"The Contractor shall maintain adequate insurance." This sentence appears in many construction contracts – and it means almost nothing: what counts as adequate, who decides, and how should it be certified? A good insurance clause isn't longer, just more precise. This article adds the insurance-side considerations – the drafting itself is a lawyer's job.
- A good clause answers five questions: who takes out cover, for what, for what sums, until when, and how it's certified.
- An unworkable or vague clause delays the start of the project – it's worth having it reviewed by a specialist before signing.
- Keeping the clause and the actual policy in step needs maintaining throughout the project too.
- Drafting and legal interpretation are the lawyer's territory – this article gives pointers for the insurance content.
The five questions
Who takes out cover? The choice of model is settled in the contract – without it, both sides wait for the other. What cover? By type: CAR/EAR for the works, liability cover, and an existing property extension where justified. For what sums? Sum insured matched to the project value, liability limit matched to the surroundings. Until when? Period of cover matched to the programme, plus handling the maintenance period. How is it certified? The form, content and deadline of the certificate, and the obligation to keep it updated.
The typical mistakes
There are three recurring problems. The vague requirement ("adequate", "customary" cover) – a question left open to dispute. The unworkable requirement – a form of certificate or element of cover that the market simply doesn't issue in that shape; this delays the start of the project, because the parties argue over the clause instead of getting on with the work. And forgotten maintenance: the clause requires cover to be kept up, but nobody follows it through – the certificate lapses at the next extension, and it only comes to light at claim time: the amendment article.
Subcontractor contracts: the chain continues
The main contractor drafts a clause going down the chain too: subcontractor contracts should consistently settle whether the subcontractor falls within the project CAR's insured circle (and what that means for them), what they need their own cover for (plant, tools, their own liability), and what they have to certify. A consistent set of clauses saves administration – the chain checklist provides a framework for this.
The division of labour between insurance and law
The clause is a bilingual genre: legal text with insurance content. The right division of labour: the insurance content (what can and should reasonably be expected of the market) is best put together from the specialist side, while the drafting and the contractual consequences are for the lawyer to settle. A short discussion about the clause before signing is cheaper than a dispute halfway through the project – it's a natural topic for the consultation: how we work.
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