Common Insurance & Contractual Terms

Agent:
One party who acts for another. It may include not only employees but also sub-consultants and other parties.

Aggregate Liability:
The maximum total liability of an Insurer for all claims reported under a contract of Insurance.

“Arising out of” or “arising from” or “in connection with”:
Words to be avoided in any contract of engagement if followed by the words “the professional services” or “breach of the contract” or similar. The preferable words in substitution would be “to the extent caused by”. As an example: “Where the consultant breaches this agreement the consultant is liable to the client for reasonably foreseeable damages to the extent caused by the breach.”

Building Certifier Insurance:
A special type of Professional Indemnity Insurance for Approved Building Certifiers coupled with a bond securing payment for ten-year “Run Off” coverage as may be approved of by the Building Industry Authority for the purposes of Part VII of the Building Act 1991.

Calderbank Letter:
A written communication between legal representatives in which an offer of settlement is made. The terms of which, in the event the matter proceeds to the trial, are not to be disclosed to the Court, except on the question of costs.

Cause of Action:
The ground upon which an action for damages can be maintained.

Claims Made & Notified:
If an insurance policy is so designated as a “claims made & notified” contract of insurance, then the policy only responds to claims first made against the Insured and which are notified to the Insurers during the period of the insurance.

Co-Insurance:
This is applicable where an insurance policy assumes liability only for a percentage of the sum insured and a percentage of any loss as insured is to be borne by either other Insurers or in some instances by the Insured.

Common Law:
The law embodied in judicial decisions as opposed to statute law – often referred to as case law.

Comply:
To act in accordance with a wish, command or the law etc. A word to be avoided in any contract of engagement as it may be synonymous with a performance guarantee that may be uninsured.

Concealment:
A wilful act of non-disclosure.

Consequential Loss:
A term which refers to economic loss which flows as a consequence of the occurrence of direct loss or damage (e.g. the interruption to a business following a fire in the premises occupied by the business).

Contract:
A contract arises when an oral or written instruction is accepted by one party to perform a service for another party for a consideration.

Continuity of Indemnity:

Deductible or Excess:
This is an agreed first amount of any loss borne by an Insured at his or her own risk and is, in effect, totally uninsured. An Insured is only entitled to indemnity in terms of the policy for the amount of the loss up to the total sum insured less the given Deductible or in excess of the given Excess.

Deed of Continuity:
A principal may require a head consultant or a contractor to procure such a deed from a sub-consultant for the benefit of the principal in the event that the head consultant or contractor’s agreements are terminated.
Consultants should ensure there are no terms in a deed of continuity that extend liability or the scope of work beyond the original contract of engagement. Particularly that there are no higher standards of care or warranties and the limitations within the original contract of engagement are carried over into the deed of continuity.

Defamation:
A libellous or slanderous statement made to a third party who causes injury to the honour or reputation of another party.

Defence Costs:
An expression utilised in insurance policies which often may include not only legal expenses associated with a claim, but also technical and investigation expenses.

Directors’ & Officers’ Liability Insurance:
A form of liability insurance providing protection to directors and officers of corporate entitles for liabilities arising from wrongful acts committed in their capacities as such. Its relevance to a construction project is if the directors and officers of a company are facing claims for this type of liability for which they are entitled to indemnity from the company this can weaken the financial security of a company.

Disclaimer of Liability:
A provision in a contract which purports to exclude or remove liability which would otherwise attach to a contracting party.

Discovery:
The obtaining of information on oath from a party to legal proceedings.

Duty of Care Deed:
A principal may require a contractor under a design and build contract to procure such a deed from a sub-consultant for the benefit of the principal. Consultants should ensure there are no terms in a duty of care deed that extend liability or the scope of work beyond the original contract of engagement. Particularly that there are no higher standards of care or warranties, and that the limitations within the original contract of engagement are carried over into the duty of care deed.

Earthquake & War Damage Cover (EQC):
A term which refers to the statutory coverage as was originally provided under the Earthquake and War Damage Act 1944; since superseded by the Earthquake Commission Act 1993. Statutory coverage under the 1993 Act was phased out for “commercial property” by 31 December 1996 but still applies to some extent for “residential property” as defined in the Act.

Employers Liability Insurance:
In respect of the Accident Rehabilitation & Compensation Act 1992 and the replacing legislation the Accident Insurance Act 1998 with subsequent recent amendments, there are some circumstances that fall beyond the scope of the definition of an “accident”. This form of insurance provides for the Employer’s costs of defence and certain awards made against an Employer for breach of employment contracts or breach of certain provisions of the Human Rights Act 1993 or the Privacy Act 1993.

Estoppel:
A rule of evidence which precludes a party from denying that the facts are not otherwise than his or her works or conduct have caused another party to believe, and which has induced the other party to act on that belief.

Ex Gratia Settlement:
A gratuitous settlement for which an Insurer may not be liable for under the terms of a policy.

Fidelity:
An expression referring to a form of insurance commonly known as Fidelity Guarantee. It may be in stand alone form as a separate contract, or as an extension to other forms of liability Insurance, including Professional Indemnity Insurance. It provides for the loss of money or property belonging to a practice or held in trust. The cover may relate only to a guarantee of the fidelity of Employees, but may be extended by negotiation with an Insurer to include the Principals of an Insured Firm.

Fraud:
A deliberate deception to gain unfair or unlawful advantage.

General Liability Insurance:
General Liability Insurance Policies (often described as Public Liability Insurance) are concerned with accidents or other events or occurrences causing death of, or bodily injury to, or damage to the property of members of the public. Most policies are underwritten on an “occurrence” basis. The feature of this is that the event which gives rise to a claim must have occurred during the period of the insurance. The policies may be “stand alone” contracts or appended to a Contract Works Insurance as a separate coverage specifically relating to the particular project.

Indemnity:
A contract by one party to keep the other harmless from loss. A broad form indemnification in a contract of engagement may require the Consultant to cover client’s costs even when the problem has been caused by the client. This can create a contractual liability that is uninsurable.

Indemnify:
This means to make good a loss another party has suffered.

Guarantee:
A binding promise to be answerable for the debt or obligation of another. To be avoided in any contract of engagement as it is likely to be uninsurable.

Jurisdiction:
A special clause in insurance policies that defines under which country’s jurisdiction any disputes between an Insured are to be resolved.

Limitation of Liability:
An agreed monetary or time limit in a contract which places a limitation on the liability of a contracting party. The Limitation Act 1950 provides for the limits in time in which a civil action may be commenced. In contract it is six years from the date of the act or omission. In tort is it six years from the date the damage is discovered or may reasonable have been discovered. The Building Act 1991 provides that no civil action may be commenced more than ten years after the date of the act or omission, referred to as a “long stop”.

Marine Insurance:
Marine Insurance for a construction project can be broadly divided into two main areas:

  • Hull and Liability Risks This form of insurance has relevance to wet risks (i.e. bridges, sewerage outfalls, offshore pipelines, wharves, docks and the like where the use of waterborne craft is involved). 
  • Transportation Risks Transit risks within New Zealand for the materials to be incorporated into a project are often Insured by agreement with the contract works Insurer.

Overseas importations are not usually included and marine cargo insurance may be necessary for importation of any materials, plant and equipment, including the engineering risks for the positioning and testing and commissioning of the plant or equipment. Delay in commissioning due to marine perils can be insured under a special marine Insurance known as “Advanced Profits”.

Material Fact:
A fact which if known of by an Insurer at the time of entering into an insurance contract would have affected a prudent Insurer in deciding whether to accept the risk or not or accept subject to special conditions.

Negligence:
A failure to exercise reasonable care so as not to cause damage or loss to any other person.

Non Disclosure:
A failure to disclose the existence of facts which are material to the acceptance of a contract of insurance by an Insurer.

Professional Indemnity Insurance:
A special type of liability insurance covering loss caused by a legal liability to pay compensation to a client or other third party arising from a breach of professional duty. Such policies are usually underwritten on a “claims made & notified” basis in contrast with the “occurrence” basis of other forms of liability insurance. A policy may be of the traditional type responding to legal liabilities caused by “negligent” acts, errors or omissions in the performance of professional duties or it may be a more modern and wider “civil liabilities” contract.

Reasonable Skill Care & Diligence:
The established common law duty of care is to act with reasonable skill, care and diligence. Words in contracts of engagement that extend this liability to perform the services of “the highest standard” or “the best” or similar are to be avoided as they are uninsurable.

Reasonable Foreseeable:
Something which is ordinarily, properly, or fairly capable of foresight. One of the common law tests of negligence.

Reasonable Person:
A person who has the faculty of reason and engages in conduct in accordance with community standards. In negligence law, liability depends on what a reasonable person would have foreseen, or realised, or how a reasonable person would have acted in the same given circumstances.

Retroactive Date:
If applied to a contract of liability insurance the policy will only respond to loss arising from acts, errors or omissions which have occurred after this date.

Solicitor/Client Costs:
The inclusion of these costs in the liability clauses of a contract of engagement should be strongly resisted. What it means is that a consultant would be funding the other parties’ costs in suing the consultant.

Statutory Liability:
This form of Insurance relates to the costs of defence and insurance of certain fines or penalties under various statutes. This is in contrast to “civil liabilities” as may be insured under other forms of liability policies.

Strict Liability:
A liability owed to another party under special circumstances, even though the event took place without negligence or intent.

Subrogation:
In insurance terms this means that upon payment of a loss under a policy the insurers are entitled to stand in the place of the Insured to pursue any recovery against other parties who may have caused the loss.

Territorial Limits:
Insurance contracts may define or restrict territorial limits off-shore beyond New Zealand or Australia in which the indemnity may apply. Such a clause may also define the jurisdictions under which the policy will apply and only cover claims from work performed within the territorial limits. Liability Policies issued in New Zealand invariably exclude claims arising from operations or exports of products or services to or within the territorial limits or the legal jurisdictions of the United States of America, Canada or their territories or protectorates.

Tort:
A civil wrong for which the remedy is a common law action for damages.

Ultra Vires:
Any action in excess of legal authority.

Vicarious Liability:
A legal liability for the acts of other parties such as a principal for an agent or an employer for employees.

Waiver of Subrogation:
The foregoing or abandoning some right or benefit against other parties.