hospitality news Winter 2008
Insuring your construction and refurbishment projects
Hotel owners and managers planning any building or refurbishment work should give early consideration to what insurance they need. Often not more than passing attention is paid to this important area. The assumption is made that as long as the design consultants and building contractors can show that they have, respectively, professional indemnity and contractor’s all-risk cover in place, that that is all that’s needed.
However, it pays to investigate the precise terms of the cover offered more carefully, for example to ascertain the level of the excesses/deductibles and the extent of any exclusions from the policies.
It is also worth thinking about other types of insurance, such as latent damage insurance. This is a no-fault policy; in other words (unlike professional indemnity cover) the claimant does not need to prove negligence, something which can be a time-consuming and expensive process. If such cover is obtained you may be able to dispense with the cost and aggravation of obtaining collateral warranties (which allow you to claim against those involved in design with whom you do not have a contractual relationship). It may even give you the opportunity to negotiate a reduced fee with your design consultants if the insurers waive their subrogation rights (that is, their rights to make a claim against the culprits) because claims for defects will be made and met under the latent defects policy.
On larger projects it is well worth investigating obtaining project insurance to cover all the development risks in one policy rather than relying on a range of individual policies which may not be compatible and between which there may be gaps. This may also give rise to savings.
Consideration should also be given to whether insurance is required to cover delays in completion of the project and/or business interruption cover as well as whether there are any unusual risks which you need covered. The fact that a risk is not covered under the standard policies does not mean it cannot be covered. Insurers are always prepared to discuss tailor-made policies.
In short, there can be tangible benefits in focusing early on the question of insurance. No one wants to think about what happens if something goes wrong with the project, but if the worst does happen, you will be glad that you or your advisers did so!
Suzanne Reeves
Commercial Property