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    JCT Insurance

    The background to 6.5 1 Insurance

    In the past, within construction, the insurance industry preferred the Employer to insure the existing structure of a building being renovated and the Contractor to insure the works done. However, this would lead to many disputes on how claims would be settled.

    JCT Contracts and JCT Insurance, otherwise known as 6.5 1 Insurance, now covers a suite of contracts used by the building industry to help deliver your construction project. The JCT Contracts are standard forms that are written in joint names laying out the responsibilities for both parties (the Contractor and the Employer) within the process of the build and their obligations towards each other.

    Since 1931, the Joint Contracts Tribunal (JCT) has produced contracts for the UK construction industry used to avoid conflicts and disputes. It seeks to set out the responsibilities of all the parties involved in the process of the build.

    Where JCT Contracts come in

    When undertaking building developments or refurbishments, the Contractors All Risk Insurance unfortunately doesn’t cover you for any possible damage to neighbouring property. And where negligence cannot be proven, any damage or injury to third parties will not be covered by the Contractor’s Public Liability Insurance.

    In the scenario of a neighbouring property suffering subsidence following works on your property, and if negligence cannot be proven, unfortunately the bill to rectify the situation would undoubtedly fall on your lap.

    This is where the Joint Contracts Tribunal Standard Buildings Contract and clauses 21.2.1 and 6.5.1 come in. 6.5 1 Insurance is required for you to be able to claim for any non-negligent injury or damage to the property.

    In most cases this is issued in the joint names of the Contractor and the Employer and is arranged by the Contractor. 6.5 1 Insurance is purchased to protect against the employer’s liability for expense, liability, loss, claims or proceedings that arise from non-negligent damage to the property due to collapse, subsidence, heave, vibration, weakening or removal of support or lowering of groundwater.

    Selecting the right JCT Insurance option

    There are three different insurance options for Joint Contracts Tribunal Insurance:

    • Option A, which is where the Contractor takes out and maintains joint names all risks insurance of the works
    • Option B, which is where the Employer takes out and maintains the joint names all risks insurance of the works
    • Option C, which is the only option referring to renovations and involving existing structures. This is where the Employer takes our and maintains a joint name all risks insurance of the works and the policy also insures the existing structure and contents against ‘specified perils’.

    Often Employers don’t fully understand JCT Contracts and therefore default to Option A which is not necessarily always in their best interests.

    Where complications can arise

    There are a couple of circumstances that can cause issues depending on the Option that you choose:
    Tenants can leave themselves exposed to the full cost of reinstatement.

    When a tenant of an office, for example, is fitting out their premises and takes out the JCT Contract rather than the Landlord taking it out then they can be left open to risks.

    Most tenants would look to implement Option C as it insures ‘existing structures’, however the Landlord’s building insurance is effectively seeking to insure damage to the same building and therefore friction between the two policies would limit one party from their right to claims.

    It can also be questioned that a tenant would have any insurable rights on the rest of the building, as well as the reinstatement cover costs for the whole building likely being too high for a tenant.

    You would assume that it would be easier for the Landlord to arrange the JCT Insurance, but many refuse to do so as they don’t want the burden or their premiums to be affected.

    The best solution in this scenario is for the Contractor to provide a Public Liability Policy that offers an adequate limit of indemnity covering the existing structure and contents against specified perils.

    The risk of Contractors going into administration

    Under Option A there is always the risk of the Contractor going into administration during the building works and being left with an incomplete build that is not insured. When the insurance is arranged by the Contractor and they are there one day and gone the next you can come into all sorts of problems.

    In the case of implementing Option A, it would be recommended to seek a parent company guarantee where the Contractor is part of a bigger Group. You should also look at securities, such as Performance Bonds and Collateral Warranties. The claim on a Performance Bond will cover you for losses sustained in the event of insolvency and Collateral Warranties will provide a level of protection with regards to future defects in the works.

    Bluedrop’s advice on JCT Contracts

    Bluedrop are construction insurance brokers with specialist knowledge in JCT Contracts. If you require any further advice or information on this subject please contact us and we will be happy to help.

    From a prudent point of view we would recommend Employers insure the works themselves, with either Option B or C, and maintain control of factors such as what is covered, timelines, costs and claims handling. Taking responsibility for JCT Insurance also allows the Employer to insure against any financial loss as a result of delays in completion of the project.

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