COVID-19 FAQ's for the Construction Industry

4 June 2020

With the considerable impact that COVID-19 has had on the Construction industry, insurance policies are being tested.

Many of our clients and prospects have raised questions about how different parts of their insurance programme will respond to COVID-19 and we are seeing some common themes. We have created a list of frequently asked questions (FAQs), which we hope you will find helpful.

Whilst our UK offices are closed in line with government guidelines, our team continues to operate remotely and work closely with clients to help with their insurance needs. We understand that your company may also be adjusting to a somewhat different way of working, so we promise to do everything we reasonably can to support you during this challenging and uncertain time.

For more information and advice, please contact your account executive or visit the below websites. We will also be posting information on a dedicated area on our website.

Due to the COVID-19 outbreak we are proposing to cease (or have ceased) all works on site; how will this affect our Construction All Risks (CAR) Insurance?

There is a number of implications that the cessation of activities may have on your CAR insurance; these are considered below:

Cessation of Works clauses: many CAR policies will contain a specific cessation of works clause which effectively allows for insurers to amend policy terms and conditions should a set period of time elapse with no works undertaken on site. The number of continuous days the works must be ceased before insurers have this right will vary from policy to policy, however many are either 90 or 180 days. It is therefore important that contractors and employers are recording site shut down dates and periods of inactivity to ensure they are not falling foul of such policy conditions.
Material Change: in the absence of a specific cessation of works clause, the shutdown of a site for an extended period of time would be considered a material change in risk. Due to obligations imposed on insureds under the Insurance Act 2015, contractors and employers have an obligation to notify insurers of any ‘material facts’ about a risk - not just at inception but also throughout the length of the policy period. The Insurance Act defines something being material as a fact which ‘would influence the judgment of a prudent insurer in determining whether to provide insurance for the risk and, if so, on what terms’. However, the definition of what constitutes a ‘material fact’ is often subjective. For example, a cessation of works could be considered a material risk - therefore given that in absence of employees being onsite this increases the potential of risks such as arson or theft, whilst also increasing the potential severity of losses such as escape of water and fire. It is therefore important that contractors and employers are engaging with their broker to ensure that any material changes are brought to the attention of insurers in a timely manner.
Reasonable Precautions: all contracts of insurance contain a principal clause that an insured must take reasonable precautions to prevent a loss. With respect to a site shutdown, as less people would be on site than usual, insurers will therefore be looking to see that any potential risks associated with this are assessed and mitigated against. Insurers have provided guidance and checklists to assist clients in this regard; however key areas of focus include; security (entering the site; plant/materials theft etc.), fire protections (including the mitigation of arson threats) and escape of water mitigation plans. Given the amount of information produced by insurers in this regard, contractors and employers should engage with their broker to ensure that insurer’s expectations are being met or exceeded.

Due to the COVID-19 outbreak we are proposing to continue works on site (or recommence following a site shutdown); are there any considerations we need to make or any details we need to notify insurers of?

As long as Public Health England and UK government guidelines are being adhered to and there is no material change in the risk on site, insurers will not need to be notified should works continue (or recommence) on site. Insurers expectations, as always, will be that contractors and employers will risk assess the situation and take appropriate reasonable precautions to prevent a loss including harm or injury to their employees and sub-contractors. If however insurers have amended the provisions of any policy due to the cessation of works, insurers should be notified of any return to work on site to ensure any amendments or restrictions in policy cover can be reverted back to their original state or relaxed.

We intend to continue working on site and will be implementing measures which allow our employees to observe social distancing. Would our insurances indemnify a future claim from employees or subcontractors who claim to have contracted COVID-19 on site?

Employers Liability (EL) and Third Party Liability (TPL) insurance policies will typically indemnify the contractor for all sums which they become legally liable to pay in respect of bodily injury, injury, illness or disease, with the EL responding to claims made by employees of the contractor and the TPL responding to claims from third parties. Therefore, if the claimant could establish that the virus was contracted through their employment and the contractor was found to be legally liable, these policies may respond, subject to policy terms and conditions. From a claims defensibility standpoint, contractors should be prepared to document the measures that they have put in place to safeguard the welfare of employees and members of the public. This should take account of the government advice for social distancing within the Construction sector.

How are insurers responding to COVID-19 with respect to policy terms, conditions and premiums?

While we have not seen any significant changes in Construction All Risks, Third Party Liability and Employers Liability premiums as yet, we do expect insurers to be actively evaluating losses incurred over this time which may factor into future pricing. While over periods of inactivity, CAR exposures could be heightened due to less staff on site to counter unauthorised site access, escape of water and theft; casualty exposures are likely to diminish during sustained inactivity periods. The effects on premium and deductibles therefore may vary depending on class of insurance. Since the start of the outbreak however, we have seen insurers introducing exclusions in cover in respect of losses arising out of contagious and communicable diseases. We would therefore expect that for the foreseeable future, any new policies incepted or renewals would contain likely such exclusions.

As a consequence of the COVID-19 outbreak we are expecting to see a drop in overall turnover and potentially wage roll for this financial period; as our policies are rated on these figures, will we get a return premium?

Construction All Risks, Employers Liability and Third Party Liability insurances are typically placed on an adjustable basis, meaning estimates are provided at the start of the period looking forward which are then adjusted on expiry of the period based on what was actually achieved. If the turnover estimated for any given period exceeds what was actually achieved for the period, a return of premium may be due.

Many policies also do contain a minimum premium level, which regardless of the turnover achieved, is the minimum premium payable for the period. This will therefore need to be taken into consideration when evaluating how much premium may be reimbursable from that paid. Given the COVID-19 outbreak and exceptional circumstances we see ourselves in.

With respect to claims, exposures for some CAR risks will be heightened at this time given the idle state of many construction sites across the UK, it is therefore important that insureds are taking necessary steps to protect their assets during this time to aid in future negotiations.

For casualty risks, generally over periods of prolonged inactivity on site casualty exposures will reduce. However, as insurers are deploying capacity which cannot be used elsewhere, they may still seek a premium for this opportunity cost.

Should a contractor or employer be approaching renewal we suggest engaging with your Gallagher account executive to ascertain insurers’ thoughts in this area and working towards an amicable solution for all.

As a consequence of the COVID-19 outbreak managing cash flows for the foreseeable future will be a priority; what assistance is available with respect to the paying of our insurance premiums?

With respect to assistance in this regard, early engagement with your Gallagher account executive is key. Insurer’s standard payment terms are typically between 30 and 60 days, however attaining 90+ day payment terms is agreeable in some circumstances. In addition to negotiating extended payment periods with insurers, Gallagher are able to source premium financing, which if available to you subject to underwriting, will facilitate the payment of larger premiums over a number of months. For more information in respect of premium financing, contact your account executive.

As a consequence of COVID-19 we are looking at undertaking activities which are outside the scope of our normal activities and include assisting in supporting the community. Will our insurance cover these activities?

Any activities that an insured undertakes which is outside the scope of that declared to insurers should be raised with insurers for agreement (whether COVID-19 related or not); therefore early engagement with your Gallagher account executive before the activities are undertaken is key.

With respect to motor; as a result of COVID-19 we have seen contractors using company vehicles for activities which are outside the normal scope of their business activities, an example being the delivery of PPE to hospitals and care homes. While largely the stance from insurers seems to be that these particular activities could be covered by Social Domestic and Pleasure extensions, we would suggest that particular examples are raised with insurers and specific agreement to cover sought as this stance may vary (along with policy terms and conditions).

Generally, insurers have been particularly concerned about the management of risk surrounding employees contracting the virus, therefore being able to provide evidence of risk assessments and training in this regard will be vital to ease insurer concerns.

As a consequence of COVID-19 the majority of our motor fleet is not being used; given they aren’t being driven, would we be able to receive a return premium?

Based on guidance we have received from insurers to date on this topic, the only circumstance in which insurers appear willing to consider a return of premium would be to declare the vehicle as SORN (Statutory Off Road Notification) and remove it from the policy.

SORN is the process of taking your vehicle off the road, this may be for a number of reasons and could include the expectation of the vehicle not being required for an extended period of time due to COVID-19. If your vehicle is classified as SORN, it is unable to be used on a public road, this includes being driven or parked. There are certain circumstances in which a SORN declared vehicle can be driven on a public road, however these are limited and include to attend a pre-booked MOT appointment. If a vehicle is used on a public road when declared SORN, fines can be imposed of up to GBP2,500 along with court prosecution. Once your vehicle is declared SORN you may however be entitled to a pro-rata refund of any unused road tax.

If a SORN declaration is opted for, vehicle owners/hirers need to be certain that the vehicles will be stored securely on private land and not driven on a public road for the duration of the period they are declared SORN to prevent uninsured losses or fines being imposed.

The process for declaring and un-declaring a vehicle SORN is relatively straightforward, albeit may be administration intensive for larger fleets. For more information on this please contact your Gallagher account executive or visit the DVLA website.