Work sites today can present many safety hazards but even more hazardous may be the pitfalls of trying to negotiate the right insurance package for any given project. In Nova Scotia, the Occupational Health and Safety Act, along with its Regulations, offers contractors guidance on acceptable safe practices, but there is no handy guide to negotiate through the insurance process. So how does one ensure that they are insured against all the risks associated with construction? And what types of insurance protect for situations where a visitor to a site falls down stairs that were not properly covered at a work site, or a torch is left on and causes a fire, or even theft of property? The best advice is to deal with insurance up front in the construction contract and review all policies to ensure you are protected against the risks you wanted protection from.
Insurance at a construction site can protect against a large host of different issues. But insurance comes in a variety of shapes and sizes and it is important for a company to know exactly what protection they need. A typical construction project could require three different insurance policies – Property Insurance, Builder’s Risk Insurance and Commercial General Liability. But before analysing each specific policy, the starting point for any contractor is to deal with who is going to carry what form of insurance in the construction contract. Clauses dealing with whether the property owner or the contractor will be named as insureds in any given policy can have serious effects on who is protected from what risks and all companies should review limitation of liability and subrogation clauses carefully so they can best determine what risks they may need protection from.
As a starting point, it is important to protect against damage to the property under construction. This means only the property under construction and its contents. Often, Property Insurance is taken out by the owner of the building and comes as either an “all risks” or “named perils” policy. While an “all risks” policy sounds like a catch-all category there are instances where an “all risks” policy will not cover things that a “named perils” policy does. For instance it is typical for an “all risks” policy to exclude the cost of rectifying faulty workmanship. A “named perils” policy does exactly what its name suggests; it covers a peril that is named in the policy. Therefore, the typical property policy is an “all risks” policy that is meant to provide coverage for all damage to the property with specific exclusions for things like faulty workmanship. If you are looking for protection from faulty workmanship, you should discuss a “named perils” policy with the insurance company.
In order for a construction company to be adequately protected for all claims of property damage, including damage to their own on site property, Builder’s Risk Insurance can be key. This type of insurance covers loss or damage to a construction project during the construction process. It offers additional insurance to the contractor throughout the construction process since the Property Insurance is usually taken out by the owner of the building. Another typical situation where you would see Builder’s Risk Insurance instead of Property Insurance is where you have a new construction. Builder’s Risk covers the building throughout the construction process and before the owner places an All Risks Property Insurance Policy once construction is complete. The policy will generally cover the time period from the date work starts to the date the project is fully complete, and will also specify the property that is insured, the perils insured against, and the territory to which it applies. The policy will include exclusions, most likely again for faulty workmanship or design, and the policy must be looked at carefully to determine what is covered and for how long. This policy will usually offer protection to the property of the contractor as well. Should any tool or item go missing from the construction site, the contractor could look to their Builder’s Risk Policy for coverage.
Finally, it is important to consider that injuries can be caused by accidents on the job site. Usually workers are covered by Worker’s Compensation but when a visitor to the site injures him/herself, it is important to have insurance to cover any claim for such injuries or losses. Commercial General Liability Insurance policies are designed to cover claims brought by third parties for property damage or personal injury. CGL policies cover “accidents” which obviously does not include deliberate damage. However, the most significant exception to CGL coverage is that it does not cover claims to the contractor or owner’s own products, property or work.
Insurance policies can be difficult to understand but a good rule of thumb is to read your policy and look to make sure you are protected for any damage to the property under construction, the property or tools you will be using to complete the construction process, and any injury, loss or damage to third parties who may be visiting the site at any time. If these three areas are covered, then you have decreased your risks of loss substantially.
For more information contact the author Michelle Kelly or a member of our construction team.