What insurances need to be put in place by law or under a typical construction contract?
In private works contracts, it is mandatory for the contractor to take out insurance in respect of employment accidents, covering all hired personnel, but the owner may also require additional insurances.
In public work contracts, the contractor is required by law to take out the following insurances:
Additional insurances may be required by the public entity in the tender documents.
Consultants involved in the works, in particular architects and designers, usually take out professional liability insurance.
The law does not provide for a specific insurance for private contracts. However, contractors must take out insurance to cover employment-related risks. Civil liabilities insurance is common in all contracts and legally required when contracting with the government. As mentioned below, contractors are liable for the solidity of the building and other related damages. They have insurance for that purpose that’s required by the regulations of the industry. The contractor can request insurance from sub-contractors.
In Australia some types of insurance are required to be taken out by statute for infrastructure projects. In addition, other types of insurance are taken out as agreed by the parties to a contract depending on the nature of the works and the requirements of those involved in the project.
There are four main types of insurance relevant to infrastructure work which are required to be taken out under statute:
Certain kinds of builders (for example demolition contractors) are required in some states to take out public liability insurance on specified terms.
The main types of insurances which may be required to be taken out under an infrastructure contract are:
There may also be project specific insurance which needs to be taken out.
Two typical categories of insurance can be distinguished:
These forms of insurance are typically obtained for construction sites.
Construction professionals are obliged to take out professional liability insurance, which covers their professional and decennial liability. Civil liability insurance must also be taken out by the safety coordinator.
There are other types of insurances which are not mandatory under Belgian law, eg construction all-risks insurance.
The law does not provide for mandatory insurance to be put in place. A typical construction contract will contain provisions such as: a requirement for insurance of fixed assets, insurance of the workforce, liability insurance etc.
According to Item “h” of Article 20 of Decree Law No. 73/1966 and Articles 18 of Decree No. 61.867/1967, in Brazil, legal entities are obliged to purchase insurance coverage against fire accidents. The policy must cover all movable and fixed goods against the mentioned risk.
Although not mandatory by law, the contractor is generally required by the employer to take out the following insurance policies, in accordance with the construction agreement: construction risk insurance, general liability, and performance bond.
The construction risk insurance provides coverage against sudden accidents (errors, fires, weather issues, theft), that result in damage or loss to work, machinery, equipment and/or property.
The general liability insurance covers the insured against losses resulting from their liability to third parties. It can relate to accidents or damage caused to third parties during the performance of the work or to breaches of work safety, against the payment of indemnities that the insured is required to pay to third parties.
A performance bond purchased by the contractor to cover and guarantee the fulfilment of its obligations to the employer. This coverage guarantees the employer against the risk of non performance of the construction agreement. On this matter, in the event of default, the insurer can step in to ensure the fulfilment of the contractor obligations to the employer or indemnify the employer of the losses resulting from the contractor’s default.
Depending on the construction agreement, it’s also common to set up other guarantees, such as an advance payment bond, a corrective maintenance bond, for coverages related to the fulfilment of contractor’s obligations under the main agreement.
Each party to a design or construction contract should always confer and obtain advice from its own risk manager or insurance agent regarding the types and limits of insurance that will best protect the risks with respect to each project. Architects generally carry professional liability insurance. Some contractors carry professional liability insurance as well. Both architects and contractors generally carry the following types of coverage:
The project owner will also usually specify that the contractor take out a builders’ risk policy, designed to insure against damage to the works under construction. This policy may also include delay in start-up coverage, to protect against a loss of revenue if construction is delayed by an insurable risk.
Further, particularly for larger projects, it is also common for a project owner to take out its own “all risks” builders’ risk policy and “wrap-up” general liability policy, with the contractor and consultants named as additional insureds.
In addition to the above, other requirements with respect to insurance may be desirable. Examples include:
Construction contracts typically require the contractor to take out public liability insurance.
According to Safe Housing Law (Ley de Vivienda Segura) the constructor or the new housing seller of a structure comprising five or more housing units intended to be transferred to third parties, must set up a protection mechanism to cover any potential patrimonial damages caused to the owner or successive owners of these housing units, when within ten years following the issuance of the fit for use certificate (certificado de ocupación), the construction perishes or threatens to fall into ruin in whole or in part. The mechanism can be the constitution of a guarantee trust, a bank guarantee, an insurance policy or other mechanisms approved by the Finance Superintendency.
Additionally, it’s common to put in place the following insurances:
Usually all-risk insurance (including additional risks such as liability towards third persons and contractual liability for works completion within a time limit) is required under a construction contract.
Employers are generally insured against liability for damage caused to the employee by an industrial accident or occupational disease. Other types of insurance are not compulsory but, commercially, they may enhance the position of a contractor in comparison with uninsured competitors. Contractors are often insured against damage caused to another person in connection with their actions or relationship (general liability) and damage caused by a defective product or defective executed work. Insurance was also often required for candidates for public contracts. After the amendment effective as of April 2012, a candidate is required to submit only a statutory declaration as to its economic and financial capacity to fulfil the public contract.
Under the general conditions in the standard form construction contracts, AB 18 and ABT 18, the employer shall take out and pay for the usual fire and storm and tempest insurance from the commencement of the work until any defects identified at handing-over of the construction have been rectified. It is often agreed that such insurance is taken out as an all-risk construction insurance.
A public employer is not obligated to take out the abovementioned insurance as he can be considered as a self-insurer.
The contractor and any sub-contractors must be covered by the usual liability insurance in relation to injury or damage for which they may incur liability under the general provisions of Danish legislation.
Note: In case of new building or material rebuilding of a residential property, the employer is obligated by law to take out and pay for the building construction insurance (Byggeskadeforsikring) that follows the building after completion.
Two categories of insurance can be normally distinguished:
There are various ways for a contractor to insure itself against risk in the construction process. It can obtain contractor's liability insurance (Haftpflichtversicherung). In addition, works in progress can be covered by contractor’s all risks insurance (Bauleistungsversicherung) including cover against damage and theft. Damage to works in progress caused by natural disasters such as storms, earthquakes and flooding can also be covered by advance building insurance (Gebäudeversicherung).
Different types and levels of insurance will be obtained by different participants of a construction project. These will generally include insurance of the works, third party liability insurance and professional indemnity.
The Agreement and Schedule of Conditions of Building Contract for Use in Hong Kong – Standard Form of Building Contract (Private Edition) (HKIS) provides for the contractor to obtain insurance against loss or damage by fire, etc, in the joint names of the employer or contractor.
The HKIS Form imposes an obligation on the contractor to indemnify the employer against any liability for personal injury or death or damage to property arising out of the carrying out of the works, and to maintain (and cause any subcontractors to maintain) insurance to cover for such liability of the contractor.
This is taken out by architects, engineers, quantity surveyors and other consultants to cover liability for their negligent acts, errors or omission in respect of their professional work.
There are no insurances required by law as a general rule (nevertheless, in case of certain type of construction works, the relevant legislation prescribes obligation to obtain and maintain required liability insurance). Nevertheless, pursuant to the construction contract, contractors may be obliged to take out, at their own expense, certain insurances relating to the works to be carried out. Such insurances typically include:
Irish law does not require any particular insurance to be held by construction parties. The standard and bespoke forms of contract typically require parties to put in place:
The employer may, on larger projects, take out other project specific insurances.
Under standard general conditions it is often agreed that the contractor must adequately insure the works. The contractor must stipulate and maintain, at its care and costs, the following insurance:
There is no specific construction insurance required by law. Under the standard construction contract form, a contractor is required to (i) purchase property insurance against damages to executed portion of the work and building equipment and materials at the construction site and (ii) notify the owner if the contractor purchases additional insurances.
Under standard general conditions it is often agreed that the contractor must adequately insure the works. Construction All Risks (CAR) insurance is common. It provides insurance against risks during the construction process. To cover its liability as employer, each party will have to take out the requisite liability insurance and business liability insurance. Additionally, the parties must also either have already taken out or obtain professional indemnity insurance, as well as fire insurance and storm and tempest insurance.
New Zealand law does not place a positive obligation on parties to a construction contract to enter into collateral insurance arrangements. However, it is open to the parties, and commercially prudent, to do so.
Standard form agreements allow the parties to choose to require insurance for:
The law mandates a building or project developer to take out an all-risk insurance upon commencement of the construction. The Insurance Act 2010 specifically requires that where persons cause the construction of a building of more than 2 floors, they must insure the liability in respect of construction risks caused by their negligence or the negligence of their servants, agents or consultants which may result in bodily injury or loss of life to or damage to property of any workman on the site or of any member of the public. Also, the Act requires that every public building should be insured with a registered insurer against the hazards of collapse, fire, earthquake, storm, and flood. The insurances in a typical construction contract are the following:
The parties are free, and often use this right, to agree upon insurances (both types and amounts).
Unless otherwise agreed, the standard documents often require the following insurances:
A typical construction contract includes obligations on the contractor to maintain third party liability insurance. The contractor is then covered if injury to a person or damage to property is caused by the contractor or his company.
Contractors are also typically requested to take out professional liability cover that insures the proper performance of construction works that are being undertaken. The contractor may also take out product liability insurance that covers risks caused by any product supplied, such as bricks or lifts.
The contractor is required to take out insurances (and present evidence of the same having been taken out by its sub-contractors) covering non-contractual liability arising from the construction activity as well as in respect of labour accidents (covering all hired personnel), 'automobile liability' (covering all the vehicles used in the construction of the works and those operating both on the site of the works as well as in adjacent public streets and areas) and equipment (covering all auxiliary means used in the works).
In addition, technicians responsible for the co-ordination and subscribing of projects as well as inspection of the works are required to enter into an insurance contract covering non-contractual liability. This insurance is intended to provide for proceeds which will cover any damage caused to third persons (outside the scope of the construction contract) by actions or negligent omissions. The insurance also covers liability for the actions and omissions of employees, lawyers and other persons involved in the activities of the insured or who provide services to the insured.
Under Romanian Law, no insurance is compulsory but market practice is expanding the extent to which insurance is taken out.
Insurance is necessary for the contractor because it is responsible for the construction works until handover. The works will be covered against risks such as: fire, flood, damage caused to third parties and business interruption. Moreover, construction contracts usually contain a clause by which the contractor is obliged to take out an all risks insurance policy.
The client/employer usually insures itself against the risk of the works not being delivered at the time stipulated in the contract.
In addition, after the handover of the construction works, under Law no. 260/2008 on the mandatory insurance of homes against earthquakes, landslides and floods, all natural or legal persons must insure their property.
Contractors may obtain a special type of building insurance cover – building-and-assembly insurance. This type of insurance is suitable for investors, contractors and subcontractors as all of these parties can incur damage or cause damage to others during a construction project.
Building-and-assembly insurance deals with the specification of the building (such as location) and the potential risks arising from the construction process. It is currently a condition precedent for banks and other institutions providing money for construction projects.
Building-and-assembly insurance offers complex protection against the following risks:
The insurance covers damage that arises in relation to:
In addition, all contractors must obtain employer's liability insurance which covers loss, damage, injury or disease caused to an employee of the company.
Architects and engineers are obliged to take out liability insurance for the damage caused in relation to the execution of their activities.
The only insurance which is legally required is a decennial insurance policy providing cover against structural defects to be obtained in respect of residential property by the developer after completion of the works.
During the construction process, it is common for general contractors to take out
Consultants involved in the works, in particular architects and designers, usually take out professional indemnity insurance.
Under the General Conditions for Contract AB 04 and ABT 06, the contractor is to take out an all-risk insurance policy to cover damage caused to the works. The contractor is also to take out third party liability insurance for contract activities during the period up to completion of the works and for at least two years after the works are approved as complete.
Under the Building Act (Plan-och Bygglagen) there must also be default insurance (Byggfelsförsäkring) in place before construction works begin.
There is no legal requirement to insert an insurance clause into a construction contract. However, in practice, the contractor will normally enter into an insurance policy with an insurer in order to protect itself against loss. The premium will be calculated on the basis of the potential risks and the amount insured.
The federal law does not require any specific construction-related insurance to be taken out in respect of development projects, however all contractors must take out employer's liability insurance which covers loss, damage, injury or disease caused to an employee of the company. Contractors must also take out public liability insurance if members of the general public or customers visit the contractor's premises or the contractor attends theirs. The contractor is then covered if injury to third parties or damage to property is caused by the contractor. Project specific professional indemnity insurance (PI) that covers negligence is required to be maintained by design & build contractors and consultants for the duration of the limitation period under their appointment contracts.
Although not required by law, contractors will often take out:
There are certain insurances required by the law. All contractors must take out employer's liability insurance which covers loss, damage, injury or disease caused to an employee of the company. Contractors must also take out public liability insurance if members of the general public or customers visit the contractor's premises or the contractor attends theirs. The contractor is then covered if injury to person or damage to property is caused by the contractor or his company.
Although not required by law, contractors will often take out:
All contractors must take out employer’s liability insurance which covers loss, damage, injury or disease caused to an employee of the company. Failure to do so is a criminal offence.
Contractors must also take out public liability insurance if members of the general public or customers visit the contractor’s premises or the contractor attends theirs. The contractor is then covered if injury to person or damage to property is caused by the contractor or his company.
Although not a compulsory insurance, professional indemnity insurance (PI) covers negligence and is almost always taken out by those contractors that perform design work. All professional consultants who design and/or give professional advice are required to maintain PI. Building contracts and consultants’ appointments usually impose a requirement on the contractor/consultant to maintain PI insurance.
Contractors also take out contractor’s all risk cover (CAR) that insures the construction works that are being undertaken. The contractor may also take out product liability insurance that covers risks caused by any product supplied, such as bricks or lifts.
All contractors must take out employer's liability insurance which covers loss, damage, injury or disease caused to an employee of the company. Failure to do so is a criminal offence.
Contractors must also take out public liability insurance if members of the general public or customers visit the contractor's premises or the contractor attends theirs. The contractor is then covered if injury to person or damage to property is caused by the contractor or his company.
Although not a compulsory insurance, professional indemnity insurance (PI) covers negligence and is almost always taken out by those contractors that perform design work. All professional consultants who design and/or give professional advice are required to maintain PI. Building contracts and consultants' appointments usually impose a requirement on the contractor/consultant to maintain PI insurance.
Contractors also take out contractors’ all risk cover (CAR) that insures the construction works that are being undertaken against loss or damage (usually for their full reinstatement cost plus a percentage for professional fees). However, an employer may choose to take out the CAR insurance (to ensure that it is named as “first loss payee” and can satisfy the requirements of its funder). The contractor may also take out product liability insurance that covers risks caused by any product supplied, such as bricks or lifts.
Each party to a design or construction contract should always confer and obtain advice from its own risk manager or insurance agent regarding the types and limits of insurance that will best protect the risks with respect to each project. Architects generally carry professional liability insurance. Both architects and contractors carry the following types of coverage:
In addition to the above, other requirements with respect to insurance may be desirable. Examples include:
Employers in Zimbabwe are expected to have employer liability insurance in place. The building contractors and any other party to the works who is an employer is therefore expected to have employers’ liability insurance.
Contractors will also be expected to take out public liability insurance during the construction period to cover injuries to persons other than employees and damage to property.
It is prudent to obtain insurance on the works, however the type of insurance put in place depends largely on the nature of the construction site. The most common insurance policy for major construction sites would be the construction all-risk policy that provides cover for the entire project.