Construction insurance types

Public liability insurance (PL) is also often referred to as third-party liability insurance. This insurance responds to claims by third parties such as members of the public or employees of another company working on site for injury to persons or damage to property caused by the activities of a company. For example, if scaffolding falls from a crane while being unloaded and damages a passing car, injuring the driver, the public liability insurance will respond to both the property damage (the car) and the personal injury.

All standard forms of contract will contain requirements relating to the provision of PL insurance and generally there will be provisions requiring that the contractor must effect and maintain cover for a minimum amount of indemnity and that cover must be maintained, as a bare minimum, for the duration of the contract.

Cover variations differ and need to fully indemnify the exact trade and professional activities.

Note that the minimum limit of indemnity for which the contractor is required to effect insurance is not in any way a limitation of its liability. Under current UK law, a party is legally liable for an unlimited amount as regards injury or death of third party persons or damage to third party property. However, unlimited cover is not currently available in the insurance market and thus, companies tend to purchase widely differing limits.

Major contractors may purchase protection to limits of several hundreds of millions of pounds while smaller concerns may have a limit of only £2 million. It is inevitable that practitioners may become involved in such discussions with the client and other members of the professional team and therefore care should be taken. There is no rule of thumb or magic formula for quantifying what is the correct limit of indemnity required and often it is the case that the final decision is taken based upon the cost of such cover, but quanti, payments are increasing and with this in mind it is wise to consider higher limits, £2m is deemed to be very low and £5m is perhaps the absolute minimum to consider.

If a practitioner becomes involved in such discussions it may be worth bearing in mind what the potential exposures are:

• Injury to or death of persons What risks could the company be exposed to if, for example, an incident on site caused death or injury to a passing bus full of tourists? Not only would there be claims for those killed but there could be substantial damages sought for those injured, including special care over many years, loss of earnings, etc.
• Damage to property A tower crane falling onto an adjoining building or a fire spreading from the site to surrounding property could cause serious damage running into many millions of pounds. Similarly, an escape of water within the contract site in a multi-tenanted building could cause serious damage elsewhere in that building.
• Consequential losses While there may be little damage to a building, suppose the incident shut down a key location for a large bank and they lost their dealing rooms for a period. The potential consequential losses could be massive.  

To seek to effect truly adequate cover would probably not be economically viable and so, in the majority of cases a compromise is found.