The Importance of Insurance in Construction…

Insurance is an essential consideration in all sectors but perhaps even more so in construction, where liability risks can be compounded by the multiplicity of stakeholders, a complicated web of conflicting commercial arrangements, and uncertainty of responsibilities.  Construction projects can carry a great deal of risk due to the very nature of the work and, often, the sums involved, which is why arranging an appropriate level of cover is an essential part of the planning stage.  All agents involved in the process should already have an appropriate level of public liability and employer’s liability insurance in place in order to cover against personal injury or property damage claims, but whether that “standard” cover is appropriate for new or unusual projects is often overlooked.  Indeed, companies are often misinformed as to how much cover is actually necessary in many cases.  So, what actually is an appropriate level of cover, and how is that determined?

For public or employer’s liability insurance, limits of indemnity normally start somewhere between £1-£5million, which is considered an ‘average’ amount. Average cover means smaller premiums, which is obviously attractive to most.  In reality, however, do such limits really provide the protection needed for most companies?

Let’s look at a practical example of the kind of injury which can, relatively easily, occur on a construction site.  Say, for instance, an employee sustains a crushing injury to the lower leg.  They suffer complications, surgery is unsuccessful, and the result is a below knee amputation. Lawyers and Judges would turn to the “Judicial College Guidelines” to form a view of how much that injury may be worth, and the appropriate bracket in that instance may be somewhere between £119k and £162k.  In comparison to our insurance limits, we need not be troubled so far. 

However, what if that employee can never work again, and they are a 30-year-old individual earning £20k per year?  With more than 35 years of work left in them, a strictly linear equation realises future lost earnings of £700k.  They will have lost pension credits that will affect their retirement and will need another £200k to compensate.  On top of that, the injured person requires significant rehabilitation and multi-disciplinary care, such as pain management intervention to deal with “phantom pains”.  Add another £750k.  They cannot get into and out of the shower at home as it is positioned over a bath and they live in a 3 storey-townhouse with multiple staircases, so they need to either move house or adapt their property to install a wet-room, handles, stairlift and other aids; a further £50k perhaps.  They cannot drive their manual car and need to swap it for an automatic with fewer pedals or adapt their current car with a hand-operated accelerator, and they will need all future cars them own to be the same.  Suddenly, we are starting to get very nervous indeed about the level of cover purchased.

The injury and financial losses are only part of the story.  If the Claimant is represented by Solicitors, then there will be legal costs to add to the bill, along with, in some cases, a Case Manager instructed to coordinate rehabilitation.  Those two alone could add £250k or more to the total. 

It is common for people to have some understanding of how injury compensation is valued but to be unaware of the bigger picture regarding past and future financial losses. £5m in cover can quickly end up being too little in serious injury cases, particularly where the injured person is earning decent money or there are multiple injured parties, and the company itself must bear the expense over and above the cover limits.  In a sector where £10m - £15m+ claims are very possible, indemnity limits need serious consideration.

For further information, please contact David Mayor.