Which insurance policies do you need to adequately cover the risks related to a construction project and prevent the construction process from slowing down? In this article, we elaborate on your four most relevant options.
The four most relevant insurances in construction
Dutch law does not require parties involved in construction projects to take out insurances. Over the years, however, it has become common practice to take out insurances to cover a number of construction related risks.
In case of damage, during or after a construction project, to either the project or adjoining properties, several questions arise: what caused the damage, which party is (financially) responsible for the damage, is the damage covered by any insurance policy taken out?
Adequate insurance coverage could save all parties involved a lot of costs, legal discussions and time.
We do notice, however, that principals, building (sub)contractors, constructors, et cetera, are not always fully aware of the available construction-related insurance options.
In the remainder of this article, we will discuss your four most relevant insurance options. Any specific insurance policy is, of course, subject to its specific terms and conditions.
1. Construction All Risk insurance
The Construction All Risk (CAR) insurance is the standard project insurance for damage that may occur during the construction period (ending on the delivery date). Upon request, the maintenance period can usually be insured as well. Be aware though, the scope of the insurance coverage during the maintenance period is usually more limited than during the construction period. The CAR insurance is often taken out by the main building contractor or the principal. Under this insurance, all parties involved in the construction work can be listed as co-insured, such as the principal, the building (sub)contractors, the suppliers, the construction management, the architects, the constructors, and any other advisers working on the project.
The CAR insurance consists of several sections, with the section The Work being the most relevant. The section the Work covers (material) damages during the construction period as a result of loss of or damage to the work (building) itself.
Additionally, the section Liability can be taken out which covers (i) damages (property damage and bodily injury) caused during the construction process and (ii) damages in connection with work carried out during the execution of the work.
2. Business liability insurance
Often, a contractor also takes out a business liability insurance. This insurance covers bodily injury, property damage, and consequential damage of third parties. Under this insurance, the principal and building (sub)contractors can be listed as co-insured. In contrast to the CAR insurance, the business liability insurance provides coverage for both employers’ liabilities and business interruptions, as well as for damages/claims filed after the construction and/or maintenance period ended.
3. Professional liability insurance
The third most common insurance is the professional liability insurance. This insurance provides coverage for damages to third parties due to errors by the insured party. This insurance is usually taken out by architects, engineers and other advisers. In contrast to the CAR insurance and the business liability insurance, the professional liability insurance provides coverage for purely financial losses.
4. Design and construct insurance
The fourth most common construction related insurance is the design and construct insurance. This is a relatively new insurance. In the past, the construction process would start with the principal and architect agreeing upon the construction and design aspects, and only then engage a building contractor to execute the work. Nowadays, from the start of the project, the principal tends to only contract with the (main) building contractor directly, resulting in (main) building contractors (instead of the architect) being responsible for the risks ensuing from the design. This tendency contributed to the popularity of the design and construct insurance A design and construct insurance provides coverage for damages (including purely financial losses) resulting from the design. This insurance, however, does not provide for coverage for damages resulting from wrongful execution.
Other relevant insurances
Above, we discussed the four most relevant insurances for construction projects and project development. Depending on the specifics of your project, there are of course more specific insurances that may be relevant to you, such as (i.) Excess liability (for design) insurance (‘Excedent Ontwerpverzekering’), (ii.) Insurance for hidden defects (‘Verborgen Gebrekenverzekering’), (iii.) Machinery and equipment insurance (‘Werkmaterieelverzekering’), (iv.) Soil remediation insurance (‘Bodemsaneringverzekering’), (v.) Assembly insurance (‘Montageverzekering’), and (vi.) Warranty insurance (‘Garantieverzekering’). Because these insurances relate to specific circumstances, we will not elaborate on them in this article.