Report Loss Prevention

Loss Prevention Working Group Report

- by

Hugh Mallett, Chairman LPWG writes:

The group is drafting articles and guidance on a number of issues that are important to AGS members, see below for the list of our ongoing work programme and soon to be available guidance.


The LPWG met once since the November Committee meeting – 22nd Jan 2015. No calls have been made to the Legal or Chemical Helplines since the last LPWG meeting.

A Griffiths & Armour publication on claims “Professional Indemnity Insurance: Lessons to be learnt” is to be made available to AGS members via the new website

LPWG generally agrees with putting some documents behind a paywall on the new AGS website. There is also support for a knowledge hub (e-learning) that could be considered as a future initiative for students.

Loss Prevention Alerts (LPAs) are still in high demand for downloading [20 LPAs downloaded >100 times between Oct and Jan].

New member has joined the  group, Nora Fung – Arup legal.

Recently Published


  1. Elvanite Vs Amec- Limitations of Liability
  2. BGS – Deposition of Data


LPA 58 – Risks associated with as built drawings.
LPA 59 – The Consequences of Damage to Underground Services LPA 60 – What is meant by Supervision?

Work in Progress

  • LPAs
  • Summaries for the web site being reviewed and edited for accuracy.
  • Permission is being sought for publication of LPA 09 [Mott MacDonald case] online.
  • Contractors seeking contractual indemnities from their Sub Contractors. Ready for publication

Net Contribution Clauses: Newsletter article prepared. Authorisation to publish being sought from Griffiths & Armour.

Document on Ground Investigation Reporting (GIR/ GDR): Initial redraft prepared by J Strange – subject to further review/ comment. Now held to be consistent with revised BS5930.

Asbestos & deleterious materials: Newsletter article to be prepared [may also pick up discussion at Members Day]. Article on insurance cover re asbestos last published in 2011 to be re-published.

Collateral Warranties: Griffiths & Armour being approached to allow their Collateral Warranties – Basic Guide to be made available to AGS members. If permission is granted a short article highlighting its availability to be prepared for the Newsletter.

Expert Advisor and Expert Witness: Newsletter article being prepared. 1 of 2

Copyright Paper on copyright issues: drafted [advice to Members on copyright and on issues arising from use of reports and drawings in planning process].

PI Insurance for Contaminated Land: NEC3 contract requires insurance terms to be on an each and every claim basis. Aggregate cover only available for contaminated land (and asbestos and radioactivity). A newsletter article is being drafted.

Guide to report writing: Newsletter article drafted to advertise the guidance to AGS Members. The Guide itself was up-dated, but never published. Up-dated version to be retrieved, put on the web site and publicised in Newsletter.

Limitation period and defects liability: Article being drafted

Confidentiality and Intellectual Property Rights: issues for Staff on Secondment Loss Prevention Guidance drafted to address some of the issues arising from secondment of staff.

Signing contracts under duress: Newsletter article being prepared.

Client Guide: What Institutions, Trade Associations or other organisations might a Client expect a Geotechnical/Geoenvironmental Company and their employees to belong to? Paper in preparation.

Piling Damage to Live Railway Tunnel. Paper in preparation.


Article Loss Prevention

PI Requests for Higher Limits of Indemnity

- by

Professional Indemnity Insurance ~ Requests for higher Limits of Indemnity

It is not unusual for Consultants to be faced with a request for a higher limit of indemnity. The limit required may be much higher than the general limit of indemnity usually maintained by the Consultant for their activities. Requests for such higher limits can also be exacerbated by the low level of fee the Consultant may receive for the services, relative to the limit of indemnity being requested by the client. The following sets out some of the common queries relating to higher limits of indemnity.

Do I have to increase cover for all work or can cover be increased on a project specific basis?

It is worth being aware that some Insurers may be prepared to provide an increased limit of indemnity on a project, client or work type specific basis. In some cases, this may provide you with a more cost effective solution to the required increase. However, due to insurers minimum premium levels, there may be no cost benefit to increasing your cover in this way and the cost of increasing cover for all work could be the same as the cost of increasing cover on a project specific basis. Your broker will be able to advise you on what options may be available to you.

Can I pay a one-off premium for the increased limit of indemnity?

It is extremely important to remember that any increase in your limit of indemnity will not just incur a one-off premium for the current policy period. Professional Indemnity insurance (PII) is a ‘claims made’ form of insurance and cover will need to be renewed, to include the increased limit, on an annual basis to cover future claims. When increasing your limit of indemnity, consideration should therefore be given to the long- term costs, as the requirement to maintain a higher limit is likely to run for six or twelve years following completion of your services. Your insurers are likely to require an additional premium for the top-up arrangement long after the fees for the project have been received and these long-term additional costs should be given consideration in your fee bid.

My contract requires me to maintain the increased limit of indemnity for 12 years following completion of my services, how much will this cost?

It is impossible to predict the future cost of PII premiums as the cost of insurance can fluctuate from one year to the next.  Premiums will be affected by claims experience and future capacity in the insurance market and allowance should be made for possible future premium increases when looking at the long-term potential costs of maintaining higher limits of indemnity.

Although it will not absolve you from any liability to the client, any contractual requirement to maintain PII should be made subject to its continuing availability in the UK market at commercially reasonable rates.


The above is a general overview only and for specific advice on increasing your limit of indemnity please contact your professional indemnity insurance broker.


Griffiths & Armour Professional Risks
Sarah McNeill

Article Loss Prevention

Insurance Claim Refusals

- by

Tim White of Marquis & Lord, reports on the findings of recent consultations with insurance claims professionals.

A recent straw poll of Loss Adjusters (who work for insurance companies) and Loss Assessors (who work for claimants) has shown that there is an increase in claims being refused because of policy non-conformance.

Key examples, pertinent to the AGS businesses, relate to site and plant security where vandalism or thefts result from poor security.  In addition, lock types that do not conform to insurance policy requirements are also causing claims to be refused.

This has implications for the industry in many areas but particularly if vandalism results in loss of material giving rise to pollution, where the clean up costs can have far reaching consequences.  Refusal of a claim which would have been covered as a legitimate sudden and un-intended escape may be refused if the causal step involved non compliance with policy demands relative to site or plant security.

The solution is simple:

  • check policy wording to determine if lock types or minimum security measures are specified;
  • if minimum requirements are specified, check to see if the company complies with them; and
  • if possible, go a step further than the minimum requirements.

The moral of the story is, do not get caught out because of a low cost lock.

Article Business Practice Data Management Loss Prevention

Retention of documents – how long is long enough?

- by


How long is a piece of string?  Tricky.  Twice the length from one end to the middle, you say?  Well, yes, but still not very helpful in determining how long the string actually is, is it?  We can do slightly better with the question as to how long a business should retain its professional appointment documents; but a definitive answer is almost as elusive.

Firstly, it should be emphasised that this note deals with general considerations relating to professional appointment documents only.  For the myriad of other documentation and regulatory intervention that today’s firms need to be aware of, for example, in the fields of financial and accounting information, personal information and when dealing with public bodies, specialist advice should be sought.

With the increasing sophistication of computer storage systems, it is now possible to store many hundreds of thousands of documents relatively cheaply.  With the drop in price of file servers and the associated backup hardware, digitising newly produced documentation is a real possibility for many.  Many practices may never need consider purging documents; they simply digitise newly produced documentation as it is created.  Nevertheless, for those of us with many years of old paper files to consider, the cost and time implications of digitising these can be a drain on resources.

As arrangers of Professional Indemnity (PI) insurance to various professions, the document retention question is one which we are often asked.  If it is one you have already grappled with, then hopefully, this paper will do nothing more than reinforce the advice already given.  Alternatively, if it’s something you have never considered, now might be the time to do so.  With many practices struggling with burgeoning documentation, deciding when it is finally safe to destroy files is of increasing importance.

Document retention

Be it schematics for the construction of a building, advice issued to clients on a negligence claim, or papers supporting the valuation of a house, documents are produced which are vital to the service that is provided.  Indeed, the documents produced might be the very service itself.  Storage space is finite for all businesses – everything cannot be stored indefinitely.  The danger with destroying document early, however, is readily apparent.

Document retention

Although general guidance can never address the specifics of individual situations, and we always recommend that you take specific advice, the following areas should definitely frame the debate:

  1. PI policy requirements
  2. Contractual requirements and liability periods
  3. Other factors

Professional Indemnity policy requirements

We suggest the first port of call in trying to answer this question is to look at the terms of your PI policy.  Different insurers have different requirements ranging from remaining silent on the issue, to imposing quite onerous terms as to both how long you must store your documents and in what state they must be retained.  The reasons for insurers taking an interest in how you keep your documents are obvious; in the event of an allegation of negligence, the notes you have taken, the minutes of meetings held and the written advice given, will all be crucial to mounting a defence.

Griffiths & Armour’s PI insurance schemes for construction professionals have no particular requirements relating to the retention or storage of documents and you are at liberty to make whatever arrangements you consider commercially prudent.  It would be extremely foolish, however, to ignore the issue.  As previously mentioned, project documents can be crucial in mounting a defence and as our latest risk management book ’Reinforcing the Simple Messages’ shows, a claim can fail or succeed on the accuracy and/or sufficiency of project records.

Other PI policies, however, can contain fairly demanding requirements, such as:


‘The Insured, as a condition precedent to their right to be indemnified under the Policy, must keep all documents in a suitable secure location outside of normal business hours and shall maintain duplicates of all computer related records off site for a period of not less than 12 years following completion of the commission to which the documents relate.’
‘The Insured shall make available to Insurers at all reasonable times and Insurers shall have a right to inspect and copy during the period of insurance and thereafter, all books, papers and other records of the Insured and its agents or brokers in connection with this policy or the subject matter hereof.’







It is important that you check with your broker exactly what conditions apply to your particular policy, so as to ensure that you can comply.  Often, retaining the documents for the period and in the manner specified in the policy will be a ’condition precedent of cover’ (i.e. if you don’t comply, the policy will not respond to the claim).  Even conditions at the less onerous end of the spectrum can allow insurers to reject claims, should they consider your actions ‘prejudice their position’.

Contractual requirements and liability periods

Quite aside from the conditions within your PI policy, your client may well require that you retain documents on a particular project for a specified number of years.  Although it is unusual for clients to specify the manner in which the documents are kept, the requirement to store project documentation for ‘x years’ will often be combined with a right for the client to inspect the documents too.

The document retention period imposed by clients in contract often matches the relevant limitation period applicable to the project in question (i.e. the period after which claims become ‘time barred’).  Knowing when your liability expires is essential when considering how long to retain your documents, even if the contract is silent on the matter.  Usually, the liability period will expire a number of years following completion of the services you are providing or completion of the project to which they relate.  The limitation period is usually six or twelve years depending on the form of contract and what you have agreed with your client.

In certain circumstances, where so-called latent defects are present, the law can impose liability up to 15 years following completion of your services and this, for most categories of claim you are likely to face, should be considered the ‘long-stop’ of liability.  It follows that, generally, speaking this can also be used as the ’long-stop’ for retaining documents

Other factors

Many more issues may well impact upon your decision as to whether or not to retain documents and, if so, for how long.

Some clients view historical records as a potential revenue stream. They view them as a useful tool in securing work in the future from, for example, clients refurbishing a building an engineer had previously worked on.

Special consideration should be given to certain categories of documents, for example, the certain financial documents (for example, balance sheets etc) as there may well be specific legislation (e.g. the Companies Act) which deals with how long these should be kept and specialist advice should be sought in this regard.

Article Business Practice Data Management Loss Prevention

Markets for Professional Indemnity insurance – the not so ‘super market’

- by
Tags: insurance

The aim of this paper is to summarise the workings of the UK Professional Indemnity insurance market and the hard/soft cycle that has such an influential effect on premium levels. We will also attempt to predict what the future might hold as the market moves inexorably out of its soft phase and into harder times.

Insurance Markets
Most specialist insurance classes – including Professional Indemnity (PI) – are placed either with Lloyd’s syndicates or with insurance companies operating outside the Lloyd’s environment.

The UK general insurance market as a whole wrote in excess of £40 billion in premium during 2008 covering a wide range of risks, both domestically and internationally. However, the PI market is very much niche in its nature – but just how niche? UK liability premiums for 2007 totalled £3.8 billion, but this included a number of classes of insurance wide of PI, such as Public and Employers’ liability. We estimate that, of the £3.8 billion total, less than £1 billion relates solely to PI insurance. Of this, the largest element is the PI market for solicitors which accounts for around a third of this.

The construction PI sector is thought to represent a smaller proportion of the total premium although exact figures are not available. However, what is clear is that construction PI represents a very small proportion, less than 0.5%, of the UK’s overall premium spend.

Consequently, as specialist PI brokers, the sector of the insurance market with which we work is, necessarily, very narrow.

The Claims Background

Our statistics show that the number of claims and potential claims are increasing year on year – and this trend is also borne out by figures from the Technology and Construction Court. 2008 saw nearly 400 new cases reaching the court, on top of year on year increases previously.  Nearly half of the Court’s work now relates to construction and professional negligence claims. We should also remember that the vast majority of claims involving professionals are settled out of court – court cases are really just the tip of the iceberg.

Of equal concern to the increasing claims numbers are their increasing complexity, profile and cost.  The longest trial at the TCC last year ran for 109 days and claims have been made for damages of £100m plus against consultants.

Against the back-drop of increasing claim numbers, severity and cost, writing PI business is once again becoming a triumph of hope over expectation.

Premiums Received and Claims Paid
For long-tail classes of insurance such as PI, it is often the case that premiums received are not, of themselves, sufficient to pay claims. Investment income becomes a critical part of the equation particularly when, even now, construction PI claims take an average of five years to reach settlement.

Data from the ABI illustrates just how infrequently insurers make a technical or ‘pure’ underwriting profit on their accounts – only in 4 out of the last 10 years have they been in the black.  It is also notable that very often it is the liability insurance market that suffers so significantly from poor levels of profitability

The PI Cycle
The insurance cycle – which affects all sectors to varying degrees at differing times – is the name given to the periodic rise and fall of relative premium levels. As with all markets, the insurance cycle is driven as much by the effects of supply and demand as by the underlying cost of risk.

Catastrophic insurance claims are relatively rare events, but given their size they can make accurate pricing models difficult – too frequent to ignore, too infrequent to model. As large claims are also likely to be complex and involve the vagaries of the legal system, their outcomes are often difficult to interpret.

As a consequence, the forces of supply and demand are often the dominant factors in setting premium levels. Insurers may be prepared to set premium levels below the price of risk in the soft phase against an expectation of generating sufficient income in the hard market to have created an overall profit across the cycle.

However, where individual insurers price risk too low and for too long the consequences can be catastrophic – as we will see later.

In summary, the PI cycle is best seen as something like this:-

If we start in “hard market conditions” with high premiums and the real prospect of good rates of return on the capital invested”, capital enters the insurance market.  New entrants to the market look to build up books of business and do so by competing on price. In order to sustain growth (or for more established players to limit lost business) insurers are pressurised to further reduce premiums and/or provide a wider basis of cover.

However, none of this, of course, necessarily reflects any improvement in the underlying risk profile. It is market forces that are driving down premium levels and not necessarily a reduced exposure to claims. Claims still tend to be at the same levels as when premiums were high. As a consequence, claims exceed premiums and insurers start to lose money. Poor economic conditions and reduced investment returns can exacerbate the position.

At this stage we see the mirror image of the cycle. The PI market is now perceived as a poor home for capital and it withdraws relatively quickly to find better investments elsewhere. Reduced capacity (normally provided at this stage by long-term, experienced PI insurers) results in higher prices and reduced policy terms – and so the cycle begins again.

And the Consequences…
Insurers who fail to adequately manage pricing over the insurance cycle – by charging too little for too long – can face catastrophic consequences, as the following two examples indicate.

[a] Case Study – The Independent Collapse
The Independent Insurance Company was founded in 1986 and traded successfully for several years and quickly became the darling of the City. However, all was not well and a failure to adequately reserve for claims led to the Independent’s collapse in 2001 triggering £350m of compensation claims by some half a million policyholders. A subsequent investigation by the Financial Services Authority concluded that the company’s asset base was insufficient to support its business plans.

[b] Case Study – HIH Collapse
The collapse of HIH during 2001 saw the demise of Australia’s second largest insurer. The fundamental problem for HIH was that over a wide range of classes of insurance it failed to charge premiums which could adequately cater for future claims. HIH’s liquidators estimate that it collapsed with debts of £2.1 billion. Company executives have been sentenced to prison terms and thousands of insureds worldwide were affected.

Where are we now – and the future?
The PI market is coming off the back of a prolonged soft market period, which saw many insurers put volume ahead of profit.

And what of the future? It is certain that at some stage the market will enter harder conditions. There is uncertainty as to when the market might harden and by how much. Invariably the deeper and more prolonged the soft market the more pronounced the adjustment will be when it comes.

If the solicitors market is anything to go by, then we could be in for a rough time ahead.  With every solicitors practice in the country sharing a common renewal date, the scramble to the 31st October (is it??) is always fraught.  This year has been particularly so.  Rating increases of between 50 – 100% have not been uncommon, with all practices suffering to some degree.  Even those practices as the “less risky” end of the spectrum have seen their rate increase substantially.  Where insurers have perceived particular risk factors, even more so, with certain firms being effectively blackballed because of certain practice traits.

Events in insurance, as in life, are powerful and unpredictable. What future events might conspire, individually or collectively, to prompt a return to harder market conditions? The following is a list, by no means exhaustive, of the likely culprits:-

The Credit Crunch
The credit crunch had had (and will continue to have) three adverse effects on the insurance market. First, the cost of capital has increased as its availability becomes scarce. Second, a reduction in the asset base of major insurers as investment losses erode balance sheets – further reducing the capital available to underwrite risks. Third, an increase in credit crunch liability claims as those who have suffered losses (home owners, shareholders etc.) seek to recover from professional advisors, company directors etc.

Investment Income
A combination of increased stock market volatility and reduced interest rates is severely curtailing insurer’s ability to generate investment income.

Environmental Factors
After two relatively benign years of (insured) natural catastrophes, 2008 saw the second worst year on record for catastrophe claims with in excess of $50bn (£35bn) paid out.

Economic Factors
A downturn in the economy hits the insurance industry in two ways: (1) recessions invariably lead to an increase in claims; (2) the contraction in economic activity leads to a reduction in premium income leaving insurers with a reducing pool of money to pay claims.

Our Approach
Our approach will continue by:

a) placing cover with first class markets who are long term players in the construction PI market;
b) looking to charge premiums which reflect the long term cost of risk without prejudicing the position of our clients in the soft market; and
c) offering the guarantee that, absent fraud, all valid claims made will be paid.

And our commitment to proactive risk management will also continue unabated.

And Finally
There is no doubt that some sectors of the liability insurance market have seen severe corrections.  How long consultants in the engineering professions can continue to escape such corrections and how severe they will be when they come is always difficult to predict.  There is no doubt that we have hit the bottom of the current soft market and that next year will see rates on the way up.  As ever, forewarned is, or should be, forearmed.

Article Contaminated Land

Managing residual risks of land contamination

- by

The successful trading, development and regeneration of brownfield sites requires stakeholders to acknowledge and manage environmental risks effectively to realise
the potential returns. Whilst many risks associated with the project require careful consideration, the management of environmental risks can have a profound effect on the success, or failure, of a development project. Get it “right” and the developer and investment partners can reap immense rewards. Get it “wrong” and environmental issues have the potential not only to jeopardise any financial gain on the project, but present long-term liabilities to those involved.

Of course, developers cannot simply adopt a “zero risk” attitude to environmental issues when it comes to brownfield sites, particularly given the current climate of increasing costs of landfilling. Avoiding sites with actual or perceived environmental
risks could result in missed opportunities as a result of deciding not to proceed with a purchase, however budgeting for overly stringent remedial standards during development can risk losing a site to a less conservative competitor. It is not only major regeneration schemes that require careful assessment. Arguably, the adoption of adequate risk management procedures is even more important for small brownfield sites, where margins will tend to be tighter.

Residual Risk and Uncertainty
The drive towards the use of “innovative” remediation techniques, particularly those involving the in-situ treatment of soil or groundwater pollution, brings with
it the need to address residual contamination risks.

The application of risk-based remediation criteria, whilst an entirely credible and practical solution for modern day brownfield site regeneration, is designed to reduce risks to acceptable levels based on the current status of scientific knowledge, legislation, and (perhaps even more importantly) enforcement practice. Predicting future trends in any one of these factors is prone to significant uncertainties. One only has to look at the progress made (or lack of it) on Soil Guideline Values in recent years, and the Water Framework Directive to realise that this is an area ripe for changes in enforcement practice, raising the spectre of cases being re-opened some years after remedial works have been “signed off” by regulators.

Developers will, understandably, want to realise a profit on their investment as quickly as possible, and will therefore tend to have a relatively short-term interest in a site. Long-tail liabilities associated with residual contamination will therefore typically not be of primary concern. However, other stakeholders such as investors,
lenders and sellers (particularly if the latter are the original polluter) may seek additional safeguards to protect themselves in the event that environmental risks are not entirely addressed through remediation. In many cases, it may be merely the perception of environmental risk, rather than specific risk factors that cause concern.

The increasing availability of fixed price remediation contracts may seem to be the perfect panacea for developers looking to avoid the risk of cost-overrun. But what happens if additional contamination is found that falls outside the scope of the contract, either during or after completion of the remedial works?

The first reaction may be to try to take action against the environmental consultant or contractor responsible for designing and implementing the remediation scheme. This is unlikely to be successful, unless either party has been clearly negligent, or the
engineered solution has failed within the warranty period. General liability and property insurance policies will almost certainly offer no protection from ongoing ground contamination liabilities. By contrast, environmental insurance can offer a
cost effective solution to residual contamination risks.

Environmental insurance policies cover statutory clean-up requirements, third party claims for bodily injury and property damage, and associated legal expenses, resulting from contamination. The environmental market has softened in recent years, largely through increased competition, resulting in premium levels being approximately half what they were three years ago for comparable risks. Price is not everything of course, but there is also greater potential to secure coverage enhancements now than in previous years.

Whilst policies can be placed quickly and efficiently, it is important to use a specialist broker who is familiar with insurance market, policy wording and to ensure that any policy placed is tailored to meet the specific needs of the Client and project.

Do Claims Succeed?
In short, yes. Environmental insurance is a relatively
young insurance market, nonetheless we are seeing a maturing claims experience in the UK and elsewhere. During a recent survey by Willis, environmental insurers
indicated that up to 1 in 10 policies see claims activity, a trend that most insurers agree is increasing, both in terms of the frequency and magnitude of loss.

Case Study 1
A car dealership relocated one of its showrooms, with the intention of selling the site for residential development. Following the discovery of a widespread plume of petrol contamination caused by a petrol filling station formerly located at the site, remedial plans were prepared in agreement with the regulators. The petrol plume affected an
underlying aquifer, and also extended beneath surrounding residential properties.

The risk assessment reduced the uncertainty to a level that the developer was willing to take on the risk of funding the remediation works, in return for a purchase price reduction. Although there was general confidence that the remedial works would be successful in reducing both the risk and uncertainty the developer was concerned that the residual risk exposure could be significant, particularly as they were required to indemnify the seller. The developer therefore purchased environmental insurance to safeguard against the possibility of future additional clean-up costs or third party
claims following completion of the remediation, for example as a result of “rebound” of the plume or future health impacts caused by inhalation of petrol vapours by residents.

Case Study 2
This illustrates a recent example where liabilities of residual contamination, the costs of which ran into six figures, were successfully claimed on an environmental insurance policy.

A landowner implemented remedial works following the discovery of hydrocarbon contamination beneath their site. The original polluter had ceased trading some years earlier, leaving the current owner liable for the remediation, which was planned and undertaken with the agreement of the regulators.  Upon commencement of the works, the landowner also took out an environmental insurance policy to cover
the possibility of additional future clean-up works being required as a result of unidentified contamination being present beneath the site. Due to site access constraints, it had not initially been possible to investigate in all areas.

The remediation achieved the required target, and was duly “signed off” by the regulators, upon which the environmental insurer was obliged to provide for any further “on-site” clean-up costs under the policy terms. Following this, additional
contamination was identified which required further remediation, the costs of which were met by the environmental insurance policy.

For more information or to discuss other environmental risk transfer solutions, please contact

Fiona Gray
Willis Environmental Practice
Tel: +44 (0)207 488 8111

Ten Trinity Square
London EC3P 3AX

Willis Limited, Registered number: 181116 England and Wales. Registered address: Ten Trinity Square, London EC3P 3AX. A Lloyd’s Broker. Authorised and regulated by the Financial Services Authority.

Article Business Practice Data Management

Single Point Project (Financial Loss) Insurance (SPPI)

- by
Tags: insurance

The government is to trial a radical new form of project-wide insurance on about 10 public sector schemes. The move is part of the government’s drive to improve public sector procurement efficiency following the Gershon review. It will be watched with interest by the Olympic Delivery Authority which is planning to introduce project-wide insurance on all Olympic 2012 sites. The major government spending departments will put forward one or more schemes, worth between £10m and £20m, for the trial, which is expected to begin by the end of the year. It will include schemes from the Building Schools for the Future initiative, the Department of Health’s ProCure 21 scheme, as well as projects from the Highways Agency, Defence Estates and Cambridge University Estates.

The insurance scheme, known as Single Point Project (Financial Loss) Insurance (SPPI) is being championed by the Office of Government Commerce with the support of the Public Sector Construction Clients’ Forum, chaired by Sir Christopher Kelly. It is based on a scheme operating in Belgium , where integrated teams are monitored by an independent “technical assurance” bureau trusted by insurers, and which has resulted in the cost of premiums plummeting by 30%. The initiative has been developed for the British market by a team from the construction and insurance industries, led by Martin Davis, chair of the Strategic Forum’s integration steering group.

Davis told CJ that SPPI was an attempt to help the industry become less adversarial and more collaborative. “Traditionally all contracts and insurances are focused on each individual supplier rather than the team. There is a preoccupation with liabilities and the blame culture inhibits true collaboration,” he said.

Under SPPI the client and the insurer appoint independent experts for technical and cost assurance at the beginning of the project, who help appoint an integrated team and then monitor the project’s progress from design development to completion. They also monitor risks affecting safety, performance and cost, allowing prompt remedial action and cost-effective latent defects insurance.

The integrated team’s collective profits are geared to performance criteria, their share of the profits is agreed upfront and the team members pledge not to sue each other for anything but fraud. “In Belgium , this form of insurance has seen premiums fall by 30% because the risks are significantly reduced, since the project is closely monitored and suppliers are working as a team with their profits tied to everyone succeeding. “At the same time it cuts out the huge legal and forensic costs that come with having a multitude of policies,” Davis said.

Five leading insurers have agreed to provide cover for the pilot projects, subject to suitable capping for maximum liability. These are expected to include Norwich Union, Royal and SunAlliance and Zurich  Cost assurance will be provided by Davis Langdon and the technical assurer will be SECO, the independent advisor used on the Belgium project insurance scheme. The pilot schemes are expected to be identified by the end of the year.

(c) Copyright 2006. Reed Business Information Limited. All rights reserved.

Article Contaminated Land Loss Prevention


- by

This new Directive is progressing through the Commission and European Parliament and has been reviewed by the Parliamentary Legal Affairs and Monetary and Insurance Committees, although not yet by the Environment Committee. In the UK , theEA and DEFRA have commented on the draft published earlier in the year.

The draft referrs to three types of damage: biodiversity, water and soil. The first two refer to other Directives; soil damage refers only to harm to human health and the risk of serious adverse effect. Two types of responsibility are covered: Strict liability according to other Directives (eg IPPC, Waste, Water Framework, Air Pollution, etc.); and fault based for other occupational activities, but only relating to biodiversity.

Exemptions and exclusions include operations in accordance with permits issued under one of the Directives; a state of knowledge exclusion; defence/military; and activities covered by other conventions (eg transport of oil by sea).

Standards of restoration for biodiversity and water are back to baseline; but for soil to the point where it doesn’t represent significant harm. It introduces the idea of interim losses and compensatory actions (eg to provide alternative resources or compensation for the loss of amenity for the same length of time that the amenity is unavailable). There are ongoing discussions about insurance issues.

It will not be retrospective and is not expected to be introduced before 2005.

A DEFRA extended regulatory impact assessment can be found on the DEFRA website.