August 2018

Insurance Focus
PROJECT POLICIES: CONTRACTORS,
MAKE SURE YOU’RE COVERED...
By Ian Hollingworth, Head of Claims for ECIC.
The High Court’s recent decision that a
roofing firm that caused a fire at a high
school in London was not protected by a
project policy has raised some serious questions
over the reliance by sub-contractors on these
types of insurance policies. This could expose
contractors and subcontractors to higher risks –
in particular smaller sub-contractors working on
large contracts could be vulnerable as a result of
this ruling.
Traditionally, employers on larger construction
projects take out a project policy to cover damage
to the existing structure and possibly the contract
works being undertaken by the sub-contractors
appointed to work on site.
“The project policy
insurer dealt with the
property loss, but then
sought to recover their
outlay from the
contractor that caused
the loss”
As this type of policy would usually provide
protection to named contractors and sometimes
all contractors in the contractual chain, it
provides peace of mind that in the event of a fire
or some other damage caused by contract
workers on site, the project policy would step in.
In the event of damage to the property, the project
policy insurer would simply cover the loss rather
than each sub-contractor going to their own
insurers to recover the cost of their own damaged
contract works.
This avoids lengthy and often costly litigation
between various contractors who could be
blamed for causing the damage
to the building.
The project policy avoids all of
this and ensures the property
and works are adequately covered
to avoid lengthy delays in the
completion of the construction.
Terms of the sub-contract
However, in a recent case, (Haberdashers’ Aske’s
Federation Trust Ltd v Lakehouse Contracts Ltd
and others [2018] EWHC 558 (TCC)), the High
Court found roofing firm CPR wasn’t protected by
the project policy because the terms of the subcontract
required that they should maintain their
own insurance.
Usually a construction contract would contain an
insuring clause requiring the individual subcontractor
to take out insurance to cover their
own contract works along with Employers Liability
and Public Liability. This is even if there is a
project policy in place.
The difference with this case was that the project
policy insurer dealt with the property loss, but
then sought to recover their outlay from the
contractor that caused the loss.
This was unusual as a project policy is usually
taken out in joint names – the policyholder and all
sub-contractors; this previously meant the project
policy insurer could not seek a recovery as
essentially all sub-contractors would be considered
a policyholder and covered under the policy.
Notably in this instance, the Court allowed the
project insurer to recover the loss from the subcontractor.
This was on the basis that the main
construction contract had required that the subcontractor
take out their own insurance. In addition,
the sub-contractor was not named at the
commencement of the
construction project and therefore
not factored into the cover by the
project policy insurer when the policy was
taken out.
This ruling has really called into question the
effectiveness of project insurance. It has wide
ramifications for contractors as they can no longer
rely upon a project insurer to pick up a loss in the
event of damage they have caused to a property.
It’s essential, therefore, that they ensure adequate
cover is taken out to cover their potential
liabilities. Seeking the advice and support of an
insurance broker is highly recommended.
Additionally, the insurers of sub-contractors can
no longer rely on the existence of a project policy
to cover a loss. This could mean higher insurance
claims which may have a knock-on effect in
premium increases.
Now, more than ever, it is important for subcontractors
to understand the risks attached to
their works and the potential losses they could
face if they don’t ensure adequate insurance
cover is in place for any eventuality.
Contact ECIC
0330 221 0250
www.ecic.co.uk
Left: Ian Hollingworth, Head of Claims
for ECIC.
“The insurers of subcontractors
can no
longer rely on the
existence of a project
policy to cover a loss”
24 TC AUGUST 2018