Combined liability insurance is one of the most common insurance covers purchased by businesses. Its common place to assume that a combined liability policy only provides coverage for slips, trips and falls, or 3rd party property damage. There is obviously a lot more to general liability coverage than just slips, trips and falls. It is probably easier to understand the types of claims scenarios that would NOT be covered!

The discounted rate is used to calculate settlements for large personal injury claims when they include an element of future loss. An increase in the size of claims will need to be funded by your insurer. Your Insurer may then pass some of these costs back to you, by increasing premiums (specially for motor ,employer, public liability and medical malpractice insurance).

A report published in the Insurance Insider in August of this year highlighted that 62% of Lloyd’s Syndicates that write Non-US PII are losing money. According to documents by the Lloyd’s Policy Management Directive, syndicates writing Non-US PII have made a £435m loss over 6 years, with Non-US PII labelled the second worse performing underwriting class at Lloyd’s. Of this “Non-US” business, by geography, UK PII accounts for 33% of the market. Canada accounts for 19%, Australia 17% and other non-US territories make up the remainder. Added to this, UK PII has traditionally been the least profitable.

When a policy is on an “any one claim” basis, then the insurance customer is entitled to the full limit of indemnity for each and every claim made. For this reason, “any one claim” is also frequently referred to as “per occurrence”, “per claim”, and “each and every claim”. Unlike with “in the aggregate” where the cost of each claim is deducted from the total limit available, with “any one claim” policies each claim is allocated 100% of the indemnity limit. When an insurance policy is arranged on an aggregate basis, this means that the limit of indemnity is the total amount that the insurer will pay out over a policy term (usually one year) for multiple claims. All expenses are paid out of that limit and, once the limit of indemnity has been reached, then your insurance company will not indemnify any future claims for the remainder of the term.

If a neighbouring property suffers any damage as a result of your works or part of the property not being worked on as a result of the contractor’s negligence then this should be covered by their public liability insurance, while negligence on the part of the architect or surveyor would be covered by their professional indemnity insurance. If however damage occurs but there was no negligence on their part their policies wouldn’t pay out and this is where JCT insurance comes in.

As an example, if a neighbouring property is damaged as a result of the works you have undertaken due to one of the risks named under JCT contracts being Collapse, Subsidence, Heave, Vibration, Weakening or removal of support and Lowering of ground water, but there was no negligence (clause 6.5.1 of the JCT contract) shown by the contractor or professionals involved, as the employer (6.5.1 cover protects the employer/property owner with the cover being arranged in the joint names of the employer and the contractor- the employer is responsible for both the premium and policy excess that becomes payable in the event of a claim) you could be sued for the costs of rectifying the damage. This leaves you open to the risk of having to pay out tens of thousands in legal bills and/or repairs to the building. However, if JCT insurance (6.5.1 – Non-Negligent Liability insurance) is taken out to cover the project then this risk would be covered.

Depending on the type of build you are undertaking, there are different types of JCT that are appropriate.

JCT 6.5.1 (Non-Negligent Liability) – this will protect you against having to pay costs to remedy any damage in the case of a non-negligent incident (i.e. one that couldn’t be foreseen and that no one could be held liable for) that occurs during the build.

Minor Works

JCT 5.4A – Contractor to insure the works (New Build where there are no existing structures) in joint names for ‘all risks’ in this case the property owner and contractor are both named on the policy (unlike the contractor’s all risks policy which will only name the contractor).

JCT 5.4B – Employer to insure the works (Works to existing structures) in joint names for the works on an ‘all risks’ basis and cover for the existing structures/contents for a JCT ‘specified peril’ being Fire, Lightning, Explosion, Storm, Flood, Escape of water from any water tank, apparatus or pipe. Earthquake, Aircraft, Riot and Civil Commotion.

JCT 5.4C – Insurance of the Works and Existing Structures by ‘other means’. Prior to the 2016 JCT suite of contracts, clause 5.4C required 2 separate policies (1) Employer insuring the existing structure in its own name and (2) Contractor insuring the works in its own name which raised a number of issues such as:

Contractor not being noted on the existing structure as a joint insured meant that the contractor’s public liability policy was liable for damage/losses due to their negligence
The cost of arranging appropriate cover for the Employer/Homeowner was prohibitive
The complex nature of the works ie, the works involved by the tenant or tenants on a multi-let property being unable to insure the existing structure as the freeholder is responsible for insuring the building.
The 2016 amendments addressed these difficulties giving the Employer and Contractor the opportunity to arrange their own insurance solutions, hence the term insurance of the Works and Existing Structures by ‘other means’. Should this option be the route to go down, options 5.4A and 5.4B need to be deleted from the Contract Particulars and by stating that Clause 5.4C applies. Additionally, both Employer and Contractor are required to confirm that alternative/bespoke arrangements have been agreed upon and need to advise/consult their insurance advisors prior to this before tender stage and also, if the Employer is a tenant with the landlord responsible for insuring the existing structures, they also need to be consulted at this stage.

Larger Contracts – 2016 JCT D&B Contract

JCT 6.7A – New Build – All Risks Insurance of the contract works by the contractor in joint names

JCT 6.7B – New Build – All Risks Insurance of the contract works by the employer in joint names

JCT 6.7C – Works to Existing Structures/Contents by the employer in joint names including a waiver of subrogation rights awarded to the contractor

C1 – Existing Structures/Contents – Specified perils
C2 – Works – All Risks

A policy that is arranged under JCT clauses (or similar) 6.7B (New Build) and/or 6.7C (Works to existing structures) whereby the responsibility to insure lies with the Employer that is:

Specific for the project providing All Risks of loss or damage to the contract works (including site materials/owned and or hired-in plant if supplied by the employer) and can include:-
Existing structures
Delay in Start Up (DSU)Advanced Loss of Profits (ALOP) ie, Loss of Rent, Loss of Gross Profit, Increase Cost of Working, Additional Interest and Refinancing Costs)
Public Liability – Either Contingent or all Parties
Non-Negligent Liability (6.5.1)
Terrorism
In the name of the Employer and all interested parties (including the main contractor and any subcontractors in any tier with the main contractor only needs to be named on the policy, lenders/funders and consultants)

Fragmentation of cover – Avoids gaps or duplication in cover which may increase insurance costs and complicate claims handling as all contractors included from day 1 through to practical completion with claims paid directly to the employer rather than through the main/subcontractors insurance who in turn settle with the employer avoiding delays as settlement funded straight back in to the construction project

DSU/ALOP cover can only be arranged by the employer. The contractor cannot arrange the cover on behalf of the employer

Claims handling is simplified with nominated Loss Adjusters available 24/7

Any arguments over partial handover are avoided as cover continues in full until the final practical completion certificate is issued

An indemnity policy covering the cost of ‘putting right’ the property (New Build/Completed and/or partially completed Properties) in the event of a defect to the essential structural stability/waterproofing of the property such as walls, floors, roof, windows and foundations for a period of 10/12 years from the date of practical completion.

Areas covered in the event of a structural claim can include:

Costs of demolition for rebuilding purposes
Costs for providing alternative accommodation during the period of repair or re-construction
Costs of removing, storing and re-installing contents
Design and or other costs arising from the need to change the original design or construction to comply with any new building regulations and/or design fees/costs needed in putting right the original building
Cover relies purely on proof of defect and not proof of negligence
Assignable to future owners/funders

Any development infringing a neighbour’s access to light, an injunction may be awarded against the developer, buyer or seller resulting in the costs of alteration to the development or even the demolition of the development.

Currently, our legal system tend to award an injunction against the developer rather than awarding compensation to the injured party. Costs of compensation/damages can be significant to the developer’s profit although the consequences of an injunction will in most cases be more than costly than a damages claim especially if it involves partial or full demolition of the completed development.

The Cover?

Damages and/or compensation awarded as a result of an enforcement action including increased payments incurred by the developer following a temporary injunction.
The market value of the land in terms of the diminution/value of the land is permanently halted/curtailed as a result of a court order
Alteration/Demolition costs incurred following a court order. Under Rights of Light insurance policies, there is always a ‘confidentiality’ aggreement whereby the policy cover can/will be seriously prejudiced if a neighbour/third party property/landlord owner becomes aware that ‘Rights of Light’ insurance is in negotiation. Confidentiality is therefore of paramount importance.
Abortive costs incurred prior to the enforcement action.

A copy of the surveyor’s Rights of Light report which will highlight the neighbouring properties that may be affected and the potential compensation costs and;

Have any neighbours objected to the proposed development relating to infringements of Rights of Light