G) Existing Building Insurance
Where an existing building is to be the subject of Contract Works care is needed by those responsible for drawing up the contract conditions and those responsible for insuring the building. The insurance of new build contract is relatively straightforward compared to the difficulties that can arise when an existing building is being worked upon. Such a building will in most circumstances be insured under a commercial all risks property owners’ policy whilst occupied or temporarily unoccupied pending the works. There will be a number of conditions in that policy that will apply when works are being carried out and these should be examined. If the contract does not involve much of an increase in risk the current insurers may be happy to continue the cover without additional charge but it will require reasonable precautions to be taken. On the other hand if there is hot work involving welding equipment or blowtorches, they may require an additional premium and/or risk improvements. If there are to be structural alterations, particularly if they involve foundations, insurers may wish to reconsider the cover and, say, exclude subsidence occurring as a result of the works. The remaining subsidence risk may then be insured under a non-negligence policy at terms reflecting the insurance providers’ assessment of the revised risk. The specific action will depend on the particular circumstances and the attitude of the insurance provider. However, it is also possible that the current insurer will wish to exclude the cover altogether on the grounds that the building is now a construction risk and best insured under a construction policy. The problem with this is that the construction insurance market does not always have the capacity to insure a substantial building.
Contractors often seek to take out joint names insurance with the Employer in respect of the existing building as they wish to avoid taking out public liability insurance due to the high premiums for a large building. This is all very well if the Employer is also the insured under the policy and is prepared to pay any additional premium and/or to accept restrictions in cover and/or to pay for additional risk precautions during the contract period. Either way it should be made clear that this is at the Employer’s risk.
Problems start if the insurers of the building do not want to carry the additional risk. Alternatively the Employer may not control the buildings insurance and the landlord or freeholder that does may refuse to agree to joint names status for the Contractor. If either of these eventualities arises, a solution has to be found. There are solutions or partial solutions but they may be very expensive and still leave the Employer carrying some risk.
Where the Contract Works will include very little of the original building, perhaps just the exterior walls or the facade, it may be better to cover both the existing building and the contract works under the CAR policy with one sum insured. It should be cheaper and make settlement of any claims easier. A CAR policy is designed for construction works and the cover is drawn up to reflect the risks inherent in construction. There are elements of the cover that may make it beneficial to insure the existing building under such a policy,
The insurance providers for the existing building must be advised of the nature and extent of the Contract Works or the policy could be invalidated. However, it may be better to cover the existing building under an all-encompassing CAR policy, as mentioned above.
Where the Employer is undertaking to arrange a joint names cover on the existing building to protect the Contractor, he should make sure this is possible. If the Employer is a lessee or has not arranged the policy there could be problems that are both time-consuming and expensive for the Employer to resolve.