Insurance Under NEC

NEC insurance is set out in clauses 83 to 86 of the NEC4 ECC (84 to 87 in NEC3): the Contractor provides the cover in the Insurance Table, unless the Contract Data says the Client will provide it, and proves it with certificates. If a Party doesn't insure, the other can do so and charge for it.

Insurance sits beside the liability rules in the contract. It doesn't replace them: a liability stays with the Party it's allocated to, even if the insurer doesn't pay.

The Insurance Table

This is how the Table reads, in our own summary. The Contract Data states the amounts where the Table refers to it. Tender documents often add more.

Cover against	Minimum amount
Damage to or loss of the works, Plant and Materials	Replacement cost, plus the stated amount for replacing Plant and Materials provided by the Client
Loss of or damage to Equipment	Replacement cost
Third-party: loss of or damage to other property, and injury to or death of a non-employee, connected with Providing the Works	The Contract Data amount per event, with cross liability so the cover applies to the Parties separately
Injury to or death of the Contractor's employees	The greater of the legal requirement and the Contract Data amount, for any one event

Note what isn't in the Table: professional indemnity. If design is significant, ask for this separately. Under NEC4, the design Option X15 deals with it, and the X15 guide explains how.

The duties, clause by clause

Duty	NEC4 ECC	NEC3 ECC
Provide the Table's cover and anything additional in the Contract Data	83	84.1
Joint names, and cover lasting until one of two certificates (Defects or termination) is issued	83	84.2
Submit certificates, signed by insurer or broker, ahead of the starting date and at every renewal	84.1	85.1
Waiver of subrogation by insurers	84	85.2
The Parties comply with the policy terms	84	85.3
Client may insure and charge if no certificate is submitted	85	86.1
Insurance by the Client, with the Contractor's matching rights	86	87

Two differences are worth knowing. In NEC4 there are two reasons for not accepting the certificates: the insurance doesn't comply with the contract, or the insurer isn't financially strong enough to carry the liabilities. NEC3's stated reason is non-compliance only. In the NEC4 subcontract text, the joint names rule doesn't apply to the fourth item, cover for the employer's own staff, whereas NEC3 doesn't make the exception.

Practical points

Subrogation

Subrogation is an insurer's right, after paying a claim, to pursue whoever caused the loss. A waiver stops the insurer pursuing the protected persons, except for fraud. Without it, a joint-names works policy would be of less use, as the insurer might still pursue one of the insured. Have your broker confirm this is actually in the wording.

Uninsured amounts

NEC3 says clearly at 85.4 that any amount not recovered from an insurer stays with the Party at risk for that event. Treat this as the principle under NEC4 too, since the liabilities don't move when an insurer pays less. Excesses and exclusions therefore matter when you price.

Annual and project policies

Many Contractors use annual policies. They can satisfy the Table if the terms fit, but check the renewal date falls within the certificate cycle, and that nothing excludes the type of work. Set a reminder, as a missed renewal can let the Client insure at the Contractor's cost.

A worked example

A fictional Option C depot, with illustrative numbers. The Contract Data requires third-party cover of £10 million for any one event and employer's liability of £5 million. The Contractor's annual policy gives £10 million for third-party cover, but with a £250,000 excess for working near rail. A train-related incident causes a third-party claim of £180,000.

The insurer pays nothing, as the claim is within the excess. The claim still counts as the Contractor's liability. On Option C, the question then is whether the cost is Defined Cost or falls outside it, so read the insurance cost rule in the Schedule of Cost Components and Disallowed Cost before you assume. See the Disallowed Cost guide.

A checklist for the start of the job

1. Compare the Table and the Contract Data with your actual policies.
2. Check joint names, cross liability, and the waiver of subrogation.
3. Check who insures the works where it's an existing building. The Contract Data often changes this.
4. Submit certificates before the starting date, and diarise renewals to the defects date.
5. Client side: submit your certificates for anything you're insuring, and don't assume no reply means no issue.
6. Tell the insurer early about any incident, and meet any notification term.
7. Pass requirements down to subcontractors, particularly on back-to-back subcontracts.
8. Have the wording checked by your broker. This page is general guidance and isn't insurance advice.

Related guides

• NEC Risk, Liabilities and Insurance
• Indemnities Under NEC
• Risk Allocation by Main Option
• Risk Allowances in Quotations
• Client's Liabilities
• Contractor's Liabilities

This guide is general information in our own words, not legal advice. Your contract and its Contract Data always govern. NEC, NEC3 and NEC4 are trade marks of Thomas Telford Ltd; Contract Status is not affiliated with or endorsed by NEC.