The insuring clauses in a nutshell

The Insurers will protect and cover the BUILDER on the payment of a premium against claims made during the Period of Insurance which arises out of the builder and professionals duties and activities:

Sub Section 1 –

• The Insurers will cover the Builder against Loss of or Damage arising out or resulting from any defect, failing, fault in the Contract Works discovered prior to the issue of any Practical Completion or Take Over Certificate. So long as any such defects result from a negligent or careless breach of a professional duty or activity by the Builder or those for whom the Builder is responsible.

Sub Section 2 –

• Any claim for which the Builder shall become Legally Liable to pay compensation arising from a negligent breach of Professional Duty or Activity by the Construction company

Hidden exposures – Frequently contractors who offer no design services at all are being asked to carry professional indemnity. A question they often ask is ‘what risks do I face if I offer no professional services.’ The answer is that there are some risks:

Design alterations: any construction company involved in building anything will nearly always be asked to ‘tweak’ the plans a little in order to make them work. The concern here is that a small alteration here could have a larger knock-on effect, thus causing a real problem later in the job. A real liability can arise if plans are altered.

Architects should double check designs to ensure they work. Failure to do so can lead to a claim. Example – building a staircase in the wrong place, the Contractor was aware that this was not going to work and yet continued to build the staircase without notifying the Professional.

Temporary works: scaffolding, access roads, perimeter fencing, storage facilities are often part and parcel of a contract but are not designed and are left to the contractor. Such works can be expensive and can go wrong leading to further expense and consequential loss.

Unsuitability of materials: Contractors may erroneously utilize materials that do not meet the specifications and have not been agreed. This can be very expensive if the materials prove not to be fit for the purpose intended.

Fees –Sometimes a contractor earns fees (as opposed to turnover). They might project manage for other contractors or carry out other professional functions such as design or quantity surveying. These activities would be rated the same as a professional firm carrying them out.

Loss shall mean:

• (a) actual expenses including re-design and replacement that are reasonably and necessarily incurred in rectifying or repairing any fault, deficiency, shortcoming or defect in the contract works, including any consequential loss arising from
• (b) defect and caused by the breach

Note: Should the loss be indemnified under the following risks products then there is no right to recovery on this policy:

• Contractors All Risk
• Products Liability
• Plant All Risks
• Public Liability

The Insurers will pay at cost any expenses in order to assist with the investigations, defence or settlement of any potential claim made against the Contractor.

Put simply, an indemnity limit is the maximum amount that an insurer will pay out for any one claim or the total of claims within any one policy year.

The Maximum cover per claim or series of claims. The cover includes all costs,interest thereon, all claimants’ costs, fees and expenses and Defence costs as defined

The Total Liability of the Insurers, in terms of the Insuring Clause:

• Per Claim or series of claims arising from one originating cause or source, including here under
• In respect of all claims per Policy Period
• shall not exceed the Limit of Liability per occurrence including all costs and expensesincluding Defence Costs or any aggregate Limit of Liability per annum

A contractor won a tender to build a commercial building. It sub-contracted out the design work to a firm of architects and structural engineers. Incorrect design led to the foundations being laid out incorrectly. As a result, the work had to be redone which led to increased costs and a delay in the project.

If the client brought a claim in this situation, the contractor would look to the professional firm to provide an indemnity. But what happens if the professional firms’ Professional Indemnity policy doesn’t respond (claim repudiated) or is inadequate? It might have lapsed, or cover might have been refused due to policy issues.

The contractor is left fully exposed as the client will look to them to resolve the matter. After all, the contractor took on the design responsibility when winning the contract.

A general builder who was completing a refurbishment of a set of domestic flats to a previously agreed specification was asked to fit some additional external balconies not included in the architects plans. The design of the balconies subsequently led to water penetration into the flats beneath. The builder’s design was found to be at fault and a significant compensation claim followed

A shop-fitting contractor was verbally instructed by the client’s project engineer not to use galvanized steel as per the agreed specification due to the lack of time available. The client subsequently sued for negligence as they had never authorised this change in specification and there was nothing in writing. The claim was for over R1,800,000 but was eventually successfully defended, incurring significant legal costs nevertheless.

Contractors provided the client with a design and build service in respect of construction of a quarry conveyor belt, capable of carrying tonnes of material. The design of system was subcontracted out to specialists. After catastrophic failure of the conveyor belt machinery, substantial damage was caused.