Courtesy -
By Shujaath Ahmed Khan
|
Safety at work and Safe driving is beneficial |
As lot of construction activity is taking place around the world (USA -America,
UK -Britain, India, China, United Arab Emirates, Bahrain, Sultanate of Oman,
Kuwait, Qatar, Latin America, Canada, Brazil,Malaysia, Indonesia, Spain,
Australia, Newzealand, African countries, Asia, Europe, Turkey, Taiwan, Japan,
Eriteria, Sudan, Egypt, Jordan, Yemen, Syria, Netherland, Switzerland, Sweden,
Italy etc.). The following information will be useful to the Principals,
Contractors, sub-contractors and other interested parties.
Contractors All-Risks, Erection All-Risks, Marine Insurance, Marine In-land
Transit Insurance, Liability Insurance, Commercial General Insurance,
Motor/Vehicle Insurance, Workmen Compensation, Property All- Risks Insurance,
Plant and equipment all risks insurance,Group Life Insurance, Personal Accident
Insurance, Money Insurance, Fidelity Guarantee Insurance, Engineering
Insurance, Accident class, Medical Insurance, Fire Insurance, Project
Insurance, Marine "A" Risk Insurance, Storage Risks, Contractors free
supplies, Principals surrounding Property Insurance are some of the important
insurances having exposure in any Construction Projects. Under Motor Vehicle
Insurance, if the Motor vehicle is going on the road it is better to take a
road risk policy. Whereas not going on road we need to have plant and equipment
all risks insurance. Under Medical Insurance if the the injury is work related
it is picked up by the Workmen compensation policy and if it is not work related
then it will be picked up by the Medical Policy. Marine insurance can be taken
in isolation or as a project Marine Insurance. If the heavy Machinery is
working at site then we have to take a tools of trade extension in case of
Motor Insurance Policy.
In most of the Civil Engineering or Machinery Erection Projects the Project
Management faces the problem of fixing the responsibility for insuring the
risks to which the project is exposed and for administering the insurance
policies. The Project Manager and the Risk Manager has to assess the risks they
face in the Project and shall have to make a decicion on the extent of
insurance covers needed. Even when the other parties are obliged to insure
various risks relating to the Project ultimately the cost will have to be borne
by the Employer directly or indirectly.
2. THE EMPLOYER'S RISKS:
2.1. The Employer has the highest stake in completing the Project and hence in
its insurance covers.
2.2. In most of the cases, contracts can be better dealt with by the Employer
assuming the responsibility for insurance. The Employer should foresee
contingencies such as insolvency of the contractor, default by the Contractors,
suspension/ termination of the Contractor replacing him with another Contractor
etc while providing the insurance requirements.
2.3. The factors in favour of the Employer carrying the insurable risks are:
(a) The Employer has to pay the premium either directly or indirectly (costs
built in the contract price). By combining the insurance requirements of
various Contractors the volume of premium will be high enough to secure better
insurance terms from the market.
(b) The Employers has the highest stake in completing the project since his
investment is exposed to the perils
(c) The Contractors tend to cover their exposure only
(d) Cover can be continued with the Fire Insurers for the completed sections
(e) No gaps or grey areas as in the policies procured by the Contractors
(f) Employer is protected in case of insolvency or termination of the Contractor
and apponintment of another to complete the contract
(g) Employer is protected against under-insurance if the insurances are
properly arranged
(h) Employer's insurance can take care of common facilities and utilities which
may be used by many contractors
(i) Employer can cover the risks of price escalation and replacement escalation
where as the Contractors will be unwilling to cover such escalation in price
(j) Coordination and completion of restoration works following a major loss to
works carried out by different contractors will be easy if the indemnity is
provided by one insurer
(k) Following major losses it may not be possible to replace a machinery with
another one of the same kind due to changes in technology. Employer's policy
will be able to deal with the situation better in such a contingency
(l) Employer is familiar with the local law and the import and customs law.
Hence he can arrange protection needed to meet their reqirement.
(m) If the Employer purchases the materials and supplies the same to the
Contractor for Erection disputes may not arise between the Marine Insurer (of
the Employer) and the Construction Risk Insurer as to when the damage occurred
(when the materials are not checked as soon as they land or at the site) if
both risks are covered by the same insurer
(n) Administration of the insurance function will be easier and less expensive
if the Employer effects policies including the interest of the Contractors and
manages the risk using one centralised office for the whole project.
Coordination will be easier with this type of centralised administration. This
will also avoid time and effort spent on actions for recovery by different
Insurers insuring different interests of the same subject matter affected.
2.4. Even if the responsibility for managing the risks is passed on to the
Contractors and the Employer is named as an insured, the Employer will continue
to carry the following risks:
2.4.1. MATERIAL DAMAGE AND LIABILITY:
(a) Loss, damage or liability arising out of faulty design of the works by the
Engineer
(b) Loss or damage arising out of or aggrevated by the "excepted
risks" such as the war, hostilities (whether war be declared or not),
invasion, act of foreighn enemies, revolution, insurrection or military or
usurped power,civil war, riot, commotion or disorder, ionising radiations or
contaminations by radio-activity from any nuclear fuel or from any nuclear
waste from the combustion of nuclear fuel, radio-active toxic explosive or
other hazardous properties of any explosive, nuclear assembly or nuclear
component thereof, pressure waves caused by air craft or other aerial devices
travelling at sonic or super sonic speeds, or any other operation of the forces
of nature as an experienced contractor could not foresee, or reasonably make
provision for (force majeure)
(d) Loss or damage arising out of riot, strike or civil commotion or disorder
(e) Loss or damage to the works or part of the works taken in to use or is
occupied by the Employer
(f) Non disclosure or misdescription of any material fact affecting the risk or
any material changes affecting the risk
(g) Loss or damage arising out of or aggrevated by wilful act or wilful
negligence of the insured (Employer) or his responsible representative
(h) Loss or damage arising out of or aggrevated by cessation of work whether
total or partial
(i) Loss or damge occuring after commencement of tests on the second hand
machinery installed
2.4.2. MATERIAL DAMAGE SECTION:
In addition to the above risks mentioned in paragraph 2.4.1, the following risk
are also to the account of the Employer even if the responsibility for
insurance is passed on to the contractor:
(a) Financial, consequential and trade losses such as the loss of anticipated
profits due to delayed completion of the project, additional capital to be
invested due to escalationin the project cost, penalties, fines, failure to
secure special priviledges from the authorities due to delays (eg. concessional
customs duties available during a period), loss of the targeted market etc.
(b) Faulty design or defective material if these are supplied by the Employer
(c) Loss or damage to materials supplied by the Employer due to normal wear and
tear, corrosion oxidation or other normal atmospheric conditions
2.4.3. THIRD PARTY LIABILITY:
In addition to the above risks mentioned in paragraph 2.4.1, the Employer is
exposed to the following risks in case of bankruptcy or closure of the
Contracting Company the following risk are also to the account of the Employer
even if the responsibility for insurance is passed on to the Contractor, unless
each of the following risks is adequately insured by the party directly liable
for the loss under specific policies such as the Workmen Compensation Insurance
Property All Risks Insurance, Aviation Liability Insurance or the Motor Vehicle
Insurance.
(a) Legal liability to pay compensation for damages consequent up on accidental
bodily injury to or illness of third parties not connected with the project
work (whether fatal or not) and accidental loss of damage to property belonging
to third parties occuring in direct connection with the erection, construction
or testing on the insured project work and happening on or in the immediate
vicinity of the of the site during the period of the cover
(b) Legal liability to pay similar compensation for damages to one party
involved in the construction work caused by another party involved in the same
contract work
(c) Liability consequent upon bodily injury to or illness of Employees or
Workmen of the Principal, Contractors or any other Firm connected with the
Project
(d) Liability consequent up on loss of or damage to property belonging to or
held in care, custody or control of the the Principal, Contractors and any
other Firm connected with the Project
(e) Liability consequent up on any accident caused by vehicles licensed for
general road use or by waterborne vessel or craft
(f) Liability assumed by agreement unless such liability would have attached
also in the absence of such agreement
(A) DAMAGE TO MATERIALS USED IN THE PROJECT:
Construction Projects involving Civil Engineering Works and Machinery Erection
are exposed to the following risks:
1. Materials forming part of the construction work:
(a) Construction/ Erection Risks while carrying out exploratory and/ proto type
testing works such as drilling of test bore holes, exploratory excavations etc
(b) Storage risks at the suppliers' and manufacturers' premises for imported
and locally supplied materials which have already been sold but not delivered
to the Contractor/ Principal
(c) Marine/ transit risks from the suppliers'/ manufacturers' premises to the
site of erection for materials to be imported including the risks of incidental
& or intermidiate storages
(d) Storages in bonded warehouses and/ or Project warehouses near the port of
entry
(e) Transits to and from the fabricators premises outside the construction site
(for materials procured by the Contractor/ Principal and sent for fabrication/
assembly/ further process prior to Erection at site)
(f) Risks during storage and fabrication/ assembly/ process at the intermediate
fabricators premises mentioned in (d) above
(g) Off site storages and inland transit from such storage locations to the
site
(h) Storage at site
(i) Storage risks of materials procured for contracted/ subcontracted work but
in custody of the Principal/ Contractor waiting to be handed over to the
Contractor/ Sub-Contractor
(j) Normal construction/ erection risk at site
(k) Risks due to defective material and/ or defective workmanship
(l) Risks due to faulty design
(m) Completed portion of the work handed over to the Contractor but not handed
over to the Principal
(n) Completed sections taken over by the Principal but not taken in to use due
to delay in completion of other sections
(o) Risks during testing of each section of the Machinery on load
(p) Integrated final testing of the complete line of Machinery on full load
resulting in achievement of commercial production
(q) The period of test run on load
(r) Risks during the Period Of Maintenance
(s) Risks during the Period Of Guarantee
2. Materials used for or inconnection with the Project but not forming part of
the work (temporary works not fully written of in the Project, Constructional
Plant, Equipment and Machinery and Temporary Buildings such as Stores, Labour
Camp etc):
(a) Risks during transit from the storage premises of the owner to the site of
Erection/ Construction
(b) Risks during storage off site
(c) Transit to and from such storage location to site and back daily/
periodically
(c) Risks during storage at site.
3. Unless specifically insured a normal Contractors/ Erection All Risks Policy
will indemnify the Insured the cost of rectifying or replacing the item
affected to the extent insured provided the loss did not occur due to any
excepted peril. Such cover is provided for items 1(g) and 1(i) above if only
the total contract value is declared for insurance. Even for these the
following losses and/ or costs are not covered unless specifically agreed at
the inception of the policy:
(a) Architects, Surveyors and Consulting Engineers Fees to be incurred for
reinstating the damaged property
(b) Riot, strike and civil commotion risks
(c) Cost of removal of debris following an indemnifiable damage to the contract
work
(d) Express freight (other than air freight) for replacements/ spares following
an occurrence
(e) Overtime, night work and holiday wages for repairs/ replacements following
an occurrence
(f) Air freight for replacements and spare parts to be procured following an
occurrence
(g) Additional customs duties for replacements/ spares to be procured following
an occurrence
(h) Escalation in prices of replacements/ spares to be procured following an
occurrence (escalation may be due to inflation, incresed demand, reduced
supply, increased cost of production, exchange rate fluctuation, original
discounts not available for replacements etc; estimation of this should be
based on the replacement cost of the project following a major catastrophic
loss at the end of the construction period)
(i) Escalation in the cost of the project due to the reasons stated in (h)
above (limit of indemnity being the Escalated Project Value)
(j) Cost of new parts for repairing second hand machinery and equipments
(k) Loss of or damage to existing or surrounding property (not forming part of
the contract work) caused by the construction work
(l) Cost of removal of debris following land slides/ erosions and the cost of
repairing the erroded slopes
(m) Cost of replacement with newer/ improved model of the machine in the place
of the destroyed (total loss) machine when the same model or its equivalent is
not produced any more
(n) Financial losses such as the loss of expected profits to be generated
caused by the delay in completion of the project on account of an indemnifiable
material loss or damage
(o) Guarantee for the works following the maintenance period (5 years or 10
years guarantee for Buildings and Civil Engineering Works and additional 1 or 2
years guarantee for Machinery)
(p) Loss of or damage to the Material Handling Equipments and other Machinery
when they are being used for the Construction/ Erection activity after such
equipments have been installed unless such equipments are insured as
"Construction Plant and Machinery" for the period they will be used
for the erection work by the Contractor or the Principal. Such equipments
should also be insured as part of the Contract Work (the Contract Work sum
insured also should include the value of such equipments) if such equipments
will be taken over by the Principal as a part of the Main Project). An example
is a gantry crane installed in a production bay and used for lifting the
production machinery during installation.
(B) LIABILITY TO THIRD PARTIES ARISING OUT OF THE WORK:
Third party liability risks to which the Principal is exposed to are:
Liability for accidental bodily injury or illness and for accidental loss of or
damage to property caused by
(a) The Principal or his representatives and employees to Third Parties and the
Property of Third Parties not connected with the Project
(b) The Principal or his representatives and employees to other Parties engaged
in the Contract Work and to their Property
Liability for accidental bodily injury or illness and for accidental loss of
damage to property caused by
(a) The Contractors and other parties employed by the Principal in connection
with the Construction/ Erection Work to third parties not connected with the
project
(b) Any of the Contractor or the other parties employed by the Contractor in
connection with the Contract Work caused to another party or another Contractor
employed for the same project
Liability for loss of or damage to property in care, custody or control of the
Principal
CHECKLIST FOR RISK MANAGERS OF CONSTRUCTION/ ERECTION PROJECTS:
DESIGN & CONSULT:
Insurance cover for Architects, Design Engineers and Consulting Engineers:
(a) Professional Indemnity cover to be producured by the Architects, Design
Engineers and Consulting Engineers: limit of indemnity to be specified by the
Principal depending on the exposure
Name of the specialist Period of cover Limit of indemnity
(b) Personal insurances for these officials and their assistants:
Cover Period of Limit of Schedule of
required insurance indemnity items
Motor vehicle insurance
Workmen Compensation insurance
General liability insurance
Insurance covers for the employer/ principal:
(a) Contactors all risks and third party liability covers including the
following extensions:
Risks to be covered:
Insurance covers for the contractors and the sub contractors:
(a) Marine/ inland transit cover for materials supplied
(a) Contractors all risks and third party liability covers including the
following extensions
(b) Plant all risks cover
(c) Motor vehicle insurance
Cover to include:
(d) Workmen compensation insurance
(e) Medicare and personal accident covers
(f) Bonds
(g) Fire and perils covers for off site accommodation, offices, warehouse
buildings etc (permanent buildings taken on lease and the contents not absorbed
in the contract price)
(h) General liability cover