Construction contracts: Indemnity and Insurance
Construction contracts can often be a bone of contention where obtaining insurance is concerned, especially in regards to the responsibilities of contractors and principals. We speak to Glen Ross of Mecon Winsure for advice on getting the details right and avoiding negative implications.
Video transcript below:
Anna Temple, Insurance Business Online
Anna Temple: Construction contracts can often be a bone of contention when obtaining insurance is concerned, especially in regards to the responsibilities of contractors and principals. Glen Ross of Mecon Winsure says that there can be many negative implications especially in relation to contractor indemnity.
Glen Ross, Mecon Winsure
Glen Ross: There are many negative implications, one of them in particular is where a principal will pass a liability on to a contractor. It could be a liability that the principle has at law but the contractor has only in contract. So, there was no wrongful act on behalf of the contractor. The principal who incurred the liability could insure it because it is a wrongful act in tort, whereas the contractor has it in contract so his insurance policy might not cover that. So you get a problem arising with the application of it and the insurance of it.
Anna Temple: Indemnity and insurance needs contract are often viewed as interchangeable but Ross warns there is a very big difference.
Glen Ross: There is a difference between indemnity and contracts, in indemnity, in insurance, in insurance we talk about indemnity being replacement to its former state, whereas in contract it’s a far broader thing and it’s a contractual responsibility.
Anna Temple: So, can this difference between indemnity and insurance be measured in terms of risk?
Glen Ross: In actual fact they can. Risk is an all-encompassing factor but it can be narrowed down to the indemnity that’s required in these contracts less the insurance we provide and there are some other factors that are involved as well, like the accepted risks in a contract.
Anna Temple: Some of these accepted risks can be insured says Ross but not all can be.
Glen Ross: Accepted risks in a contract fall into two categories, they are either insured or not insured. And some of these accepted risks turn up as exclusions in our policies. War and nuclear risks are two exclusions in our policies. Design provided by the principal is another subject of an exclusion in our policy. But negligent acts of the principal will be picked up by some of our policies and those are the differences in those accepted risks.
Anna Temple: Ultimately Insurance can only be ever be part of a risk mitigation strategy for both contractors and principals. Brokers should ensure that their clients are fully aware of any potential negative implications or have consulted a suitable risk advisor before signing on the dotted line.
Anna Temple: This is Anna Temple reporting for Insurance Business Online.