Key Issues in Project Insurance
There are several issues which need to be considered while negotiating insurance for large projects and are as follows:
Sum Insured should be adequately calculated and must include at least the contract value, contractors’ plant and machinery, principal’s existing property, projected cost of debris removal, temporary facilities, value added tax and a provision for inflation. To make sure that on site as well as offsite storage facilities are included in the policy. Free issue materials should also be included in case the principal transfers the risk to the contractor under the contract.
Limit for third party liability should be adequate and should clearly reflect the risks. This should be determined keeping in mind the value of the surrounding property and distance from the nearest third party property. In case of underground works, losses to the public utility infrastructure must be kept in mind.
In case the contractor has an annual CPM policy (contractors’ plant & equipment); the TPL at site extension must be endorsed to the policy. Further, the CPM policy must be insured at values equivalent to the replacement cost.
Whether incidental inland transit between offsite storage and project site has been insured.
The project plan must consider weather conditions and open trench works must be avoided during rainy or monsoon seasons. Sometimes, insurers put warranties to this effect.
Professional Indemnity insurance must address retroactive date clause and should reflect the risks and requirements of the architects, designers and engineers. In addition to the claims made or claims occurrence clauses, extended reporting clause must be thoroughly discussed with the insurer. Project specific PI cover is generally not preferred by the insurers and tends to be expensive; therefore annual cover should be sought.
Project Cargo should be insured on a warehouse to warehouse basis while negotiating the deal with the exporter. In the event, the main cargo policy expires at the port, the transit from the port to the warehouse is considered as tail-end risk and is not considered to be a preferred risk from the insurers point of view.
