CAR basics for dealing with construction collapse
Non-life insurance is an enabler of just about every aspect of the broader economy; it helps individuals to buy cars on credit and secure mortgages over their homes, and underpins commercial property development through Contractors All Risks (CAR) policies and related insurance covers.
Greasing the wheels
The role that brokers, insurers and reinsurers play in ‘greasing the wheels’ of the economy is typically forgotten, until the inevitable loss event takes place. Today’s newsletter dives into the post-loss world following a building collapse at a construction site. It is based on a presentation by David Vlcek, Partner: General Insurance Litigation at Cox Yeats Attorneys at the popular iTOO Expert Learning webinar. The platform offers unique insights into specialist risk underwriting topics.
The presenter was upfront about his credentials as a construction insurance lawyer who assists brokers, insurers and insureds, often the main contractor, in the construction and larger infrastructure sectors to respond to third-party claims. He has worked on countless widely-publicised collapses, including the 2024 George residential development, Grayston Drive and Tongaat mall. “There has been a massive increase in both fatal and non-fatal collapses over the past five years,” Vlcek said. These collapses go hand in hand with significant damage to works.
The talk, which focused on the emergency and investigative responses that must take place after a collapse on a construction site, was framed as a series of questions for brokers or insurers. Assuming a building or structure collapses, and there is loss of life and / or damage to property, what is the process? “What do we do to protect our insured or to ensure policy compliance and to protect policy response,” Vlcek asked. “It is important to understand where we all fit in in the grand scheme of things.”
Worst in over three decades
Vlcek reflected that post-collapse responses either unfolded very quickly or not at all, using the George building collapse and a Ballito owner-builder collapse to illustrate key differences. “The George collapse was the worst construction-related casualty event since 1994; it received extensive media coverage and was basically all we spoke about for three months,” he said. The George collapse saw 34 fatalities. The Ballito collapse, which resulted in four fatalities on site, received far less media coverage.
A series of post-collapse photos showed the scale of the George disaster. Vlcek used these images to draw attention to aspects that were relevant from a CAR policy point of view. Observations included plant and machinery on site; damage to the permanent works, evidenced by collapsed reinforced concrete with embedded steel rebar visible in the failed sections; temporary works in the form of hoarding, formwork and scaffolding; and third-party properties along the boundary. “You can understand now why CAR policies distinguish between permanent and temporary works,” he said.
Collapse during excavations
The Ballito owner-builder incident involved a collapse during excavations for a gabion basket retaining wall. Vlcek set about explaining the sequence of events that should occur following a collapse.
First, the contractor is immediately obliged under the Occupational Health and Safety Act to make the site safe and report the incident. Second, the South African Police Service (SAPS) arrives on scene, and the site becomes a search and rescue operation. Third, when search and rescue ends, it becomes a recovery scene, and possibly a crime scene if there is injury or loss of life. After this, the site is released to the Department of Employment and Labour (DoEL), which must complete a section 31 investigation and, where required, a section 32 inquiry.
A section 31 investigation may be instituted where an accident has resulted, or could have resulted, in illness, injury or death. It is described as invasive, but is usually handled soon after an incident. The investigator will determine whether a formal section 32 enquiry is needed based on the section 31 findings. “As an insurer, you need to be on site; as a broker, you need to be telling your client to get experts onto site,” Vlcek said. “You want geotechnical, materials and structural experts ... all appointed by an attorney to protect privilege.”
Post-collapse operational challenges
There are countless operational challenges to consider too. A section 31 or 32 investigation takes time, and it might be months before the contractor regains full access to the site following a collapse.
The presenter then offered some more CAR insurance theory, noting that the employer (or project owner) appoints the main contractor and other direct contractors as well as the architect, design engineer and resident engineer. He also reminded the audience of the three aspects that should come under scrutiny during post-collapse investigations: design; materials and workmanship.
“You have also got to get to the bottom of what your contractual terms are,” Vlcek said, adding that one would commonly encounter one of the standard-form contracts, such as JBCC, GCC, FIDIC or NEC3, in the built environment. “Understanding those four contracts and being able to advise on them is critical when you have collapse claims or professional indemnity (PI) claims in the construction industry,” he said.
Claims to be aware of
There is a long list of potential claims following a construction collapse, including employee or third-party injury, death or loss of support claims; damage to surrounding movable and immovable property; loss of materials, plant and equipment; cost of reinstatement of the destroyed or damaged works, whether temporary or permanent; economic loss, such as delay in start-up losses where advanced loss of profits cover has been purchased; and environmental loss. “You face a minefield of litigation and claims,” Vlcek said.
His concluding advice to construction insureds was to protect privilege and confidentiality at all times; to preserve and gather evidence; and to get an attorney-appointed team of experts in place including a geotechnical engineer, a materials engineer and a structural engineer. It also makes sense to have a loss adjuster attend the site as soon as possible following the event.
Writer’s thoughts:
The complexity of insurance contracts often only comes to light at claims stage. What are some of the costliest mistakes that brokers or insurers make when advising on Construction All Risks (CAR) cover? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].
