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Construction Insurance – Continuing to Build during COVID-19
The Corona virus and subsequent lockdown has hit many industries within the UK incredibly hard, in particular hospitality industries, retail and travel are suffering, but the construction industry is uniquely affected by these arrangements given the resources, planning and lead time required for most construction projects.
Build UK and the Civil Engineering Contractors Association (CECA) released a joint statement warning that construction is to become “dramatically and severely affected” in the coming weeks and months, with enforced site closures highly likely if any more stringent measures are introduced.
The media has been full of articles around construction site workers risks, continuing to work but unable to carry out the distancing requirements, or for some simply downing tools and walking off sites meaning other trades and livelihoods which rely on the core construction trades are unable to work.
It’s hardly surprising, then, that insurance professionals are seeing a flood of enquiries from companies asking how to avoid liability, or seek to recover through their policies if their business has been impacted by the virus.
Contractual options for affected companies
If a company’s business is interrupted to the extent that it leads to the delay of contracted works, there are some potential options that may be relevant:
1. Force majeure clauses
Force majeure generally means the occurrence of an event that is beyond the parties involved in the contracts control, could not have been foreseen at the time of signing the contract and which prevents one of them from fulfilling their contractual obligations.
It is not obligatory for contracts to contain a force majeure clause, but many do. For example, JCT Design and Build Contracts refer to force majeure under clause 2.26.14; it is defined as a ‘Relevant Event’ that may provide a contractor with a time extension, but not a ‘Relevant Matter’ entitling them to compensation for loss or expenses.
On the other hand, NEC 4 contracts do not refer specifically to force majeure but contain other provisions within Clause 60.1(19), which refer to events that could not have been foreseen at the date of making the contract and which prevent a contractor from completing the works to schedule.
It is likely that these provisions will have notice requirements, or other obligations on the affected party to do everything possible to reduce and prevent delays, which must also be fulfilled in order for the clause to be effective.
Most importantly however It will be down to the specific wording of each contract as to whether coronavirus can be claimed as a force majeure event.
2. Frustration of contract
Where no definition or mention of force majeure exists in a contract, it may be possible to avoid contractual liability through the legal concept of ‘frustration of contract’. This relates to an unexpected event taking place, making it physically or commercially impossible to fulfil the contract.
3. Business interruption insurance
While many (including the mainstream media seemingly) may believe that their business interruption policy will reimburse them for losses incurred either from the effects of the disease itself or forced business closures, this is unfortunately unlikely to be the case in the vast majority of UK business insurances.
These policies usually require a trigger of material damage to occur before the cover is relevant which is unlikely to be the case for a disease based issue.
Most policies provide extensions of cover for forced closure by the authorities or interruption as a result of an infectious disease but either define a list of diseases (on which Coronoa virus didn’t feature at inception) or limit cover to a very small amount.
Some unusual insurance contracts refer to the current government list of infectious diseases (which could therefore provide cover) and some larger companies may have purchased extensions to their policies and may wish to check their policy wording or speak to their broker to see whether they could be entitled to present a claim to their insurer.
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Clarke Williams Ltd are authorised and regulated by the Financial Conduct Authority under reference 758683. The Financial Conduct Authority’s Register can be accessed through http://www.fca.org.uk/ . We are registered in England and Wales with Companies House under number 10317065. Our registered office address is 194 High Street, Tonbridge, Kent, TN9 1BE