Monday, April 28, 2014

Overview of Insurance Policies in Omani Construction Contracts

Over the past decade, Oman has experienced tremendous economic and infrastructural growth, and the number of construction projects has substantially risen throughout the Sultanate.

Due to construction carrying significant risks for all parties, it is of paramount importance to ensure that the risks are properly structured, apportioned and insured. One very important element in construction contracts are insurance policies that are to be carried by the Contractor throughout the life of the contract and beyond.

This article will provide a brief discussion of common insurance policies in Omani construction contracts.

Construction Insurance for Contractors is not Specified by Omani Law

Importantly, there are no provisions under Omani law requiring a Contractor to take out and maintain construction insurance. Insurance, uniquely, is a matter to be discussed and negotiated during the pre-contract phase. Nonetheless, as a matter of practice in Oman, construction contracts will invariably include insurance requirements for the Contractor.

Common Insurance Policies Carried by Contractors in Oman

Contractors in Oman are typically required to carry the following types of insurance:

  1. All Risk Insurance
    Construction contracts in Oman will almost certainly require the Contractor to take out and maintain “All Risk Insurance”. All risk insurance is intended be a “catchall” insurance policy, covering against all physical damage to the works and materials on site during the life of the project. However, whilst all risk insurance does not typically cover defects in the works, it is possible for a Contractor to obtain a policy that covers damages to other parts of the works arising from a defect.
  2. Professional Indemnity Insurance
    Contractors will often be required to carry professional indemnity insurance. Professional indemnity insurance will provide coverage arising out of professional negligence, such as, for example, faulty design by the Contractor. As such, professional indemnity insurance is especially common in “design and build” contracts.
  3. Worker’s Compensation Insurance
    Worker’s compensation insurance will typically cover the contractor against liability arising from the death or personal injury of an employee on site during the works. Whilst this insurance policy will likely be carried by a Contractor as a matter of internal policy, it is important to note that the Contractor will likely be expected to maintain Worker’s Compensation Insurance under a construction contract.
Additional Insurance Policies Carried by Contractors in Oman

One common insurance policy carried by Contractors in Oman is “Public Liability Insurance”. Further, with the recent enactment of the Oman Civil Code in August 2013, Contractors will be keen to maintain insurance relating to “Decennial Liability”.
  1. Public Liability Insurance
    Public Liability Insurance protects Contractors from liabilities arising from damages or injuries sustained by third parties. This insurance policy will run in parallel to all risk insurance, which, as outlined above, covers all damages sustained on site during operations.
  2. Decennial Liability Insurance
    Under Article 634 of the Oman Civil Code, the Contractor and Engineer “are jointly liable for a period of ten years for any total or partial collapse of the buildings or other fixed facilities…and for any defect which threatens the stability or safety of the building”. Thus, since a Contractor’s liability will survive for ten years after the delivery of the work, Contractors should strongly consider maintaining decennial liability insurance in order to protect itself from unexpected issues that may arise.