Given the rollercoaster ride both the construction business and society at large have been on for the last 12 months, we felt like it was time to develop a series of articles regarding the myriad types of insurance available to those trying to manage risk in their construction projects. At the best of times, mitigating the risk that is inherent in construction projects means you need to get your construction insurance and bonding on point. Given this, the first type of insurance we will discuss in this series is: property insurance.
Numerous types of insurance policies cover property on a construction site – when there is an existing structure, property insurance will cover the physical loss or damage by third parties to the insured’s own property resulting from a mishap falling within the scope of the policy (for example, an “insured risk”). This type of insurance covers direct physical loss, injury, or damage to the property but not loss of use alone.
Normally coverage will either be an “all risks” or “named risks” (or “named perils”, to use another term) policy. The latter policy, as its name suggests, covers losses caused by a listed or named risk, such as the risk of a flood or the risk of a fire. On the other hand, “all risks” policies provide a broader range of coverage, implicitly stating they will “cover everything.” However, like with any insurance policy, there are exceptions: “express exclusions,” and those “implied” by traditional law insurance concepts, such as “bodily harm” caused to an individual from property damage, among many other implied exclusions. As a result, care must be taken to ensure that the policy covers the perils expected under the construction contract. For example, many “all risk” policies do not cover damage that may be covered by a named perils policy. An all risks policy commonly excludes coverage for damage arising from a wide range of sources, including inherent vice, latent defects, mechanical breakdowns, changes in temperature and settling, moving, shifting, bulging, and cracking.
To conclude, neither of the broad types of policies generally cover damage that arises from faulty or improper workmanship as the insurance is never intended to be a warranty of the products of the workmanship involved in the property. For similar reasons, damages arising from faulty design are usually also excluded.
Next week – we’ll address “Build’s Risk Insurance”, one of the most common types of insurance used by contractors of all stripes.
Written by Jeremy Power, a lawyer in Cotney Construction Law’s Toronto office.