JCT Design and Build 2016 Section 6: Injury, Damage and Insurance

The main addition to the insurance provisions in the JCT Design and Build 2016 at Section 6 relates to cover for loss or damage to existing structures or their contents.

In the 2011 Edition, in the case of works potentially impacting on existing structures, the Employer was required to effect a Joint Names policy (ie, with itself and the contractor as named insureds) to cover the existing structures and their contents against loss or damage by the usual Specified Perils.

The problem with this was that this type of Joint Names policy might not be readily available. In particular, it has been difficult for tenant Employer’s carrying out works to their leased premises (fit outs or similar) to obtain Joint Names cover. Generally the landlord of the property is likely to be best placed to effect this type of insurance. However, the commercial reality is that it may not be prepared to add contractors and sub-contractors to its building insurance policy, even if the parties agree to cover its cost of doing so, because of the potentially adverse effect on its future premiums. This can render a tenant Employer’s obligation to insure very difficult (and expensive) to perform. The issue also arises for domestic owner/occupiers who can find it difficult to purchase Joint Names cover for their properties when they are carrying out refurbishment works.

In the new 2016 Edition, the default position in amended Insurance Option C is still that the Employer is responsible for effecting Joint Names insurance to cover the existing structures and contents against loss and damage caused by the Specified Perils. However, the contract particulars allow the parties to dis-apply the default position and apportion the responsibility for placing this type of insurance in a C1 Replacement Schedule.

Clause 6.3 of the 2016 Edition also expressly sets out the default position on liability where Option C applies. It says that the contractor is not liable to the Employer for any loss or damage to the existing structures or their contents caused by the Specified Perils and which should have been covered under the Joint Names policy placed by the Employer. This holds even if the loss or damage in question was caused by the contractor’s negligence, but the position can be altered in the Replacement Schedule. If the default position is dis-applied, then the contractor’s liability for loss or damage caused by it to the existing structures and contents will be as set out in the Replacement Schedule.

To put this into context, imagine one of the tenants of a prestigious inner city office development carrying out a small scale fit out of its offices which comprise one small part of the building. This could have wide (and expensive) implications in terms of the damage that could be caused to the rest of the building. In this instance it may not be commercially viable, or even possible, for the tenant Employer to effect cover for the existing structures if the value of the building and its contents are far in excess of the value of the works. If so, the contractor may need to rely on its own annual cover for any liability arising out of damage to the existing structures and contents. It will probably require a financial loss extension and, if the works are in a high value office development that is fully tenanted, the limit of its annual cover may have to be increased. All of this could be very expensive and potentially disproportionate to the contract price. It will also require careful drafting of the Replacement Schedule to reflect the assumed risks.

The 2016 Edition recommends that insurance professionals (ie, brokers) are involved in preparing any Replacement Schedules. In the case of a tenant, the landlord should also be involved in the insurance arrangements if possible. In any event, parties undertaking projects involving existing structures need to be aware of this issue and to refer to their brokers when considering cover and liability for existing structures.