Construction

Liquidated Damages (LDs) also referred to as Liquidated and Ascertained Damages (LADs) are utilised to provide a pre-determined indemnity to principals for delays in project completion.

LDs are legally required to be a genuine pre-estimate of loss and legally cannot be punitive in nature.

Typically LDs are requested by lenders and generally reflect the debt service associated with a project. Equally, contractors often use LDs as a contractual way of capping their liabilities for consequential financial loss.

Delays for force majeure provide contractual extensions of time for Contractors and are deemed to be delay risk assumed by the employer. Some force majeure risks are obviously insurable under an advanced loss of profits policy, however it should be noted that force majeure risks of a non-damage nature are typically uninsurable in the insurance market.

Is LD insurance available and is it worth buying? Moreover, can it be acquired for non-damage delay or failure to meet performance criteria?

It is an extremely small insurance market, with Zurich being one of the recognised leaders. Typically, LD insurers like projects which have at least 30 days float for every 12 months of project period. Excesses of between 30-60 days are normally required.

Policies can be purchased either on a single project basis or as an annual facility covering all projects. Premium rates are between 5%-8% of the sum insured and the policy form will be bespoke and tailored to mirror the contractual LD provisions.

Insurance contracts are written subject to due diligence, which is performed on the adequacy of the construction programme. The due diligence costs are sometimes paid up-front by the insured and this can be up to USD50,000.

So yes you can insure your LAD exposure but:
1. You need good detailed information on your company's exposure.
2. It's not going to be cheap
3. It's not going to be a quick policy to place

If you want to know more, or want to investigate if you can insure your LAD exposures please contact me.

Give me a call to discuss further.

Andrew Harrison-Sleap