by Leslie Buchbinder
Builders’ Choice Magazine, December 2014
Builders and building subcontractors are exposed to many risks which, if not properly managed, can lead to financial ruin.
Builders and building subcontractors are exposed to many risks which, if not properly managed, can lead to financial ruin. These include risks under the terms of building contracts or subcontract agreements, as well as exposure under various pieces of legislation such as under the Workers Compensation and Injury Management Act 1981 and the Occupational Safety and Health Act 1984. There is also potential exposure under general laws such as negligence and breach of contract.
One useful management tool to have in place is appropriate and adequate insurance cover. However, not every risk can be insured against; insured against adequately, or insured against for a price that is acceptable to the builder or building contractor.
It is important that the builder or building contractor clearly understands the extent of the insurance contract before the contractual terms are finalised in order to avoid circumstances where the wrong assumptions have been made as to what risk is covered by the insurance policy and which party must accept responsibility for that risk. In a climate where insurance premiums are increasing, and more and more exclusion clauses are being inserted into building contracts and insurance policies, this is even more so the case.
When deciding how best to deal with a particular risk, you may find it useful to consider the following:
Is the risk concerned insurable? Can a policy of insurance be procured which will specifically cover this risk?
Is the insurance cover adequate? If a policy is obtained will it respond to the risk that has been identified and will it do so to the fullest extent of that risk?
Does the cost of obtaining the insurance outweigh the risk?
What is the nature of the policy and for how long will that policy provide cover?
Can the policy wording be amended to specifically provide for the risk at hand or is it to be generic in nature only?
Is the insurer likely to remain in business for the duration of the construction project?
Having the appropriate insurance cover does not necessarily avoid disputes arising. Issues can arise in relation to the insurance cover itself and whether or not a builder or a building contractor is protected by that insurance cover in any given circumstance.
What happens if you need to submit a claim to an insurance company? In the case of smaller and more straightforward matters, the claim may be adequately submitted by the builder or building contractor directly.
However, for larger and more complex claims, or where issues arise as to whether or not the insurer will extend indemnity to the builder or building contractor, legal advice can make a significant difference as to whether or not the claim will be ultimately accepted. Sometimes the wording of the claim submitted becomes extremely important.
Claims may be declined by an insurer for a variety of reasons. For example, in the case of a claim for storm damage, an insurer may attempt to decline the claim on the basis that gutters were blocked by roof debris and argue that this is evidence that the building was poorly kept and not properly maintained as required under the terms of the policy of insurance.
Building claims are often denied by insurers because of issues associated with defects.They may be inherent defects or defects which develop in a building over the years and fail to be considered separately from any compulsory insurance requirements.
Being declined by an insurer is not the end of the road
That decision may be the subject of internal dispute resolution pursuant to the insurer’s nominated procedures and from there the matter can be escalated further and ultimately, if necessary, to litigation. However, prior to reaching the stage of litigation there are often opportunities to seek to resolve the dispute quickly and less expensively.
Insurance is a key element of risk management – but policies must be properly considered, drafted and managed. Once any level of complexity is involved, taking legal advice is highly advisable, both in structuring insurance policies and when making claims. BC