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 posed concerns about how different parts of their insurance system are going to adapt to COVID-19, and we are seeing some common themes this is why We’ve built a list of frequently asked questions (FAQs) that we hope you’ll find helpful.
As a result of the outbreak of COVID-19, we are proposing to stop (or cease) all on-site work; how will this affect our Construction All Risks (CAR) insurance?
There are a number of implications that the cessation of activities may have for your CAR insurance; these are discussed below:
- Cessation of Works clauses: many CAR policies will include a specific termination clause that effectively allows insurers to amend policy terms and conditions should a fixed period of time elapse without any on-site work. The number of continuous working days must be stopped before insurers have this right to vary from policy to policy, however that usually contract works cover is only in force 30 days after a site shuts. If the site is shut for longer has cover been extended for the relevant period.
- Material change: in the absence of a specific termination clause, the closure of a site for an extended period of time would be considered a material change in risk. In view of the obligations imposed on insured persons under the 2015 Insurance Act, contractors and employers are obliged to inform insurers of any ‘material facts’ relating to the risk-not only at the outset, but also throughout the duration of the policy. 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 insurance contracts contain a basic clause that the insured must take reasonable precautions to prevent loss. As far as the site shutdown is concerned, as fewer people would be on-site than usual, insurers will therefore be looking to see that any potential risks associated with it are assessed and mitigated. Insurers have provided guidance and checklists to assist clients in this regard; however, key areas of focus include: safety (entering the site; theft of plant / materials, etc.), fire protection (including mitigation of arson hazards) and the escape of water mitigation plans. In view of the amount of information provided by the 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 outbreak of COVID-19, we propose to continue on-site work (or recommence after shutdown); are there any considerations that need to be taken into account or any details that need to be notified to the insurers?
As long as Public Health England and UK government guidelines are being complied with and there is no significant change in the risk on-site, insurers do not need to be alerted if work continues (or recommence) on-site. As always, insurers expect that contractors and employers will risk assessing the situation and take appropriate precautions to prevent losses, including harm or injury to their employees and subcontractors. 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 the site and to implement measures that will allow our employees to observe social distances. Would our insurances compensate future claims 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 is able to determine that the virus has been contracted through their employment and the contractor has been found to be legally liable, these policies may respond subject to policy terms and conditions. From a defense able point of view, contractors should be prepared to record the steps they have placed in place to safeguard the health 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 in terms of policy terms , conditions and premiums?
While we have not yet seen any significant changes in Construction All Risks, Third Party Liability and Employers Liability Premiums, we expect insurers to actively evaluate losses incurred over this period, which may be a factor in future pricing. While over periods of inactivity, CAR exposures could be increased due to fewer on-site staff to counter unauthorized access to the site, water leakage and theft; exposures to accidents are likely to decrease 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 result of the outbreak of COVID-19, we expect to see a decrease in total turnover and possibly payroll for this financial year; as our policies are based on these figures, are we going to earn a return premium?
Construction All risks, Employers Liability and Third Party Liability insurance are typically adjusted, meaning that estimates are provided at the beginning of the forward period, which are then adjusted at the end of the period on the basis of what has actually been achieved. If the expected turnover for any given period exceeds what was accomplished for that period, a return of premium may be due.
Many policies also include a minimum premium level, which, regardless of the turnover achieved, is the minimum premium payable over the period. This will therefore have to be taken into account when assessing the amount of the premium that may be reimbursable. In view of the outbreak of COVID-19 and the exceptional circumstances in which we find ourselves.
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.
As a result of COVID-19, we are looking at conducting activities which fall beyond the scope of our usual activities and which include assistance in support of the society. Is our policy covered by these activities?
Any activity conducted by the insured, which is beyond the scope of the operation disclosed to the insurer, should be subject to an agreement with the insurer (whether relevant to COVID-19 or not); we recommend you talk to Vista before commencing any new activity.
With regard to motor vehicles; as a result of COVID-19, we saw contractors using company vehicles for activities outside the normal scope of their business activities, such as the delivery of PPE to hospitals and care homes. While the position of the insurers seems to be, to a large extent, that these specific activities could be covered by extensions of the Social domestic and Pleasure activities,
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 result of COVID-19, most of our motor fleet is not being used; given that they are not being driven, would we be able to receive a return premium?
Based on the guidance we have received from the insurers to date on this subject, the only circumstance in which the insurers appear willing to consider a refund of the premium would be to declare the vehicle SORN (Statuatory 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 procedure for the declaration and non-declaration of a SORN vehicle is relatively straightforward, although administration may be intensive for larger fleets. For more information on this please contact Vista Insurance Brokers ltd or visit the DVLA website.
If you would like any more assistance please contact us today