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Construction projects are necessarily complex risk structures in themselves, relating to a mix of workmanship, design and the particulars of the construction process. Parties to a construction project will often extend beyond those commissioning the work (the employer) and carrying it out (the contractor). It is often more likely that the parties will include architects, engineers, project managers, numerous subcontractors and suppliers and – via collateral warranties – future purchasers, tenants and funders. All of these actors can contribute to loss or damage and, ultimately, legal liabilities.

This contractual complexity requires construction insurance arrangements which match the risks facing each party and the nature of their interest in the project. It is sensible therefore to obtain insurance advice to ensure the correct policy terms – joint names or composite insured – are in place before works begin.

What is joint names construction insurance?

Joint names is an insurance policy extension that covers the contractual responsibilities of both the employer and the contractor. It applies to new build and refurbishment contracts where there is a requirement to name parties on a construction insurance policy that will cover the contract works and any existing structure as under the standard terms JCT suite of contracts.

A joint names extension has the following likely characteristics:

• removes the need for each party to take out separate policies covering their own responsibilities and therefore eliminate the risk/cost of duplicated insurance arrangements;
• ensures that the named parties – e.g., employer and contractor – cannot claim against one another; and
• makes it impossible for one party to cancel the policy without notifying one or all of the other named parties.

Joint names works when the contracted parties’ interests are aligned – as are those of the employer and contractor who are both going to be looking for the works to be completed on time, on budget and to the agreed contractual standard.

What is composite insured construction insurance?

Composite insured is different and is often applied where the project parties have a separate and individual interest in the works. The most obvious example is that of a funder’s interest in a construction project which, unlike the employer or contractor, has as its primary interest the return of its loan facility and interest. This may or may not be separate from the successful completion of the works.

A composite insured extension is generally written on a bespoke basis to reflect the different interests of the various project parties so as to protect their individual interests – this can be achieved by the inclusion for instance of first loss payee provisions which generally seek to cover the original loan plus interest.

This risk cover is obviously different to one based on a joint names extension which just notes a funder’s interest in a project.

In brief: the difference between joint named and composite insured

• Both joint names and composite insured are insurance policy extensions applicable under JCT contracts standard terms.
• Joint names extensions are most commonly applicable where the insured parties have similar undivided interests in the project.
• Composite insured extensions are more applicable where one or more parties have their own interests, separate from the other parties.

The insurance market is a market, which changes on a daily basis as to what risks it will accept, on what terms and at what cost.

Construction professionals – including lawyers, contractors, funders and others need to work together as closely and openly as possible with brokers and underwriters in order to find the best risk cover solution for a project. The preparation and analysis of risks will lead to the actual insurance contract terms – almost certainly by way of addendum or changes to the standard terms, This is where the assistance of lawyers will most likely be needed.

If you would like further information on construction contracts and the types of insurance that can be used to cover them, please contact a member of our Construction team.