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Construction projects can become dormant for several reasons; weather, payment disputes and most recently, State Governments mandated ‘stop work’ orders as a result of COVID-19 restrictions.  Due to the rapidly changing nature of restrictions, it is important for businesses within the construction industry to understand the coverage within a building contractor’s contract works insurance policy.

Policies available within the Australian market will all have some form of Cessation of Works clause normally ranging between 30 and 60 days.  Whilst the current Victorian lockdown by the Andrew’s Government is in place for the next two weeks, senior construction officials are anticipating tools to be down anywhere from 14 to 30 days.  Should this shut down exceed 30 days, many building sites across Victoria will trigger their Cessation Works clause.

Regardless of these clauses, the insured has an obligation to advise their insurers of any material change in risk, regardless of the strength of these clauses. Informing your insurer to the changed working conditions is prudent, particularly when it results in an increased exposure for all stakeholders.

From an insurance perspective, when work ceases on site, its risk exposure increases significantly as plant, equipment and temporary and permanent works become much more vulnerable to damage.  In this instance, one must act as a “prudent self-insured” firstly to secure their sites and to comply with the cessation clauses within their construction policies.

In preparation for Victoria’s shut down, head contractors and principal controlled contractors must secure their sites, increase security patrols, ensure adequate weather protection, secure temporary works including site sheds and cranes, and have preventative maintenance on-site.

Notifying your insurance broker is the first step in mitigating a business’s exposure. Together, all parties should be able to work with their insurers regarding the risk management requirements which will need to be implemented to reduce the Cessation Works clause.

If the Cessation of Works clause is not adhered to and insurers are not notified when a site becomes dormant, cover can be invalidated.  One cannot assume coverage will remain in place nor should they rely on the force majeure clause within their own building contracts with the principal as they are separate contracts.

Understanding the implications and policy words of the Cessation of Work clause in your policy is critical. PNOinsurance have a specialist construction division insuring the needs of all types of building contractors, regardless of their complexity. We are happy to discuss your policies with you to ensure your construction site remains protected.

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