The Importance of Third-Party Liability in Contractors All Risk Insurance for UAE Projects

Introduction:

Imagine a scenario where a minor human error at the construction site results in a passerby’s injury or, worse, their death. Isn’t this a situation that could be commonly reported in the news? Yes, sadly, it has become a common occurrence in today’s world.

In fact, ResearchGate indicates that around two-thirds of hospital visits for injuries in the UAE are related to building sites, highlighting the high risk of injuries in the construction industry. These kinds of accidents create legal and financial consequences for the stakeholders of the construction projects, resulting in reputational damage, heavy penalties, lawsuits, or work stoppages. An insurance policy that consists of third-party liability coverage, like Contractor’s All Risk [CAR] Insurance, will mitigate such unexpected perils, ensuring financially secure risk management.

Third-party liability coverage in CAR insurance exclusively aids in addressing the damages caused to the adjacent property owners, passersby, and visitors by or during the construction project. This is a key feature of CAR insurance that is paramount to the construction project, as it avoids project disturbance and covers the medical expenses, compensation, and legal fees arising from the injury claim.

This blog walks you through the significance of third-party liability coverage in contractor’s all-risk insurance, highlighting the protection against legal liabilities, financial losses, and reputational damage while enhancing business relationships.

Significances of Third-party Liability in CAR Insurance [UAE]

It is essential for potential policyholders, such as contractors, subcontractors, or project owners [if mentioned in the contract], to educate themselves about the impact of this offering due to its comprehensive advantage, be it financial, legal, or social.

1. Protection Against Legal Liabilities:

By opting for CAR insurance, contractors elude legal consequences if there’s any damage to the third party’s property or self. The contractors may face legal repercussions for the following damages:

• Death or injury of a third party
• Damaged supplies of project owners and third parties
• Accidents caused during the maintenance period after the project completion

Third-party liability coverage ensures that these financial compensations can be claimed and covered under this feature, providing legal protection.

Though the UAE government has not mandated CAR insurance, Article 292 under UAE law states that third parties can claim compensation for construction site accidents. Moreover, most government entities or local authorities require contractors to have CAR insurance as part of the project’s contract terms, considering its security against third-party damages. In these cases, it is safe to obtain CAR insurance to circumvent legal liabilities.

2. Fiscal Security Against Unexpected Costs

Even if the contractors are subjected to legal charges, third-party liability coverage can easily compensate for unexpected monetary burdens. Third-party liabilities cover a wide range of financial expenses related to construction injury, including legal costs, hospitalization, and other treatments.

Through comprehensive financial coverages, construction stakeholders escape unexpected financial obligations, ensuring smooth financial flow. For instance, a neighbour’s building is damaged due to falling debris at the construction site. The neighbour sues the contractors for the physical damages incurred due to the incident. Third-party liability coverage in the contractor’s all-risk insurance takes care of the entire financial compensation from preparation to the final settlement of the claim, including legal fees, repair costs, and any awarded damages. Therefore, the financial restraints for the contractors will be minimised.

3. Reputation Management

By promptly compensating third parties without legal disputes, delays, or complications, contractors can effectively protect their reputations. This is crucial for maintaining a positive image, as the perception of a contractor among the general public can influence future business opportunities.

Some insurers provide risk assessment, public relations, mediation, and arbitration services. These services provide analysis, advice, and mediators to negotiate out-of-court settlements, which saves reputation and cost. Through these services and precautionary measures, third-party liability coverage builds trust, which can attract new clients and foster long-term business relationships.

4. Comprehensive Risk Management

Before the process of construction, the insurers examine the entire site concerning the safety hazards it can cause to the third parties. This inspection observes whether the construction site is near highly populated areas such as busy roads, educational institutions, residential areas, office buildings, etc. The insurers also inspect the potential threat of structural defects the construction may cause to the surroundings due to high vibration, e.g., cracks in the walls of the neighbourhood buildings.

After a thorough analysis, the insurers instruct the contractors to implement safety warnings and signs to avoid any damage to the third party. Safety barricades, warning signs, traffic management around the site, and the use of safety barriers or nets to catch falling debris are some of the safety measures often suggested by insurers to evade avoidable perils.

The insurers frequently inspect and monitor the site to ensure adherence to the safety measures proposed in order to circumvent preventable accidents or damages to third parties. These precautionary methods and comprehensive coverage of the defence cost, medical expenses, material damage losses, and third-party liabilities facilitate a robust risk management system.

Facilitating Business Relationships

The first aspect any builder seeks in a contractor would be a positive review, risk management strategies, and goodwill in the industry. By assured reputational management and comprehensive risk management offered by third-party liability, contractors gain new business opportunities.

Due to its extensive risk management, this coverage attracts business opportunities like government or large-scale projects. Local authorities, such as the Dubai Municipality or Abu Dhabi Municipality, often require contractors to have CAR insurance as part of the building permit process to safeguard third-party interests and construction integrity.

Some businesses want contracts that include third-party liability insurance as a way to protect their finances and reputation. This is especially true for contracts that are based on FIDIC (International Federation of Consulting Engineers) standards.

CoverB: Your Reliable Insurance Partner for Your Needs

CoverB, a UAE-based insurance service provider, has been securing its valued insured from potential risk factors by leveraging its expertise in the field. Through transparent claim processing, comprehensive coverages, efficient risk management, and warm customer service, CoverB has reached a leading position in the field and among its customers. Our advanced consulting fosters the policy management process, enabling better third-party liability coverage for contractors’ all-risk insurance.