The Insurance gap that could leave contractors counting the cost

15 August 2018

A UK project is in progress which requires expensive specialist equipment, say a crane or a tunnel boring machine, imported from overseas. Construction all risks (CAR) insurance should cover any damage that occurs during shipping and transportation, plus the related costs, shouldn’t it?

Not necessarily. The limitations in traditional forms of construction insurance mean that important risks might not be covered, should equipment be damaged during transit. 

Traditional project insurances, such as CAR, might cover costly repairs. But expensive project costs caused by delays in delivery, incurred while repair or replacement is arranged, will likely be uninsured and incurred by the project company, developer or contractor.

A full understanding of coverage (or lack of) during transit is essential for these parties if an appropriate transfer of risk is to be made.

WHAT IS CARGO INSURANCE? 

Cargo insurance provides coverage against loss or damage to goods during shipping, whether by land, sea or air.

Typically, project insurances include an element of cover for transportation of equipment and materials. However, coverage is usually restricted to inland transit and is constrained by the policy’s geographical scope. There is an element of marine cover with a construction policy but this is normally limited to on roll-on/roll-off ferries.

On certain projects, the parties involved bring in high value cargo from international locations. The limitations of the project insurances on offer means that a bespoke solution is required to transfer the risks to insurers. 

By arranging project cargo insurance, the project parties obtain a policy for transportation of equipment and/or materials; coverage is arranged from collection until delivery via any means of disclosed transportation under one policy.

Claim scenario:
Damage occurs to a shipment of lift units from China to the UK while being loaded as freight onto a vessel.

Standard project insurers would probably decline this claim. It is unlikely the policy would extend to cover China as an insured location when the project is in the UK and marine cover is excluded (unless on roll on/roll off methods of transport).  A project-specific cargo policy should be arranged to cover this exposure.

There is further confusion with transport of materials from within the EU. The confusion surrounding BREXIT means there is little or no clarity on how these risks can be insured after 29 March 2019.

WHAT IS CARGO DELAY IN START-UP (DSU) INSURANCE?

As an addition to standard project cargo insurance, cover can be arranged for the losses in revenue caused by a delay in delivery of cargo.

This cover is similar to usual construction DSU insurance; should damage occur to cargo during transportation, which causes a delay in completion of the project, indemnification could be sought under the cargo DSU insurances. 

Normally, cargo DSU insurance would be purchased as an extension to a project cargo insurance policy.

Claim scenario:
Damage occurs to a tunnel boring machine (TBM) while in transit as freight from Italy to Spain.

If a marine cargo insurance policy is in place, coverage for damage to the TBM would trigger. Equipment items such as large cranes and TBMs are usually in high demand and have a long wait before they can be replaced by manufacturers. Damage during transit could cause a lengthy delay in completion of the project due to the delayed delivery of the equipment or materials. Cargo DSU insurances can indemnify for the loss of revenue and additional costs associated with such delays.  

TALK TO YOUR BROKER

Cargo transport comes with a unique range of risk and insurance issues for project parties. A specialist construction insurance broker will have the market expertise and industry knowledge required to tailor cargo insurance policies and extensions to suit these parties and their needs.

For further information, please contact Will Bromfield, Construction Associate, on +44 (0)20 7558 3131, or email will_bromfield@jltgroup.com