The Property Insurance section of a Contractors All Risks policy defines an insured event as sudden, accidental and unforeseen physical damage to the construction project or part of it, from the date when the project starts, until the date when the works are completed or the expiry date of the policy (the earlier of the two).
The fact that “damage” has a specific definition shows that this section contains numerous exclusions that need to be counteracted by extensions to obtain more extensive cover. Here are two simple examples to illustrate the technical definition of “damage” and why it is important to pay attention to each and every clause, requirement or exclusion.
“Unforeseen damage” – We shall take the example of a contractor involved in a project to renovate an apartment building which remains inhabited during the works, who takes out a Contractors All Risks policy covering property damage (for the time being without addressing any special extensions for National Outline Plan 38 projects). The contractor has removed the bitumen sheets from the roof of the building in preparation for building the new floors.
The name of the policy – “Contractors All Risks”, with specific reference to Section A (Property Insurance) can be somewhat misleading since the term “All Risks” creates the impression that the insurance cover is very extensive and covers all possible risks.
However, at this stage we are still dealing with a basic policy that presents various questions: Is “All Risks” really what it purports to be? What types of damage are not covered under an “All Risks” policy? What is the significance of the clauses and exclusions relating to risks that the insurance company is not prepared to cover? Is the standard “extended” policy adequately tailored to the specific works and unique characteristics of the insured project? And most importantly: How do we create a property insurance policy for contract works that provides the client with the maximum insurance cover at the lowest possible cost?
The winter season arrives, there is torrential rainfall, the building is damaged and the contents of the residents are also damaged. This would appear to be a classic case of a claim for property damage, but in fact not. The fact that it will rain in the winter is not “unforeseen” and the insurance company has all the reasons to avoid the claim. Read our article concerning the difficulties relating to insurance cover for natural perils damage in the winter, which are considered as foreseeable losses. Also Recommendations to prepare construction projects for the winter.
Physical damage – A fire at a construction site is the type of damage that nobody could expect to happen although it does happen. Under the property insurance section, the contractor will be compensated for the physical damages they suffer but not for consequential losses occurring due to the fire such as a delay in handing-over the key arising from delays in proceeding with the project which occur due to the fire.