The limits of cover purchased vary according to the identified risks and the class of insurance. As a starting point, the limits of cover to be purchased are:
Contract works: The limit of cover purchased should be equivalent to the value of the contract, but may also include a contingency, depending on the project.
Public and product liability: The limit of public and product indemnity insurance is wholly connected to the scope of coverage. Factors to be considered include the nature of the site work, the contract value and size, the risks of the activity to others, and the number and type of contractors. Generally speaking, the amount of $50 million for public and product liability cover would be considered typical.
Professional indemnity: The limit of professional indemnity insurance is also wholly connected with the scope of coverage. Assistance with evaluating the level of cover required, including through a project risk assessment approach, is available in the Australian Procurement and Construction Council Incorporated (APCC) Professional Indemnity Insurance Guidelines in the Building and Construction Industry (the APCC Guidelines). Available at www.apcc.gov.au, this document outlines two main approaches to establishing the level of cover:
1. The first is a simplified method that applies for conventional consultancies not related to construction. The simple approach is to base the level of cover on the fee to be paid. The minimum level of cover recommended with this approach is whichever is the greater, $1 million, or 10 times the fee amount. Generally speaking though, the amount of $1 million for professional indemnity cover would be considered insufficient and $20 million of professional indemnity cover would be typical.
2. The more comprehensive approach is the risk assessment-based method, which addresses the particular risks associated with the type and nature of the professional service involved. Tables in the APCC Guidelines can assist in the initial evaluation of the project risk and the service risk.
Term: The term of the cover purchased will vary according to the identified risks and the class of insurance. At a minimum, the term of the cover should be the period of construction and defect warranty period. Consideration should be given to the requirement for a retroactive start date where certain activities such as design and construct begin before the date that insurance is sought.
A typical period for project-specific first or third-party alliance insurance is from seven-to-ten years from project commencement.
Claims Procedures: Consideration needs to be given to the practical steps in making a claim under the alliance insurance, and any impediments that may arise. One such impediment might arise where the alliance has expired, but it becomes necessary to make a claim under the alliance insurance. This may not only require a review of the insurance cover, but also a review of the alliance agreement.