Insurance in Construction Projects

CAR, PII, public and employer’s liability, JCT Options A/B/C, NEC4 requirements, latent defects insurance, and the QS’s role

Introduction

Construction projects carry complex risk exposure — physical damage to the works, injury to workers and the public, design errors that emerge years after completion, damage to neighbouring property, and liability for professional negligence. Insurance is the mechanism through which these risks are transferred, shared, and managed. For the quantity surveyor, insurance is not a peripheral concern — it sits at the heart of contract administration, cost planning, and commercial risk advice. The QS must understand what each policy covers, who arranges it, how it flows through the contract, and what happens when something goes wrong.

The Insurance Landscape

A typical UK construction project involves several overlapping insurance policies, each covering different risks and arranged by different parties. Contractor’s All Risks (CAR) covers physical loss or damage to the works during construction — fire, storm, flood, theft, vandalism, accidental damage — along with materials on site and temporary works. Erection All Risks (EAR) serves the same function for engineering projects involving heavy plant and machinery installation. Professional Indemnity Insurance (PII) covers professionals who provide design or advisory services against claims for negligence. Public Liability Insurance covers claims from third parties — members of the public injured on or near the site, or damage to neighbouring property. Employer’s Liability Insurance is a statutory requirement under the Employers’ Liability (Compulsory Insurance) Act 1969, covering claims from employees injured at work, with a minimum cover of £5 million.

The QS’s role is to ensure these policies are in place, compliant with the contract, and adequately funded in the cost plan. Insurance costs typically sit within the preliminaries — and the QS must verify that contractors and subcontractors maintain valid cover throughout the project. For more on how preliminaries are structured and priced, see our article on Preliminaries and General Items in Construction.

JCT Insurance Options A, B, and C

The JCT Standard Building Contract (SBC 2024) provides three insurance options in Schedule 3, each allocating the responsibility for insuring the works differently between contractor and employer. All three require insurance in joint names — both contractor and employer are co-insured, giving both parties direct recourse to the insurer.

Option A — Contractor insures new works. The contractor takes out and maintains a joint names all-risks policy for the works. This is the standard option for new-build projects where the contractor has day-to-day control of the site. The insurance cost flows through the contract sum (typically within preliminaries). The contractor manages claims and instructs reinstatement works. The employer is protected through joint names status.

Option B — Employer insures new works. The employer takes out and maintains a joint names all-risks policy. This option is used when the employer wishes to maintain control of insurance arrangements — some commercial or public sector clients prefer this approach, particularly where they have established insurer relationships. The insurance cost is reimbursed separately from the contract sum. The employer manages the claims process.

Option C — Insurance of existing structures. The employer takes out two joint names policies: one for the existing structures and their contents, and one for the new or remedial works. This is the only appropriate option for refurbishment, remediation, or adaptation projects where a building already exists. The employer bears the risk on both existing and new works, and must coordinate claims across both policies. A critical practical issue is clearly defining what constitutes “existing structures” versus “new works” — ambiguity here creates disputes over which policy responds. For a detailed comparison of how JCT and NEC handle contract administration differently, see our article on Contract Administration: JCT vs NEC.

NEC4 Insurance Requirements

NEC4 ECC handles insurance through the Insurance Table (Clause 83.3), a more concise but flexible approach than JCT’s three options. The contractor is required to insure against five specific categories: loss of or damage to the works, loss of or damage to the contractor’s equipment, loss of or damage to third-party property, liability for third-party personal injury or death, and employer’s liability for employees. The minimum cover amounts are specified in the Contract Data for each category.

The default position under NEC4 is that the contractor arranges all insurances, in joint names with the employer. The Project Manager has a gate-keeper role — reviewing insurance certificates before works commence, verifying compliance with contract requirements, and accepting or rejecting the cover. If the PM rejects inadequate insurance, the contractor must obtain alternative cover, and any resulting delay is the contractor’s risk. The Insurance Table can be customised per project, with parties specifying which party insures each risk and any deviations from the standard positions. For more on how the NEC4 ECC works in practice, see our article on NEC4 Engineering and Construction Contract Explained.

Professional Indemnity Insurance

Professional Indemnity Insurance protects professionals who provide design or advisory services against claims for negligence — errors in design, negligent advice that causes financial loss, or failure to advise on compliance matters. PII is compulsory for all RICS-registered professionals, including quantity surveyors, and is required by the Architects Registration Board for architects and by professional bodies for engineers. Design and build contractors who carry design responsibility must also hold PII.

Typical cover limits range from £100,000–£500,000 for small consultancies on domestic projects, through £1m–£5m for mid-size practices, to £10m or more for large consultancies on major commercial or public sector projects. Many clients specify minimum PII levels as a contractual precondition to appointment. PII operates on a claims-made basis — the claim must be made during the policy period, which makes continuous cover essential. Run-off cover is critical for practitioners retiring or firms dissolving, as claims can emerge years after the work was done.

Public Liability and Employer’s Liability

Public Liability Insurance covers claims from third parties for bodily injury, death, or property damage arising from the insured’s business operations. It is not a legal requirement in the UK, but it is a contractual requirement on virtually all construction projects. Standard minimum cover is £5m–£10m for mainstream contractors, with higher limits for major infrastructure or public sector projects. Key exclusions include injury to the insured’s own employees (covered by EL), professional negligence (covered by PII), and pollution (excluded unless specifically endorsed).

Employer’s Liability Insurance is a statutory requirement under the Employers’ Liability (Compulsory Insurance) Act 1969. Every employer in the UK must maintain EL insurance with a minimum cover of £5 million per occurrence. The penalty for non-compliance is up to £2,500 per day. EL covers claims from employees injured at work, occupational diseases, and death — it does not cover self-employed individuals or injuries to the public. Employers must display proof of EL insurance in the workplace.

Latent Defects Insurance

Latent Defects Insurance (LDI) — also called structural warranty or building warranty — provides cover for inherent defects in design, workmanship, or materials that manifest after practical completion. Unlike liability policies, LDI is first-party cover — the owner claims directly, with no need to prove negligence. The insurer appoints an independent engineer to monitor construction quality during the build; if satisfied at practical completion, the insurer offers cover for typically 10–12 years.

LDI fills the gap between the defects liability period (typically 12 months) and the limitation period for breach of contract claims (6–12 years). It is essential for residential developers (mortgage lenders require it), increasingly common on commercial new builds, and often mandated on PFI/PPP projects. The typical premium is 1.0–1.2% of contract value — a one-time cost at project completion. LDI transfers automatically to subsequent owners, making it particularly valuable for developments intended for sale. For more on the defects liability period and how it relates to practical completion, see our article on Practical Completion and Defects Liability.

Subcontractor Insurance

Contractors are exposed to significant liability if subcontractors fail to maintain adequate insurance. Main contracts typically require back-to-back insurance provisions — subcontracts that flow down the same insurance obligations from the main contract. This means subcontractors must hold employer’s liability (statutory minimum £5m), public liability (typically £1m–£5m depending on scope), and professional indemnity insurance where they carry design responsibility.

However, flow-down is not automatic — standard form subcontracts do not automatically impose all main contract insurance requirements. The main contractor must explicitly draft subcontract provisions covering joint names requirements, minimum cover amounts, certificate provision, and additional insured endorsements. The QS should establish a process for verifying subcontractor insurance: requesting certificates of insurance before each subcontractor commences work, checking expiry dates, verifying cover limits match contract requirements, and flagging any gaps to the project manager.

The QS Role in Insurance

The QS’s insurance responsibilities fall into four areas. Cost planning: insurance costs must be accurately captured in the preliminaries — CAR/EAR premiums, PII costs where the employer arranges professional appointments, and LDI premiums where applicable. Contract compliance: the QS checks that contractors and subcontractors maintain valid insurance throughout the project, verifying certificates, cover limits, joint names status, and policy expiry dates. Commercial advice: the QS advises the client on the appropriate JCT insurance option (A, B, or C) based on project type, risk profile, and the client’s preferred approach to risk transfer. Claims management: when insured events occur — damage to the works, third-party claims, design errors — the QS values the loss, assesses the financial impact on the project, and supports the claims process.

At practical completion, the QS must ensure that insurance responsibility transfers correctly from contractor to employer. This is a common source of gaps — if the employer does not have insurance in place at the moment PC is certified, there is a period of uninsured risk. The QS should flag this in the run-up to PC and confirm that the employer’s cover is arranged before the certificate is issued.

Common Issues

Gaps in cover. The most common issue is gaps between what the policy covers and what the contract requires. Standard CAR policies typically exclude faulty workmanship (unless specifically endorsed), pollution, and consequential losses. The QS should review policy terms against contract requirements and flag any gaps early.

Expired policies. Insurance policies must be renewed annually. If a contractor or subcontractor allows a policy to lapse mid-project, there is a period of uninsured risk. The QS should establish a system for tracking policy expiry dates and requesting renewal certificates.

Underinsurance. If the sum insured is less than the actual value of the works or the potential claim, the insurer may apply average — reducing the payout proportionally. The QS should verify that sums insured reflect the current contract value, including approved variations.

Failure to notify claims. Most insurance policies require prompt notification of potential claims. Delay in notification can void cover entirely. The QS should ensure that any insured event — damage to the works, third-party injury, potential design defect — is reported to the insurer immediately, even if the full extent of the loss is not yet known.

Practical Tips

Check insurance at the start, not when you need it. Verify all contractor and subcontractor insurance certificates before work commences. Check cover limits, joint names status, policy expiry dates, and any endorsements required by the contract.

Include insurance costs in the cost plan. Insurance premiums — CAR, PII, LDI — should be explicitly identified in the preliminaries, not buried in the contractor’s overheads. This allows the client to see the cost of risk transfer and make informed decisions about insurance options.

Track policy renewals throughout the project. Set up a schedule of all insurance policies, their expiry dates, and renewal deadlines. Request renewal certificates proactively — do not wait until a claim is needed to discover that cover has lapsed.

Advise on the right JCT option early. The choice between Options A, B, and C should be made at pre-tender stage based on project type (new build vs refurbishment), the client’s risk appetite, and their existing insurance arrangements. Do not leave this decision to the contract negotiation stage.

Ensure seamless handover at PC. Confirm that the employer’s insurance is in place before the PC certificate is issued. The transition from contractor’s cover to employer’s cover must be seamless — any gap creates uninsured risk.

APC Relevance

Insurance in construction projects falls within the RICS APC competencies of Contract Practice (understanding JCT and NEC insurance provisions, advising on insurance options, checking compliance), Risk Management (identifying insurance risks, advising on risk transfer mechanisms, managing gaps in cover), and Commercial Management (cost implications of insurance in preliminaries, valuing insurance-related claims, advising on latent defects insurance). APC candidates should be able to explain the difference between JCT Options A, B, and C, describe the insurance policies required on a typical project, discuss their role in checking compliance, and demonstrate how they advised a client on the appropriate insurance approach. For more on how risk management informs contract strategy, see our article on Risk Management Tools and Techniques.

Further Reading on ProQS

Contract Administration: JCT vs NEC — how insurance provisions differ under each contract family.

Practical Completion and Defects Liability — what happens to insurance at PC and the relationship between DLP and latent defects insurance.

Risk Management Tools and Techniques — how insurance fits within the broader project risk management framework.

Preliminaries and General Items in Construction — where insurance costs sit in the cost plan and contract sum.

Key References

HSE: Employers’ Liability Insurance — statutory guidance on the compulsory insurance requirement under the 1969 Act.

Designing Buildings Wiki: Insurance in Construction — comprehensive UK reference covering all major insurance types in construction contracts.

NEC: Insurance for ECC Project Managers — NEC guidance on insurance requirements and the PM’s acceptance role.

Edwin Coe LLP: Demystifying JCT Insurance Options — legal analysis of JCT Options A, B, and C with practical guidance.

Lockton: Latent Defects Insurance — industry guide to LDI, coverage scope, and practical application.