September 2019

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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 <strong>2019</strong> 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 <strong>2019</strong>
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September 2019

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