Worldwide: International Construction & Engineering Insurance Seminar Overview

Last Updated: 3 August 2015
Article by Clyde & Co LLP

Follow-up: International construction & engineering insurance

On 30 April 2015, Clyde & Co partners from 4 different jurisdictions, all specialists in the field of construction insurance, held a panel discussion to compare the differing approaches in their jurisdiction to coverage issues commonly faced by construction insurers.

Present were Victor Rae-Reeves and Lee Bacon of Clyde & Co's London office, Ricardo Garrido from Madrid, Warren Hiepner from Johannesberg and James Chin from Atlanta.

A brief summary of the key topics discussed is presented here:

Issue

UK

Spain

South Africa

USA

Who must prove a loss?

Insured

Insurer

Insured

Insured

Against who is any ambiguity interpreted?

Insurer

Insurer

Insurer

Drafter of the policy

Will DSU cover respond where there are two causes of delay, one of which is excluded?

No

Depends on policy wording

DSU cover is relatively new with no cases but likely no if exclusion applicable to DSU

Depends on policy wording

Will defective parts installed in a structure be covered under a PL policy?

No

Likely yes

Likely no on the standard wording

Likely no, but states may vary

Can an insurer defend liability under a reservation of rights?

Yes

No

Yes provided adequate regard is had to any conflict of interest that may arise

Yes, but some states require that the ROR specifically identify every provision of the policy that the insurer wishes to reserve for a later date

Can declaratory actions be used to clarify the existence of cover?

Common

Do not exist as such

Yes but uncommon

Common at both state and federal level


Who has the burden of proving a loss has occurred?

  • In the UK, South Africa and USA, the burden of proving that a loss covered by the policy has occurred is on the insured. The burden of proving that any exclusion in the policy applies is on the insurer. The courts are minded to interpret exclusions restrictively
  • However in Spain, an insured is only required to notify its insurer of a loss. The insurer must then investigate and prove that the loss is covered
  • In all four countries, any ambiguity in the policy wording is usually interpreted against the insurer
  • How does Delay In Start-Up ("DSU") Cover respond where there are two separate causes of delay?
  • In the UK, the cause of the delay is what determines whether DSU cover applies. Where a delay has two causes, one of which is covered under the DSU policy and one of which is excluded, the entire loss will be excluded
  • In Spain, there are no general rules governing the application of DSU cover. The matter will depend entirely on the drafting of the policy in question
  • DSU cover is relatively new to the South African market and there is no case law on it at the moment. However, if the delay has two causes, one of which is expressly excluded under the DSU cover, the entire loss is likely to be excluded
  • In most American states, unless there is clause in the policy providing otherwise, the insured will be in a strong position to argue that its loss is covered

Where a defective element is installed in a structure, does this constitute damage to property?

  • In the UK, it is settled case law that a defective part installed within a structure does not constitute "damage" to property for the purposes of PL cover
  • In Spain, unless cover for defects has been specifically excluded, the courts will take a contra preferentum approach and extend the meaning of damage to include inherent defects as well
  • The South African courts have recognised that a defect does not constitute 'physical damage' but have not gone so far as to recognise that it does not constitute 'damage' per se. Resultantly, the wordings of South African policies normally reference 'physical damage' and not 'damage'. In these circumstances, a defective element is unlikely to qualify as 'physical damage'
  • In the USA, the definition of damage varies greatly between different states. For example, in Georgia, damage requires a physical alteration to property. In New Jersey, loss of use alone is sufficient to constitute damage

Overlap between CAR, PL and Products cover

  • In the UK, most PL and Products policies will exclude damage occurring prior to practical completion on a project, which will likely be caught by the project's CAR policy. If the damage occurs after practical completion, it is usually a question of fact and degree whether the PL or Products cover applies. If the damage is due to failures in workmanship, then the PL cover will apply
  • In Spain and the USA, an insured is only taken to be in co-insurance situation where it has more than policy of the same type, e.g. 2 CAR policies. The policies must also coincide exactly in terms of policy periods, scope of cover and insured interests. If CAR insurers are on risk, then their policy will be required to respond first

Reservations of rights

  • In the UK, an insurer can defend liability under a reservation of rights to protect its position on cover. Separate liability and coverage counsel will be required if there is a potential for a conflict of interest
  • However in Spain there is no such concept of a reservation of insurers' rights. If a claim is made against the insured that insurers believe is not covered, then the two defences (liability and coverage) must run simultaneously and in parallel
  • In South Africa, an insurer can defend liability under a reservation of rights but regard must be had to any potential conflict of interest that may arise if facts are later discovered which support an absence of cover
  • In the USA an insurer can defend liability under a reservation of rights, but that reservation of rights must specify every provision of the policy upon which the insurer may wish to rely at a later date

Declaratory actions

  • In the UK declaratory actions are frequently used to determine the availability of cover
  • Similarly in the USA, declaratory actions are common at both state and federal level, although a claim on the policy must exist before they can be brought
  • In Spain declaratory actions do not really exist as such, due to the fact the courts will decide cover at the same time as liability in any event
  • In South Africa, declaratory actions are possible though seldom used, largely because in the liability sphere there are specific procedures available to an insured to join its insurers to any proceedings brought against it

Will a clause stating that insurers' are deemed to have drafted the policy be upheld, even where brokers in fact drafted the policy?

  • This point has never been tested in either the UK or USA courts, but in both jurisdictions it is likely that the clause would be upheld
  • In South Africa, such a clause would likely be interpreted as a waiver by the insurer on the entitlement to rely on the contra proferentem rule and as such, is likely to be upheld
  • In Spain, the courts are generally of the opinion that an insurer is responsible for the content of its policy, so this clause would be very difficult indeed to challenge

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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