Contact: Hamish Gray; Clarkslegal LLP (Reading, England)
When undertaking a modern development, where all the parties (employer, contractor, sub-contractors) are committed to collaborate in good faith (or, at least, the contracts say they are), it seems sensible to protect that team ethos through the procurement of a project insurance policy.
Project insurance covers the main players on the project under a single policy and the insurer agrees not to claim it losses from any of them, even if they caused the loss (also known as waiving its right to subrogation). Whilst the premiums on such policies can be expensive, because they must be tailored by the insurer to the project in question, they are said to be growing in popularity. The main reasons for this growth are said to be that such policies: avoid gaps in coverage; support the collaborative mindset; fit better with BIM-based projects; and may actually reduce the overall insurance costs on a project.
What's more, project insurance is said to prevent the finger-pointing blame culture that envelopes so many projects at the first whiff of a blunder. Unfortunately, however, that is not always the case. As with all insurance policies, there will be excesses, deductibles, and exclusions, which provide the parties with the green-light to commence battle over which of them is liable for the excluded loss. That battle will, no doubt, involve the insurer, which (acting in its own interests, of course) will be keen to avoid the very liability the project team though it had insured against.
The bespoke nature of project insurance means that, in order to obtain the full benefit of such a policy, the project team must liaise closely with the insurer when procuring the insurance. Each project has its own particular risks and, whilst a properly bespoke project insurance policy can be the safety net/comfort blanket the project team is looking for, an off-the-shelf policy (or one that was not properly tailored to the project at the time of purchase) can offer a false sense of security and be a source for dispute.
To avoid (costly) arguments over any excess, the parties may also consider some form of "no blame" excess share agreement to avoid in-team disputes and focus attention towards the proper utilisation of the policy.
Project insurance is still developing, but, whilst it is still relatively rare, the government is encouraging what it calls "integrated project insurance" and the construction and engineering industry is gently promoting its use.
