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The Institute has always advocated that because architects are not typically experts on insurance matters, any questions or problems relating to contract works insurance should be referred to the client's insurance advisers. Notwithstanding, when the contract works and public-liability policies are arranged by the contractor, there are a number of matters which the architect should be aware of and which, if attended to, will facilitate more efficient contract administration.
Introduction
Institute endorsed contracts vary in their exact requirements but, in general, the party to the contract that is taking out the insurances is to provide to the architect or to the other party the insurance documents or a statement in writing setting out all the provisions. The documents are to be provided either as a matter of course under the contract, or on request by the other party to the contract.
The architect should always check that the documents have been received by the person entitled to receive them.
Where the policies have been provided to the owner, the architect should ask the owner to have their insurance broker confirm that the insurance is in accordance with the requirements of the contract, and that any details scheduled for the owner are correct.
Where certificates of currency only are provided by the contractor, it is difficult to assess the adequacy or conformity with the contract requirements. The architect should recommend that the owner request the contractor to provide a certificate or written statement from the contractor's insurance broker, to the effect that the policy meets the contract requirements. The contractor may request confirmation from the owner, or vice versa. If the contract requires the contractor to give a declaration that the insurance provided by the contractor remains in place, the architect needs to confirm that the information has been received with each progress claim.
The owner should ensure that the period of insurance equals or exceeds the period required by the contract or at least embraces the date of practical completion. Where the contractor's annual insurance policies expire during the contract period, the architect should encourage the owner to obtain evidence from the contractor that adequate cover is maintained until completion of the works.
In longer contracts, or where contract periods are extended, the architect should advise the owner to ensure the insurance policies are renewed or extended to cover the full period of the contract. See ABIC contract works insurance.
Where the insurance is put in place by the owner (as opposed to the contractor) the architect should recommend that the client's insurance broker arranges the policies in accordance with the contract, and that the policies be available for distribution to the contractor.
When dealing with housing, several states and territories require homeowner's warranty insurance. The terms of this insurance are fixed by law, so it is not up to the owner and the contractor to agree on variable terms, such as excess, but the architect should also recommend to the owner that its broker check any certificates provided by the contractor for this insurance.
Insurance for strata-title work
Where you are asked to design and inspect work on an existing multi-owned or multi-tenanted building, the contractor's normal contractors' risk insurance will almost certainly be insufficient. Contractors' risk insurance does not cover most damage to the existing building (including the client's unit) and the existing insurance policy for the building will not cover the works, and may be automatically void if building works are carried out without the insurer's prior approval.
The proper insurance of the works and the existing building is a matter for your client, with advice from the client's insurance broker, but the following matters are useful to consider.
Who holds the insurance?
Common sense and some Acts of Parliament require the body corporate (in the case of a strata title) or company (in the case of corporate share title) to hold a single policy, but this is not always the way policies are held.
How many insurers are involved?
Suggest that contractors' risk insurance should be taken out with the insurance company that holds the building policy, so there is no possibility of the insurer under one policy claiming that the damage should be paid for by the insurer under the other policy. It may even be necessary to have the policy taken out by the body corporate or company. It may also be possible to have the contractors policy note cover for existing structures for specific contracts.
What kind of title?
Look at the title. Some properties might appear to be on normal titles, but actually be on cluster or strata titles, such as old row houses where the title has recently been subdivided.
Giving insurance advice
It is recommended that architects do not give insurance advice. Architects should refer all decisions about the type or amount of building contract insurance cover to the client or the client's insurance adviser.
Architects who give advice on insurance can find themselves held liable if the advice proves inaccurate and the client relies on the advice to their detriment.
Most building contracts state that the contractor must obtain insurance to cover the works (including fees and demolition costs), public liability (including adjoining owners) and workers' compensation and employers' liability, and require amounts in respect of these to be scheduled in the contract.
Alert your client to these insurances and suggest a conference with the client's insurance adviser or broker, but remember that it is the client's prerogative to decide the amount of cover – unless otherwise provided by the mandatory requirements of state law. The amount and nature of the insurance cover is a commercial judgement which should only be made by your client, who must decide the amount of risk to be borne.
Most contracts also require the contractor to lodge copies of policies with the architect. When you receive these policies you should examine them for obvious errors and be sure that you then pass them to your client or to the client's insurance adviser for acceptance or modification.
In some states unregistered builders are unable to obtain insurance. When checking the contractor's insurance (or preferably even earlier), you should also confirm that the contractor is appropriately registered. If an architect fails to do so, they can be held liable for the cost of repairing building defects which the contractor's insurance should have covered.
Be sure to take up the matter of insurance twice:
- First, when you are preparing the specifications so you can appropriately word the Information for Tenderers.
- Second, before the contract is signed so that any adjustments your client requires can be made.
Disclaimer
This content is provided by the Australian Institute of Architects for reference purposes and as general guidance. It does not take into account specific circumstances and should not be relied on in that way. It is not legal, financial, insurance, or other advice and you should seek independent verification or advice before relying on this content in circumstances where loss or damage may result. The Institute endeavours to publish content that is accurate at the time it is published, but does not accept responsibility for content that may or has become inaccurate over time. Using this website and content is subject to the Acumen User Licence.