Insurance terminology can be confusing. We believe it's our role to help you understand your policy wordings. Here you'll find answers to frequently asked questions and definitions for key terms often used.
What is an annual insurance programme?
An annually renewed policy that is intended to cover the vast majority of a contractor’s or employer’s activities during the agreed period. The policy will contain exclusions or restrictions for certain types of activity, which will require project specific insurance to be covered.
What does class of business (CoB) mean?
Class of business, or CoB, is an insurance term used to describe individual categories of insurance defined according to the perils insured or the nature of the industry for which the product is intended. For example, construction all risks.
What is construction all risks (CAR) insurance?
CAR insurance covers the works of a construction project against physical damage arising from all risks, except those specifically excluded. CAR also covers materials for incorporation in the works, property temporarily occupied for site offices and construction plant and equipment (CPE). CAR insurance normally covers a project for its duration, and reverts to the owner's property insurance upon completion. Cover is provided during the defects rectification period for damage arising from defects occurring during the construction period.
What is the construction period?
The period during which the physical works are carried out on site, commencing with the first activity and finishing on completion or handover.
What does contractor’s plant & equipment (CPE) include?
CPE refers to machinery and equipment used to undertake construction projects. CPE is reusable and not ultimately incorporated within the project works, a clear differentiator to construction materials. There can be some ambiguity as to the precise nature of certain equipment, which could be defined as CPE or temporary works, such as scaffolding.
What is contractual liability insurance (CLI)?
CLI is an amended form of third party liability (TPL) insurance that covers legal liabilities arising from specific contractual undertakings, as opposed to those in common law. Since the now infamous Tesco -v- Constable case, normal TPL policies will only indemnify for liabilities in tort or coextensive in tort and contract. However, there are many situations in which employers or contractors may incur liabilities beyond this common law position. CLI insurance is one solution for these potential liabilities.
What is cyber insurance?
Cyber insurance covers losses relating to damage or loss of information from IT systems and networks. Policies generally include significant assistance with and management of the incident itself, which can be essential when faced with reputational damage or regulatory enforcement.
What is a deductible?
This is a method for insureds to retain risk. The deductible, expressed as a financial amount, is deducted from the sum insured or limit of indemnity provided by the policy. For example, a policy that has a £5m sum insured with a £1m limit of indemnity will pay a maximum of £4m. Deductibles are most commonly used on property risks whereby the finite value of the physical insured property makes an excess inappropriate. Often wrongly confused with excess (see below).
What is the defects liability period (DLP)?
The period following completion or handover during which the contractor remains liable for defects in the works. The first 12 or 24 months of the DLP may carry additional obligations (see defects rectification period).
What is the defects rectification period (DRP)?
This period is also referred to as the maintenance period in some forms of contract. The DRP commences once a project is completed and handed over to the employer, owner or client. The DRP is normally the first 12 or 24 months of the defects liability period (DLP) in which the contractor is obliged to return to site to rectify defects within the contract works. For the balance of the DLP, the contractor remains responsible for defective work but is not obliged to return to rectify those defects.
What is delay in start-up (DSU) insurance ?
A policy which indemnifies the project owner or employer for losses arising from delayed completion caused by a physical damage loss during the construction period. DSU is bought in conjunction with CAR insurance and can indemnify for loss of profits, additional project finance costs or acceleration measures to mitigate either of the former.
What is directors’ & officers’ (D&O) insurance?
Directors and officers have specific duties, responsibilities and powers relating to their positions. If a director or officer is found to have acted outside of their terms of reference, civil, criminal or regulatory proceedings can be brought against them. D&O insurance covers the cost of defending these proceedings, as well as any compensation costs that arise from an unsuccessful defence.
What is employers’ liability (EL) insurance?
EL insurance protects employers against liabilities incurred to employees for injury, disease or death caused during the course of their employment. This compulsory insurance is intended to protect the employer’s liability to the claimant. As a result, the employee must prove that the employer has been negligent or breached its statutory duties in relation to safe equipment, places or systems of work to be successful in a claim for damages. The policy will indemnify the employer in respect of these damages as well as any legal or defence costs incurred throughout the process.
What is an endorsement?
An endorsement is a formal amendment to a contract of insurance. These are prepared when an aspect of the risk changes for agreement by the underwriters. An additional premium may be charged in circumstances where the risk change is significant.
What is an excess?
The excess is the level of risk retained by the insured. Once this figure is exhausted by a loss, the insurer will pay the limit of indemnity or sum insured in “excess” of the retained risk. Often wrongly confused with deductible (see above).
What is a follow insurer?
Follow insurers review terms offered by lead insurers (see below) and decide if they are acceptable. If so, they agree to participate on the insurance placement at the leader’s terms, conditions and premiums. In some circumstances, the follow insurers may agree to be bound by the decisions of the lead underwriter.
What is the Joint Code of Practice for Fire Prevention on Construction Sites (Joint Fire Code or JCoP)?
The Joint Fire Code is a guide for contractors and their employers to prevent fire losses on site. Now in its 9th edition, it was first published in 1992 following a series of devastating fires on construction projects. The Code includes a series of best practice recommendations to prevent, detect and combat fire and seeks to ensure that these issues are given proper consideration during the planning and design stages of the project. Failure to observe the Joint Fire Code can result in withdrawal or invalidation of insurance protection.
What is latent defects insurance (LDI)?
LDI protects a completed property against inherent (or latent) defects in design, workmanship or materials that become apparent in the structure or waterproofing of a building. The policy acts as a benefit to the property as it will respond quickly following the identification of a defect to prevent imminent damage. This avoids the time consuming and potentially expensive process of identifying who is responsible for the defect, and pursuing them with legal action, as insurers will respond to a claim under the policy in the first instance.
What is a lead insurer?
The lead insurer on an insurance placement is the underwriter that sets the terms, conditions and premiums for the risk in question. The lead insurer may also be responsible for managing the insurance market’s response to claims. In some cases, all of the participating insurers may be bound to follow the lead insurer’s decisions on altering cover, premiums or claims. All other insurers are referred to as follow insurers (see above)
What are lender’s insurance requirements?
These are stipulations made by a project financier or mortgage company to protect an asset which is the subject of a loan or is used as collateral for a loan. In construction insurance, these normally arise from project financiers who want to ensure that the insurance programme protecting the works in progress is in place and effective, includes the lender in the event of a default and extends to protect other risks such as revenue loss arising from delayed completion.
What is a limit of indemnity?
This is the financial limit of insurance purchased by an insured under a liability policy. Limits of indemnity can be expressed in different ways, including “each and every loss” meaning the limit is available for each claim, or “in the aggregate” which means that the policy has a finite limit.
What are modern methods of construction (MMC)?
A broad term encompassing non-traditional building and construction techniques, which can be undertaken off-site or on-site depending on the circumstances. These techniques range from the prefabrication of complex and high quality modular units in factory conditions, to the use of automated equipment to simplify, reduce risk and accelerate works carried out in situ.
What is motor insurance?
A compulsory insurance in the UK, motor insurance covers a vehicle owner or operator for third party liabilities arising out of the vehicle’s use. These liabilities are commonly in respect of damage to other vehicles and injury to other drivers, passengers and pedestrians. Wider forms of cover are available to protect the owner’s vehicle against damage as well.
What is an owner controlled insurance programme (OCIP)?
A comprehensive insurance programme designed for a specific project (or series of projects) arranged by the owner or employer, as opposed to the contractor. An OCIP provides the employer with a greater selection of products, plus more control over the cost and coverage provided.
What is parametric insurance?
Parametric policies operates differently to traditional insurance policies, as they are built around a pre-defined event for which payment is made should the event occur. The insured does not have to prove a loss has occurred in order to receive payment. Instead, the occurrence of the pre-defined event triggers the policy, and payment is made. This creates certainty for the insured to assist with financial and risk mitigation planning.
What is premium?
The premium is the consideration paid by the insured to the insurer in return for the indemnity offered in the insurance contract.
What is professional indemnity (PI) insurance?
PI insurance protects businesses and individuals for liabilities arising from the execution of professional activities and duties. For construction risks, this is most commonly the case for design activities, although there are other activities that fall within that definition such as surveying and project management. For more details, visit our PI product page.
What is third party liability (TPL) insurance?
TPL insurance protects against common law liabilities to others incurred by an insured. Most usually, these policies will indemnify against claims for injury, damage, nuisance, trespass and the like. Insurers provide an indemnity where it can be shown that the insured is legally liable for the loss.