meet the requirements under AB 04 and ABT 06.
The contractual terms usually dictate the required insurances.
It is typical for construction contracts, at a minimum, to require (i) contractor all risk insurance (as works generally are at the contractor’s risk until practical completion); (ii) third party liability insurance and (iii) professional indemnity insurance to cover any professional works or services performed (e.g. architecture services). It also is common in Hong Kong to require marine cargo insurance to cover transportation of construction materials by barge.
The only insurances required by statute to be taken out are third party motor vehicle insurance (for vehicles on roads other than those in areas wholly or mainly used for the carrying out of construction work or industry) and insurance under the Employees’ Compensation Ordinance (Cap. 282). The latter requires all employers to effect insurance to provide compensation to employees for bodily injury or death arising out, and in the course, of employment. Specific requirements apply to the amount of insurance which must be taken out by principal contractors to cover their liability to their employees and sub-contractors under the Ordinance and at common law.
The types of insurance most often required are:
- All risks insurance covering physical damage to the works and site materials is typically maintained by the contractor for a new building until practical completion, and by the employer for refurbishments and some major projects;
- Public liability insurance (covering defects in design) is typically required from consultants and design and build contractors, and must be renewed for the duration of their liability;
- Professional indemnity insurance must be maintained throughout the insured professional’s period of liability;
- Employers' liability insurance is maintained throughout the period of employment: this is the only insurance required by statute.
On some PPP projects, particularly those creating an income generating asset, additional insurances such as delayed start-up (DSU), and advanced loss of profit (ALOP) insurance may be required. These respond when the income stream is delayed or affected by a shut-down. These are maintained during the life of the works.
Most contractors are covered for all of their projects by annual insurance policies.
Parties to a construction contract often procure multiple types of insurance coverage to account for different types of risk. These insurance products fall under either first party coverage or third party coverage. First party coverage applies to and protects an organization’s own physical assets, such as equipment, buildings, and personal property. Third party coverage, also known as liability or casualty insurance, covers the insured’s liability for damages to third parties.
A typical first party insurance is known as Builder’s Risk insurance, which covers loss or damage to the work during construction, including losses arising from the negligence of contractors and other acts of God. Builder’s Risk is often provided on an “all risk” basis, which means that all risks of physical loss or damage to property is covered, unless otherwise excluded. Other types of first party coverage typically carried are Worker’s Compensation insurance, which covers injuries to employees suffered in the course of their employment, and Automobile Liability insurance, which covers parties who may be traveling to the construction site. Owner’s generally procure Builder’s Risk, while contractors generally procure Worker’s Compensation and Automobile Liability insurance.
A typical third party insurance is Commercial General Liability (“CGL”) insurance, which protects the insured against third-party claims and lawsuits for bodily injury or property damage arising out of its business operations. Another type of third party insurance is professional liability coverage (also called Errors & Omissions coverage), which covers losses arising from services deemed “professional” in nature, such as architects and engineers. The difference between a CGL policy and a professional liability policy is that the later covers purely economic losses, while the former only covers claims for bodily injury or property damage.
Parties may procure other types of insurance not automatically provided for in the aforementioned types of coverage, such as coverage for environmental and pollution exposure, land acquisition, financing, zoning, and other aspects of construction, although these policies tend to be more expensive.
The length of the policy period can vary, but is generally the anticipated length of the project or the duration of the contract period. Sometimes policies are required for longer durations to cover warranty periods or claims periods for defective workmanship.
The choice of the type of insurances, as well as their duration, is to be made freely upon the parties required to a contractual relationship. Still, when bigger construction works are to be performed, the Contractors’ All Risk (CAR) insurances are often agreed upon.
The law requires that all employees are given health insurance by their Employer. This would not usually be expressly identified in a construction contract.
The law also makes express provision for the payment of benefits (upon repatriation) and for compensation in the event of injury at work. To protect against these liabilities, most construction Contractors will have a worker’s compensation policy in place.
Most parties model their insurance requirements on those laid out by FIDIC and may add specific requirements as necessary (i.e. marine cargo, or vehicular).
The public liability insurance (Betriebshaftpflichtversicherung) covers the liability risks of traders and industrial companies, freelancers and craftsmen. Such insurance is required by most clients and made a condition of a contract. It is common to have a construction all risk insurance (Bauleistungsversicherung) on large projects, provided for by the customer.
The Austrian trading regulations provide that contractors or entrepreneurs in related construction sectors are required to take out liability insurance in defined amounts. For planning master builders, the law requires liability insurance of EUR 1,000,000.00. There are no prescribed mandatory amounts of insurance for architects and clients.
The following insurance coverage is generally applicable (for private contracts):
- an owners’ all risk liability (multirisque propriétaire) to be subscribed by the project owner. This coverage shall be maintained at all time by the project owner, as long as it will own the building;
- an “all risks work site” (tous risques chantiers) policy to be subscribed by the project owner. This policy will last for the duration of the construction works;
- a dommage-ouvrage insurance policy to be subscribed by the project owner (to pre-finance repairs in case of damage covered by the decennial guarantee). This policy will cover damages for a period of ten years following the acceptance of the works;
- decennial liability insurance policies (responsabilité civile décennale), to be subscribed by the project owner and all the parties (contractors and consultants) whose liability can be triggered under the decennial guarantee mechanism, for a period of ten years following the acceptance of the works;
- for large projects, a collective contract of decennial liability (contrat collectif de responsabilité décennale), in order to provide a general top-up insurance coverage above the cap of the individual decennial liability insurance policies of the parties (this policy as the same duration as the decennial liability insurance policies);
- a professional liability insurance (responsabilité civile professionnelle), to be subscribed and maintained by all the contractors and consultants for the duration of their agreements.
The most common insurance that parties are required to hold in construction projects is the Construction All Risks (CAR) insurance; such insurance covers the works in respect of physical loss, physical damage and liability incurred by the insureds, including the employer, the contractor and their subcontractors. Same insurance covers any liability in respect of bodily injury or damage to property incurred by third parties in connection with the works. Less frequent in the Greek construction market are Delay in Start Up (DSU) insurance policies that provide coverage for the anticipated revenue generated from developing and executing construction projects.
Contractors all risk insurance is required in government construction contracts, and professional negligence insurance in government consulting contracts, in both instances for the duration of the contract.