Contract Works (Material Damage) Insurance
A Contract Works policy will cover all physical loss or damage to the “works under construction” (WUC), unless it is specifically excluded, from the commencement of the contract until Practical Completion is achieved.
The policy will typically provide cover for risks Australia wide including offsite storage and inland transit risks to a specified limit. The policy may also extend to include some cover during the Defects Liability Period.
Such cover during this period will be limited to losses occurring as a result of something that happened on the site during the construction period or losses which are the result of the Contractor complying with its Defects Liability obligations.
The sum insured on the policy should be the Contract Value which will be the maximum exposure to loss as at the time immediately prior to Practical Completion. The policy will usually contain a clause which allows for an increase to the Sum Insured of 15% from the estimated contract value.
The policy may also include cover for various extra costs (over and above the Contract Value) which may eventuate following a loss to the WUC. These may include Removal of Debris, Consultants Fees, Expediting Expenses, Plans and Documents, Continuing Hire Fees.
The extent to which cover is provided in this regard will vary between the different Contract Works policy wordings available in the market.
In the event of a claim the Insured will be required to pay a policy excess / deductible. This will be a set amount which forms part of the policy terms and conditions. There may be a range of policy excesses applying to different types of loss.
All parties to the contract including the Principal, Head Contractor, Project Managers, Construction Managers and all Contractors and Subcontractors of every tier will have some exposure resulting from damage to the works depending on the circumstances of the event that led to the loss.
The policy should therefore be set up to include all parties to the contract as an insured so that each party will be indemnified by the policy for loss or damage for which they are contractually responsible.
This insurance policy can be arranged either by the Principal or the Head Contractor and the standard Australian Construction Contracts include both such alternatives within the insurance section.
For larger and /or more complex projects and /or projects where the Principal will be directly engaging a number of different contractors to carry out the project works, we firmly believe that the Principal should take control of this insurance policy to ensure that its interests are fully protected.