Construction Contractors are normally contractually obliged to arrange certain insurance covers of which the insurance of the contract works and the associated public liability are the most important.
To ensure continuity of cover and peace of mind it is common practice for a contractor to arrange a blanket annual contract works policy to cover all contracts which fall within a pre-arranged contract value limitation and construction period.
In the continuous quest for lower premiums brokers regularly tend to change underwriters to obtain a saving in premium, without realising what the implications may be for the Insured regarding “work in progress”.
Most underwriters’ operative clause states that insured contracts are those contracts commenced by the contractor during the period of insurance. Therefore all contracts commenced prior to the inception (work in progress) falls outside the scope of the cover afforded by the replacement policy. At best some underwriters will only insure the future work of an existing contract excluding all work already carried out.
There are a number of cancellation and non-renewal clauses in the market that can be summarised as follows:
- Outright cancellation and a clear cut off.
- Cancellation for new contracts and an automatic run off for work in progress.
- Cancelation with run off at the Insured’s request.
- Cancellation and run off only by invitation of the Insurer.
All of these clauses will have a financial impact for the Insured, which is not fully explained to the insured, whether being an additional premium for the run off cover, with the existing insurer to ensure continuity in cover, or run on cover for future work on existing sites with the new underwriter and in the latter instance an uninsured portion of the work already completed.
Unfortunately not all brokers are aware of the implications to change underwriters at renewal without addressing the issues around work in progress and the continuity of cover which only becomes apparent at the time of a loss and the consequent rejection of a claim.
It is therefore of the utmost importance that the broker acquaint himself with the cancellation conditions of the expiring policy before advising his client to change underwriters in order to ensure that there is an uninterrupted continuation of insurance cover following the transition.
Specific contract policies normally do not have a cancellation clause other than for non- payment of the premium. However some brokers utilise an annual contract works policy to insure a specific contract, mainly to obtain the benefit to pay the premium monthly.
The risk attached to this practice is that should the insurer for whatever reason terminate the policy midterm the contractor may find himself without insurance cover for a partial completed contract and for which he may not be able to obtain substitute insurance.
Brokers should think twice in the pursuit to obtain lower premiums and always consider what is in the best interest of the insured and not what is the most convenient.
Kobus van Niekerk.
FCII. Chartered Insurer.
For more information contact Zain Hoosen at firstname.lastname@example.org