Construction Third-Party Liability (TPL) policies are structured specifically to address the shared nature of risks on a project site. Let’s explore why they include multiple insured parties, subrogation (waiver) clauses, cross-liabilities clauses, and how this differs from more generalized Broadform policies.
Including Multiple Insured Parties
One key distinction of Construction TPL policies is the inclusion of multiple insureds - typically the Principal, the Contractor, Superintendents, and all subcontractors. This is a requirement of most Australian Standard Contracts, such as AS2124, which states that the Public Liability policy must cover all parties with respect to their rights and interests.
The reason for this multi-party inclusion is simple: construction projects often involve multiple stakeholders working closely together, each of whom could be held liable for different aspects of the project. Covering all parties under a single policy is beneficial to the contracting party (the Principal) so they don’t need to individually litigate against each separate party who has contributed to a loss.
Why Subrogation Waivers Are Necessary
In construction contracts, a waiver of subrogation is often included. This means that the insurer agrees not to pursue a recovery from one insured party against another insured party. This waiver is crucial in construction because it prevents potential legal disputes among the parties working on the same project.
Without this waiver, if a subcontractor causes damage, the insurer might seek compensation from the principal contractor or another subcontractor, creating a cycle of internal litigation that complicates the claims process and strains project relationships. By including a waiver of subrogation, the policy aligns with the collaborative nature of construction projects, maintaining harmony and enabling more streamlined claims handling.
The Role of Cross Liabilities Clauses
Another distinguishing feature is the inclusion of cross-liabilities clauses. This allows each insured party to be treated as a separate entity, meaning that if one party makes a claim against another insured party under the same policy, the policy responds as though separate policies were in place.
This is essential because, in construction, the different parties (Principal, Contractor, Subcontractor) may have conflicting responsibilities, and claims could arise between them. A cross-liabilities clause ensures that the policy can cover such claims while keeping all parties protected without needing multiple policies.
The Impact of Australian Standard Contracts
The structure of Construction TPL policies is largely driven by the obligations outlined in standard contracts, such as AS2124. These contracts require that insurance be in place to protect all parties involved in a construction project and ensure liabilities are clearly allocated. AS2124 specifies that the insurance must be taken out in the joint names of the Principal and Contractor, covering all subcontractors for their respective rights and interests.
This contractual requirement for shared insurance means that construction projects cannot rely on a simple Broadform Liability policy, which typically covers only one entity and doesn’t account for the intricacies of multi-party liability.
Conclusion
Construction projects involve unique and shared risks across multiple parties, which is why standard Broadform Liability policies are inadequate for the sector. Specialized Construction TPL policies, tailored to meet the obligations under contracts like AS2124, are necessary to cover the full scope of liability and risk on-site.
Incorporating multiple insureds, subrogation waivers, cross-liabilities clauses, and provisions for dual insurance contributions ensures that the complex web of responsibilities in a construction project is fully covered. This mitigates the risk of internal legal battles and safeguards all stakeholders from third-party claims.
If you’re looking for more insight into the tailored insurance needs of construction projects, we’re here to help guide you through the intricacies of Construction TPL coverage and how it can benefit your next project.
