Water: A Hidden Risk for Contractors and Insurers

Hazards and risks are a fact of life in construction and a lot of attention is paid to managing them and mitigating damage and loss. The industry is particularly mindful of the peril of fire, however the majority of insurance claims are actually for water damage – the frequency and magnitude of which have been increasing steadily over the years.

Since buildings are a work in progress where one area of construction, such as a failed central heating system, can cause large-scale problems in a product that has to be handed over to the client as a 100% new structure, water is a particularly significant problem for the construction sector.  And water damage on construction sites is also costing insurers a lot of money. Industry figures indicate that around two-thirds of claims for damage to contract works are related to water – whether from burst water pipes, faulty sprinkler systems, malicious actions, heavy rainfall or floods.

Good Guidance

Up until fairly recently, the emphasis in the insurance community remained on preventing construction damage and losses arising from fire, due to its tendency to threaten lives and cause catastrophic losses. As a result, the Joint Code of Practice on the Protection from Fire of Construction Sites and Buildings Undergoing Renovation was published in 1992. In the five years that followed, there were no fires that exceeded £1m in losses and, although this figure has been surpassed of late, the Code of Practice certainly reduced the incidence of fire on construction sites significantly.

Subsequently, the UK’s CAR Underwriting group, together with the Construction Insurance Risk and Engineers Group (CIREG), produced a Guidance Note on the Avoidance of Water Damage on Construction Sites, now in its third edition.  Intended for projects during their design and construction stage as well as for ongoing construction projects, the guidance note draws on insurance and construction industry experience and offers practical solutions for avoiding water damage in the areas of project management, subcontractor appointment, quality control and mitigation.

What’s clear is that water damage can begin as a minor irritation which, if left untended, may result in severe consequences. Fortunately, as the Guidance Note explains, there is great scope for improving the risk of water damage with relatively little additional effort:

• Carrying out a risk assessment against the risk of water specifically, including preparation of a water management plan that defines procedures and responsibilities for preventing damage, as well as measures to be taken when water damage does occur. 
• Water pipes commonly burst and it is not unheard of for sprinkler tests to go awry, causing substantial damage. Contractors should clearly identify and mark out water sources and shut-off valves onsite and all site personnel should know how and where to turn off the water supply.
• Training security guards to ensure that they are aware of the procedures for shutting off water supplies, are able to identify the risk of leaks or water ingress, and know what to do if water damage occurs.
• Early notification of claims means that loss adjusters can advise on how to prevent further losses and also provide valuable assistance in mitigating a loss through the use of experts who are skilled in the controlled drying out of buildings, and/or avoiding wholesale rebuilding with a controlled approach to tackling only those areas that require repair. 
• Many claims relate to a series of water incidents due to a single initial problem, such as defective workmanship in installing pipe joints or defective temporary weatherproofing. Contractors should be made aware of the importance, not just of fixing the damage stemming from the first incident, but making sure that there are no further incidents. 
• Finally, it is important that appropriate records of construction are kept and any evidence of what has gone wrong is preserved.  

History has shown that application of the Joint Code of Practice on the Protection from Fire significantly decreased the risks related to this peril.  Water damage is as serious an issue – for contractors and underwriters alike. Organisations and individuals must be able to assess the risks and deal with the causes of water related incidents and also know how to take steps to mitigate the effects in order to avoid ongoing damage and large losses.

The Guidance Note on the Avoidance of Water Damage on Construction Sites is a very good start and, if it proves to be as useful as the Joint Code of Practice on the Protection from Fire, it will have done the construction industry – and the insurance community – a great service.