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INSURANCE COVERS

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Re: INSURANCE COVERS

Post  id2013 on Wed Jul 17, 2013 2:08 pm

Dear Forum Members,
Mimi hapa napita tu ila nampongeza RJM kwa shule nzuri sn na ingelikuwa tunapewa hivi shule hii kwenye semina zingine ambazo hufanyika hasa kwenye uitafsiri wa nyaraka za zabuni kama hivi basi tusingepata tatizo kama ndugu yetu wa awali alivyouliza.

id2013

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Re: INSURANCE COVERS

Post  RJM on Fri Jun 21, 2013 10:57 pm

Rutaihwa,
The response in this topic has taken longer than expected which is not normal in this forum. Risk is probability - to get the correct answer is probability too!
Most of the Form of Contracts if not all including those issued by PPRA under PPA and its associated Regulations presuppose that risk exists not only in the construction projects but also other contracts and should be covered by insurance, to the extent that is possible. Insurance is one way of managing risk in the contract by transferring it to the party which placed in good position to provide a cover in case event occurs. The referred party is none other than an “Insurer”.  However, insurance cover is only available for insurable risk, which is a risk depending on fortuity, which means that the event or circumstance has to be sudden and accidental and that comprehensive data for the purposes of premium calculation do exist. Obviously some of the risk which is inherent to a construction contract does not depend on fortuity. It is then not insurable. Take example of differing ground conditions and unusual climatic conditions which may have a critical impact on the successful completion of the works are dealt with separately. This type of risk is also referred to as speculative risk. In principle speculative risks are not unforeseeable. For instance, in FIDIC, an experienced Contractor should be able to foresee most of the current risks. The question is whether he should also make allowance for the event that the risk occurs. Un-foreseeability is dealt with by the conditions of contract depend on the Form of Contract governing contract and the interpretation attached thereto.  
It is evident that the risks you are referring to are non-speculative risks which are foreseeable taking into account the complexities and multi-dimensions construction projects are subjected to. The incidences of buildings collapsing at Jamuhuri Street in Dar es Salaam and Bangladesh few months ago are typical cases. The referred cases involved; ongoing works (construction works) and completed works. The scenario at hand is among the risks addressed in many forms of contracts.
Looking at the Clause 13 of the Form of Contract you are referring to [Medium & Large Works Contract – issued by PPRA], the contractor is required to provide insurance cover for all risks relating to the execution of the contract. Sometimes refers as “Contractor’s –All- Risk – Insurance (CARI)” or “All Risk (AR)”. You will note that in the referred Form of Contract, Clause 10 [Employer’s and Contractor’s Risks] – draws the line on how risks will be shared between the parties, Clause 11 [Employer’s Risks] – defines what are the Employer’s Risks – indirectly related to works & Force Majeure, Clause 12 [Contractor’s Risks] – defines what are the Contractor’s Risks – which contractor is responsible to provide insurance cover in the joint names of the Employer and Contractor in the amount and deductibles stated in SCC. CARI/AR - provides protection against loss or damage in respect of the contract works at contract site and third party claims arising in connection with the construction of a project. In this case the contractor is only required to take out a contractor’s all risk policy to the extent of the contractor’s risks in the works, plant/equipment and materials. The effect is that anything which is at the employer’s risk will not be covered by the contractor’s all risks policy, even though that policy is in joint names.
There are some terminologies which we need to be familiar with before starting discussing mechanism in dealing with insurance cover as provided in the referred Clause 13; Sum Insured, Deductibles and premium.
Sum Insured: the sum insured is one of the most important parameter in developing insurance policy. It is the limit of indemnity in the event of a claim and at the same time the basis for calculation of the premium to be charged by the insurers to cover the risk exposure. In other words, it is the maximum liability of the insurer within the policy. Inaccurate insurance values can lead to underinsurance, underestimation of the actual exposure as well as complications when settling claims. Insurance can provide full protection only when the sum insured is adequate both when the insurance is first purchased as also at every subsequent renewals.
Generally, the sum insured must be similar with the contract value represents all the investment needed to carry out the contract [works, plant, materials, equipment/plant and third party liability. And any increase in the contract sum must be notified immediately to the Insurer in order to avoid under-insurance and additional premium will be charged reflecting the investment.
 Deductibles: This is a fixed amount or percentage of an insurance claim that is the responsibility of the insured, and which the Insurer will deduct from the claim payment or amount withheld by the Insurer from the claim amount paid to the Insured or an amount of expenses that must be paid out pocket before an Insurer any expenses. Albeit deductibles are voluntary to qualify for a lower premium rate but usually they are imposed by the Insurer to avoid paying a large number of small claims. Sometimes are referred as “Excess”. If so, the insurance policy will stipulate that deductibles aren’t part of the loss amount indemnified by the Insurer. The rationale of the deductibles is that it relieves the Insurer from settlement of smaller claims and provides for settlement of major claims. How it works – suppose policy has deductibles of TZS 1 million and claim is TZS 0.9 million, Insurer will not settle the claim but rather will be borne by the Insured. On the other hand, if the claim is TZS 1.2 million then the Insurer will settle the difference of TZ 0.2 million. The premise in the Insurance Industry is that the bigger the deductible, the lower the premium charged for the same coverage.
Now that we know the parameters to consider when deciding the insurance cover required for the particular contract. It is imperative to mention that PE’s Personnel/Consultants have a big role play while preparing Bidding Documents prior to be issued to the prospective bidders. First issue, the accuracy estimation for would be the Pre-determined Value or commonly known as Engineer’s Estimate. The referred estimate is the basis of establishing what is to be insured in relation risk exposure in each input establishing the anticipated contract price. For instance, if it is a road project – the questions are; is the PE going insure the whole contract including gravelling works; bridges; storm water drains; or some of the components which has impact in the project in case of unforeseeable events. That’s why most of the clients don’t insured entire contract price. However, in the buildings projects sometimes insuring the entire project it is unavoidable.  
Second issue, is the way BoQs are prepared. I have seen tens of BoQ whereby the General and Preliminary Costs are omitted. And the contracts I’m referring to here are Ad-measurement contracts whereby the payments are made based on the quantities/work-done. General and Preliminary Costs (GPC) in the BoQ thus where the contractor’s contractual obligations in relation to Insurance are initiated and contractor is obliged price the items provided accordingly. As a matter of principle the insurance items in the BoQ are linked with General Conditions of Contract then linked with Specifications and at the same the descriptions given in the Specifications are linked with General Conditions of Contract. In absence of insurance items in BoQ it will be difficult for the contractor to quote the insurance cover accordingly and on the other hand PE cannot know how much it should reimburse (premium) to the contractor for securing insurance policy. For example and details on this see Section 1300 -  Contractor’s Establishment on Site and General Obligations under the Standard Specification for Road Works 2000 issued by the Ministry of Works in particular Section 1304 (Payment).
Generally speaking for the contractor to procure insurance policies to cover risks stipulated in the contract, PE/Client and contractor need to understand information narrated above especially when one mirrors the referred Clause 13. Pursuant to Clause 13 CIRA/AR are grouped into four categories;
a.      Loss of or damage to the works, plants/equipment and materials;
b.      Loss of or damage to equipment;
c.      Loss of or damage to property (except the works, equipment & materials) in connection with the Contract; and
d.      Personal injury or death.

The above referred Clause requires contractor to take care of the works until Performance Certificate (Completion Certificate) is issued. Any damage to the work must be rectified at the contractor’s own risk and cost unless the damage was caused by an employer risk. Insurance for contractors all risks must cover the works, plant, materials, and equipment for all loss as well as third party liability or damage for which the contractor is liable; however, the insurance is also required to cover some of the employer risks. For the contractor to procure adequate insurance policies, PE/Client is required to provide sums to be insured for each category so that the Insurer can charge the premium and issue respective policy for the duration of the contract or period specified by the Policyholder. 
 Premium: Premium is calculated at a rate applied to the sum to be insured and may be charged for full period of the contract or renewed depend on the wish of the insured party. Should there be any extension on period of insurance and additional premium will be charged on pro-rata basis. As regards to the Plants/Equipment and Machinery, the premium charged is on annual basis.
Insurance Cover: The coverage for physical loss or damage to property is on an "All Risks" basis, i.e. the policy insures against damage to property in the course of construction by all sudden, accidental and unforeseen causes other than specified excluded perils and forms of damage. This cover includes works brought on to the site for the purposes of the contract as well as temporary works erected or constructed on-site. Additionally, the policy includes coverage for physical loss or damage to construction plant & machinery, equipment and tools used per the insured contract.
Third Party Liability Cover: This insures against accidental bodily injury or illness to third parties as well as accidental loss of, or damage to property belonging to third parties, caused by an accident at the construction site. The policy also indemnifies for legal costs and expenses recovered by a claimant from the insured.
Limits on Liability Insurance
Construction liability insurance has also its limitation. You must set limits per each occurrence and limits for aggregated values otherwise it will be very expensive to procure insurance policies and it may go to the extent no insurer will be enable issue insurance cover.
 In relation to Clause 13 referred, normally, the policies are categories into two group: 
Category 1 - Material damage: The policy covers physical loss, damage or destruction of the property due to any cause other than those specifically excluded in the policy.
Category 2 - Third-Party Liability: The policy covers the legal liability falling on the insured contractor as a result of bodily injury or property damage suffered by a third party.
The tables below in way summarize the discussions above and can assist when dealing with insurance. But you need expertise of the Insurer to lead you when you have your table done.
 
Category 1: Material Damages
Insured Items
Sum Insured
Deductibles
 1.  Contract Works  (Permanent and temporary works, including all materials to be incorporated)   
2.  Construction Plants & Equipment (according to the provided  list)   
Total Sum Insured under Category 1  
Category 2: Third Party Liability
Insured Items
Limits of Indemnity
Deductibles
1.   Personal injury or death
 
 
2.   Property damage
 
 
Total Sum Insured under Category 2  
 







I do believe this response will be platform to stir this topic to the next level.

RJM

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Re: INSURANCE COVERS

Post  Rutaihwa on Wed May 22, 2013 1:46 pm

TO FORUMN MEMBERS
Just to reminder,
Please help me how to determine the amount of Insurance Cover during the preparation of bid document. Refer

General Conditions of the Contract (Standard bid Document) Clause 13 States that the Contractor shall provide, in the joint names of Employer and the Contractor, Insurance Cover from the Start Date to the end of the Defects Liability Period, in the amounts deductibles Stated in the special Conditions Of Contract For the Following events which are due to the Contractor's risks;................

Rutaihwa

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INSURANCE COVER

Post  Rutaihwa on Wed Apr 04, 2012 5:52 pm

I AM STILL CONCERN with my rised Topic on how to determine the amount of Insurance Cover, Which is so far no respond. Let the members see how I fill the Special Condition on Insurance Cover and I beg your Advise.
5. 13.1 The minimum insurance covers shall be:

(a)The maximum deductible for insurance of the Works and of Plant and Materials Shall BE DETERMINED BY INSURANCE COMPANY

(b) The minimum cover for insurance of the Works and of Plant and Materials in respect of the Contractors faulty design Shall BE DETERMINED BY INSURANCE COMPANY


(c) The maximum deductible for insurance of Equipment Shall BE DETERMINED BY INSURANCE COMPANY

(d) The minimum cover for loss or damage to Equipment Shall BE DETERMINED BY INSURANCE COMPANY
(e) The maximum deductible for insurance of other property Shall BE DETERMINED BY INSURANCE COMPANY

(f) The minimum for insurance of other property Shall BE DETERMINED BY INSURANCE COMPANY

(g) The minimum cover for personal injury or death insurance

(h) (i) for the Contractor's employees is [amount]. BE DETERMINED BY INSURANCE COMPANY


(i) (ii) and for other people is [amount]. BE DETERMINED BY INSURANCE COMPANY



Regards


Last edited by Rutaihwa on Wed Apr 04, 2012 5:57 pm; edited 1 time in total (Reason for editing : additional of filled form)

Rutaihwa

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Re: INSURANCE COVERS

Post  Rutaihwa on Wed Mar 21, 2012 1:46 pm

To Forumn Members
MAY I NEED YOUR MOST URGENT HELP ON How To determineThe maximum AMOUNT deductible for insurance.

Rutaihwa wrote:To Members
Please Help How To determineThe maximum AMOUNT deductible for insurance during the preparation of Bid Documents
(a)The maximum deductible for insurance of the Works and of Plant and Materials
(b)The minimum cover for insurance of the Works and of Plant and Materials in respect of the Contractors faulty design
(c) The maximum deductible for insurance of Equipment
(d) The minimum cover for loss or damage to Equipment
(e) The maximum deductible for insurance of other property
(f) The minimum for insurance of other property
(g) The minimum cover for personal injury or death insurance
(i) for the Contractor's employees
(ii) and for other people i

REFERS TO
General Conditions of the Contract (Standard bid Document) Clause 13 States that the Contractor shall provide, in the joint names of Employer and the Contractor, Insurance Cover from the Start Date to the end of the Defects Liability Period, in the amounts deductibles Stated in the special Conditions Of Contract For the Following events which are due to the Contractor's risks;................

Rutaihwa

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INSURANCE COVERS

Post  Rutaihwa on Fri Mar 16, 2012 6:54 pm

To Members
Please Help How To determineThe maximum AMOUNT deductible for insurance during the preparation of Bid Documents
(a)The maximum deductible for insurance of the Works and of Plant and Materials
(b)The minimum cover for insurance of the Works and of Plant and Materials in respect of the Contractors faulty design
(c) The maximum deductible for insurance of Equipment
(d) The minimum cover for loss or damage to Equipment
(e) The maximum deductible for insurance of other property
(f) The minimum for insurance of other property
(g) The minimum cover for personal injury or death insurance
(i) for the Contractor's employees
(ii) and for other people i

REFERS TO
General Conditions of the Contract (Standard bid Document) Clause 13 States that the Contractor shall provide, in the joint names of Employer and the Contractor, Insurance Cover from the Start Date to the end of the Defects Liability Period, in the amounts deductibles Stated in the special Conditions Of Contract For the Following events which are due to the Contractor's risks;................


Last edited by Rutaihwa on Fri Mar 16, 2012 7:33 pm; edited 1 time in total (Reason for editing : CORRECTION)

Rutaihwa

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