Risk and Insurance in Construction, 2nd Edition

BOOK COVER......Page 1
HALF-TITLE......Page 2
TITLE......Page 3
COPYRIGHT......Page 4
DEDICATION......Page 5
CONTENTS......Page 6
FIGURES......Page 12
TABLES......Page 13
BIOGRAPHICAL NOTE......Page 14
FOREWORD TO THE FIRST EDITION......Page 15
ACKNOWLEDGEMENTS TO THE FIRST EDITION......Page 16
ACKNOWLEDGEMENTS TO THE SECOND EDITION......Page 17
PREFACE TO THE FIRST EDITION......Page 19
PREFACE TO THE SECOND EDITION......Page 21
A glimpse through history......Page 23
Interaction between insurance and law......Page 28
Construction contracts......Page 29
Construction and the law......Page 33
Development of insurance clauses in standard forms of contract......Page 36
Construction and society......Page 38
1 Erosion of the position of a professional and a breakdown in the relationship of trust......Page 41
2 Inability to appreciate the difference in quality......Page 42
3 Abuse by professionals and professional organisations......Page 44
Instincts v. reasoned decisions......Page 47
Modern society and awareness of hazards......Page 48
A hazard or a risk?......Page 49
Risks in construction......Page 52
Risk management......Page 55
Hazards in construction......Page 60
A Classification based on geographic distribution......Page 61
C Classification based on legal concepts......Page 62
E Classification based on chronology......Page 63
Allocation of risks......Page 65
Risks inherent in major projects......Page 67
Assessment of risks in construction......Page 69
3 THE SPECTRUM OF HAZARD AND RISKS IN CONSTRUCTION......Page 72
E.1.1.1 Owner’s choice of professional team and advisers......Page 73
E.1.1.3 Choice of site......Page 75
E.1.1.4 Adequacy of soil investigations......Page 77
E.1.1.6 Adequacy of finance and related calculations......Page 80
E.1.2 Risks associated with the design stage (Figure 3.2)......Page 81
E.1.2.1 Inappropriate choice of design with respect to others and to society......Page 83
E.1.2.2 Negligence and lack of care......Page 85
E.1.2.3 State of the art, codes and technical knowledge......Page 86
E.1.2.4 Lack of knowledge, inadequate checking and work carried out in haste......Page 87
E.1.2.5 Lack of communication......Page 88
E.1.2.9 Lack of safety precautions......Page 89
E.2.1.1 Excessive Rainfall......Page 90
E.2.1.2 Flood and inundation......Page 91
E.2.1.3 Wind and storm......Page 93
E.2.1.5 Subsidence, landslide, rockslide and avalanche......Page 94
E.2.1.6 Extremes of temperature......Page 95
E.2.1.7a Cyclone......Page 96
E.2.1.7b Earthquake......Page 97
E.2.1.15 Acts of God in relation to nature of site—topography and surface water run-off......Page 98
E.2.1.16 Adverse geological and underground characteristics......Page 99
E.2.1.17 Acts of man in relation to nature of site—underground obstructions......Page 100
E.2.2.1 Extended duration of construction......Page 101
E.2.2.2 Technical complexity and innovation in design requiring new methods of construction and/or erection......Page 103
E.2.2.4 Dangerous substances and items during construction and/or commissioning......Page 104
E.2.2.6a Defective workmanship and material......Page 105
E.2.2.6b Defective design, workmanship and quality control......Page 106
E.2.2.7 Mechanical and electrical breakdown......Page 108
E.2.2.8 Inadequate site management......Page 109
E.2.2.9 Ground movement......Page 110
E.2.2.11 Explosion and fire......Page 111
E.2.2.12 Vibration and oscillation......Page 113
E.2.2.13 Defective temporary works and their design......Page 114
E.2.2.15 Collapse......Page 115
E.2.2.16 Collapse of temporary works......Page 116
E.2.3.1 Human error......Page 117
E.2.3.2 Negligence and lack of care......Page 120
E.2.3.3 Fraud and infidelity......Page 121
E.2.3.6 Lack of communication......Page 122
E.2.3.7 Failure to comply with insurer’s conditions and requirements......Page 125
E.2.3.10 Arson......Page 126
E.2.3.14 Inefficiency and delays......Page 127
E.2.3.15 Inadequate site supervision......Page 128
E.2.3.16 Variations front contract documents......Page 131
E.2.3.18 Risks associated with dispute resolution......Page 133
E.3.1.1 Risks associated with safety......Page 134
E.3.1.3 Risks associated with fatigue......Page 138
E.3.1.4 Risks associated with fire and arson......Page 139
E.3.1.5 Acts of God in relation to nature of site—topography and surface water run-off......Page 141
E.3.1.6 Risks associated with natural hazards......Page 142
E.3.1.7 When risks of natural hazards are added to human mistakes......Page 143
E.3.1.8 Risks associated with man-made hazards, including political risks......Page 145
E.3.1.10 Risks associated with project operation......Page 147
E.3.1.11 Risks associated with wear and tear during the project’s designed life span......Page 148
4 THE RISKS AS CLASSIFIED IN STANDARD FORMS OF CONSTRUCTION CONTRACTS......Page 149
Summary......Page 156
Logic......Page 157
Allocation of risk and responsibility......Page 158
Definitions......Page 160
Responsibility in construction......Page 163
Liability emanating through construction......Page 165
Levels of liability......Page 166
Liable or not? Developments in contract law......Page 167
Duty of care in design......Page 169
Reasonable skill, care and diligence v. fitness for purpose......Page 171
Fitness for purpose......Page 173
The role of insurance......Page 176
Selection of site staff......Page 177
Supervision......Page 178
Developments in contract law: contractor’s duties......Page 182
Liable or not? Developments in the law of torts......Page 183
Date of accrual......Page 192
Future developments......Page 195
Indemnity through law......Page 198
Insurance as a contract of indemnity......Page 201
Construction insurance......Page 203
1 The contractor is to complete the contract......Page 204
3 A Construction project is unique and not comparable to a manufactured product......Page 206
4 Hazards and risks in construction......Page 207
Definition of the word ‘accident’......Page 208
Uninsurable risks......Page 211
Insurance policies required in construction......Page 212
Liability insurance......Page 213
Non-negligence insurance......Page 214
Decennial insurance......Page 217
Overlaps and gaps......Page 220
Bonds and guarantees......Page 221
Structure of the insurance market......Page 223
1 The right insurer and the appropriate policy......Page 224
2 Assessment of risks and needs, and effecting insurance to suit......Page 225
4 Claim settlement......Page 226
The insurer......Page 229
The reinsurer......Page 230
Premium calculations......Page 231
Documentation......Page 234
The insurers’ departmentation......Page 235
8 THE INSURANCE CLAUSES IN STANDARD FORMS OF CONTRACT......Page 237
Liability and insurance clauses of the client/consultant Model Services Agreement (The White Book) 3rd edition 1998......Page 238
The responsibility, liability, indemnity and insurance clauses of the FIDIC Form of Contract between Owner and Contractor…......Page 240
Sub-Clause 20.1—Care of the Works......Page 243
Responsibility and period......Page 244
Taking-over part of the works......Page 247
Sub-Clause 20.4—The Employer’s Risks......Page 257
Clause 21—Insurance of the Works, etc.......Page 260
Sub-Clause 22.1 Damage to Persons and Property......Page 268
Clauses 23 and 24—Third Party Insurance—Injury to Workmen......Page 272
Clause 25—General insurance requirements......Page 275
Sub-Clause 65.1—No Liability for War, etc. Risks......Page 279
Sub-Clause 65.3—Damage to Works by Special Risks......Page 286
Sub-Clause 65.4—Projectile, Missile......Page 287
Sub-Clause 65.5—Increased costs arising from Special Risks......Page 288
Sub-Clause 65.7—Removal of contractor’s equipment on termination......Page 290
Sub-Clause 65.8—Payment if contract terminated......Page 291
9 THE INSURANCE CLAUSES IN FIDIC’S TRADITIONAL FORMS OF CONTRACT......Page 293
1 Construction Risks, allocation and responsibility......Page 294
3 Responsibility for Damage or Loss to the Works, before the Risks Transfer Date......Page 296
4 Liability and Indemnity......Page 297
5 Insurance (Alternative A—Contractor to take out Insurance)......Page 298
6 Insurance (Alternative B—Employer to take out Insurance)......Page 300
Clause 1: Construction Risks, Allocation and Responsibility......Page 301
Clause 3: Responsibility for Damage or Loss to the Works, before the Risks Transfer Date......Page 304
Clause 4: Liability and Indemnity for Personal Injury to Third Party and Property Damage other than the Works......Page 306
Clause 5: Insurance (Alternative A—Contractor to take out Insurance)......Page 307
Insurance (Alternative B—Employer to take out Insurance)......Page 308
Amendments required for an electrical and mechanical contract......Page 309
10 THE INSURANCE CLAUSES OF THE NEW 1999 FIDIC FORMS OF CONTRACT......Page 312
The New Green Book......Page 313
Analysis of Clauses 13 and 14 of the Green Book......Page 317
The new major books: Red, Yellow and Silver......Page 319
New provisions that might affect the risks which lead to loss and/or damage, and insurance......Page 320
The New Silver Book......Page 322
Differences between the three new FIDIC books in Clauses 17 to 19......Page 324
A Clause 17—Risk and Responsibility......Page 326
B Clause 18—Insurance......Page 332
C Clause 19—Force Majeure......Page 339
17 Risk and Responsibility......Page 342
18 Insurance......Page 346
19 Employer’s Exceptional Risks of Loss and Damage......Page 349
The proposed replacement of Clauses 17 to 19 of the New Yellow and Silver Books......Page 351
12 INSURANCES REQUIRED UNDER THE FIDIC AGREEMENTS......Page 353
Contractors’ All Risks insurance policy......Page 354
Policy wording......Page 355
Definitions......Page 356
Schedule......Page 357
General Exclusions......Page 362
Special Exclusions......Page 363
Conditions......Page 366
Settlement of claims......Page 368
Public liability insurance policy......Page 369
Employer’s liability insurance policy......Page 370
13 PROFESSIONAL INDEMNITY INSURANCE......Page 372
Indemnity through insurance......Page 373
Policy wording......Page 374
The Insuring Clause......Page 375
The insured’s professional activity......Page 376
Limit of indemnity......Page 377
Period of insurance......Page 379
Premium and Excess (or deductible)......Page 380
The exceptions/exclusions......Page 381
Conditions......Page 382
Former partners and retiring partners......Page 383
Right of subrogation against employees......Page 384
Environmental impairment......Page 385
Cancellation of cover......Page 386
Settlement of claims......Page 387
Professional indemnity insurance group schemes......Page 388
2 Bargaining power......Page 389
Knowledge......Page 390
Assessment of premium......Page 391
The conventional method......Page 393
Overlaps and gaps......Page 394
A Gaps through uninsurable risks......Page 395
B Gaps due to lack of cover, through either insurance practice or insured’s wish (if not lack of knowledge)......Page 397
C Gaps due to the use of the conventional method of providing insurance protection......Page 399
Recent developments in construction, insurance and law......Page 400
Alternative methods of insuring......Page 401
The Difference-in-Conditions additional insurance, ‘DIC’......Page 402
Project insurance, Principal-controlled insurance or Wrap-up insurance......Page 403
Procurement of the wrap-up insurance policy......Page 408
National insurance schemes......Page 410
Appendix A SPECIMEN......Page 411
GENERAL EXCLUSIONS......Page 413
GENERAL CONDITIONS......Page 414
PROPERTY INSURED (Material Damage)......Page 415
PROVISIONS APPLYING TO SECTION I......Page 416
THIRD PARTY LIABILITY......Page 417
SPECIAL CONDITIONS APPLYING TO SECTION II......Page 418
Appendix C SPECIMEN......Page 420
EMPLOYER’S LIABILITY INSURANCE......Page 422
EXTENSION......Page 423
ENDORSEMENT ‘XYZ’......Page 424
CONDITIONS......Page 425
Appendix E SPECIMEN......Page 428
PROFESSIONAL INDEMNITY POLICY......Page 433
EXCLUSIONS......Page 434
CONDITIONS......Page 435
POLICY EXTENSIONS......Page 437
SPECIMEN......Page 440
Appendix G DO YOU KNOW YOUR CONSTRUCTION INSURANCE INTELLIGENCE QUOTIENT (C.I.I.Q.)......Page 441
Appendix H THE INSURANCE CLAUSES OF THE FIDIC CONDITIONS OF CONTRACT FOR WORKS OF CIVIL ENGINEERING CONSTRUCTION, PART I…......Page 443
Appendix I THE INSURANCE CLAUSES OF THE FIDIC CONDITIONS OF CONTRACT FOR ELECTRICAL AND MECHANICAL WORKS, PART I—GENERAL…......Page 448
Damage to Property and Injury to Persons......Page 450
Limitations of Liability......Page 451
Insurance......Page 452
Force Majeure......Page 453
Appendix J THE INSURANCE CLAUSES OF THE ICE CONDITIONS OF CONTRACT, MEASUREMENT VERSION, 7TH EDITION, 1999......Page 456
Appendix K THE INSURANCE CLAUSES OF THE ICE CONDITIONS OF CONTRACT, DESIGN AND CONSTRUCT, 2ND EDITION, 2001......Page 461
Appendix L THE INSURANCE CLAUSES OF THE FIDIC CONDITIONS OF CONTRACT FOR CONSTRUCTION, 1ST EDITION, 1999......Page 466
Appendix M THE INSURANCE CLAUSES OF THE IEI CONDITIONS OF CONTRACT, 3RD EDITION, 1980, REPRINTED IN 1990......Page 475
WAR CLAUSE......Page 479
Appendix N THE INSURANCE CLAUSES OF THE IEI CONDITIONS OF CONTRACT, 4TH EDITION 1995, REPRINTED IN 1998......Page 482
WAR CLAUSE......Page 486
LIABILITY AND INSURANCE......Page 489
LIST OF CASES......Page 492
INDEX......Page 496