REALWorld Law

Construction

Insurances

What insurances need to be put in place by law or under a typical construction contract?

Angola

Angola

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:

  • In respect of employee accidents and occupational diseases, covering all its workers and workers providing services at the site
  • For own damage of the work
  • Third-party liability, and
  • Professional liability of the contractor

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.

Australia

Australia

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.

Statutory insurances

There are four main types of insurance relevant to infrastructure work which are required to be taken out under statute:

  1. (In some states) professional indemnity insurance, which must be taken out by any person providing professional services in respect of construction or infrastructure work. This would cover architects, engineers, building surveyors and some project managers providing services on infrastructure projects
  2. All of the state and territory based residential building legislation require a domestic builder to take out a policy covering limited defects and non-completion insurance. This insurance is very limited and usually only applies if the contractor has disappeared, become insolvent or died
  3. Workers’ compensation insurance which covers most liabilities for death or injury to employees, and
  4. Third-party motor vehicle insurance which covers third-party injury liability arising out of the use of a motor vehicle

Certain kinds of builders (for example demolition contractors) are required in some states to take out public liability insurance on specified terms.

Insurance by agreement

The main types of insurances which may be required to be taken out under an infrastructure contract are:

  • Public liability – covering liability for death, personal injury to any person, damage to third party property or other liability to pay compensation arising out of the works or project
  • Contract works – which covers physical damage to the works, materials, plant, equipment and temporary structures
  • Property damage – which covers damage to, or physical loss or destruction of all property belonging to the insured (not including the contract works)
  • Business interruption or advanced loss of profits – which provides cover for consequential or pure economic losses including gross profits resulting from an interruption or interference with business if an insured asset is damaged. Insurance can also be obtained for advanced loss of profits (that is where the business has not yet commenced)
  • Marine cargo – if the works include the provision of significant items from offshore there may be a requirement to take out marine cargo and other goods insurance

There may also be project specific insurance which needs to be taken out.

Belgium

Belgium

Two typical categories of insurance can be distinguished:

  1. Insurance with respect to professional constructing activities (such as civil liability insurance of contractors; professional insurance of architects, experts, engineers)
  2. Insurance with respect to the protection of certain goods (such as all risks insurance for the construction site and insurance against the rule which provides that contractors and architects can be liable for their actions up to 10 years following the date of final acceptance of the works)

These forms of insurance are typically obtained for construction sites.

Contrary to other countries, in Belgium there is no legal or regulatory obligation to obtain the above forms of insurance, although there are some exceptions to this rule whereby architects and - as of 1 July 2018 - building contractors and other service providers in the construction sector (eg surveyor and study agencies) must insure their professional liability relating to the 10-year liability rule, and the obligation in the General Conditions for Public Procurement Contracts for contractors to prove that they have insurance against industrial accidents, as well as insurance against civil liability in the case of accidents caused by the works to any third party.

Bosnia-Herzegovina

Bosnia-Herzegovina

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.

Canada

Canada

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 generally carry the following types of coverage:

  • Commercial general liability insurance providing coverage for the following: bodily injury, property damage, products/completed operations, premises/operations, contractual and personal/advertising injury liabilities, explosion, collapse, and underground hazards
  • Business auto liability insurance covering all owned, non-owned, and hired vehicles
  • Employer’s liability insurance that covers loss, damage, injury, or disease to employees
  • Excess/umbrella insurance in excess of the required commercial general liability, business auto liability, and employer’s liability coverages, and
  • Workers’ compensation insurance as required by provincial and federal requirements

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.

In addition to the above, other requirements with respect to insurance may be desirable. Examples include:

  • Setting forth the required rating for the insurance company providing the coverage
  • Requiring that the insurance company is authorized to do business in the jurisdiction of the project
  • Prohibiting cancellation or material changes in the policies
  • Providing for a waiver of subrogation to the extent permitted by the insurer
  • Naming additional insureds
  • Requiring subcontractors to obtain the same insurance, and
  • Requiring evidence of insurance
China

China

Construction contracts typically require the contractor to take out public liability insurance.

Croatia

Croatia

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.

Czech Republic

Czech Republic

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.

Denmark

Denmark

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.

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.

France

France

Two categories of insurance can be normally distinguished:

  • Insurance to cover professional construction activities (such as civil liability insurance for contractors and professional insurance for architects, experts, engineers)
  • Insurance to cover the protection of certain goods. In France, contractors must take out the required statutory ten-year building insurance
Germany

Germany

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).

Hong Kong

Hong Kong

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.

Insurance of the works

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.

Third party liability insurance

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.

Professional indemnity

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.

Hungary

Hungary

There are no insurances required by law. 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:

  • Construction all risk (CAR) insurance to insure the construction works that are being undertaken
  • Liability insurance to cover losses, damages, injuries etc caused to:
    • The employees of the contractor; and/or
    • Third parties (eg owners of the adjacent buildings)
  • Professional indemnity insurance to cover losses and damages arising from errors or omissions committed by the contractor during the conduct of its business activities
Ireland

Ireland

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:

  • Public liability insurance: covers bodily injury or death to members of the public or damage to third party property;
  • Employer's liability insurance: for all loss, damage, injury or disease caused to employees;
  • Motor liability insurance;
  • Professional indemnity insurance: necessary where the contractor/construction professional has a design role (this insurance will cover defective design where there has been negligence); and
  • Contractors' all-risks insurance: covers damage to the construction works during construction, contractor's plant and tools.

The employer may, on larger projects, take out other project specific insurances.

Italy

Italy

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:

  • Construction all risks (CAR), where the insured amount is equal to at least the cost of rebuilding the works.
  • Damage cover for all its employees and/or possible non-employed staff (responsabilità civile verso prestatori di lavoro) (RCO).
  • Civil liability cover to third parties (responsabilità civile verso terzi) (RCT).
  • Car civil liability cover (responsabilità civile auto) (RCA) in relation to all the vehicles owned and/or used, which are subject to compulsory insurance, for an amount not lower than that set by the relevant laws.
  • All risks insurance, concerning the equipment owned and/or used and which will be used during the performance of the works, for at least the value of the equipment.
  • Cover for latent defects, which lasts for two years starting from the signing of the testing minutes certifying the positive completion of the works (latent defects insurance policy).
  • Cover for the events referred to under section 1669 of the Italian Civil Code, which lasts for ten years starting from the signing of the testing minutes certifying the positive completion of the works, for at least the value of the cost of rebuilding the works (decennial insurance policy).
Japan

Japan

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.

Netherlands

Netherlands

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.

Nigeria

Nigeria

The law mandates a building or project developer to take out an all risk insurance upon commencement of the construction. The insurances in a typical construction contract are the following:

  • All risks insurance cover for liability arising from damage to the works, materials by the Employer or Contractor or jointly.
  • Public Liability Insurance cover against liability arising from personal injuries or death to third parties by the Contractor.
  • Professional Indemnity Insurance against liability resulting from professional negligence such damages caused by errors in design of the project by Professionals/Consultants.
  • Latent defects insurance cover against events of defects in the design, workmanship or materials used in the construction works which become apparent after the project is completed and delivered to the Employer. This is taken the employer to provide cover for up to 10 to 12 years after delivery of project.
Norway

Norway

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 duty to keep the contract work insured
  • Liability insurance
Poland

Poland

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.

Portugal

Portugal

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.

Romania

Romania

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.

Russia

Russia

Prior to starting to operate a facility that is classified as potentially dangerous (eg certain types of water-side structures or industrial facilities where flammable materials are used), a certificate, that confirms that insurance of the future owner's civil liability is in place must be obtained.

There are no other types of insurance required by the Russian law to be put in place in relation to a construction contract. However, a typical construction contract requires the contractor to take out the following insurance policies:

  • Against the risk of loss of or damage to the building under construction and all the materials and equipment used for construction purposes
  • Against the contractor's third-party liability
Slovak Republic

Slovak Republic

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:

  • Buildings under construction
  • Technological equipment and facilities of the constructed work
  • Assembly equipment
  • Tools, instruments and other objects on the building site

The insurance covers damage that arises in relation to:

  • Natural catastrophes
  • Theft or accidents
  • Negligence of the worker
  • Traffic on the building site

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.

Spain

Spain

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

    1. An all risks insurance policy for the works
    2. A civil liability insurance policy in relation with the works

Consultants involved in the works, in particular architects and designers, usually take out professional indemnity insurance.

Sweden

Sweden

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.

Thailand

Thailand

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.

United Arab Emirates - Abu Dhabi

United Arab Emirates - Abu Dhabi

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:

  • Contractor’s all risk cover (CAR) that insures the construction works that are being undertaken.
  • Product liability insurance that covers risks caused by any product supplied.
United Arab Emirates - Dubai

United Arab Emirates - Dubai

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:

  • Contractor's all risk cover (CAR) that insures the construction works that are being undertaken
  • Product liability insurance that covers risks caused by any product supplied
  • Professional indemnity insurance (PI) that covers negligence and is almost always taken out by those contractors that perform design work
UK - England and Wales UK - England and Wales

UK - England and Wales

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.

UK - Scotland

UK - Scotland

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). The contractor may also take out product liability insurance that covers risks caused by any product supplied, such as bricks or lifts.

Ukraine

Ukraine

Under Ukrainian law, the contractor is obliged to enter into an insurance agreement with regard to the building under construction or the construction works, unless otherwise agreed by the parties to the construction contract. In practice in Ukraine, the parties to construction contracts usually agree on the type of insurance on a case-by-case basis.

United States

United States

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:

  • Commercial general liability insurance providing coverage for the following: bodily injury, property damage, products/completed operations, premises/operations, contractual and personal/advertising injury liabilities, explosion, collapse, and underground hazards
  • Business auto liability insurance covering all owned, non-owned, and hired vehicles
  • Employer’s liability insurance that covers loss, damage, injury, or disease to employees
  • Excess/umbrella insurance in excess of the required commercial general liability, business auto liability, and employer’s liability coverages
  • Workers’ compensation insurance as required by state and federal requirements

In addition to the above, other requirements with respect to insurance may be desirable. Examples include:

  • setting forth the required rating for the insurance company providing the coverage
  • requiring that the insurance company is authorized to do business in the jurisdiction of the project
  • prohibiting cancellation or material changes in the policies
  • providing for a waiver of subrogation to the extent permitted by the insurer
  • naming additional insureds
  • requiring subcontractors to obtain the same insurance, and
  • requiring evidence of insurance
Zimbabwe

Zimbabwe

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.