Construction Insurance and UK Construction Contracts
Page 123
CHAPTER 8
The meaning of “damage” in policies relating to construction projects
The meaning of “damage” in policies relating to construction projects
8.1 In we have discussed the elements that must be established in order to succeed in an action for negligence. In that context the courts draw a sharp distinction between claims relating to physical damage to chattels or real property, and claims for pure economic loss; the latter being regarded on policy grounds with greater caution by the courts than the former. The policy behind this caution is the anxiety about the economic and social effects of exposing potential defendants to extensive liabilities. 8.2 For somewhat similar reasons, insurers are cautious about accepting liability for pure economic loss. That is a statement that needs to be tempered with considerable caution - in the market for professional indemnity insurance one of the most significant risks underwritten is the risk of the insured being held liable for pure economic loss (for example, an accountant being held liable for negligent tax advice; a planning consultant negligently advising upon the effect of planning policies; an architect negligently designing a building so that it does not achieve the brief given to the architect). However, professional indemnity insurance is expensive, and limits of liability available are significantly lower than in respect of other forms of liability insurance. 8.3 Similarly, insurers are cautious about agreeing to insure liabilities voluntarily accepted by an insured under contract, since the insured may accept additional liabilities that it is hard for the insurer to value when assessing the premium. 8.4 These considerations have led to very similar decisions under different forms of policy. It is convenient to consider these decisions in one chapter before going on to consider aspects of the different types of policy. 8.5 The issues have been discussed in a number of contexts, but principally in respect of public liability policies, product liability policies and CAR policies.Cases in respect of public liability policies
8.6 A standard public liability policy typically provides cover in respect of both public liability and products liability as follows:The Insurer will indemnify the Insured against legal liability to pay compensation and claimants costs and expenses in respect of accidental