The Institute strongly recommends that architects should not give insurance advice. Owners should rely on insurance specialist advice only.
A Contract Works Insurance is included in the ABIC 2018 contracts. It states that whichever party is required to take out contract works insurance they must keep that contract works policy in place until 4pm on the date the architect issues the final certificate. It also states the policy must name the contractor, its subcontractors and the owner as insured parties.
Typically, it is the contractor who takes out contract works insurance, but the ABIC 2018 contracts gives the option in the schedule for either the contractor or owner to maintain contract works insurance.
Bear in mind that, under a typical contract works policy, irrespective of who took out the insurance, either party under the ABIC 2018 contract can (if there’s a claim) pay the excess to ensure the claim is covered. The Payment of Excess clause allows the party who pays the excess to have that amount reimbursed to them, to the extent that the other party is at fault. See the specific wording of the clause. The architect can then capture this adjustment in the next, or the final, certificate.
Insurance after practical completion and occupancy
The contractual public liability and contract works insurance policies taken out by contractors, or by owners for the purposes of construction, are intended to respond to different circumstances than where the owner occupies the property or site.
Consequently, this type of insurance policy is not a substitute for the property insurance and public liability insurance generally held by owners to cover the risks associated with occupancy. On and from the notice of practical completion, the risk of sustaining damage from non-construction activity passes to the owner. At this stage, it is usually prudent that the owner has taken out their own insurance against these risks.
Importantly, contract works insurance does not cover general loss or damage. The purpose of continuing contract works insurance until final certificate is to cover loss or damage arising as a consequence of a defect which remains unrectified or work that is incomplete for some period after practical completion. The contract works insurance does not cover the cost of rectification of the actual defective or incomplete work, as that is the contractor's responsibility under the contract.
Loss or damage arising other than as a consequence of defective or incomplete work, must be covered by the owner.
Similarly, the contractual public liability insurance for the project's construction covers the risks of loss or damage that is the consequence of construction activity, in these circumstances rectification or completion. This insurance does not cover the ordinary risks of personal or property damage that occupying owners face.
For example: On and after the owner occupies the property, loss or damage caused by a bushfire will not ordinarily be covered by the public liability or the contract works insurance policies that were taken out for the project (typically by the contractor). However, loss of or damage to the property caused by a fire arising from defective wiring installed during construction, would ordinarily be covered by the contract works insurance. Also, if there is personal injury or damage to a third person's property, the contractual public liability insurance ordinarily covers this injury or damage.
Disclaimer
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