Inland marine: builder's risk, delay and the defective-design exclusion
A contractor is building a 60-metre steel bridge over a navigable river under a builder's risk policy with a completed-value limit of USD 25 million and a 10% deductible per occurrence. During erection, a temporary support collapses because of an error in the contractor's design calculations for the falsework. The collapse damages USD 3.2 million of completed work and USD 800,000 of the falsework itself, and delays the project by 4 months, causing USD 1.5 million in liquidated damages owed to the owner. The policy contains a standard defective-design/rectification exclusion and no delay-in-start-up cover. The contractor claims the full 5.5 million.
1. Apply the defective-design exclusion and calculate the recoverable amount.
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The defective-design/rectification exclusion bars the cost of correcting the defective work (the falsework design and the falsework itself) but does not bar resulting damage to other insured property. The 0.8m falsework cost is excluded as the defective item. The 3.2m damage to completed work is resulting damage and is covered. Delay/liquidated damages of 1.5m are not covered because there is no delay-in-start-up or advanced-loss-of-profits cover. Recoverable before deductible: 3.2m. Deductible 10% = 0.32m. Net recoverable: 3.2m - 0.32m = 2.88m. The insurer should verify causation and whether the design error was the contractor's own (excluded) or a third-party designer's (may be covered subject to the policy's professional-services wording).
2. What additional information would the underwriter need, and what conditions might be imposed at renewal?
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The underwriter should obtain: the falsework design and its independent check; the contractor's method statements; the designer's professional indemnity position; the project programme; and evidence of temporary-works inspection. At renewal, conditions could include: a warranty that temporary works designs are independently checked by a chartered engineer; a requirement for stage inspections; a higher deductible for design-related losses; and exclusion of liquidated damages unless a separate advance-loss-of-profits extension is purchased. The underwriter should also confirm the completed-value limit is adequate and whether the navigable-river location requires a separate marine/transit extension.