Construction sites and erection insurance
It is a fact that Accra and some other parts of the country are witnessing the construction of interchanges, highways and high rising buildings. Notable among these are the Kwame Nkrumah and the Kasoa interchanges.
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If you have used the enclaves of any of these interchanges under construction, you would probably have a better understanding of my observations. You would have noticed the huge metal and concrete beams that are being mounted at certain ‘discomforting’ heights.
Using the main Kasoa-Winneba road recently, I noticed with some fear, the manner in which these heavy metals were being lifted and mounted at heights which could shift your heart into your mouth!
The closer I drove, the more scared I got! This has ,therefore, motivated me to touch on this specialised form of insurance called Erection All Risk Insurance /Construction Insurance, which is particularly crucial for civil and building constructions. I am sure, many motorists and commuters who have used the Kwame Nkrumah circle lately, where some construction work is ongoing, might have observed with the same fears as it is with the Kasoa Interchange.
The life threatening inconvenience associated with the possibility of concrete slabs and metal beams falling on passers-by or slow-pacing vehicles keeps one afloat with thoughts ‘what if?’ Indeed, I could only presume that, the contractors had an Erection All Risk (EAR) Insurance Policy or Construction Insurance to take care of any mishap during the construction works for themselves, as well as for third parties.
The Erection All Risk (EAR) Policy
An Erection All Risk insurance policy is specially designed to cover any loss or damage to projects that involve erection or installation of plants, machinery and equipment at construction sites. It covers various activities during the execution of large projects and or installations of major plants, including testing and commissioning of plant and equipment. Thus, the EAR policy provides cover to contractors, sub-contractors and investors against financial losses and material damage due to sudden, unexpected and unforeseeable events which can cause total or partial damage to the insured property during erection / construction works.
It also provides cover for damage caused to third party properties including bodily damage. The policy can be taken out in the joint names of the contractor and the employer (e.g. the Government). In most cases, EAR is an imperative in major construction works such as the Kwame Nkrumah Circle and the Kasoa interchanges.
Scope of cover
The EAR usually comprises two parts:
Firstly, it provides cover for Material Damage-covering physical loss, damage or destruction of the property insured by any cause, other than those specifically excluded in the policy. Secondly, EAR provides cover for third Party Liability-covering the legal liability falling on the insured contractor as a result of bodily injury or property damage to a third party.
The exclusions
Primarily, the following are the exclusions on EAR (i.e. where a claim could be dishonoured
unless they are ‘bought back’):
Property damage or losses arising from;
1. Faulty Design
2. Rectification of aesthetic defects of structure not relating to any physical loss or damage to
the structure due to any accident, or of material defect or workmanship defect.
3. Loss or damage due to gradual deterioration, atmospheric condition, rusting etc.
4. Loss discovered only at the time of taking inventory.
5. Loss arising out of penalty for delay, non-fulfillment of terms of contract
Premium adjustments
Contractors have the option to request modifications to their EAR policy to meet the exigencies of the contract. Such modifications however, must be mutually agreed to by both the insurer and the contractor. In the event of changes that vitiate the contract, and consequently requiring premium refund, the insurer has the option to refund only a distinct portion of the premiums, usually the unused premiums after the cancellation of the policy. Under an EAR policy, the sum insured is the total contract value including the estimated cost of labour and materials, excluding profit.
However, long term contracts often have price escalation hence premiums received on EAR policies for such projects will be based on only the original costs. Besides, an escalation clause option may allow for up to 50 percent price escalation. Moreover, there is a legal liability on insurers in lieu of accidents at the project site. The maximum liability limit per policy period is often based on a reasonably estimated number of likely accidents at the site.
A related example
Most Ghanaians will recall when the construction of the Atuabo Gas Plant was put on hold some time in 2013 as a result of alleged loss and damage of some essential components for the plant, while on the high seas due to bad weather. I recall a statement by the Ghana Gas Company to the effect that some 34 plates meant for the construction of LPG storage tanks and other essential parts were damaged on the vessel carrying the cargo to Ghana.
This type of loss would have been covered technically under marine insurance because it did not occur at the project site. However, if it did during the erection of plant and equipment at the project site, the EAR policy would have taken care of the losses and damage in indemnifying the contractor and / or the employer (i.e the Government of Ghana).
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The way forward
It’s about time our hardworking contractors and employers (particularly Government and its
Agencies) begun to appreciate the value of having an EAR policy for their projects. By emphasis, the EAR policy takes care of the unexpected accidents that often rear their ugly heads in the course of construction and erection / installation projects.
Thus, EAR policy is a cushioning measure that helps to ameliorate the effect of consequential losses and damage in projects and often exonerates the employer and contractor from any legal suits hence the need for all to consider Erection All Risk Insurance as a mandatory component of their project estimates.
In this regard, it is imperative that, as a people and through our representatives in Parliament, we consider legislation on Erection All Risks Insurance Policy (i.e if there is none yet). This legislation will make it mandatory / compulsory to have an EAR policy, as a prerequisite for all medium to large scale civil projects in Ghana.
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This will not only help to protect contractors against losses and damage to equipment and even third parties leading to the unexpected disruption in projects timelines, but also ensure that in the unlikely event of such incidents the burden of liability is adequately taken care of by an established insurer.
Until next week, “This is insurance from the eyes of my mind”. — GB