What is contractors' All Risks Insurance?

Reproduced by kind permission of RICS Construction Journal December 2008

There are broadly two types of construction risks insurance. The first covers damage to property, such as damage to buildings and other structures being constructed or to the existing building in which the construction is being carried out. The second covers liability for third party claims for injury and death or damage to third party property. Modern forms of contractors' all risks policies cover both. The basic principle is that contractors' all risks insurance covers those losses not covered by an 'excluded peril'. For example, the JCT contracts exclude from cover risks such as defects due to 'wear and tear, obsolescence, deterioration, rust and mildew, loss and damage arising out of war and for faulty workmanship and faulty design'. The benefit to the insured under this type of policy is that the burden is shifted to the insurer who, to resist the claim, is required to show that the cause of the loss falls within an exclusion. This insurance is usually taken out in the joint names of the contractor and the employer. Other interested parties, such as funders, often ask to be added as a joint name. The theory is that if damage occurs to the insured property then, regardless of fault, insurance funds will be available to allow for reinstatement. The effect of joint names insurance is that each party has its own rights under the policy and can therefore claim against the insurer. Each insured should comply with the duties of disclosure and notification. Crucially, the insurer has no right of subrogation against the other insured party, which means that the insurer is not able to recover sums paid to one co-insured under the policy by pursuing a subrogated action in the name of the other insured. Contrast joint names insurance with having an interest noted on the policy. This is different and should not be regarded as a substitute because the third party with the interest on the policy is not a party to the contract of insurance and thus does not have any right to claim against the insurer, but does have entitlement to share in the insurance proceeds. Similarly, the insurer will not be precluded from exercising rights of subrogation against the third party. Author Amy Dunning

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