CONSTRUCTION INSURANCE

1. CONSTRUCTION INSURANCE A VERY WARM WELCOME TO ALL DELEGATES LET US WORK TOGETHER AND POOL OUR KNOWLEDGE FOR THE BENEFIT OF ALL

2. CONSTRUCTION INSURANCECOURSE LEADER DERRICK WERNER EXPERIENCE 45 YEARS IN CONSTRUCTION AND ENGINEERING INSURANCE ENCOMPASSING BUSINESS DEVELOPMENT SURVEYING AND RISK APPRAISAL CUSTOMER ADVICE RISK MANAGEMENT UNDERWRITING CLAIMS MANAGEMENT SOUTH AFRICAN DELEGATE TO 6 INTERNATIONAL MACHINERY INSURERS ASSOCIATION CONFERENCES PRESENTED 3 PAPERS AT IMIA CONFERENCES AND PARTICIPATED IN 2 OTHER PAPERS

3. COURSE DELEGATES WOULD EACH DELEGATE PLEASE GIVE A SHORT SUMMARY OF WHO THEY ARE NAME (FIRST AND SURNAME) THE COMPANY THEY ARE EMPLOYED BY A SHORT RESUME OF THEIR EXPERIENCE LENGTH OF SERVICE

4. PURPOSE OF COURSE TO PREPARE DELEGATES FOR EXAMINATIONS TO PROVIDE KNOWLEDGE TO ASSIST IN DELEGATES BECOMING FAISE COMPLIANT TO ENHANCE YOUR KNOWLEDGE IN YOUR DAY TO DAY BUSINESS DEVELOPMENT AND UNDERWRITING PROCEDURES ASK AS MANY QUESTIONS AS YOU WISH, COMMENT IF YOU HAVE ANOTHER VIEW OR WISH TO MAKE A CONTRIBUTION REMEMBER, THE ONLY SILLY QUESTION OR COMMENT IS THE ONE NOT VOICED, I TOO WILL ASK QUESTIONS Never consider your answer to be stupid and opening a door for others to laugh at you or criticize you , we are all in the same position. Your answer is your understanding of the problem, others may have different views, equally wrong or right, your answers give me a lead on how to proceed so as to give you the best instruction PARTICIPATION IS THE NAME OF THE GAME ALL VIEWS ARE WELCOME

5. WHO SHOULD BENEFIT FROM THE COURSE WE WILL NOT BE FOCUSSING EITHER ON UNDERWRITERS NOR BROKERS AS THE PRINCIPLES AND PRACTICES ARE EQUALLY APPLICABLE TO BOTH; WHEN THE BROKER RECEIVES AN ENQUIRY FROM A CLIENT FOR A QUOTATION HE HAS AN OBLIGATION AND RESPONSIBILITY TO BOTH THE CLIENT AND UNDERWRITER TO PRESENT UNDERWRITING INFORMATION AS WIDE AND AS FULL AS POSSIBLE SO AS TO OBTAIN THE MOST COMPETITIVE TERMS POSSIBLE; LIKEWISE THE UNDERWRITER ALSO HAS THE OBLIGATION TO ENQUIRE ABOUT ANY ASPECT NOT COVERED IN THE UNDERWRITING INFORMATION, HE SHOULD NOT GUESS, BUT REVERT TO THE BROKER FOR MORE INFORMATION, THE UNDERWRITER ALSO HAS THE RIGHT TO VISIT SITE TO SATISFY HIMSELF OF THE ELEMENT OF RISK; IT IS A PARTNERSHIP- CLIENT, BROKER & UNDERWRITER

6. INTRODUCTION – 1 DEVELOPMENT DURING 20TH CENTURY DEVELOPMENT IN SOUTH AFRICA AFTER WW II DEVELOPMENT OF POLICY WORDINGS DERESTRICTION OF TYPES OF RISK ELIGIBLE FOR CONSTRUCTION INSURANCE

7. THE NEED FOR INSURANCE THE PERIOD FOLLOWING WW II RECONSTRUCTION IN EUROPE PROLIFERATION OF COMPLEX PROJECTS IN DEVELOPED AND DEVELOPING WORLD THE OLD WORKMANS COMPENSATION ACT THE DEVELOPING KNOWLEDGE BASE WITH THE POSSIBILITY OF LOSS OR DAMAGE DUE TO UNTRIED FEATURES/PROTO-TYPES LEGISLATION AND COMMON LAW

8. INTRODUCTION – 2SCOPE OF COVER – CONSTRUCTION POLICY MATERIAL DAMAGE: ELECTRICAL/MECHANICAL FAILURE STRUCTURAL FAILURE CIVIL INCOMPETENCE ACCIDENTAL/EXTRANEOUS DAMAGE COLLAPSE, COLLISION AND IMPACT FIRE DAMAGE ELEMENTAL PERILS DAMAGE THEFT MALICIOUS DAMAGE CONSEQUENCES OF FAULTY DESIGN PLAN SPECIFICATION CONSEQUENCES OF FAULTY MATERIALS OR WORKMANSHIP THIRD PARTY LIABILITY: BODILY INJURY OR DEATH DAMAGE TO PROPERTY CONSEQUENTIAL LOSS

9. INSURANCE COVER NECESSARYCONSTRUCTION PROJECT ASSUME YOU ARE A CONTRACTOR EMBARKING ON A CONSTRUCTION PROJECT WHAT INSURANCE COVER WOULD YOU DEEM NECESSARY TO PROTECT YOUR INTERESTS AND THOSE OF YOUR PRINCIPAL??? LET US SAY IT IS A BUILDING IN SANDTON, WITH OTHER BUILDINGS ADJACENT TO THE SITE OF YOUR OPERATIONS

10. BASIC INSURANCE COVER NECESSARY CONSTRUCTION POLICY COVERING: CONTRACT WORKS CONSTRUCTION PLANT THIRD PARTY LIABILITY INTERFERENCE OR REMOVAL OF SUPPORT DELAYED STARTUP/ADVANCE PROFITS

11. OTHER INSURANCES NEEDED BY CONTRACTOR A COMPREHENSIVE CONTRACTORS’ LIABILITY POLICY COVERING: PUBLIC LIABILITY NOT NECESSARILY PROVIDING FOR SITE RISKS THAT ARE PROBABLY COVERED BY THE WORKS POLICY PRODUCTS LIABILITY EMPLOYERS’ LIABILITY PROFESSIONAL INDEMNITY MOTOR EXCESS OF LOSS LIABILITY PRODUCTS GUARANTEE PRODUCT RECALL CARRIERS LIABILITY INCLUDING CONSEQUENTIAL LOSS PLANT HIRE LIABILITY IF NOT COVERED BY WORKS POLICY PURE ECONOMIC LOSS DELAYED START-UP IF NOT TAKEN OUT BY PRINCIPAL INTERFERENCE WITH SUPPORT IF NOT COVERED BY WORKS POLICY MARINE IMPORT POLICY IF A PROJECT IMPORT POLICY HAS NOT BEEN TAKEN OUT BY THE PRINCIPAL THIS COVER IS ONLY BEING MENTIONED AT THIS STAGE, IT WILL BE RE-VISITED IN MORE DETAIL IN LATER DISCUSSIONS

12. CONSTRUCTION INSURANCEBASIC PRINCIPLES AS IN THE CASE OF ANY OTHER INSUANCE THE FOLLOWING PRINCIPLES APPLY: INSURABLE INTEREST INDEMNITY PROXIMATE CAUSE GOOD FAITH SUBROGATION IN SOME CASES THE APPLICATION OF THESE MAY BE SOMEWHAT MORE SUBTLE

13. ELIGIBLE ENGINEERING DISCIPLINES IN CONSTRUCTION

14. SUB DIVISION OF ELECTRICAL DISCIPLINE

15. SUB DIVISION OF MECHANICAL DISCIPLINE

16. SUB DIVISION OF CIVIL DISCIPLINE

17. SUB DIVISION OF STRUCTURAL WORKS

18. NATURE OF CONSTRUCTION PROJECTSTYPES OF POLICIES BASICALLY THERE ARE TWO MAIN TYPES OF CONSTRUCTION PROJECT OWN WORKS SMALL OR MINOR PROJECTS CONTRACT WORKS MAJOR PROJECTS OR WORKS EITHER OF THESE COULD BE INSURED AS AN ANNUAL POLICY ON A TURNOVER OR DECLARATION BASIS OR AS A SPECIFIC POLICY FOR THE PARTICULAR RISK WE WILL ADDRESS THIS ASPECT IN A LATER DISCUSSION .

19. TYPES OF CONSTRUCTION POLICIES – 1 MINOR WORKS CONSTRUCTION OF OWN PROJECTS OR MOVEMENT OF OWN PROPERTY THIS WORK GENERALLY REVOLVES AROUND MINOR PROJECTS INVOLVING: DISMANTLING TRANSIT ERECTION OR CONSTRUCTION POSITIONING OR REPOSITIONING RESITING LIFTING/LOWERING TYPES OF TYPES OF

20. OWN CONSTRUCTION WORKSMINOR WORKS OTHERWISE KNOWN AS DISMANTLING, TRANSIT AND ERECTION INSURANCE OR MACHINERY INSURANCE OR ENGINEERING ALL RISKS INSURANCE THIS COMPRISES THE WORK OF ERECTION, CONSTRUCTION OR MOVEMENT OF INDIVIDUAL MACHINES SMALL BUILDINGS OTHER MINOR PROJECTS THIS WORK IS USUALLY CARRIED OUT BY THE EMPLOYERS’ OWN WORKERS OR BY LABOUR EMPLOYED BY THE OWNER FOR THE PURPOSE OF INSTALLATION OR CONSTRUCTION AT HIS OWN PREMISES SOMETIMES BY MINOR CONTRACTORS USUALLY CARRIED OUT UNDER A WORKS ORDER

21. OWN CONSTRUCTION WORKSMINOR WORKS IT IS USUAL TO INCLUDE A MEMORANDUM IN THE INSURANCE ESPECIALLY WHERE USED OR SECONDHAND MACHINERY IS CONCERNED ALONG THE FOLLOWING LINES: THE INSURED WARRANTS THAT THE INSURED PROPERTY (MACHINERY) IS IN A SOUND CONDITION AT THE TIME OF ATTACHMENT OF THIS INSURANCE AND IN THE EVENT OF A CLAIM HEREUNDER THE ONUS IS UPON THE INSURED TO PROVE THAT THE LOSS OR DAMAGE OCCURRED DURING THE PERIOD OF INSURANCE AND AS ARESULT OF THE OPERATIONS COVERED BY THIS POLICY

22. TYPES OF CONSTRUCTION POLICIES – 2 MAJOR WORKS CONTRACT WORKS: THESE ARE USUALLY MAJOR CONSTRUCTION PROJECTS CONTRACT WORKS PROJECTS UNDERTAKEN IN TERMS OF A SPECIFIC WORKS CONTRACT AND INSURED ON ONE OF THE FOLLOWING BASES: PRINCIPAL CONTROLLED INSURANCE EACH CONTRACTOR ARRANGING OWN INSURANCE INCLUDING OR EXCLUDING HIS SUB-CONTRACTORS EACH SUB-CONTRACTOR ARRANGING OWN INSURANCE ALL IN ACCORDANCE WITH CONTRACT CONDITIONS WHERE A CONTRACTOR/SUB-CONTRACTOR ARRANGES HIS OWN INSURANCE – WHAT ABOUT THE PRINCIPAL, THE MAIN CONTRACTOR, PROJECT MANAGER OR DEVELOPER?

23. CONTRACT WORKS PROJECTSMAJOR WORKS THE MAIN FEATURE OF THESE PROJECTS IS THAT THEY ARE UNDERTAKEN BY CONTRACTORS ON AN AGREED CONTRACT BASIS THERE ARE STANDARD FORMS OF CONTRACT, HOWEVER, SOME EMPLOYERS HAVE THEIR OWN CONTRACT WORDINGS, BUT THESE ARE GENERALLY STYLED ON THE RECOMMENDED STANDARD FORMS

24. IDEAL CONTRACT CONDITIONS THESE ARE THE CONDITIONS PUBLISHED BY VARIOUS PROFESSIONAL BODIES VARIOUS FIDIC FORMS PUBLISHED BY THE INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS (PROBABLY THE MOST USED) GENERAL CONDITIONS OF CONTRACT FOR WORKS OF CIVIL ENGINEERING CONSTRUCTION (GCC) PRINCIPAL BUILDING AGREEMENT (JBCC) NEW ENGINEERING CONTRACT (NEC) NOW KNOWN AS ENGINEERING AND CONSTRUCTION CONTRACT

25. PARTIES TO THE WORKS CONTRACTNOT NECESSARILY THE INSURANCE POLICY EMPLOYER OR PRINCIPAL * DEVELOPER # PROJECT MANAGER # PROFESSIONALS # CONTRACTOR * SUB-CONTRACTOR(S) * SPECIALIST SUB-CONTRACTOR # NOT ALL OF THESE PARTIES ARE NECESSARILY INVOLVED IN ALL CONTRACT PROJECTS THOSE MARKED WITH A * ARE THE USUAL PARTIES AND THOSE MARKED WITH A # ARE THE OPTIONAL PARTIES SUBJECT TO TERMS AND CONDITIONS RELATIONSHIP AND DUTIES OF CONTRACTING PARTIES ONE TO ANOTHER DUTIES TO THIRD PARTIES (PUBLIC LIABILITY)

26. THE EMPLOYERALSO KNOWN AS THE PRINCIPAL THE PARTY WHO WILL ULTIMATELY OWN THE PROJECT PROPERTY HE WILL APPOINT (COMMISSION) THE PROJECT MANAGER (IF ANY), ARCHITECHT, DESIGN ENGINEER, DRAUGHTSMAN, CONTRACTOR, AND SOMETIMES THE PROJECT ENGINEER AND POSSIBLY EVEN THE QUANTITY SURVEYOR

27. THE DEVELOPER THE PARTY WHO WILL COMMISSION THE WORK TO BE UNDERTAKEN ON BEHALF OF AN INVESTMENT CONSORTIUM OR THE ULTIMATE PURCHASERS. THIS PARTY MAY EVEN ON RARE OCCASIONS ASSUME THE ROLE OF THE PRINCIPAL HE WILL APPOINT (COMMISSION) THE PROJECT MANAGER (IF ANY), ARCHITECHT, DESIGN ENGINEER, CONTRACTOR AND SOMETIMES THE PROJECT ENGINEER AND POSSIBLY EVEN THE QUANTITY SURVEYOR AND NOMINATE SUB-CONTRACTORS

28. THE PROJECT MANAGER THE PROFESSIONAL APPOINTED BY THE PRINCIPAL TO MANAGE THE PROJECT, IT IS HIS RESPONSIBILITY TO ENSURE THAT ALL ASPECTS OF THE PROJECT ARE PROPERLY AND CORRECTLY PERFORMED AND MORE PARTICULARLY THAT GOOD ENGINEERING STANDARDS AND PRACTICES ARE MAINTAINED AND THE RISK OF LOSS OR DAMAGE IS KEPT TO THE MINIMUM AND MORE PARTICULARLY THAT THE RISK OF INJURY TO PERSONS IS WELL CONTROLLED

29. THE PROFESSIONALS THE TERM ‘PROFESSIONALS’ INCLUDES ANY AND ALL PROFESSIONAL PARTIES, SUCH AS, ARCHITECHTS, DESIGN ENGINEERS, QUANTITY SURVEYORS, LAND SURVEYORS, CONSULTING ENGINEERS, DESIGNERS, DRAUGHTSMEN AND THE LIKE. THEIR INCLUSION IN THE WORKS POLICY IS ONLY TO THE EXTENT OF THEIR SITE INVOLVEMENT RESULTING IN LOSS OR DAMAGE, BUT EXCLUDING THEIR PROFESSIONAL ACTIVITIES OR PROFESSIONAL LIABILITIES.

30. THE CONTRACTOR THIS IS THE PARTY WHO UNDERTAKES THE WORK OF CONSTRUCTION AND, AS MAY BE NECESSARY, THE MANUFACTURE (ON THE CONTRACT SITE) OF COMPONENTS OF THE WORKS. HE HAS THE RESPONSIBILITY FOR THE ACTS AND/OR OMISSIONS OF SUB-CONTRACTORS WHO HE MAY OR MAY NOT HAVE APPOINTED DIRECTLY AS THEY MAY HAVE BEEN NOMINATED BY THE PRINCIPAL OR PROJECT MANAGER THE CONTRACTOR MAY ALSO MANUFACTURE OR ASSEMBLE WORKS PROPERTY OFF-SITE, HOWEVER, THESE OPERATIONS ARE NOT COVERED BY THE WORKS POLICY, ALTHOUGH, SOME INSURERS ALLOW FOR THIS WORK IN THEIR POLICY

31. THE SUB-CONTRACTOR THE SUB-CONTRACTOR IS THE SERVANT OF THE CONTRACTOR AND IS USUALLY A SPECIALIST OR EXPERT IN HIS PARTICULAR FIELD BEING A SPECIALIST OR EXPERT IN HIS FIELD HE MAY BE A NOMINATED PARTY TO THE CONTRACT, HOWEVER HE IS ALWAYS APPOINTED BY THE CONTRACTOR IT IS IMPORTANT TO NOTE THAT THE SUB-CONTRACTOR IS TO BE A SITE SUB-CONTRACTOR IF HE IS TO BE INCLUDED IN THE PROJECT INSURANCE ANY OFF-SITE WORK IS NOT INCLUDED IN THE WORKS INSURANCE UNLESS BY SPECIFIC AGREEMENT

32. THE SPECIALIST SUB-CONTRACTORS THE SPECIALIST SUB-CONTRACTOR MAY OR MAY NOT BE THE SERVANT OF THE CONTRACTOR AND IS OFTEN APPOINTED BY THE PRINCIPAL OR PROJECT MANAGER TO UNDERTAKE SPECIALISED OPERATIONS, SUCH AS: GROUND WORKS, PILING, DEWATERING, INSTALLATION OF SUPPORT STRUCTURES AND ASSOCIATED WORKS AESTHETIC WORK SUCH AS MURALS, CARPETING, ART WORK AND THE LIKE BEING A SPECIALIST OR EXPERT IN HIS FIELD HE MAY BE A NOMINATED PARTY TO THE CONTRACT AND, USUALLY IS RESPONSIBLE FOR HIS OWN INSURANCE IT IS IMPORTANT TO NOTE THAT SPECIALIST SUB-CONTRACTORS ARE RARELY INCLUDED IN THE PROJECT INSURANCE AND,IF SO, ONLY TO THE EXTENT OF ON-SITE INVOLVEMENT WHICH WILL PROBABLY PROVIDE ONLY FOR DAMAGE TO OWN WORKS OR THIRD PARTY PROPERTY.

33. THE RELATIONSHIP BETWEEN CONTRACTING PARTIES THE QUESTION NOW ARISES AS TO WHETHER IT IS IN THE BEST INTERESTS OF ALL PARTIES TO: TAKE OUT PROJECT INSURANCE CATERING FOR ALL PARTIES, SUBJECT TO PRESCRIBED CRITERIA (PRINCIPAL OR CONTRACTOR CONTROLLED INSURANCE); OR HAVE EACH PARTY TAKE OUT INSURANCE CATERING FOR THEIR OWN INTERESTS, WHICH SHOULD INCLUDE THIRD PARTY LIABILITY. WILL THIS RESULT IN ANY GAPS IN THE COVER?

34. TYPICAL PROJECT SETUP