AuthorJulian Bailey
Introduction 1400
Types of risk 1401
(i) Generally 1401
(ii) Contract works 1401
(iii) Business interruption 1404
(iv) Professional indemnity 1404
(v) Product liability 1405
(vi) Latent defects 1406
(vii) Public liability 1406
(viii) Employers’ liability 1406
(ix) Force majeure /unforeseen site conditions 1407
(x) Archaeological nds 1407
(xi) Insolvency 1407
(xii) Material damage 1408
Express obligation to insure 1408
(i) Introduction 1408
(ii) “Joint names” insurance 1408
(iii) Period of cover 1412
(iv) Failure to insure 1413
e nature of insurance cover provided 1413
(i) First party insurance 1413
(ii) Liability insurance 1414
(iii) Policy triggers 1415
(iv) Insured’s loss 1417
(v) Financial limits of insurance cover 1417
(vi) Deductible/excess 1418
(vii) Exclusions and extensions 1419
(viii) Causation 1419
(ix) Time at which loss assessed 1420
(x) Project-specic cover 1420
(xi) More than one insurer 1420
1 See generally, Clarke, e Law of Insurance Contracts (Informa, looseleaf); Merkin, Colinvaux and Merkin on
Insurance Contract Law (Sweet & Maxwell, looseleaf); Birds, Lynch and Milne, MacGillivray on Insurance Law
(Sweet & Maxwell, 14th edition, 2018); Hogarth, Anderson and Goldring, Insurance Law for the Construction
Industry (OUP, 2nd edition, 2013); Ter Haar, Levine and Laney, Construction Insurance and UK Construction Con-
tracts (Informa, 3rd edition, 2016); Kelly and Ball, Principles of Insurance Law (Lexis Nexis Australia, online);
Merkin, Colinvaux’s Law of Insurance in Hong Kong (Sweet & Maxwell, 3rd edition, 2018). See also Charrett, “Is
conventional insurance for construction projects t for purpose?” (2018) 34 Building and Construction Law 253.
Notication of claims and cooperation 1421
(i) Generally 1421
(ii) Condition precedent 1422
Duty of utmost good faith 1423
(i) Introduction 1423
(ii) Misrepresentation 1424
(iii) Duty of disclosure 1424
(iv) Making of claims 1426
(v) Obligation to take precautions/mitigate loss 1427
Subrogation 1428
(i) What is subrogation? 1428
(ii) Waiver of subrogation 1429
Interpretation of insurance policies 1430
Insolvency or bankruptcy of insured 1431
17.01 A contract of insurance is a contract under which an insurer agrees to indemnify2
an identied or identiable person against a loss suered by that person, or to restore
a loss that has been suered,3 where the occurrence of that loss involved some element
of uncertainty, and the assured had an insurable interest in the subject matter of the
contract.4 Put another way, it is a promise by an insurer to hold a person harmless against
a loss, or to make good the loss suered by that person.5 Insurance plays a key role in
risk allocation in virtually all construction and engineering projects.6 Contracts relevant
to a project may reect this, by requiring one or more of the parties to the project to
take out and maintain insurance against particular risks, in favour of identied persons.7
Additionally, statute law may in certain instances, most notably in relation to residential
2 A contract of insurance may be described as a species of indemnity: see Bonger v Kingsway Group Ltd (2009)
239 CLR 269 at [7]; Sun Alliance Ltd v Scandi Enterprises Ltd [2017] UKPC 10 at [7], per Lord Sumption (PC).
Indemnities were discussed in Chapter 12.
3 An insurer’s obligation need not be one which requires it to make payment. For example, in cases of where
property is damaged an insurance policy may permit the insurer to restore the damaged property, as opposed to
making payment in respect of the cost of reinstatement. See Domsalla v Dyason [2007] BLR 348 at 359 [55]–360
[57], per HHJ ornton QC.
4 See Owners – Units Plan No. 3115 v Trustees of the Master Builders Fidelity Fund Scheme [2019] FCA 115 at
[124]–[126], per Griths J. As to insurable interests, see paragraph 17.24.
5 Yeoman Credits Ltd v Latter [1961] 1 WLR 828 at 831.
6 See, eg, the report of the FIDIC Task Committee on insurance, “Construction, Insurance and Law” [1986]
ICLR 383, commented on by Madge, “Construction Insurance and Law” [1986] ICLR 458. It has been observed
that “[t]he purpose of insurance is always to save the expense which will be incurred if there is loss or damage”:
Brent LBC v Risk Management Partners Ltd [2009] EWCA Civ 490 at [42], per Pill LJ (see also at [155], per
7 Although, even if a contract requires a party to “take out” and maintain particular insurance, for the purposes
of a project, it may be sucient (depending ultimately upon the parties’ contractual arrangements) for that party
to rely upon a pre-existing policy it had taken out for the purposes of complying with its contractual insurance
obligations. In other words, the obligor need not “take out” new insurance where there is extant insurance that
fulls the contractual insuring criteria: see, eg, Lend Lease Project Management & Construction (Australia) Pty Ltd v
Kellogg Brown and Root Pty Ltd [2013] NSWSC 1142.
building work in Australia, prescribe that a person take out insurance before performing
building work.8
Types of risk
(i) Generally
17.02 Construction and engineering projects are subject to a multitude of risks, each
of which is capable of causing loss to one or more of the participants in the project and
also non-participants. Just as there is a multitude of risks, there is a multitude of types
of insurance available to participants in construction and engineering projects to absorb
nancial losses owing from the eventuation of those risks. Insurance cover for the vari-
ous risks arising out of construction operations may be provided by way of a single policy,
which covers a single type of risk, or it may be expressed in a combined policy, so that a
number of risks are covered in a single insurance arrangement. Policies may be project
specic, or contractors and consultants may utilise general insurance policies that are of
application to all aspects of their business operations.
17.03 e terminolog y used to describe the various risks aecting construction oper-
ations varies from policy to policy. It is therefore dicult to provide a precise deni-
tion or description of a particular type of risk. By way of illustration, a policy that is
expressed to be a professional negligence policy may cover risks other than negligence.9
What, therefore, is of signicance is not the name or label given to a particular risk or
a particular policy, but whether the wording of the policy under consideration engages
with the events giving rise to the particular claim or loss in issue, and that is a matter
that necessarily requires a close examination of the terms of the policy. What follows is
an inexhaustive description of the main types of insurable risk that are encountered in
construction and engineering projects.
(ii) Contract works
17.04 Contract works risk10 is the risk associated with the physical loss of or damage to
the works under construction (including temporary works) and property associated with
the performance of the works.11 Typically, the risk of physical loss or damage covered will
8 See Chapter 19.
9 George Wimpey & Co Ltd v Poole (1984) 27 BLR 58 at 92, per Webster J.
10 Contract works insurance is also known as contractors’ “all risks” insurance (although this is a misnomer, as the
name of the insurance suggests that it insures a contractor against every deleterious event that may occur during
a project, when it does not). e expression “erection all risks” is also sometimes used. e descriptions of contract
works risk insurance vary: see Ledcor Construction Ltd v Northbridge Indemnity Insurance Co. 2016 SCC 37 at [1].
11 See, eg, the denition of “All Risks Insurance” in the JCT Standard Building Contract, 2016 edition, clause 6.8.
Damage to the works or other property is to be distinguished from the works being rendered practically useless
(but not damaged) owing to a design error: see Transeld Constructions Pty Ltd v GIO Australia Holdings Pty Ltd
[1996] NSWCA 538.

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT