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HomeContract ManagementClause 19: Insurance Provision in FIDIC Red Book (Conditions of Contract for...

Clause 19: Insurance Provision in FIDIC Red Book (Conditions of Contract for Construction) 2017

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Insurance is a tool for risk transfer and almost in all major construction contracts, it is made a mandatory condition for the Contractor to buy insurance. Appropriate insurance saves and indemnifies the Contractor as well as the Employer in the event of any unforeseen and undesirable incidence. FIDIC Red Book (Conditions of Contract for Construction) 2017 also stipulates provision for insurance in Clause 19 of General Conditions. In this article, we will learn about the insurance provision under FIDIC construction contacts.

Clause 19, Insurance

This clause is divided into following sub- clauses:

Sub- Clause No.Sub- Clause NameDescription
19.1General RequirementsThis clause describes the general requirements about insurance provision and action taken by the Employer in case the Contractor fails to effect and keep in force any of the insurances required under Sub-Clause 19.2.
19.2Insurance to be Provided by the ContractorThe insurances to be taken by the Contractor are stipulated in the sub- clauses of this sub- clauses
19.2.1The WorksThe provision regarding how work insurance will be provided by the Contractor, is covered in this sub- clause.
19.2.2GoodsThe issuance of goods and other things brought to site by the Contactor is covered in this sub- clause.
19.2.3Liability for breach of professional dutyIf the Contractor is responsible for the design of parts of the permanent work and/ or any design under the contact , then the provision of professional indemnity insurance against any liability arising out the Contractor’s design obligations are mentioned in this sub- clause.
19.2.4Injury to persons and damage to propertyThe insurance against liabilities for death or injury to any person, or loss or damage of any property (other than works) is covered under this sub- clause.
19.2.5Injury to employeesThis sub- clause covers the insurance against liability for claims, damages, losses and expenses (including legal fees and expenses) arising out of the execution of the Works in respect of injury, sickness, disease or death of any person employed by the Contractor or any of the Contractor’s other personnel.
19.2.6Other insurances required by Laws and by local practiceThis sub- clause details all other insurances required by the Laws of the countries where (any part of) the Works are being carried out.

Clause 19.1, General Requirements

The main provisions under this clause are as follows:

  1. the Contractor shall effect and maintain all insurances for which the Contractor is responsible with insurers and in terms, both of which shall be subject to consent by the Employer.
  2. These terms shall be consistent with terms (if any) agreed by both Parties before the date of the Letter of Acceptance.
  3. The insurances under this clause are minimum requirements and the Contractor may add more insurances at his own cost.
  4. If the Contractor fails to effect and keep in force any of the insurances, and pay any premium as may be necessary and recover the same from the Contractor, by deducting the amount of premium from his bills.
  5. If either the Contractor or the Employer fails to comply with any condition of the insurances effected under the Contract, the Party so failing to comply shall indemnify the other Party against all direct losses and claims (including legal fees and expenses) arising from such failure.
  6. The Contractor shall be responsible to notify the insurers about any changes in the nature, extent or programme or the work.
  7. The Contractor shall also be responsible for the adequacy validity of insurances during the performance of the contract.
  8. The permitted deductible limits allowed in any policy shall not exceed the amounts stated in the Contract Data (if not stated, the amounts agreed with the Employer).

Clause 19.2, Insurance to be provided by the Contractor

There are following sub- clauses under this clause:

Clause 19.2.1, The Works

This sub- clause stipulates that, the Contractor shall provide insurance in the joint names of the Contractor and the Employer for the Works and Contractor’s Documents, together with Materials and Plant for incorporation in the Works, for their full replacement value.

An additional amount of fifteen percent (15%) of such replacement value (or such other amount as may be specified in the Contract Data) to should also be kept to cover any additional costs incidental to the rectification of loss or damage, including professional fees and the cost of demolition and removal of debris.

Clause 19.2.2, Goods

This sub- clause states that, the Contractor shall insure, in the joint names of the Contractor and the Employer, the Goods and other things brought to Site by the Contractor.

Clause 19.2.3, Liability for Breach of Professional Duty

According to this sub- clause, if the Contractor is responsible for the design of part of the Permanent Works and/or any other design under the Contract, the Contractor shall effect and maintain professional indemnity insurance against liability arising out of any act, error or omission by the Contractor in carrying out the Contractor’s design obligations.

Clause 19.2.4, Injury to Person and Damage to Property

This sub- clause stipulates that, the Contractor shall insure, in the joint names of the Contractor and the Employer, against liabilities for death or injury to any person, or loss of or damage to any property (other than the Works) arising out of the performance of the Contract.

Clause 19.2.5, Injury to Employees

According to this sub- clause, the Contractor shall effect and maintain insurance against liability for claims, damages, losses and expenses (including legal fees and expenses) arising out of the execution of the Works in respect of injury, sickness, disease or death of any person employed by the Contractor or any of the Contractor’s other personnel.

The Employer and the Engineer shall be indemnified under the policy of the insurance, except that the losses and claims arise from any act or neglect of the Employer or of the Employer’s Personnel.

The Sub- Contractor shall also provide this insurance for his part of compliance under the contract.

Clause 19.2.6, Other Insurances Provided by Laws and by Local Practice

This sub- clause states that the Contractor shall provide all other insurances required by the Laws of the countries where (any part of) the Works are being carried out, at the Contractor’s own cost.

Other insurances required by local practice (if any), shall be detailed in the contract data and the Contractor shall provide these insurances at his own cost.

Summary

The insurance is one of the most important part of any construction contract. It is a tool for risk transfer which is required to be provided by the Contractor in all major construction contracts. This provision has been made mandatory by most of the organizations in their contracts. It may also be a mandatory requirement to provide insurances as per law of the country, where the contract is being performed. Appropriate insurance saves and indemnifies the Contractor as well as Employer in the event of any unforeseen and undesirable incidence. The FIDIC Red Book (Conditions of Contract for Construction) 2017 has stipulated provisions of insurance under Clause 19 of its ‘General Conditions’. This Clause has two sub- clauses. General provisions and insurances to be provided by the Contactor are described in the sub- clauses, respectively. The second sub- clause is further divided into six sub- clauses. Generally, the insurances are to be provided by the Contractor for the works, goods, liability for the breach of professional duty, injury to persons and damage to property, injury to employees and other insurances required by the law & by local practice. The amount of insurance is generally mentioned in the contract data of the respective sub- clause. The Contractor should seriously and promptly provide all the required insurances as per the contract since it is in the best interest of the Contractor as well as the Employer. The Employer is also required to monitor, whether all the required insurances has been provided by the Contractor or not and their validity also. In case the Contractor fails to provide any of the insurances as per the contract, then it is obligation of the Employer to effect and maintain those insurances and to deduct and pay the amount of premiums from the bills of the Contractor.

Only the brief provisions regarding sub- clauses are given in the article for the purpose of the basic understanding of the clause. For full provisions under the sub- clauses, FIDIC Red Book (Conditions of Contract for Construction) 2017 may be referred.

For understanding of Insurances in Construction Contracts, please visit the following link:

Insurances in Construction Contracts.

References:

  1. FIDIC Conditions of Contract for Construction, Second Edition, 2017 (FIDIC Red Book)
  2. https://fidic.org/

Disclaimer

  1. The description of sub- clauses given in this article is only a part of the whole clause which is relevant to the Insurance. For whole provision under the sub clauses refer to FIDIC Conditions of Contract for Construction, Second Edition, 2017.
  2. The content of this article is only for education purpose and it cannot be used as a legal advice. For any legal issue a suitable professional may be consulted.
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Rajesh Pant
Rajesh Panthttps://managemententhusiast.com
My name is Rajesh Pant. I am M. Tech. (Civil Engineering) and M. B. A. (Infrastructure Management). I have gained knowledge of contract management, procurement & project management while I handled various infrastructure projects as Executive Engineer/ Procurement & Contract Management Expert in Govt. Sector. I also have exposure of handling projects financed by multi-lateral organizations like the World Bank Projects. During my MBA studies I developed interest in management concepts.
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