Industrial actions, such as strikes, walk-offs, and blockades orchestrated by the Construction, Forestry, Maritime, Mining and Energy Union (CFMEU) and other unions, are generally not covered under most insurance policies. However, these actions can still have a significant impact on the coverage provided to various project participants under construction insurance policies.
Contractors and other project participants affected by industrial actions may face substantial impacts that change their project's insurable risk profile.
Industry feedback suggests that the affected parties are often not fully aware of the insurance implications of industrial actions or the immediate steps needed to ensure they remain fully protected.
This article explores some of the critical insurable risk implications for project participants resulting from industrial actions and offers ways to better manage these evolving risks.
Key issues to consider
Site abandonment and project delays
Site abandonment and project delays are significant risks associated with industrial actions. When workers strike or block access to a site, projects can be halted indefinitely, leading to abandonment.
Most construction insurance policies contain clauses that limit the duration a site can remain inactive without jeopardising coverage. For instance, if a site is left unattended for an extended period, insurers may reduce or withdraw coverage. Additionally, these policies often set a maximum construction period within which the project must be completed.
Delays caused by industrial actions can lead to exceeding these timeframes, potentially resulting in a lapse in coverage. Insurers may also require immediate notification of such events and specific actions, such as securing the site, to maintain coverage.
Cost escalation
Industrial actions can cause unexpected increases in project costs. For example, strikes can delay material deliveries, increase labour costs, or force contractors to hire additional, potentially more expensive, labour to meet deadlines.
While construction insurance policies typically include provisions for cost escalation and inflation, these are usually capped and may not fully cover the extended financial burden caused by prolonged industrial disputes. The caps on escalation cover are often based on anticipated inflation rates or predefined percentages, which may not account for the sudden and substantial cost increases that can occur during industrial actions. This shortfall can leave project participants underinsured and financially vulnerable.
Supply chain disruptions (Off-site Fabrication, Storage, and Transit)
The pandemic has already highlighted vulnerabilities in global supply chains, affecting the availability and cost of construction materials. Industrial actions can further disrupt these supply chains, especially when they involve key suppliers or transportation routes. For instance, strikes at fabrication plants can halt the production of essential components, while blockades can prevent the transport of materials to construction sites.
Construction insurance policies typically have coverage limits for materials in transit and those stored off-site, known as off-site fabrication and storage coverage. These limits are often based on standard risk assessments that may not account for the heightened risks during industrial disputes.
Additionally, delays in material delivery or storage issues can lead to increased costs or project delays, which may not be fully covered under existing insurance provisions.
Next steps for project participants
To mitigate these risks, project participants should be fully aware of the limitations and notification obligations within their construction policies. It's crucial to identify any coverage gaps resulting from industrial actions and negotiate changes with insurers to close these gaps.
Other actions to consider
Assess changing "Insurable" risks: evaluate how industrial actions alter the risk profile of your project.
Understand policy conditions: be clear on the notification requirements and conditions of your insurance policies.
Identify coverage gaps: determine necessary changes to coverages, limits, and sub-limits in your policies.
Negotiate with insurers: present a well-documented case to insurers to secure favourable coverage and pricing.
Key project participants should fully understand the evolving insurable risks and ensure their insurance policies are as comprehensive as possible. Engaging construction insurance specialists who understand the unique risks of your projects is crucial. Additionally, it is important to place your policies with financially stable insurers familiar with the construction industry in Australia and capable of providing flexibility in response to these challenges.
For more information, contact your Lockton representative.
The contents of this publication are provided for general information only. Lockton arranges the insurance and is not the insurer. While the content contributors have taken reasonable care in compiling the information presented, we do not warrant that the information is correct. It is not intended to be interpreted as advice on which you should rely and may not necessarily be suitable for you. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication.