Insurance provisions are an essential element of a construction contract, regardless of the size or complexity of the project.  Insurance policies on construction projects are ultimately taken out to protect a party from liabilities under a construction contract which it could not otherwise discharge. A contractor may not have the money to rebuild works or existing structures, which it has damaged, without the protection of its insurance policy.

Unfortunately, insurance provisions are frequently the last to be finalised, particularly where the works are to or within existing structures, and can delay the commencement of works. Such delay can be mitigated or avoided to a certain extent by the parties considering insurance provisions at an early stage and by speaking to their solicitors and insurance brokers so that drafting can be finalised and approved, and any policies put in place, in good time before works commence. This is particularly important where the works are being carried out to or within existing structures, where the parties will usually have to negotiate with third parties in addition.

As an illustrative example, an Employer is the tenant of a multiple occupancy commercial building and intends to engage the Contractor to carry out CAT-B fit-out works under a JCT Design and Build Contract, 2016 edition (JCT DB).

The parties recognise early on that this is a scenario where a C.1 Replacement Schedule applies. The standard JCT Insurance Option C requires the Employer to maintain a joint names policy for existing structures, but where the Employer is a tenant of a multiple occupancy building, it is usually the landlord which insures the existing structures with the premium being recovered from the tenants of the building through the service charge. 

There is no standard form C.1 Replacement Schedule so the drafting will likely fall to the Employer’s solicitors or insurance brokers. In some circumstances, the Employer’s landlord may agree to include the Contractor as a joint name to its insurance policy of the existing structures but this is rare.

" Unfortunately, insurance provisions are frequently the last to be finalised, particularly where the works are to or within existing structures, and can delay the commencement of works. "

Instead, most C.1 Replacement Schedules ask the Contractor to cover all or part of the risk in respect of the existing structures through the public liability insurance which the Contractor is required to maintain under clause 6.4 of the JCT DB. This is fine for smaller existing structures but, in our example, the overall value of the existing structures plus the contents far exceeds the Contractor’s public liability insurance.

In these circumstances it is usual to ask for the Contractor’s public liability insurance to respond up to an agreed level and the landlord’s insurance to respond over that amount (it is also possible for the Employer to maintain an intermediate layer of insurance). 

The Contractor will also need the C.1 Replacement Schedule to include an indemnity from the Employer in respect of any excess claims. This is because, where the Contractor is not a joint name to the existing structures insurance policy, the landlord’s insurer will have a right of subrogation against the Contractor, allowing the insurer to step into the shoes of the landlord and bring a claim against the Contractor for amounts it has paid out over the Contractor’s public liability insurance.

Contractors should take note in these situations to review their public liability insurance policy to make sure that there are no “care, custody or control” exclusions which would exclude the insurer’s liability for damage to property in which the works take place. 

There are some limited exceptions where JCT Insurance Option A would apply where the existing structures on site but the reinstatement value of those structures is less than the reinstatement value of the works (for example, where there was a retained façade). In such cases, the Contractor may be asked to extend its All Risks cover under JCT Insurance Option A to include these existing structures. 

The above are examples of complex insurance arrangements and all will require bespoke drafting, whether through a C.1 Replacement Schedule or in a schedule of amendments. If left to the last minute, this can cause delays to the start of works on site. Our advice is to consider insurance provisions early in the procurement process.