We see large number of Warranties and Clauses in Project Insurance Policies. Wordings of these Warranties and Clauses are brilliantly drafted and if implemented are excellent Risk Management steps to minimize project risks.

Then, what is the problem?

Warranty is a promise made by the insured to the insurer and if the insured breaches that promise, insurer has a right to void that contract.

When does the insurer know whether there is a breach of promise? Normally at the time of claim. Hence claim will be in jeopardy.

When does the insured know that he made a promise? Again, at the time of claim when the insurer mentions the same. This promise is a part of the policy, but no insured reads the policy.

If insured never knew of the promise, how is he going to implement the great risk management suggestions inbuilt in the promise?

Any Project insurance has many such warranties and clauses and difficult to discuss in this blog but let’s take an example of one Warranty called “Section Warranty” used in Road Construction. It reads as:

“It is agreed and understood that otherwise subject to the terms, exclusions, provisions and conditions contained in the Policy or endorsed thereon, the Insurers shall only indemnify the Insured for loss, damage or liability directly or indirectly caused to road works if these road works are constructed in sections not exceeding in total the length stated below, irrespective of the state of completion of the insured works, and the indemnification for any one loss event shall be limited to the cost of repair of such sections.

Maximum length of section: 1000 metres; Maximum Number of Sections: 3”

Please note 1000 meters and 3 number of sections were added by me and these are underwriting calls and vary from project to project.

Blog by Atmaram Cheruvu