Construction contract works insurance ‒Victorian COVID-19 stop work orders

For 2 weeks from Monday 20 September 2021 site managers and contractors must comply with the Victorian government shutdown of construction work across metropolitan Melbourne and other Local Government Areas of concern. The decision came in response to transmission risk and geographic spread of construction COVID-19 cases, which led public health measures including preventing workers crossing the regional/metropolitan border. 

Here’s what project owners, construction site managers and contractors need to know in a quick guide to typical contract works insurance protection. 

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Insurance implications for construction works on hold

It is critical that all parties involved with a construction works contract, such as principals, financiers, head contractors and sub-contractors understand the potential impact a lockdown could have on the project’s contract works insurance cover.  

The severity of the impact of a lockdown to contract works insurance policies for construction businesses will depend on whether their policy contains a Cessation of Works clause. 

Contract works policies generally contain a Cessation of Works clause which provides protection for a period of time when the works remain insured despite work not being carried out, or in ‘tools down’ scenarios.

There is considerable variation in contract works insurance policies: a number of policies impose a blanket exclusion of insurance cover in the event of a lockdown, while others include a Cessation of 
Works clause that allows for continued cover for up to 30, 60 or 90 days, or in some cases don’t impose any restriction during the lockdown period. 

If you hold a contract works insurance policy for any projects you should examine the terms closely now, before lockdowns are announced or occur in response to a case of infection on a particular site.
 

What construction works contract holders need to know

Contract work sites are insured by either

    a contractor controlled contract works insurance policy (CCIP)
    a principal controlled contract works insurance policy (PCIP)

Whether you’re a contractor or a project principal who has contractually agreed to be responsible for works insurance, it’s important to determine if any of the policies you hold contain a Cessation of Works clause and what they cover. 

In some cases we have seen an immediate exclusion to insurance cover once a site is shut down. This withdrawal of cover would have an immediate and significant impact on your site in terms of the risk of physical loss or damage.

Provided your contract works insurance policy contains a Cessation of Works clause that provides for a period of continued cover ‒ and you have taken precautions to  reduce the risks involved with a lockdown, as outlined in the table below ‒ you will be able to claim for loss or damage, from weather conditions, for example, during that period.

Advisable site protection measures during shutdown

An approach consistent with a normal shutdown (like the Christmas break, e.g.) should include the following

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Take note of the insured duration period stipulated in the policy

In the event of works recommencing and there is a delay to the date of practical completion, the insured parties need to take care that the maximum construction duration period stipulated in the policy wording is not exceeded. 

Those with construction projects that may exceed this duration as a result of COVID-19 restrictions should advise their broker so they can work with the insurer to ensure that cover is maintained. 
 

Unsure? Talk to your insurance broker 

The precise policy wording can vary so it’s advisable to discuss the implications of the Cessation of Works clause in your policy with your insurance broker.

Under some conditions Gallagher contract works insurance Cessation of Work terms of cover may be extended beyond the stated period of 90 days, provided reasonable precautions have been taken during the scheduled shutdown.

We recommend discussing the requirements for ensuring your site remains protected with your insurance broker. We’re here to help.