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What is contractors' All RisksInsurance?Reproduced by kind permission of RICS ConstructionJournal

December 2008

There are broadly two types of construction risks insurance. The first covers damage toproperty, such as damage to buildings and other structures being constructed or to the existingbuilding in which the construction is being carried out. The second covers liability for third partyclaims for injury and death or damage to third party property. Modern forms of contractors' allrisks policies cover both.

The basic principle is that contractors' all risks insurance covers those losses not covered by an'excluded peril'. For example, the JCT contracts exclude from cover risks such as defects due to'wear and tear, obsolescence, deterioration, rust and mildew, loss and damage arising out of

war and for faulty workmanship and faulty design'. The benefit to the insured under this type ofpolicy is that the burden is shifted to the insurer who, to resist the claim, is required to show thatthe cause of the loss falls within an exclusion.

This insurance is usually taken out in the joint names of the contractor and the employer. Otherinterested parties, such as funders, often ask to be added as a joint name. The theory is that ifdamage occurs to the insured property then, regardless of fault, insurance funds will beavailable to allow for reinstatement.

The effect of joint names insurance is that each party has its own rights under the policy andcan therefore claim against the insurer. Each insured should comply with the duties ofdisclosure and notification.

Crucially, the insurer has no right of subrogation against the other insured party, which meansthat the insurer is not able to recover sums paid to one co-insured under the policy by pursuinga subrogated action in the name of the other insured.

Contrast joint names insurance with having an interest noted on the policy. This is different andshould not be regarded as a substitute because the third party with the interest on the policy isnot a party to the contract of insurance and thus does not have any right to claim against theinsurer, but does have entitlement to share in the insurance proceeds. Similarly, the insurer willnot be precluded from exercising rights of subrogation against the third party.

Author Amy Dunning

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Nabarro LLP 2009