ACCIDENTS at construction sites in Ghana are not uncommon except for the few ones that come to public notice through media reportage. This often happens with very little or no compensation to victims. One of the means by which this could be addressed is using insurance as a risk transfer mechanism.
I am sure many of us might have observed, with our tongues exposed in our mouths, the way some construction workers such as masons and carpenters hang on scaffoldings on skyscrapers in especially the urban and peri-urban areas. Indeed one cannot be sure if the owners of such buildings have what we call the Contractors All Risk (CAR) Insurance to take care of any mishap during the construction works.
What is contractors all risks insurance?
The 'Contractors All Risks' (CAR) insurance provides cover for contract works for any damage or loss to the property or materials during construction. It also provides against third parties as well as employees on the site of construction. However, it is subject to specific exclusions which include errors in building design, damage to external structures not part of the contract, penalties and defective structures.
Scope of cover
The Contractors All Risks Insurance typically comprises three forms of insurance, namely Employers Liability Insurance, Public Liability Insurance and Insurance of Contract Works
The contract works component provides cover for the materials and property under construction, while the public liability covers legal liability for third party property damage, bodily injury and / or death. Similarly, the employers' liability provides cover for bodily injury and / or death of workers.
The CAR insurance cover can be provided for contractors wishing to provide insurance for new buildings known as speculative building, renovation works or general construction works.
Public Liability Insurance
The public liability insurance component of the CAR insurance provides cover for legal liability in the event of damage to third party property or bodily injury or death to a member of the public.
Employers' Liability Insurance
Once a contractor employs direct employees or labour-only sub-contractors as part of their work, it behoves such an employer to obtain the Employers’ Liability Insurance policy which provides cover in the event of bodily injury to employees or labour-only sub-contractors while carrying out work at the instance of the employer.
How is a sub-contractor covered?
There are two types of sub-contractors: a labour-only sub-contractor and a bona fide sub-contractor.
A ‘labour-only’ sub-contractor is one who only provides labour for his or her part of the job and not any materials and does not directly require to buy their own insurance policy.
On the other hand, a bona fide sub-contractor is one who provides both labour and materials for his or her part of the job and would typically have his or her own public and employers' liability insurance policies. Albeit the fact that they do not need to be included under the employers liability section, the annual payments that the principal contractor makes to the bona fide sub-contractors still need to be advised to the contractor’s insurers. This caveat is in place to ensure that the bona fide sub-contractors insurance is checked regularly and that it provides an indemnity to the principal in the event of a claim.
Insurance of contract works
The contract works comprise permanent works including unfixed materials and the temporary works on site anywhere including transit by road, rail and inland waterway, while in the course of construction until handed over by the contractor to the property owner upon completion.
The permanent works are the main subject matter of the contract, for example, the warehouse, factory, etc. that is being built. Permanent works will also include all unfixed materials, such as copper pipes etc delivered on site for incorporation into the contract works and by extension on the premises of suppliers and other sub-contractors.
The temporary works are ancillary aspects of the building and are not part of the building project itself, but are required to facilitate a successful completion of the project. These include site access roads, scaffolding, makeshift offices made of wooden or metal containers, etc.
Plant and equipment cover
Sometimes plants owned by the contractor such as excavators, cement mixers, scaffolding, storage containers, or hired-in such as generators may be covered as part of the contract works subject to a separate sum insured being supplied for each section of the insurance cover.
Because of the high costs of some plants, contractors normally choose to hire in certain items especially for occasional use for certain contracts. These may include excavators, dumpers and cranes.
Renovations and extensions
For buildings undergoing renovation etc., cover is provided for only the alterations under the contract works, and not the existing structure. This implies that the existing structure remains insured under the existing buildings insurance policy and the contract works would normally cover the newly renovated or extended portion of the building.
It is important to note that existing property insurers will NOT automatically provide cover while an extension is being constructed, and property owners should always get back to the existing property insurer for a specialised cover for additional premium.
Apart from the material damage cover which extends to physical loss, damage or destruction of the property insured by any cause, CAR provides cover for third party liability covering the legal liability falling on the insured contractor as a result of bodily injury, death or property damage to a third party. This is where the victims of collapsed buildings could have some compensation paid them to avert the possibility of relations taking the contractor on.
The way forward
I believe that after having heard about the collapsed buildings in Accra and other parts of the country, our civil / building contractors and employers will begin to appreciate the value of having a CAR policy for their projects. By emphasis the CAR policy takes care of the unexpected accidents that often rear their ugly heads in the course of construction. Thus, a CAR policy is a cushioning measure that helps to ameliorate the effect of consequential losses.
In this regard, it is imperative that, as a people and through our representatives in Parliament, we consider legislation on Construction All Risks Insurance Policy (i.e if there is none yet).
This will not only help to protect contractors against losses and damage to contract works and third parties leading to the unexpected disruption in projects timelines without ruling out injuries and death, but also ensure that in the unlikely event of such incidents the burden of liability is adequately taken care of by an established insurer.
Until next week, “This is insurance from the eyes of my mind”.