One of the least scrutinised section of any construction contact is often the section relating to insurance. These are often passed over because contractors are assured they just require the ‘standard’ insurance that they are obligated to sign to be awarded the construction contract.
But beware, these can be minefields.
Frequently they contain clauses which shift the balance of responsibility unfairly onto the contractor, leaving them personally exposed to potentially serious losses.
While it remains true that you must sign a contract to get the job, in our experience, it does not mean you have to accept every word and every condition. If there are unacceptable or unfair clauses, often you have the ability to strike these out or propose small wording changes.
Three areas in particular are cause for concern:
- Where you are required to indemnify the principal against any claim;
- Where you are required to make good any shortcomings or failure, regardless of the cause; and
- Where you are required to make good any loss or damage to the works during the course of construction.
In each of these cases, the contractor is being asked to assume the cost and responsibility for things that may be beyond their control and which may not be covered by your own existing insurance policy. The contractor may even be required to effect additional insurance on the works to cover damage to the works during construction.
An insurance broker would be able to advise as to whether items agreed to are covered by the contractor’s existing policy or if additional insurances are required. They will also spot unfair or unreasonable clauses which can rightfully be refused as unacceptable. It is important to mitigate any potential risks and minimise what could be a significant financial impact on a business should the unexpected happen.