Chapter 10a – Insurance: Contractor’s Indemnity to Employer

TEOH TZE YOONG (0314756)AUDREY WONG CHOONG LING (0314504)

YAM YIH HWAN (0305861)JEREMY TEO JUN TANG (0314667)

2.0 Indemnity

Protection given by the Contractor to the Employer against claims of loss or damage by a third party arising from the construction works.

What do you understand by the word of “Indemnity”?

An example of Certificate of Contractor and Indemnity

Agreement

Clause 18.0 ?

Contractor are responsible for Claims for (i) Personal Injury or Death, and (ii) Property Damage

Employer (indemnitee) is not liable to the above situation. Provided it is Contractor’s negligence or act of default. (Stated in Clause 18.2)

3.0 Contractor’s Indemnity against Injury or Death

In Clause 18.1, it states that Contractor is liable for the injury or death of any person arising out of the execution of the Works :-

i. Damage.ii. Expense.iii. Liabilityiv. Loss.v. Claim, orvi. Proceedings (Court Case)

Pre-conditions for liability

Any negligence. Omission (failure to perform what was necessary) Default, and/or, Breach of contract by the Contractor

ONLY If Contractor’s committed it himself

Circumstances Contractor is not liable:

Negligence of both parties

Where loss is caused by negligence of the Employer

Contractor not liable to trespassers.

4.0 Contractor’s Indemnity against Loss and/or Damage

The Contractor is liable for any injury or damage to property arising from the execution of the works.

Examples of Indemnity: Contractor’s piling works causes crack to adjoining neighboring property.

Cracks are not considered defects under the Contract.

No obligation to remedy them

Statute of Limitation to Indemnity

Under the Limitation Act, third party has 6 years to bring legal action in tort against the Employer. If the third party fails to do so within the limitation period, he may be statute-

barred from doing so. The Contractor’s liability to indemnify the Employer has lapsed.

Question

Sr. Lol accidentally fell into a pit and is buried into foundation. Who is responsible for this situation?

Answer: It depends, if the contractor failed to put a dangerous or warning sign

then it is due to contractor’s omission. If the contractor have put the sign, it is still contractor responsibility,

because the site is under contractor supervision.

5.0 Contractor’s Indemnity against claims by workmen

Clause 18.3, Contractor is liable to indemnify the Employer for : Any claims made by the workmen under the contract Payment of compensation under the Workmen’s

Compensation Act

Payment of compensation under the Employer’s Social Security Act (SOCSO)

6.0 Indemnity not to be selected

Clause 18.4, states that the Contractor’s indemnities under to shall not be reduced, in the event the Employer or his Consultants and other authorized representatives have negligently contributed to the losses suffered by any persons.

Clause 18.1 Clause 18.3

Question

In the event of the Contractor employed a Surveyor on site, and he got into an accident during any site surveying work, later on he brings to the court about the situation, what will be the decision on the court?

The court held that a cautions man must be aware of the risk of being in the danger area. As such, the court held that he had therefore contributed 50% towards the injuries that he had suffered. As in the case law of Sukarmaran v Building Construction Co. (Malaysa) Ltd. (1969)

In Clause 18.4, the word “shall not be defected” makes it clear that the liability of the Contractor to indemnify the Employer shall not be reduced by any consequences arising from a lack of supervision or control by the Employer, the Architect or COW arising from: the Contractor’s site operations and working methods in detecting, preventing or making good defective works in ensuring that the Contractor performs all his obligations under the

contract.

6.0 Indemnity not to be selected (cont’d)

Under Clause 1.2 for temporary works and construction method designed by the Architect and the Engineers, the Contractor shall not be responsible and are entitled to claim indemnity from the Employer for any loss and damage.

Therefore, Clause 18.4 preserves the contractor’s entitlement to seek indemnification from the employer.

6.0 Indemnity not to be selected (cont’d)

Chapter 10b – Insurance : Against Injury to Person & Loss And Damage to Property

7.0 Need for Insurance

To cover losses and minimizing disputes between Employer and Contractors

Impacts on potential costs, fees, rights, & damages for the Employer and the Contractors

8.0 Contractor’s Liability to Third Parties

Clause 19.0 is an insurance clause, read along with: Clause 20.A Clause 20.B Clause 20.C

Clause 19.0 also requires Contractor to arrange for insurance to support the indemnity given in Clause 18.0.

Contractor and Sub-Contractors insure their liabilities for injury to third party or damages to their neighboring property.

Contractor’s liability is unlimited.

on new building, purchased by Employeron new building, purchased by Contractor

on existing building, purchased by Employer

Therefore :-

Manage the risks Transfer the risks to insurance company

BUY INSURANCE !!

9.0 Insurance against Injury to person and Loss and/or damage to property Clause 19.1 required Contractor to maintain insurance against :-

1) Personal injuries or death and injury to any person2) Loss and/or damage of property

i. Employerii. Contractoriii. Sub-Contractoriv. All interested parties

Parties insured1) Negligence, omission and default or breach of contract

CLAIM INSURANCES

Cross Liability Endorsement

What’s Cross Liability Endorsement? A Standard Document/Form The ability of one insured party to sue another insured party if both parties are

under the same contract

a. Clause 19.1(a) insurance cover to Employer, Contractor and other partiesb. Clause 19.1(b) third parties for any personal injury or property loss suffered on sitec. Clause 19.1(c) takes away the subrogation rights of the insurerd. Clause 19.1(d) automatic extension or renewal of the insurance

4 types of Endorsement

Question

In order to prevent the Contractor from a claim caused by themselves from the Employer. Which type of endorsement should be used to make sure the Contractor unable to claim?

Answer: Under Clause 19.1(c), it stated this type of endorsement takes away the

subrogation rights (or recovering rights) of the insurer against the parties named as the insured if the insurer was the one that causes the accidents to the victims.

10.0 Employees Social Security Scheme for Local Workmen

The Employee’s Social Security Act 1969, is to protect all local workers with monthly wages less than RM 3,000.00.

Therefore, Contractors are required to register all their local workmen under SOCSO.

Local workmen refer to Malaysian Citizens & Foreign Nationals with Permanent Resident (PR) status.

Contractors or Employer may be liable for all contributions in the event his workmen are not registered under SOCSO.

11.0 Insurance for local workmen not subject to SOCSO

• In Clause 19.3, Contractor and all Sub-Contractors to take insurance :- cover any local workmen not subject to registration under SOCSO

get registered before Commencement of Work

• Insurance cover must include claims arising from ‘Common Law Liability’

• Include Site Supervisors, Surveyors

––> monthly salaries exceeding RM3,000 who have not previously registered under SOCSO

• May include a personal accident insurance or an endorsement under Workmen’s Compensation Insurance

• The duration of cover of the insurance policies shall be valid up to the Completion Date and 3 months after the Defects Liability Period (DLP)

12.0 Placing of insurance with Licensed Companies

Insurance must be taken from licensed insurance companies, approved by Employer Contractor placed the policies and receipts of premium paid with the Employer with copies

extended to the Architect and QS. Architect and QS have to check the accuracy of the insurance cover :-

1. Amount/Value

2. Period of Insurance

3. The 4 Endorsements (Clause 19.1. a – d)

If the Contractor or Sub-contractor fail to insure under Clause 19.1 or 19.4 Clause 19.5 gives default powers to the Employer – purchase the insurance on behalf of the

Contractor, and the premium paid shall be recovered through a set-off under Clause 30.4

BREACH of CONTRACT!!

13.0 Explanatory Notes

The opening words of Clause 19.1 – 19.4 stated: “Without prejudice to his liability to indemnify the Employer under Clause 18.0”.

The Contractor is still liable for such risks to the Employer despite transferring such risk to an insurance company.

Third Parties:

1. Architect, Engineers, QS and other consultants engaged on site

2. Passer-by

3. Employees or suppliers of Employer

4. Employees or suppliers of Contractor or sub-contractor

Interested Parties:

1. Craftsmen, tradesmen or other Contractors engaged by the Employer under Clause 29.0.

2. Employer’s associated companies or subsidiaries.

3. Owners of construction projects adjacent to the site.

Third Party Properties – Construction Works which may cause inevitable damage to surrounding third party properties.

Example: Piling works may cause vibration to surrounding third party properties.

13.0 Explanatory Notes (cont’d)