September 2019

Insurance: Project Policies
THE PROBLEM WITH PROJECT
POLICIES: ARE YOU COVERED?
By Ian Hollingworth, Technical Claims and Relationship Manager, ECIC.
The High Court’s decision last year 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 worth of these types of insurance
policies.
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 contractual chain
A project policy would usually provide protection
to named contractors and sometimes all
contractors in the contractual chain, in the event
of a fire or some other damage caused by
contract workers on site.
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 means lengthy and
costly litigation between sub-contractors can be
avoided and ensures the property and works are
adequately covered, preventing any delays in the
completion of the construction.
However, in 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 sub-contract
required that they should maintain their own
insurance.
That’s not unusual in itself. Usually a
construction contract would contain an insuring
clause requiring the individual sub-contractor 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 key 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.
“It’s essential,
therefore, that
contractors are aware
that a project policy
may no longer provide
the catchall cover they
have previously relied
on”
This was very unusual as a project policy is
usually taken out in joint names – the
policyholder and all sub-contractors. As such the
project policy insurer could not seek a recovery as
essentially all sub-contractors would be
considered a policyholder and covered under the
policy.
Not named at commencement
The Court allowed the project insurer to recover
the loss from the sub-contractor on the basis of
two key facts: the main contract had required the
sub-contractor to take out their own insurance;
and 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.
The contractor in this case was due to appeal the
High Court’s decision in early 2019 but instead
Left: Ian Hollingworth, Technical Claims and
Relationship Manager, ECIC.
settled out of court, prior to the
appeal hearing.
This ruling has really called into
question the effectiveness of project
insurance. Roofing contractors and subcontractors
may no longer rely upon a project
insurer to pick up a loss in the event of damage
they have caused.
It’s essential, therefore, that contractors are
aware that a project policy may no longer provide
the catchall cover they have previously relied on
and should try to take proactive steps to seek
confirmation of any cover available under a
project policy at the pre-commencement stage.
Working with their insurance brokers, roofing
contractors would be well-advised to take a fresh
look at their cover to ensure they are adequately
insured for their potential liabilities. In most
cases they may need their own Contractors All
Risks insurance in addition to public liability
insurance to ensure they have the right levels of
cover in place before starting work on a major
contract.
Contractors All Risks insurance provides cover for
physical loss or damage to contract works during
the course of construction and will often be
offered with a range of extensions to provide more
bespoke cover. Public liability insurance provides
cover in the event of damage or personal injury to
third parties.
Contact ECIC:
0330 221 0250
www.ecic.co.uk/
24 TC SEPTEMBER 2019