Insurance Cover for Construction
What Does the Insurance Cover?
System Designer's Insurance
It is sometimes not enough merely to see that insurance is in place, it is important also to know what is covered by that insurance.
An example of inappropriate insurance came to light when a major building-products manufacturer undertook the role of main contractor in remedial works to a refurbishment project. Their building system and materials had been used for the refurbishment work, but performance when finished was flawed. Believing the faults lay in the site work, not in their products, they undertook to confirm this to the building owner by implementing repairs.
They ably set about correcting the installation. This done, the work failed. They had created an excellent test bed for a relatively new product. By minimising workmanship error and having full control over design and materials, they had ensured there was a full-sized example of their building system, which was correctly set up and exposed as intended to the elements. This was a much more robust way of evaluating the system than the laboratory tests and computer modelling upon which all had hitherto relied. The failures were limited and allowed specific flaws in the computer modelling to be identified, with benefits for the future development and use of the system.
Although the failures following the remedial works were much less severe than had originally occurred, they were unacceptable to the building owner who brought a claim against the manufacturers. They turned to their insurers. Their insurance covered product quality and the design of the system – normally supplied under a contract of sale, not a contract for the supply of services. The insurer stated that, by taking on the role of main contractor, the manufacturer had extended their liability beyond the cover the insurers provided.
Professional Consultant's Insurance
To carry out the remedial work, they had engaged a quantity-surveying firm to act both as quantity surveyor and project manager. It turned out that, although this firm held professional indemnity insurance, this covered them for quantity surveying but not for project management. It was through their project-management services that the quantity surveyors had contracted to control the quality of the works. In dereliction of this duty they had failed to recognise bad workmanship, which negligence they compounded with commendable regularly by certifying monthly payments for faulty work. The quantity surveyor’s professional indemnity insurers firmly stood aside when faced with a claim for negligence in project management.
Product Manufacturer's Insurance
Following out-of-court settlements and substantial rejection of the claims against their product insurer and against the project manager’s professional indemnity insurer, the manufacturers turned to their parent company, on whose research and development work they relied and were finally successful in recovering a substantial part of their losses. This was largely due to being able to claim that the root of the failures which occurred arose from demonstrable negligence in research and development, for which risk the parent company was insured.