The Difference Between ‘Joint Names’ and ‘Composite Insured’ Construction Insurance
Most people in the construction industry will know that contract works are usually determined by standard form contracts called JCTs (or Joint Contracts Tribunal contracts) which outline the responsibilities and obligations of all parties involved in the project i.e., the employer, contractors, and any subcontractors. JCTs are a time-saver as they avoid having a contract written from scratch and they ensure that the risks associated with the construction project are divided fairly.
A JCT does not automatically include a ‘joint names’ extension in the project’s insurance policy, detailing the responsibilities of both employer and contractor. Indeed, things may be more complicated than that. The construction business is a complex one, with a multitude of varying risks, including those related to workmanship, design failure, the construction process, environmental issues, and employees from different companies all working on site – all of which can result in loss or damage and lead to legal liabilities. There may also be further parties: project managers, architects, suppliers, subcontractors and future purchasers or tenants - plus investors and funders, who have a different vested interest.
All these complexities make construction project insurance tricky, as it needs to cover the risks borne by each party and to consider their varying interests and involvement. This is why it’s crucial to consult an expert for advice before taking out an insurance policy for any construction project, to make sure the right policy extension – either joint names or composite insured – is in place before any work gets underway.
Let’s take a look at the differences between the two.
What is joint names construction insurance?
Joint names is an insurance policy extension which sets out the contractual responsibilities of both the employer and the contractor. It is used for new build projects, and refurbishment work or extension contracts, where parties have to be named on an insurance policy.
A joint names extension means each party doesn’t need to take out separate policies and this means insurance arrangements can’t be duplicated. Plus, joint names means the named parties – employer and contractor – cannot claim against each another, and the policy cannot be cancelled without both parties being notified.
This extension is applicable when the interests of the contracted parties are in alignment i.e., those of project quality, deadline and budget.
What is composite insured construction insurance?
Composite insured is a policy extension applied when one or more parties have individual interest in the project and the interests differ. For example, a lender’s interest will be the recovery of finance and interest, which is separate to the project being completed.
A composite insured extension ensures that a works insurance policy adequately reflects the varying interests of all parties. It also provides reassurance to lenders that their financial interests are protected – including first loss payee status. In addition, a composite insured extension does not penalise lenders for any non-payment or negligence on the part of the employer or contractor who arranged the insurance – and makes sure they are informed if any party attempts to cancel the insurance mid-way through the project. The lender’s interest is not merely noted, as it is in a joint names’ extension – but fully protected against any negligence or wrongdoing by the borrower.
In summary, both joint names and composite insured are insurance policy extensions to projects under JCT contracts. Joint names extensions are for when the insured parties have undivided interests in the project. Composite insured extensions are for when one or more parties have their own interests, separate from the interests of the other parties.
No two construction projects and contracts are the same, so expert advice should always be sought to make sure all parties are protected adequately.
With the aid of Ascend and our expert knowledge within the industry, we can help with any queries you may have. We are happy to help so contact us with any issues.
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