Timber iQ October - November 2019 // Issue:46 | Page 11

NEWS
Construction and liability risk
By Standard Bank
Often companies take on a contract without understanding
the nature of the agreement and what happens if a risk
event occurs.
Compliance standards need to be adhered to and these
can be onerous, for example if a warehouse is being built, fire
equipment, SANS standards, taking square meterage and
occupation load into account, would all need to be met.
“You may have a billion-rand contract with only a few lines
dedicated to insurance – this is a drop of water in a very big
ocean. There are an inconceivable number of variables and
this is where you need experience and expertise to understand
and guard against all the implications,” says Hughes.
It is important to be aware that the Insurance Ombud and
building regulators are taking a very dim view of those who
cut corners. “Their key concern is for the man on the street
and that users and end customers receive the best protection.
They expect you to have known what you were doing.”
It is therefore important to think broadly when
undertaking this work, for example, by listing in a policy all
sub-contractors and those from whom tools like trucks and
graders have been hired and to ensure they have sufficient
related coverage, or to top up where there is not sufficient
coverage. “Just one piece of hired equipment may be
damaged and could cost R20-million. It needs
comprehensive insurance coverage, including coverage for
the cost of hiring in an additional piece of equipment to
replace the damaged one.”
Construction guarantees and performance guarantees are
also an important form of insurance. “In this way you can
ensure the insurer takes on the risk of guaranteeing various
terms and conditions – this will be determined by whether or
not you are a builder of repute, have a good track record and
income statement, for example,” says Hughes.
Cost concerns are raising the bar for all players in the
industry. According to a recent PwC Insurance Industry report,
the current economic environment makes it important to
strike the right balance between the retention of
policyholders and the repricing of premiums. As the costs of
claims rises, a lot of focus will have to be placed on pricing
risks effectively in order to provide value to customers.
“It is highly important that insurers leverage deep market
expertise across Africa to price risks adequately to provide
personalised tailored solutions for all consumers,”
concludes Hughes.
The informal nature of many
building contracts means
the builder could be without
insurance themselves and any
attempt to sue would not lead
to an adequate recovery of
damages.
www.timberiq.co.za
A
ngela Hughes, commercial underwriting manager at
Standard Insurance Limited says homeowners doing
even simple additions generally only have a standard
homeowners insurance policy in place which excludes
building or construction work. “This means that in the event
of a serious claim arising from the construction work or
alterations, ordinary South Africans could lose their homes
as they would not have adequate insurance protection in
place,” says Hughes.
The dramatic increase in building activity across the
country has broader ramifications when any injury is caused
to the public at large. It is therefore crucial for contractors
dealing with the public to ensure they are adequately insured.
Some professions are more vulnerable than others when it
comes to public liability risk – those doing major construction
and building work certainly count among those. “They face
too many risks not to have adequate liability insurance in
place,” adds Hughes.
The number of accidents and related damage claims are
on the rise as infrastructure development continues to gather
pace. For example, there was national outrage and sadness
when the temporary structure supporting the construction of
a pedestrian bridge on Johannesburg’s main motorway
collapsed‚ killing three people and injuring 19. Reports soon
emerged of inferior products allegedly being used and the
different contractors were soon at loggerheads in court as to
who was to blame.
In the corporate and commercial space, a dedicated
contract and multi-peril insurance is crucial. “This will take
most risks into consideration. On site risks include risk/injury
to staff, third parties, sub-contractors and the public.
Protection for your materials, equipment, tools, surrounding
property and transport all need to be considered. Contractors
may also wish to take Professional Indemnity cover, which
can provide protection for the advice provided, particularly
important for architects, quantity surveyors and the like,”
explains Hughes.
She also explains that it is important that contracts include
an element of legal coverage because cases can run into
millions of rands and can drag on for years. “There could also
be questions and arguments about advice received from
architects or other third parties,” she adds.
Insurance is important for both contractors and clients alike.
// OCTOBER / NOVEMBER 2019
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