Construction Insurance and UK Construction Contracts

Marshall Levine and Roger ter Haar KC

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CHAPTER 16 Contract insurance under JCT Standard Building Contract 2011

General

16.1 The core insurance provisions of SB11 that are addressed in this chapter are in materially the same terms as the JCT Intermediate Building Contract 2011 (IC11), the JCT Design and Build Contract 2011 (DB11), and the JCT Management Contract 2011, and to a lesser extent the JCT Minor Works Contract 2011 (MW11). Accordingly, when considering the insurance provisions in respect of those contracts, reference should be made to this chapter. 16.2 The Standard Form of Building Contract (“SB”) is designed for large or complex construction projects where detailed contract provisions are needed. It is suitable for projects procured via the traditional or conventional method. It comes in three forms, with quantities (SB/Q), with approximate quantities (SB/AQ) and without quantities (SB/XQ) and the suite contains sub and sub-subcontracts that tie in with the principal contract. The current version was published in 2011, with Amendment 1 being published in March 2015 to reflect the Construction (Design and Management) Regulations 2015. 16.3 The insurance provisions of SB11 have their origin in the JCT 1963 form of contract which became, with slight modification, the provisions of JCT 1980. In 1986 the provisions were reviewed and substantially altered insurance clauses came into operation on 1 January 1987, with further minor amendments in 1996. Subsequently these changes were consolidated and incorporated without material change into JCT 1998. When the JCT 2005 suite came to be published, SB05 substantially incorporated these provisions, which have been carried through to SB11. Accordingly, whilst there are various changes to the wording and layout, there are no material differences between the provisions of SB11 and those of JCT 1998. Thus the case law on JCT 1998 (and its immediate predecessors) remains relevant. However, much of the case law on JCT 1963 and the original wording of JCT 1980 are no longer applicable to the provisions of SB11 and must be viewed with some caution.

Relevant provisions in the contract

16.4 In summary, the main provisions in SB11 relevant to insurance are provided for as follows:

Clause 6.1: the contractor is to indemnify the employer against claims in respect of death or personal injury arising out of the works, except to the extent that the employer is itself at fault.
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Clause 6.2: a similar indemnity is to be provided by the contractor to the employer in respect of damage to property real or personal, other than damage to the works and to site materials, but only in so far as it results from the fault of the contractor.
Clause 6.4.1: the liability of the contractor in respect of the above indemnities is to be insured by the contractor.
Clause 6.5.1: the employer may insist upon insurance in the joint names of the employer and contractor being procured by the contractor in respect of loss of or damage to property not caused by the fault of the contractor.1
Clauses 6.10-6.11: address the provision of terrorism cover, and the effect of the same being unavailable.
Clauses 6.12-6.13: where there is a contractor’s designed portion, the contractor is required to take out and maintain a professional indemnity policy for the period stated in the contract particulars.
Clauses 6.14-6.17: require both parties to comply with the Joint Fire Code.

16.5 By clause 6.7 and Schedule 3, SB11 provides for three insurance options,2 with the option selected to be stated in the contract particulars:

A and B: in the case of new buildings, insurance of the works is to be effected either by the contractor (option A), or by the employer (option B), under an all risks policy in the joint names of the employer and contractor, which leave the residual risk of any under insurance with the contractor and the employer, respectively.
C: where there are existing buildings, insurance is to be effected by the employer in the joint names of the employer and contractor of the existing structures against specified perils and of the works, against all risks.

16.6 Before considering the specific clauses in turn, a number of general points should be made. The scheme in SB11 preserves the distinction between the insurance of the works and of new buildings, on the one hand, and the insurance of existing structures, on the other. The former have to be insured against all risks, whereas the latter have to be insured only against special perils (fire, etc.). Under option A, where the insurance for new buildings has to be taken out by the contractor, the contractor’s only source of remuneration for restoring the damage to the works is the insurance money. Thus the contractor bears the risk if there is a shortfall. By contrast, under option B, the work of restoring the damage is treated as a variation so that the employer bears the risk of any shortfall in the insurance money. Interestingly, there can be no entitlement to an extension of time under option A if the damage is not caused by a special peril, because damage by other perils covered by an all risks policy is not a relevant

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event. However, it is arguable that the contractor is entitled to an extension of time under option B because the obligation to restore the work is treated as a variation. As the indemnity under clause 6.2 excludes loss or damage to any property required to be insured caused by special perils and is expressly stated to be subject to clause 6.3, which excludes loss or damage to the works, and because the employer and the contractor are jointly insured against the same risk, there can be no right of subrogation as between employer and contractor, even if the damage insured against is caused by the negligence of the contractor: Co-operative Retail Services Ltd v Taylor Young Partnership Ltd.3 It should be noted that the reference to “any property required to be insured” suggests that the exclusion applies whether or not the required insurance is in place under option C. Clauses 6.1 and 6.2 each exclude or impose liability to the extent that the employer or contractor is at fault, but are silent as to the method by which liability is to be apportioned. The employer therefore needs to have liability insurance to cover liability for death or personal injury caused by his fault.4

Specific clauses

Section 6 - clauses 6.1 to 6.3

Injury to persons and property

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