Builders beware of accepting risk of loss through final completion


Staff Reporter

Windhoek-The construction industry has been a hot topic of conversation for almost a year in Namibia.
“They have endured hard times over the past year, due to water restrictions, non-payments and cancellations of contracts during these tough times,” says Seun Kesslau, FNB Insurance Brokers’ national head commercial department.
To ensure that they do not suffer more losses, FNB Insurance emphasises that builders and construction companies should remain aware of the risks of losses inherent in their industry.

“The big companies know what to be aware of and what documents to sign, but often the smaller companies are not necessarily aware of all the loopholes, and they might end up having to pay penalties or other unexpected expenses which has an impact on the profit of the job and ultimately their bottom line.”

Builders risk insurance is the primary source of funding for losses that happen during construction, but contractors may inadvertently put themselves at risk for uninsured losses by overlooking a disconnect between the contract language and the insurance policy.

Kesslau advises that builders risk insurance policies typically provide, that coverage remains in force until a stipulated event takes place, such as substantial completion, final payment or when the project is “put to its intended use.”

“The construction contract, however, stipulates when the contractor’s ‘risk of loss’ for damage to the project terminates. Contractors must be careful not to accept contract language that extends their risk of loss beyond the termination of the builders’ risk insurance. For example, ‘final completion’ is likely to be construed (or even defined in the contract) much differently than ‘substantial completion’.”

Disputes or discrepancies can delay final completion of the project for months or, in extreme cases, years. If the builders risk insurance terminates before final completion, the contractor could be exposed to losses that occur after all work on the project is completed – and even after the owner takes possession and begins operations at the new property – without any insurance to cover that risk.

To avoid this outcome, contractors must negotiate contract language that matches the risk of loss to the builders’ risk policy’s termination of coverage provision. “We welcome anybody to contact us for more information and expert advice to ensure that during these tough times, unnecessary risk is avoided,” Kesslau emphasised.


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