THE DUTY TO DISCLOSE MATERIAL CHANGES TO THE PROJECT
Well before you started working at the construction site, you told us about the project and arranged Contractors All Risks insurance. However, did you read the small print of the Contractors All Risks policy with specific reference to a clause that requires you (and in certain cases – immediately) to notify us or the insurance company of any changes to the project?
You are probably too busy with the project itself so the answer is probably no. This article is about essential duties which include disclosing information about changes to the project such as: changes to urban construction plans or additions to the building, changes to the project value during the period of insurance, changes to the scope and method of executing the project, changes to safety conditions or security arrangements at the site and the like – all of which involve risks and financial aspects:
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One the one hand
Failure to disclose information about changes to the works can lead to a situation where the new construction or changes to the project will not be covered, although there could be implications on the entire project.
In other words:
You will be responsible for the risks and the consequences.
On the other hand
Not every change to the project involves new construction. In many cases, the scope of the original project is actually smaller due to budgetary problems, delays by the property developer, problems relating to permits or simply changes to the plans.
In other words:
You are due to receive a return premium (refund).
Basic definitions of “changes” to the project:
1. The sum insured – The sum insured under the Contractors All Risks policy needs reflect the total contract value (TCV) at the time of arranging the policy including any foreseeable changes that may occur during the period of insurance for any reason.
If the project has been extended – You have a duty to amend the policy.
If the project has been scaled-back – You should update the policy and obtain a return premium.
2. The nature of the project – Construction projects usually start with construction permits that accurately reflect the type of works and the scope of the specific project, however in parallel to carrying out the site works, various procedures need to be coordinated with the authorities such as changes to urban construction plans, applications for permits to add new floors or apartments, applications for irregular use, all of which result in material changes to the building, applications for changes in use and the like.
As soon as you receive an amended permit, the information previously supplied to the insurers concerning the nature and scope of the project has changed and hence the insurance company must be notified and there is a possibility that the insurance company will review the risk and amend the conditions.
3. The type of works – If there are any changes to the methods used in constructing the project, the plans, the depth of excavations or the size of an automatic parking facility, adding new complex works or types of works involving a high risk which were not anticipated at the outset, such as crane works, works with the use of heavy equipment, excavations, dewatering works due to changes in the depth of the excavation etc.; it is important to report such changes and amend the policy to reflect the changes in the methods used to construct the project.
4. The duration of the project works – Your Contractors All Risks policy is valid for a predefined period of time. If the construction works slow-down, extending the period of the project – it is essential to report this to the insurance company and arrange to extend the period of insurance.
Extensions to the period of insurance usually incur an additional premium depending on the extension period and the claims experience.
5. The value of materials supplied by the principal – The sum insured of the works needs to reflect the total value of the materials, items, equipment and works which are supply by the principal for the project. A frequent error of many contractors arises from the fact that they overlook various components when determining the total contract value for insurance purposes, building inputs and/or works carried out by other suppliers or subcontractors appointed by the principal in the project.
If you are the main contractor and if the agreement with the principal makes you responsible for arranging Contractors All Risks insurance – make sure that you include the value of all materials, inputs and contract works supplied by the principal in the sum insured, and in parallel – ask the principal to pay for the difference in the cost of the insurance.
The reporting method and its significance
According to the policy conditions you are required to provide written notice to the insurance company concerning any material change to the project works.
We therefore recommend that you consult with us in the case of doubt, rather than taking decisions on your own. The reporting method needs to be meticulous and accurate, in many cases general information provided in a disorderly manner may create unnecessary problems that could have been avoided if the reporting would have been checked and worded properly. Moreover, in order to ensure that any amendment to the policy – if the project is extended – provides you with the optimal cover at the lowest possible cost, it is sometimes necessary to undertake preparatory work such as surveys (for example, surveys to document the buildings) or take certain action at the site in order to mitigate the risk that the insurance company is being requested to accept and as a result to reduce the cost of the endorsement and avoid, as far as possible, any new exclusions or onerous protection / protection warranties that the insurance company may impose on the insurance cover.
Arranging Contractors All Risks insurance does not end when the policy is issued.
Changes to the sums insured, the nature of the project, the type of works, the duration of the project and the value of materials supplied by the principal all need to be considered very carefully and reported to the insurance company accordingly.
How to obtain broad cover at a competitive price
Here are some important points that should be taken into consideration in connection with the insurance cover and its cost:
There is no “uniform” Contractors All Risks policy. Each project and its unique characteristics and complexities. Accordingly, the insurance policy needs to address all aspect of the project in order to obtain the maximum cover and extensions you require.
You are not the only cog in the wheel. The insurance company has its own legitimate considerations and methods for analysing and reviewing the risks it is asked to cover. For this reason, your Contractors All Risks policy is subject to various exclusions and warranties that the insurance company will apply.
Over the last 25 years we have accumulated experience in devising creative solutions for handling construction project insurance, including providing the insurance company with accurate and detailed information to find the balance between probability and risk and to alleviate the concerns of the insurance company with taking unnecessary risks and most importantly – ensuring you have the best conditions – both in terms of the insurance cover as well as in terms of the costs.
Construction works are dynamic and subject to constant variable external factors such as weather, site accidents, alterations to construction plans, changes to budgets and the like. However, since this article addresses the duty of disclosure and reporting: part of the added value we offer is availability and professional guidance during the entire period of the project and after it has been completed. This guidance includes providing advice concerning the Contractors All Risks policy and adapting it to the status of the construction site as well as providing you with assistance in dealing with insurance claims, including liaising with construction insurance experts who have the knowledge and experience to ensure your rights under the policy are fully exercised and your claim is paid in full.
The “quality” of your insurance policy: All of the unique advantages and special services we have mentioned above and others are not overlooked by the insurance company underwriters. By virtue of our professional approach, the insurance companies are willing to provide us with preferential treatment both in terms of costs as well in terms of coverage and extensions. We have built a reputation of professionalism and integrity over the years with the insurance companies and they appreciate the way in which we work and the information we provide.
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