Insurance

We strongly recommend that Principal Controlled Insurance be considered for major multi-disciplinary projects. The main advantages of implementing PCI may be summarised as follows:

The Employer is able to obtain standardised, conventional optimum cover for all Parties and need not spend time and effort on a minute scrutiny of the policies offered by Consultants or Contractors to eliminate deficiencies in the policy offered by them.

Tenderers know in advance the exact wording of the policy, particularly details of exclusions and deductibles and can all tender on a common basis.

The same policy conditions that apply to Subcontractors also apply to the main Contractor.

The Employer is protected against uninsured claims arising from the Contractor arranging restrictive policy wordings, accepting excessively high deductibles, failing to extend or renew the policy, failing to make provision for escalation, or breaching policy conditions. The less than scrupulous Contractor could negotiate unilateral alterations to his policy without informing the Employer.

In the case of multi-contract projects (i.e. involving more than one main Contractor) severe problems can arise if each contractor arranges his own insurance. Cover on one part of the works could terminate, while work continues on an adjacent part. One event, e.g. a flood, could give rise to claims for damage to the works of several Contractors. Negligence of one Contractor or Consultant could lead to claims by other Contractors or Consultants.

Insolvency of the Contractor can lead to insurance problems in addition to all the other problems which can arise in this situation. “Transfer” of the policy to a new Contractor may not be possible, except perhaps under very restrictive conditions. Claims for money paid into the insolvent estate may be irrecoverable.

Professional Indemnity Insurance is a “claims made cover”, which means that if an event occurs in the run off period after completion of the construction and the premium is not paid up to date, there will be no cover in place for the event. This scenario holds a clear risk for an Employer, because it will be very difficult to manage the Consultant’s payment of premiums after completion of the Contract.

Most importantly, the Employer will be able to exercise control over Claims being paid and manage the cash flow in relation to the progress made for rectifying the damages. Where claims are paid directly to the Contractors as the Insured Parties, the Employer and its Professionals will have no control over interim payments.

There may be a saving in the cost of premiums, in respect of the contractor’s mark-up and duplication of insurance in the case of multi-contract projects, however abovementioned advantages justify a slight increase in premium for the more superior cover. Also the wide portfolio of cover can enable an Employer to negotiate more favourable rates with the insurance company.