UNIVERSITI TEKNOLOGI MARA CAWANGAN SERI

ISKANDAR (PERAK)

BACHELOR OF SCIENCE (Hons.) CONSTRUCTION

TECHNOLOGY

BCT683: CONSTRUCTION LEGAL PRACTICE

ASSIGNMENT 2:

Prepared by:
HANNI NUR HIDAYAH BINTI SURIA (2017159037)
NUR SYAZA BINTI ISMAIL (2017398897)
MOHAMMAD ASYRAAF AQIL BIN MUHAMMAD (2017719339)
MUHAMMAD SHAMIM BIN AHMAD LAILI (2017504889)

Prepared for:
EN. AZHAN JALALUDIN
Table of Contents

1.0 INTRODUCTION.............................................................................................................. 3
2.0 TYPES OF INSURANCES ............................................................................................... 5
2.1 Public Liability Insurance ............................................................................................. 5
2.2 Contractor’s All Risk (CAR) ......................................................................................... 6
2.3 Workmen Compensation Insurances ........................................................................... 9
3.0 CLAUSES ......................................................................................................................... 10
3.1 Clause 14: Indemnity in Respect of Personal Injuries and Damage to Property ... 10
3.2 Clause 15: Insurance Against Personal Injuries and Damage to Property ............ 12
3.3 Clause 16: Indemnities to Government in Respect of Claims by Workmen .......... 14
3.4 Clause 17: Employees’ Social Security Act, 1969 ...................................................... 15
3.5 Clause 18: Insurance of Works ................................................................................... 16
1.0 INTRODUCTION
Insurance is a guarantee given by third party as protection to clients and contractors for
any construction project for any injuries, disasters and misfortune which will be listed as term
of the contract on works in construction site during the construction perform by contractor.

Public Liability Insurance is a guarantee given by third party as protection to clients and
contractors if any disaster falls down on public and cause injuries or death or damage any public
properties which located close to or at construction site. Worker compensation is a guarantee
given by third party as protection to clients and contractors if any incident happens on worker
and cause injuries or death that is not listed under SOCSO.

SOCSO is a guarantee given by third party as protection to clients and contractors named in
insurance if any incident happens at construction site or any other place (which is depend on
the requirements of the guarantee) which cause injuries or death.

Construction industries have a lot of high risks and in need the involvement insurance. In
construction contract, insurance is one of the crucial provisions and are listed in the term of
contract. It is to protect both contracting parties which is clients and contractors. Insurances
can be provided from a specific company that offer insurance and legalized by governments.

Addressing risk in construction industries generally done by transferring the risk to other
parties such as insurance company. As for the insurance company that bear the risks, payment
in term of premium is done for the insurer in addition to the terms that must be abide and
agreed.

Under PWD Form 203A (Rev. 1/2010) Standard Form of Contract, there are a few insurances
that must be taken into consider by contractor such as worker insurance, public liability
insurance and worker compensation. Other than that, Contractor must provide SOCSO based
on Employees' Social Security Act 1969 who workers who is not insured by worker
compensation. To guarantee that contractor done take the obligation, which is done the work
completely, client must also guarantee from the third parties insurance company.

Contractors may have an obligation toward all workers safety involved in the construction. The
obligation imposed on the contractor to indemnify the government through various insurance
under PWD Form 203A (Rev. 1/2010) Standard Form of Contract. Contractor must agree with
the term and payment highlighted in the PWD Form 203A (Rev. 1/2010) Standard Form of
Contract because workers have contractual employment relationship with contractor. This is to
cover up any injuries on workers that might happen during the construction process. In
construction, contractors must have all the required information of workers with a valid
insurance policy because the certificates will be issued by insurance companies. There are a
few clauses provided by PWD Form 203A (Rev. 1/2010) Standard Form of Contract related to
insurance.
2.0 TYPES OF INSURANCES

2.1 Public Liability Insurance

The purpose of securing Public Liability Insurance is stated in Clauses 32 and 33 of the
JKR 203A. Public liability insurance is the construction contracts that is typically include a
clause requiring the contractor to carry insurance to cover expense, loss, liability, claim or
proceedings for personal injury or death arising from the carrying out of the construction works,
or loss or damage to property other than the works.

Personal injuries of employees will be covered by the contractor’s employers’ liability

insurance, which is compulsory for all employers under the Employers’ Liability (Compulsory
Insurance) Act. All firms who employ staff are legally required to hold Employers Liability
Insurance.

Personal injury or death, or loss or damage to property of third parties is covered by public
liability insurance. Common law claims for personal injury or death, or loss or damage to
property can be very significant and are unlimited. The cover provided does not limit the
contractor’s liability.

Risk of insure (civilian):

a. authorized civilian to the construction site (supplier, students, visitors, etc),
b. consultants, Superintending Officer (S.O) and S.O’s representative; and
c. civilian around the construction site.

Risk of insure (Property)

a. Public property and structure
b. Car and motorcycle
c. Property of authorized person to the construction site (cars and motorcycle)
d. Property belong to consultants, S.O and S.O’s representative (cars and
motorcycle)
2.2 Contractor’s All Risk (CAR)

The term is sometimes used to refer to both the material damage and liability covers
required by a Contractor. CAR covers what is stated within the actual insurance policy for
which the premium is paid. The Employer has the opportunity to specify his requirements as
to what is to be included within the CAR within the contract if the Contractor is responsible
for the provision of such insurance alternatively the Employer specifies the cover within the
policy he takes out where the Contractor is not obligated to provide insurance under the
Contract.

A CAR policy provides insurance coverage when the Works being constructed, as defined in
the Contract, are damaged by an insured peril and require replacing and/or repairing. It is
normal for the Contract to stipulate who will provide this cover. If it were the Contractor then
it would be normal for them to take out a specific policy to cover the project or alternatively if
available to them add it to a policy covering all their contracts up to a specific limit. In the
event the responsibility should fall upon the Employer then cover would normally be under a
policy arranged specifically for that project.

The policy should always be in the joint names of the Employer and Contractor although the
Contract may stipulate that the Bank or Financing institutions are also named in the policy,
depending upon their specific requirements for providing project financing.

Joint names insurance is where two or more parties (for example the Employer and the
Contractor) are jointly insured under a single policy. Each party has legal rights under the
policy and can claim against the insurer, but the insurer has no right of subrogation against the
other insured party. It is important to remember that each party is bound by the normal rules,
and to avoid any difficulties each should individually comply with the duties of disclosure and
notification.

A third-party is not a party to the contract of insurance, and thus cannot claim against the
insurer. Similarly, it does not prevent the insurer from exercising rights of subrogation against
the third-party.

When arranging the CAR coverage for a project it is essential that care be taken in identifying
the correct Contract Value, Construction Period, Defects Liability Period and Description of
the Works. The policy will normally cover any physical loss or damage unless the cause is
specifically excluded, thus the term ‘All-Risks’.
The most important causes of losses indemnifiable under CAR insurance is:
a) fire, lightning, explosion
b) flood, inundation
c) windstorm of any kind
d) earthquake
e) theft, burglary; and
f) collapse

The cover attaches as from the commencement of work, or after the items entered in the
schedule of the policy have been unloaded at the site and terminates when the completed
structure or any completed part thereof is taken over or put into service. In addition, it is
possible to extend the period of cover to include a maintenance period.

In Contractor’s All Risk insurance proposal and declaration form, a contractor needs to fill up
the details of proposer or contractor, contract details where the title of the project needs to fill
up correctly, period cover, special hazards, third liability and others also coverage details.
According to PAM 2006, clause 20. A.2, any additional risks or endorsements in addition to
those stated in Clause 20.A.1 which may be required to be covered under CAR Insurance policy
shall be specified in the Contract Bills. If the contractor having regard to his indemnity to the
Employer under Clause 18.0, desires to have any additional endorsements to the insurance in
addition to the risks specified, he shall do so at his own cost.

In the schedule of CAR Insurance, the contractor needs to fill up the titles of the contract
correctly also all the requirements needed such as, contract sum, site construction and so on.
The contract sum must be fill correctly according to the project contract so that the policy
premium can be calculate. Usually, different brand of insurance has a different percent for
premium. As for example, for Allianz General Insurance Company (Malaysia) Berhad offers
0.35% of premium in insurance. There is a calculation that need to be done to find the total due
of the insured sum. Below are the attachment sample of CAR form and calculation of insured
amount by a contractor company.
All CAR policies will have an excess that will be deducted from any claim settlement. On
occasions insurers will apply more than one excess under a policy for specific losses where a
certain risk warrants such and additional excess being imposed.

In addition, generally most policies include exclusions for which extensions of CAR coverage
maybe granted or included within the CAR coverage of the CAR policy may be extended to
cover such as:

a) professional fees,
b) automatic reinstatement of the policy limit following a loss,
c) debris removal,
d) free issue materials,
e) discovery of munitions of war,
f) inflation clause; and
g) plans and documents.
2.3 Workmen Compensation Insurances

Worker’s compensation protects workers who are injured on the job by covering
medical and hospitalization expenses, plus a percentage (usually 75%) of the hourly waged
during the time the employee is out of the work. Serious injuries, such a loss of a limb or death
are compensated by a lump sum for a predetermined monetary amount. Worker’s compensation
also protects the contractor by limiting the worker’s remedy from the employer to the amount
that is covered by the workers’ compensation law.

Workers who are covered by worker’s compensation insurance cannot sue their employer for
additional compensation, but some subcontractor employees, who cannot sue their employer
because worker’s compensation is their sole remedy from their employer, have sued the general
contractor under the safe-place-to-work doctrine, which says it the general contractor’s
responsibility to provide a safe place to work. These suits are known as “employee over-claim”.
Unlike other kinds of insurance, contractors cannot name other additional insured on their
worker’s compensation policy.
3.0 CLAUSES

3.1 Clause 14: Indemnity in Respect of Personal Injuries and Damage to Property
Clause 14 is mainly an indemnify clause and will be interpreted very severely as held
in Walter V Whessoe Ltd (1960) 6 BLR 23. The case was held that if a person gains an indemnity
in contrast to the consequences of particular acts, the indemnity is not to be interpreted so as to
include the consequences of negligence except these consequences are comprised expressly or
by necessary effect.

Clause 14.1(a) is vague but be capable of distinguished that the contractor is supposedly
required to shoulder responsibility in respect of claims resulting from damage to property and
personal injury or death in the way of the execution of the works unless bring about or caused
by the negligence of the government or its agents or servants.

The intent of clause 14(b)(i) cannot be concerned. By clause 14.1(b)(ii) and clause 14.1(b)(iii),
the contractor indemnifies the government in contradiction of claims and loss or damage to
property and personal injury arising from the running of the works. However, the indemnity is
involved if the loss or damage is affected or caused by the negligence or default of the
contractor or those under his charge such as his agents and servants. The indemnity is also
concerned if the loss or damage is caused by others besides the contractor such as sub-
contractors of the contractor or third parties, offered is not because of the negligence or wilful
act of the government or its servants or agents. Thus, and as seen in AMF (international) Ltd
V Magnet Bowling Ltd (1968) 2 All ER 798, was held that the employer was not authorized to
recover from the contractor under the indemnity provided in the English RIBA form of building
contract because the employer’s own negligence through his architect’s be short of supervision
had caused to the damage.

The indemnity must include claim formulated under statue, e.g. the Occupational Safety and
Health Act 1994, or under the common law such as for the tort negligence or nuisances.
Therefore, the injured party or estate of the deceased person or a neighbouring property owner
sues the government in respect of any damage covered under this clause, the government may
then join contractor as a third party or otherwise lead to separate proceeding in contradiction
of the contractor on the indemnity. For purposes of limitation under the limitation Act 1953,
time begins to run against the government when it has go through loss by taking judgement
entered or arbitral award given against it e.g. RH Green & Silley Weir Ltd V British Railways
Board (1981) 17 BLR 94 and Mat Abu bin Man V Medical Superintendent, General Hospital
Taiping, Perak & Ors (1989) 1 MLJ 226. The extent of the indemnity is wide and covers
financial compensation as well as legal costs.

By clause 14.1(c), it is expressly specified that the aforesaid indemnity exists notwithstanding
that the contract is ended before the work achieve conclusion.

In clause 14.2, besides indemnity the government, the contractor is possibly under the duty at
his costs to lawfully defence the government is the claims are also took in contradiction of the
government directly or as a co-defendant with the contractor.

Comparison between 2007 and 2010 is that in 2007 the contractor duty to keep the government
(and agents) indemnified against all manners of claims & actions pertaining to works on site
while 2010 there is no change in the indemnity in respect of personal injuries and damage to
property.
3.2 Clause 15: Insurance Against Personal Injuries and Damage to Property
Clauses 15.1(a) & (b), clarify the obligation of the contractor to effect and maintain
insurances is extra to and does not affect the indemnity agreed by the contractor to the
government under clause 14 of these conditions. Therefore, be no defence for the contractor to
claim that the insurance cover was insufficient in the event of a call by the government for
indemnity. The contractor is then obligatory to bear the amount of excess related to the
insurance policy.

The contractor is tied to effect and maintain this insurance and must make sure that coverage
comprise his sub-contractors, both domestic and nominated. The contractor necessity be
vigilant to ensure the common “Contractor All Risks” insurance policy effected by contractor
comprehensively cover them. The insurance policy should also contain a cross liability clause
indemnify the insured from claims by another joint insured. The insurance should be effected
by the contractor prior the commencement of any work under the contract.

Clause 15.1(c) requires that the insurance be effected in the joint names of the government and
the contractor together with sub-contractors. This is essential following the English case of
Gold V Patman & Fortheringham Ltd (1958) 2 All ER 493, held that insurances for liability
for property damage were only in respect of the contractor’s own liabilities but was not
extended to cover the employer’s liabilities. Thus, the contractor was held not to be in breach
of the insurance provision although had failed to insure against the employer’s liability.
Therefore, subsidence causing damage to another building arose out of piling works ordered
by the employer but carried out without the negligence of the sub-contractor. As it may, it
should be recorded that the government, the Superintending Officer or the SO’s
Representatives (in the absence of fault of the contractor) caused in the injury or damage to
property.

The contractor is obligatory to maintain the insurance cover for the entire construction period
as well as the whole of the Defect Liability Period (DLP) where work (if any) is commenced
pursuant to clause 48 of these conditions. The insurance is to terminate only upon the issuance
of the Certificate of Completion of Making Good Defects.

By Clause 15.2, the contractor must make the insurance policy and receipt of premium paid to
the Superintending Officer, weather demanded or not. If not done, the contractor is prohibited
to commence any work.
By clause 15.3, authorizes the Government or the Superintending Officer for the Government
to renew any insurance compulsory under this clause if the contractor defaults in so doing and
the government may deduct the premiums paid together with on-cost charges from any monies
due or to become due to the contractor. The government may otherwise recover it as a debt or
demand against the Performance Bond.

In clause 15.4(a), upon the issuance of the Certificate of Completion of Making Good Defects,
the insurance policy can only be cancelled next 30 days’ notification by the insurer to the
government of the impending cancellation. Clause 15.4(b) offers that all material times, the
contractor should not cause the insurance policy to be vitiated, avoided or subjected to an
increased rate of premium payment to avoid the issue of early cancellation of the insurance
policy that arose in Cold Storage Holdings Plc V Oversea Assurance Corporation Ltd & Ors
(1989) 2 MLJ 324.

Clause 15.5(c) repeats the completion responsibility assumed by the contractor in that the
contractor should at his cost repair, replace or make good the damage even if insurance pay-
out is adequate.

Comparison between 2007 to 2010 is that 2007 effect and keep insurance to cover his liabilities,
allow the excess amount as stipulated in Appendix, period of cover until CMGD, in case of
failure, the Governments may extent the insurances for the contractor, the cost of which shall
comprise 5% (on-cost charges), cancellation of insurance is force to 30 days after receipt of
notice by the government., where claims surpass insured amount, the surplus shall be borne by
contractor, it specifies a notification procedure and obligation the contract to ensure a
mandatory procedure is followed any cancellation process, it imposes a positive duty on the
contractor to ensure that any insurance cover is not vitiated or rendered void or voidable.
Meanwhile for 2010, there is no change for insurance against personal injuries and damage to
property.
3.3 Clause 16: Indemnities to Government in Respect of Claims by Workmen
Clause 16.1(a) act as an extension of clause 14.1(b)(111) of these Conditions which
expressly deals with the Contractor's liability to compensate the Government by virtue of
claims made against the Government accordingly to Workmen Compensation Act 1952 or the
Employees Social Security Act 1969.

While in clause 16.1(b), the Contractor is required to obtain Workmen Compensation Insurance
throughout the Contract Period. It is not stated whether the insurance is to be in the joint names
with the Government and whom to bear the costs of it.

But, in the case where the Contractors failed to procure the insurance as specified, the clause
does not provide the consequences of it. It is agreed that the most realistic solution is for the
Superintending Officer to issue a reminder instruction to procure the insurance pursuant to
clause 5.1(h). If failed, the Government may obtain it and recover from the Contactor
accordingly under clause 5.3 of these Conditions.

The only difference in 2010 version compared to 2007 is in 2007 under Clause 16.1, where it
provides coverage for the Government and Superintending Officers against claims by any
workman. Meanwhile for 2010, there is no change under the indemnities to the government in
respect of claims by workmen.
3.4 Clause 17: Employees’ Social Security Act, 1969
By clause 17.1, the Contractor (including sub-contractors) shall register all local
workmen who are Malaysian citizens or permanent residents under the Employees' Social
Security Act 1969 (SOCSO) scheme. The coverage under SOCSO generally covers workmen
whose monthly wages do not exceed RM2,000 under a contract of service or apprenticeship.

The Contractor is required under clause 17.2 to carry out the necessary registration under the
SOCSO scheme and provide the contributions required thereunder. The Contractor also have a
continuing duty to provide the Superintending Officer all evidence of payment of contributions
to SOCSO.

If the Contractor fails to comply, the Government is empowered under clause 17.3, without
prejudice to its rights for breach of contract, to:

 withhold from any monies payable to the Contractor an amount deemed sufficient by
the Superintending Officer to satisfy any claim for compensation,
 and/or pay the required contributions and deduct this amount paid together with On-
Cost Charges from the monies due or to become due to the Contractor,
 or recover the same as the debt or demand against the Performance Bond.

The differences in 2010 version compared to 2007 is in 2007 under Clause 17.1 is the
registration with SOCSO, contribution to SOCSO under Clause 17.2, and default in complying
with SOCSO under Clause 17.3 while there is no such change in 2010 under the Employee’s
Social Security Act 1969.
3.5 Clause 18: Insurance of Works
The Contractor has the right to possess the Site where the Works are being constructed,
and the Government have no control as to the operations there nor the safety and security of
the Works. In Appleby v Myers (1866) 2 LR CP 651, it was held that the contractor is bound to
rebuild without receiving any further payment under the case where the work is destroyed
before completion and handing over back to the owner. As the Contractor has expressly
assumed the responsibility to construct and complete the Works as provided in clause 6 of these
Conditions, it is crucial that there is insurance secured for the Works as the Contractor may not
be financially capable to resume the responsibility should there be any unforeseen
circumstances which arise.

Under Clause 18.1(a), the Contractor is required to obtain in the joint names of the Government
insurance against loss and damage to the Works and unfixed materials and goods brought to
site by a variety of threats. The specified threats are fire, lightning, explosion, storm, tempest,
flood, ground subsidence, bursting or overflowing of water tanks, aircraft and other aerial
devices or articles dropped therefrom, riot and civil commotion. These are traditional insurance
risks and there is much older case law concerning their meaning. But the list of threats such as
theft and vandalism are not included.

As a matter of practice, the Contractor's All Risks insurance is commonly obtained to comply
with clause 15 of these Conditions as well as this clause. It is also provided in this clause that
the insurance must be taken up to full value of the Works plus a further value as either provided
in the Appendix to the Conditions or in the other Contract Documents. This further value is
usually found in the preliminaries bill in the Bills of Quantities to cover for professional fees
and removal of debris.

The Contractor is required to maintain the insurance until completion of the whole of the
Works, nevertheless that there is a sectional completion arrangement under clause 41, or that
the Government may have exercised its rights of partial occupation under clause 42 of these
Conditions respectively.

It is specifically provided in clause 18.1(b) that the Contractor must obtain the insurance from
an insurance company approved by the Superintending Officer and to produce the policy and
receipt of premiums paid. In addition, the Contractor has also to bear any excess specified in
the Appendix to the Conditions.
In clause 18.2, it is provided that if the Contractor fails to renew the insurance (usually by
reason of delayed completion), the Government or the Superintending Officer on its behalf
may pay and renew the insurance and deduct the amount expended together with On-Cost
Charges from the monies due or to become due to the Contractor, or recover the same as a debt
or demand against the Performance Bond.

The application of the insurance monies payable on the occurrence of any loss or damage to
the Works is dealt with in clause 18.3. In this respect, the Contractor is obliged to restore the
damaged work even before receiving pay-out by the insurance company. The monies will be
paid by the insurance company directly to the Government, and the Government will in turn
release it to the Contractor based on progressive issuance of certificates of payments by the
Superintending Officer accordance to the rate of restoration work done. Consistent with the
obligation in clause 6.1, it is also provided, that the Contractor shall be entitled to the monies
received under the insurance and no further without any doubt.

Similar to the insurance procured under clause 15 of these Conditions, it is provided in clause
18.4 that upon the issuance of the Certificate of Completion of Making Good Defects, the
insurance policy can only be cancelled after 30 days following notification by the insurer to
the Government of the impending cancellation.

In comparison of 2010 and 2007 is that in 2007 the insurance is maintained to cover against
loss and damage by fire and lightning. Also, to bear the excess amount as stipulated in
Appendix. Other than that, is the extension of cover until completion of the Works and in case
of failure, the Government may extent the insurance on behalf of the contractor and the cost of
which shall include 5% of On-Cost Charge. Any cancellation of insurance is to be made 30
days after receipt of notice by the Government is made. Where the claims exceed the insured
amount, the surplus shall be borne to the Contractor.