Role of broker & Client

Case Study - Insurance for waterfront construction

Understanding your insurance is essential to avoid unnecessarily exposing your business to damaging losses. It’s tempting to think you have appropriate insurance cover, particularly when paying high premiums. However, the risks inherent in marine construction are such that no business owner can afford to be complacent.

Hidden gaps that can sink a business

It has happened before, and it can happen again. It’s the story of a business we shall call ABC Waterfront Construction* (ABC), which had, in preparation for a new contract, hired a crawler crane, but neglected to arrange insurance, believing the crane to be fully insured by the hire company. Unfortunately, unbeknown to them, the hire company’s policy contained an ‘over-water’ use exclusion.

ABC Waterfront Construction then hired a barge, which was insured but with a clause excluding the use of cranes. During a heavy lift operation, the barge capsized and sank, taking the crane, tools and equipment with it.

ABC Waterfront Construction was then liable for the cost of their own gear and equipment, the cost of recovering the barge and the crane from the bottom of the harbour, indemnifying the crane and barge owners for their losses, as well as any pollution caused from fuel, lubricants, hydraulics etc.

The list of liabilities goes on, along with a mounting bill, potentially putting the business at risk.

The reality is understanding your insurance cover is essential; despite the best of intentions, gaps and overlaps can exist; correctly designed insurance is ultimately the responsibility of you and your insurance broker; therefore, choose wisely,

Don’t be fooled by band-aid coverage

It is not an unusual story – that of the unsuspecting business owner who only realises after an incident their business was not insured correctly for the work undertaken.

The problem generally resides in insurance policies designed for non-marine applications. Poorly drafted extensions are often nothing but a band-aid clause that proves ineffective when confronted with the aftermath of real incidents.

Your construction business may for example correctly declare the percentage of your revenue derived from marine construction, which a general broker might propose covering with a ‘marine endorsement’ extension.

But such an extension might not cover ‘over-the-side’ work, including the use of cranes, pile drivers or underwater equipment; even a small jetty repair job could leave your business dangerously exposed. Specialist marine insurance broking advice is therefore essential to design adequate insurance cover for all possible marine risks.

Tailor-made solutions

Brokers need to apply specific experience when it comes to designing appropriate insurance cover for the complex marine construction business. Typically, this will require tailored solutions consisting of specialist cover for exposures, equipment and work conducted from your vessel, a third-party vessel, or land.

Risk Mitigation

Ultimately, the key is to examine inherent risks and liabilities in discussion with an insurance advisor who specializes in covering marine risks: look at past incidents in your industry, run through worst case scenarios and emergency plans, and then make sure every risk is understood and a conscious decision is made whether to insure and therefore be protected.

For activities that cannot be insured, specialist marine brokers can help with advice on risk management and will work with you to formulate a mitigation plan.

Protecting your business ~ a summary

• Always test run scenarios and keep informed of incidents in your industry.
• It is your business, take responsibility for understanding the risks that your business is exposed to, don’t be hesitant about discussing those risks with your insurance broker and don’t be satisfied until you receive expert advice and you fully understand the solution.
• Make sure your insurance broker has thoroughly reviewed all your business activities and that this is captured in a mutually agreed “business description”.
• Do not factor in the price until you have a good understanding of the coverage provided. Price does not equate with value but it’s unusual if the cheapest price is the right solution.