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Construction Insurance and UK Construction Contracts

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CHAPTER 22

Contract insurance under JCT Construction Management 2011

General

 22.1 Construction management should not be confused with “management contracting”, which is addressed in the previous chapter. 22.2 When construction management is used to procure works, the client appoints a team of consultants to prepare the design. The client also appoints a specialist construction manager,1 whose principal role is to manage the construction of the works by a team of specialist trade contractors. Each trade contractor carries out individual packages of works. The key characteristic of this type of procurement is that there is no single contractor with responsibility for the coordination of the works. Instead, the coordination of the construction phase is the responsibility of the construction manager. This has ramifications as regards the insurance position. 22.2 In the case of management contracting, the client enters into a single contract for the carrying out of the works. The management contractor then subcontracts the works to individual works contractors and is paid the prime cost of those works contractors together with a management fee. 22.3 In 2002, the JCT published standard form construction management procurement documents for the first time, which were updated in 2005 and most recently in 2011. The key agreements, which this chapter focuses upon, are the contracts between the employer and its construction manager, and the contract that the employer would need to enter into with each trade contractor being:
  • Construction Management Agreement (CM/A11); and
  • Construction Management Trade Contract (CM/TC11).
22.4 It will be immediately apparent that each of these two contracts is defining quite different obligations and liabilities. However, the overriding constant is that it is the employer that insures the project and existing structures should the same be appropriate2 with the construction manager and trade contractor providing the “usual” JCT indemnities in respect of claims in relation to personal injury and death and damage. In fact, as regards indemnities, CM/TC11 is in materially the same terms as SB11, save that under CM/TC11; the position in relation to CM/A11 is somewhat different, which reflects the role played by the construction manager.

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Relevant provisions in the CM/A contract

22.5 The provisions dealing with insurance and indemnities are set out within section 6 and within Schedule 2. They are:
  • Clause 6.1: Subject to clause 6.6.1, the construction manager is liable for and indemnifies the employer against claims in respect of death or personal injury arising out or in the course of or caused by the carrying out of the construction manager of his obligations to the extent that the same is due to any negligence, breach of statutory duty, omission or default on the part of the construction manager, his employees or agents.
  • Clause 6.2: a similar indemnity is to be provided by the construction manager to the employer in respect of damage to property real or personal, other than damage to the project, work executed, site materials or site facilities but only in so far as it results from the fault of the construction manager and excludes loss or damage caused by a specified peril which the employer is required to insure pursuant to Schedule 2.
  • Clause 6.4: the employer is liable for and indemnifies the construction manager against claims in respect of personal injury or death arising out of or in the course of carrying out the project to the extent that the same is due to any negligence, breach of statutory duty, omission or default on the part of the employer, his employees or agents (other than the construction manager).
  • Clause 6.5: a similar indemnity is to be provided by the employer to the construction manager in respect of damage to property real or personal, in so far as it results from the fault of the employer. It is to be noted that this indemnity is not restricted in the manner that clause 6.2 is.
  • Clause 6.6: requires the construction manager to take out and maintain insurance in respect of the indemnities identified at clauses 6.1 and 6.2. This clause is in substantially the same form as clause 6.6 of the SB11, save that the level of the indemnity to be provided is limited to the sum stated in the contract particulars.
  • Clause 6.7: requires the employer to take out and maintain “adequate” insurance in respect of the indemnities identified at clauses 6.1 and 6.2.
  • Clause 6.8: requires the employer to insure the project and existing structures (if appropriate and required). The employer may insist upon insurance in the joint names of the employer and contractor being procured by the contractor in respect of loss of or damage to property not caused by the fault of the contractor.
  • Clause 6.10: requires the employer to take out joint names insurance that either provides for recognition of each subcontractor of the construction manager as an insured or includes a waiver of any rights of subrogation in respect of specified perils to the project, site materials and site facilities. Clauses 6.11-6.12 deal with terrorism cover.
  • Clauses 6.13-6.14 require the construction manager to take out (unless he has already done so) and maintain a professional indemnity insurance policy with a limit of indemnity of the type and in such sum as stated in the contract particulars and deals with the situation where such cover is not available at commercially reasonable rates.

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 22.6 Schedule 23 provides that the employer shall take out and maintain a joint names policy for all risk insurance with cover no less than that specified in clause 6.9,4 for the full reinstatement value of the project/sections and the replacement value of the site facilities together with the limited defects liability protection for trade contractors as referred to in Schedule 3 of CM/TC. The employer is required to maintain the construction manager’s interest in the joint names policy up to the date of issue of the project completion certificate.5

Relevant provisions in the CM/CT contract

 22.7 The provisions dealing with insurance and indemnities are set out within section 6 and Schedule 3. They are:
  • Clause 6.1: the trade contractor is to indemnify the employer against claims in respect of death or personal injury arising out of the works, except to the extent that the employer is itself at fault.
  • Clause 6.2: a similar indemnity is to be provided by the trade contractor to the employer in respect of damage to property real or personal, other than damage to the works and to site materials, but only in so far as it results from the fault of the contractor.
  • Clause 6.4.1: the liability of the trade contractor in respect of the above indemnities is to be insured by the trade contractor.
  • Clause 6.6: the employer is to insure the project in joint names of employer and the trade contractor, and where the project is in or forms an extension to existing structures he is to insure the same in accordance with Schedule 3.
  • Clause 6.8: the employer is to ensure that the joint names policy effected in accordance with clauses 6.7 and Schedule 3 provides for recognition of each subcontractor of the trade contractor and a waiver by the insurer of any right of subrogation against any such subcontractor.
  • Clauses 6.9-6.10: address the provision of terrorism cover, and the effect of the same being unavailable.

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    Clauses 6.11-6.12: where there is a trade contractor’s designed portion, the trade contractor is required to take out and maintain a professional indemnity policy for the period stated in the trade contract particulars.
  • Clauses 6.13-6.14: require both parties to comply with the Joint Fire Code.
22.8 Schedule 3 provides that the employer shall take out and maintain a joint names policy for all risk insurance with cover no less than that specified in clause 6.9,6 for the full reinstatement value of the project/sections and the replacement value of the project. The employer is required to maintain the construction manager’s interest in the joint names policy up to the date of issue of the project completion certificate.7 The Schedule also addresses the trade contractor’s obligations in the event of a claim being made.

Specific clauses in CM/A11

Section 6 - clauses 6.1 to 6.3

Injury to persons and property: Construction manager’s indemnity 22.9 In terms of the nature of the indemnity to be provided pursuant to clauses 6.1 to 6.3 they are drafted in substantially the same terms as SB11.8 However, there are two important differences. 22.10 First, in terms of causation, the construction manager’s liability is restricted to events that arise out of or in the course of or by reason of the construction manager carrying out his obligations under the contract to the extent the same is due to his default, or that of his employees or agents. As a matter of proof, whereas with the SB arrangement there is a clear dividing line between the employer (and employer’s persons) and the contractor - with it being relatively easy to apportion responsibility between the two - with construction management there will inevitably be many more (potentially) liable persons on site. The services to be provided by the construction manager are defined by the employer and the construction manager on a project by project basis - and some care needs to be given to the definition of those obligations as regards the practical construction and consideration of obligations that arise for the purposes of clause 6.1 and the insuring obligations. 22.11 The second difference between SB11 and CM/A11, is that clause 6.1 SB11 provides for an unlimited indemnity, whereas CM/A11 limits the construction manager’s liability to indemnify the employer “in respect of any one occurrence or series of occurrence arising out of any one event to the amount of the insurance cover stated in the Contract Particulars”.9 This avoids any potential policy dispute regarding aggregation of claims, which could have arisen on previous drafts of the agreement.

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Section 6 - clauses 6.4 to 6.5

Injury to persons and property: Employer’s indemnity

Liability of employer - personal injury or death

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