What the construction industry needs to know about JCT Clause 6.5.1 Insurance: Non-Negligence Insurance

Insurance premiums continue to rise across the construction sector given an increase in historical claims and uncertainty over future claims. This is largely due to the introduction of the Building Safety Act 2022 following the Grenfell Tower disaster, which introduced new avenues for claims due to historical building safety defects.

It is essential to ensure that adequate insurance, covering all project risks, is in place to avoid uninsured exposure and that provisions in construction contracts protect the parties against such risks. Unfortunately, insurance provisions under the JCT contract suite, in particular clause 6.5.1 in the JCT Design and Build Contract 2016 (“JCT DB”), are often misunderstood.

This blog will focus on the insurance required under clause 6.5.1 of the JCT DB or non-negligence insurance. Please see our previous blog on JCT Insurance Options, which discusses works and existing building insurance: https://www.edwincoe.com/blogs/main/demystifying-jct-insurance-options/.

What is Non-Negligent Damage?

If damage occurs to neighbouring property due to a Contractor’s negligence or breach of contract, the Contractor will likely be liable in negligence to the owner of the neighbouring property. The adjoining owner may then claim against the Contractor or the Employer, who is responsible for the work being done. Damage to third party property resulting from negligent actions is covered by public liability insurance.

When damage to neighbouring property is not due to the Contractor’s negligence or breach of contract this is non-negligent damage. For example, subsidence caused by the excavation of a basement.

The court in Gold v Patman and Fotheringham [1958] 1 WLR 697 established that in the event of non-negligent damage to neighbouring property, the owner of the neighbouring property could successfully bring a claim against the Employer for the non-negligent damage. In Gold, the Employer did not have insurance for non-negligent damage and was left with an uninsured loss.

What is Non-Negligence Insurance?

To address the gap in insurance coverage identified in Gold, clause 6.5.1 of the JCT DB stipulates that, if specified in the Contract Particulars, the Contractor is obligated to obtain and maintain an insurance policy that covers damage risks to adjacent properties not resulting from the Contractor’s negligence. This type of insurance is commonly known as non-negligence insurance.

Clause 6.5.1 non-negligence insurance covers the following perils:

• collapse;
• subsidence;
• heave;
• vibration;
• weakening or removal of support; and
• lowering of groundwater.

Due to the associated risks, non-negligence insurance is generally mandated for projects involving excavation, basement construction, and/or piling. For construction projects, such as those on greenfield sites where there is minimal risk of neighbouring property collapse, non-negligence insurance may not be necessary.

What Is Commonly Misunderstood?

With the JCT suite of contracts this insurance is labelled “Insurance – liability of the Employer”. This often leads to confusion with Employers’ liability insurance (“ELI”), which covers liability for injury or disease to employees arising from their employment.

JCT 6.5.1 insurance is not ELI and there are no express provisions in the JCT DB regarding ELI.

Comment

It is vital that all parties have the insurances in place which the Building Contract requires, particularly given that the courts have held that the terms of the construction contract in respect of insurance will take precedence over the insurance policy.[1]

For example, if a Contractor is required to obtain JCT DB 6.5.1 insurance under the Building Contract but instead obtains ELI, non-negligent damage to an adjoining property would not be covered. This situation would result in a Contractor’s breach of contract due to not fulfilling its obligations under the JCT DB. In case of non-negligent damage, the Employer may rely on the provisions of the JCT DB to hold the Contractor accountable since the Contractor was required under the Contract to insure against such risk, creating an uninsured liability for the Contractor.

It is essential that parties to a construction contract comprehend the insurance requirements stipulated in the Building Contract and ensure they obtain and maintain such coverage. Failure to do so may result in exposure to uninsured liabilities.

If you have any questions about the insurance provisions under JCT contracts or require assistance with drafting your building contract, please contact our Construction Team.

[1]   Haberdashers’ Aske’s Federation Trust Ltd v Lakehouse Contracts Ltd & Ors [2018] EWHC 558 (TCC)

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