Presentation

by

David Adamson Group

to

Indian Institute of Quantity Surveyors

27 August 2014

Insurances, Bonds,
Guarantees and
Warranties

A CPD presentation
by
Sandesh Pangerkar MRICS, AMIE, LME
Lead Quantity Surveyor

AGENDA

4
3
2

Bonds, Guarantees & Warranties

Basics

Types of Construction Insurances

1
Construction Insurances Basics

Types of Bonds,
Guarantees & Warranties

1. Construction Insurances - Basics

1.1 What is an Insurance?
1.2 Insurance v/s. Assurance
1.3 Why to Insure?
1.4 Concepts and Terminology used in Insurance

1.1 What is an Insurance?

An Insurance policy is a contract under which an insurer agrees to pay for
losses or liabilities suffered by an insured, as a result of specified causes,
subject to stated limits, conditions, and exclusions.

1.2 Insurance vs Assurance

Insurance event that might happen
Assurance event that is certain to happen

1.3 Why to Insure?

Risk Transfer
Risk Sharing
Protection of Assets
Protection against Liabilities towards Third Parties
Protection against Unforeseen Events

1.4 Concepts and Terminology used in Insurance

Insurer
Insured
Premium
Agent
Broker
Indemnify
Exclusions
Deductibles/Excesses
Perils
Loss Adjuster

Loss Assessor
Underwriting
Re insurance
Joint Names
Cross Liability
Subrogation
Occurrence/ Aggregate
Occurrence/ Claims made
Consequential Loss
Average Clause

2.Types of Construction Insurances

2.1 Contractors All Risk Insurance (CAR)
2.2 Workmens Compensation Insurance
2.3 Third Party Liability Insurance
2.4 Professional Indemnity Insurance (PII)
2.5 Latent Defects Insurance

2.1 Contractors All Risk Insurance (CAR)

Risks Covered
o Works and any materials, equipment and plant
Period of Insurance
o Generally up to end of Defect Liability Period
Amount of Insurance
o Sufficient to fund the reinstatement of the works
Exclusions
o Not really All Risks

2.2 Workmens Compensation Insurance

Risks Covered
o Injury, sickness, disease or death to Employees
Period of Insurance
o Generally up to end of Defect Liability Period
Similar to
o Employers Liability Insurance (UK)
o Insurance for Contractors Personnel (FIDIC 1999)
Amount of Insurance
o As per Local Law

2.3 Third Party Liability Insurance

Risks Covered
o Loss / damage to Fixed and Surrounding Properties and
Bodily Injury / Fatal to Third Party
Period of Insurance
o Generally up to end of Defect Liability Period
Similar to
o Public Liability Insurance (UK)
o Insurance against Injury to Persons and Damage to
Property (FIDIC 1999)
Amount of Insurance
o Sufficient to cover likely claims

2.4 Professional Indemnity Insurance (PII)

Risks Covered
o Liabilities arising out of Provision of Professional Services
RICS Advice on PII
o Each and Every Claim Basis
o RICS Minimum Policy Wording
o Minimum Level of Indemnity
Firms Turnover in the
Preceding Year ()

Minimum Limit of Indemnity

()

100,000 or less

250,000

100,001 to 200,000

500,000

200,001 and above

1,000,000

2.4 Professional Indemnity Insurance (Cont)

RICS Advice on PII (continued)
o Maximum Level of Uninsured Excess
Limit of Indemnity
()

Maximum Uninsured Excess

()

Up to and including 500,000

The greater of 2.5% of the

sum insured, or 10,000

Over 500,000

2.5% of the sum insured

o Fully Retroactive
o Underwritten by a Listed Insurer
o Cover for Past and Present Employees
o Run-off Cover

2.5 Latent Defects Insurance

Risks Covered
o Destruction, Damage or Threat of Imminent Collapse due
to Latent / Inherent Defect
Period of Insurance
o Available up to 12 Years from the Date of Practical
Completion in the UK
o Generally 10 Years in the Middle East (Decennial)

3. Bonds, Guarantees & Warranties - Basics

3.1 What is a Bond?
3.2 What is a Guarantee?
3.3 What is a Warranty?

3.1 What is a Bond?

A bond is a legally enforceable financial guarantee given by a third party
(the guarantor) to a purchaser (the client) to guarantee the obligations of
a supplier of goods, works or services (the contractor) under a contract.
Unconditional On Demand Bond
Conditional On Default Bond

3.2 What is a Guarantee?

A guarantee is given by a third party (the guarantor) to provide an
undertaking to a beneficiary that the guarantor will answer for the debt or
default of a third person (the principal debtor).
The principal debtor remains primarily responsible for payment or
performance of the relevant obligation. A contract of guarantee is a
secondary obligation.

3.3 What is a Warranty?

A warranty is an assurance by one party to a contract of the existence of a
fact, often times relating to the title, quality or quantity of the subject
matter of a contract upon which the other party may rely.
A warranty agreement is intended to relieve a party of any duty to
research the fact for itself, and amounts to a promise to indemnify for any
loss if the fact proves untrue.

4.Types of Bonds, Guarantees & Warrantees

4.1 Tender / Bid Bond
4.2 Performance Bond
4.3 Advance Payment & Retention Bond
4.4 Parent Company Guarantee
4.5 Collateral Warranty

THANK YOU ANY QUESTIONS?