Construction liability — proceed with caution

The hard insurance market has impacted most classes of business in recent years, with construction liability being one of the most affected.

SHIFT IN THE MARKET

Lack of insurer profitability and rising claims costs have led to a shift in the market. Along with increased pricing and deductibles, there has been a narrowing of the available coverage.

Some insurers are demonstrating a reduced underwriting appetite, reduction in available capacity and in some cases, ceasing to write construction liability business altogether.

These changes in the market show little sign of abating, with a shifting legal landscape, a rise in the number of complex claims and further class actions on the horizon.

Yet construction is a growing Australian industry, so insurance cover is vitally important.

CONTRIBUTING FACTORS

Building defects and cladding issues often dominate news headlines and are a significant issue facing the construction industry. 

However, injury to contractors and labour-hire losses, particularly related to recoveries from workers’ compensation authorities, continue to impact portfolio performance. 

In fact, injury to contractors and labour hire loses account for approximately 30 per cent of the ultimate expected loss ratio on construction-related liability business for Liberty Specialty Markets, a company with expertise in underwriting major construction and infrastructure projects in Australia.

‘A lot of injury claims have layers of complexity to them which need to be navigated,' says Dan Hingston, Liberty Australia Head of Construction Liability.

A LEGAL MINEFIELD

Hingston say the company recently dealt with a claim involving a seemingly innocuous slip and fall injury to a third-party worker, who had accessed a section of scaffolding without authority.

‘The slip on the scaffold stairs caused a debilitating ankle injury. A complication in recovery ultimately required surgical fusion of the worker’s heel bone, preventing a return to pre-accident work as a labourer on a mine-site,’ he says.

The matter was further complicated by the scaffolding not being erected to code.

‘A common law liability existed and cross claims between the parties were issued,’ Hingston says.

‘With contractual indemnities in favour of the at-fault party and a dual insurance claim, a minefield was created that needed to be navigated in a plaintiff friendly jurisdiction.’

THIRD PARTY PROPERTY

Damage to surrounding or third-party property is also a significant exposure that continues to be troubling.

‘We have experienced a steep increase in claims costs related to losses for damage to underground assets and the loss of use of gas, electricity and telecommunications infrastructure,” says Hingston.

The risk of building collapse and catastrophic loss of life arising from construction defects is also a major exposure, with the potential for significant vertical losses.

Is there still a good risk in construction?

There are many factors to consider when assessing a construction risk, including:

• the length of time a company has been in business
• a company’s project or work history
• the quality and experience of the project team engaged to deliver a major or complex project
• loss history
• financial stability
• the company’s understanding and appreciation of its own risks and exposures.

A STABLE CLIENT

‘History tells us that a well-funded, financially stable client is usually a better performing risk,’ says Hingston, who is also part of an integrated team of underwriters, risk engineers and claims professionals at Liberty Specialty Markets.

‘If a client is willing to spend time working with brokers and insurers to help everyone understand their key risks, risk management and site safety, for example, it enables us to truly evaluate the risk, and arrive at a better sustainable long term solution for all concerned.’

‘We’ve found time and again that early and effective engagement of Liberty’s in-house liability risk engineers helps create sustainable long-term insurance programs, and stability for a client.’

LONG-TERM VIEW

Despite the challenges facing the construction segment it’s certainly not all doom-and-gloom.

‘Liberty Specialty Markets takes a long-term view on the market and its stable, consistent team and integrated approach helps form enduring relationships with clients.’