Many factors causing increase in project duration and cost
If you’ve been watching the news, you will know that the effects of many things that have happened since 2020 are dramatically impacting the construction industry. The effects of supply-chain delays, the war in Ukraine, trade-labour shortages and rising costs (particularly against fixed-price contracts) have all taken their toll. The most obvious effect of these impacts is to increase the duration and cost of most, if not all, projects currently underway.
All construction policies have fixed durations
For single project policies, the time when cover ends is straightforward. (You will also be given advanced notice and follow-ups of the date that cover will expire). However, annual policies will have a Maximum Project Duration (MPD) specified. It is usually measured from the time the contract commences (if there is a contract), or when physical work begins on a site, until the end of the MPD. Thus, projects can reach their MPD at any time during an annual policy period and go unnoticed/unreported. After the MPD has expired, other than for any defect liability period specified in the contract (which is a very limited cover), all cover for that project ceases. Once cover ceases, any claims occurring on that project are likely to be declined.
Trend in Maximum Project Durations being exceeded
In the last month, we have seen a rapid upsurge in Maximum Project Durations (MPD) being exceeded, and often far exceeded. We have checked with Steadfast Triage to see if they have noticed an increase in claims being declined due to them occurring after the MPD has expired. An increase is certainly evident across the market. In fact, they have become the second most prevalent reason for Triage construction-related approaches.
We are prevalently being asked to extend MPDs and sometimes this is to accommodate a claim that has occurred on a project outside the MPD. Extending an MPD (or an SP policy period) after it has expired is not a Section 54 remit, so our hands are usually tied. We don’t want to see this happen to our brokers or our insureds when it is fairly easily avoided.
The risk is real – manage it now
We are urgently working on a solution that we can introduce to all of our active policies to give some leeway on our annual policies, but in the meantime, we are urging all brokers who have construction clients, to urgently check in with their clients to ensure that their projects are within the MPDs and values they have insured. Extend the MPDs and values immediately if needs be. Do not leave this until the end of the policy period to adjust – or worse still, until a claim draws attention to it. Do yourself and your clients a favour by doing it now. You may also want to take the initiative of providing a laminated page of the parameters of the policies for your contractor-clients, which they can have at hand in their office as a ready reference check.
This risk is real. It is happening now. We do not want any of our clients to exceed the MPDs or sums insured specified in their policies, to their detriment – particularly when understanding and communication can completely avoid this risk.
For more info, contact your local MECON office.