Insurance issues for commercial development

Transcription

1 Insurance issues for commercial development Mark Waghorn, Partner, Banking (Simmons & Simmons) Steve Cox, Executive Director (Willis) and Jack Rutherford, Associate, Projects (Simmons & Simmons) 1 December 2015

2 What this talk will cover Introductions Key insurance law concepts Risks during the life of a construction project Covering off the risks Different types of insurance Who takes out the insurance Who is insured/who should be insured Lender insurance requirements What not to put in your building contract Levels of insurance 1 / L_LIVE_EMEA1: v1

3 Key insurance law concepts a refresher Insurable interest Utmost good faith and disclosure Warranties Insurance Act 2015 (from 12 August 2016) 2 / L_LIVE_EMEA1: v1

4 Key insurance law concepts a refresher Noting v loss payee Joint Insurance v composite insurance Vitiation Subrogation Joint Names Policy (JCT Definition) a policy of insurance which includes the Employer and the Contractor as composite insured and under which the insurers have no right of recourse against any person named as an insured, or, pursuant to clause 6.9 [(sub-contractors)], recognised as an insured thereunder 3 / L_LIVE_EMEA1: v1

5 Risks during the life of a construction project Types of Risk (not all risks are insurable) Damage to or loss of property (in course of construction) Works, materials, existing buildings, third party property, plant, machinery and tools. Injury and death (employees, third parties) Financial losses (own and third parties) Defects discovered following construction Professional negligence Non-compliance with regulations, permissions, third party agreements Delay in completion Defective title, rights to light, other contingencies Insolvency 4 / L_LIVE_EMEA1: v1

6 Covering off the risks Contract Works All Risks (CAR) Property/Existing Structures insurance Delay in start-up insurance (DSU) Terrorism insurance Third Party Liability (TPL) Professional Indemnity insurance (PI) Construction Plant and Equipment (CPE) Employer s Liability (EL) Latent Defects insurance (LDI) 5 / L_LIVE_EMEA1: v1

7 Covering off the risks (1) Contract Works All Risks (CAR) Trigger loss destruction or damage sometimes physical All Risks unless otherwise excluded Value or reinstatement Property/ Existing Structures Applicable where Project is an extension or Refurbishment Sometimes difficult to provide to the Contractually required parties (JCT Option C) Delay in Completion/ Start Up (DSU) Financial consequences suffered by the Owner following a delay Trigger event needs to be loss destruction or damage 6 / L_LIVE_EMEA1: v1

8 Covering off the risks (2) Terrorism Buy Back Applicable to Material Damage and DSU Insurances If Pool Re - Only available in maximum of 12 month chunks but Lloyds market available to provide for Project duration Third Party Liability Professional Indemnity Damage to third party property Liability arising from death/personal injury to third parties (other than insured s employees) Can include Non Negligent Indemnity/a.k.a. Liability of Employer Liability arising from professional negligence duty of care in the contract Claims made Policy 7 / L_LIVE_EMEA1: v1

9 Covering off the risks (3) Construction Plant and Equipment Tower cranes Piling equipment Employer s liability Statutory insurance Liability arising from death/personal injury to Employees Latent Defects 12 year Policy post Practical Completion covering Structural Defects which manifest themselves (or threaten to) after the Construction Period 8 / L_LIVE_EMEA1: v1

10 Who takes out the insurances (1) Owner or Contractor Controlled? Perspectives CAR Lender Existing Structures Employer DSU Contractor Terrorism Landlord TPL Subcontractors PI Consultants CPE and who pays? EL consider the Policy excesses LDI 9 / L_LIVE_EMEA1: v1

11 Who takes out the insurances (2) JCT Options A, B and C Option A New build - Contractor takes out Joint Names All Risks Insurance Option B New build - Employer takes out Joint Names All Risks Insurance Option C Employer takes out Joint Names All Risks Insurance and Joint Names Specified Perils insurance for existing structures (e.g. refurbishment) Property owned by a landlord Landlord s Insurance? 10 / L_LIVE_EMEA1: v1

12 Who is insured/who should be insured? Everyone! Sub-contractors Professional team Overinsurance? 11 / L_LIVE_EMEA1: v1

13 Lender insurance requirements (1) Lender requirements Cash collateral replacing security Co-insurance, but no liability for premium Property, P&M, for reinstatement value Terrorism, public liability, loss of rent (where relevant) insure such other risks as a prudent company in the same business would insure Charging/Assignment Notice re repudiation, rescission or cancellation (30 days) Non-invalidation and non-vitiation Waiver of subrogation Loss payee Ring-fencing in portfolios 12 / L_LIVE_EMEA1: v1

14 Lender insurance requirements (2) Requiring evidence of insurance Borrower s broker letter Compliance with facility agreement Broker s PI/limitation of liability How are claims made? Duty of prompt notification How are insurance proceeds applied? Reinstatement? Repayment? Lease obligations? Lender/borrower conflict? 13 / L_LIVE_EMEA1: v1

15 What not to put in your building contract Consider the liability and indemnity regime Insurance requirements and policies should match contractual obligations and risk sharing Who is taking out What is covered Uninsurable risks and liabilities (or are they?) Fitness for purpose Insolvency Force majeure Non-damage delay LADs 14 / L_LIVE_EMEA1: v1

16 The sixty four million pound question how much? Limit of Indemnity to be Insured TPL, PI, EL What is reasonable? Nobody will advise you! 15 / L_LIVE_EMEA1: v1

17 Questions? simmons-simmons.com elexica.com This document is for general guidance only. It does not contain definitive advice. SIMMONS & SIMMONS and S&S are registered trade marks of Simmons & Simmons LLP. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated practices. Accordingly, references to Simmons & Simmons mean Simmons & Simmons LLP and the other partnerships and other entities or practices authorised to use the name Simmons & Simmons or one or more of those practices as the context requires. The word partner refers to a member of Simmons & Simmons LLP or an employee or consultant with equivalent standing and qualifications or to an individual with equivalent status in one of Simmons & Simmons LLP s affiliated practices. For further information on the international entities and practices, refer to simmonssimmons.com/legalresp. Simmons & Simmons LLP is a limited liability partnership registered in England & Wales with number OC and with its registered office at CityPoint, One Ropemaker Street, London EC2Y 9SS. It is authorised and regulated by the Solicitors Regulation Authority. A list of members and other partners together with their professional qualifications is available for inspection at the above address. 16 / L_LIVE_EMEA1: v1

18 Contacts Mark Waghorn (Simmons & Simmons) Partner, Banking T M E mark.waghorn@simmonssimmons.com Steve Cox (Willis) Executive Director T +44 (0) E coxj@willis.com Jack Rutherford (Simmons & Simmons) Associate, Projects T M E jack.rutherford@simmonssimmons.com 17 / L_LIVE_EMEA1: v1

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