Much has been written about Qatar’s construction market and its ever increasing order-book of projects, delivering to the 2022 ‘time-critical’ programmes and to the 2030 National Vision. Less has been published about the innovation and the complexity of these projects, the risks that they entail and particularly the importance of the insurance sector in managing these risks. Julie Tuck, Managing Associate, Dentons & Co. shares her insight on these aspects.

Innovation and Insurance:

The complexity of design and engineering in Qatar’s projects seems to know no bounds. From the air-conditioned iconic soccer stadia, to the miles of metro-tunnelling under one of the fastest developing and hottest high-rise cities in the world, the architects and engineers are stretching their technical skills to deliver the innovation that Qatar demands. 

But innovation brings risks and risks should be managed. Insurance is one of the key tools in a risk management strategy and the Qatar insurance sector has an important role to play. Now more than ever before in Qatar, there is potential for the insurance sector to work with the organisations in procuring and delivering the projects, to help them identify, allocate, manage and mitigate the risks that inevitably arise with such innovative projects. 

Insurance and Construction Contracts:

Construction projects involve many risks, most of which can and should be insured. Each party in the project carries his own particular risks, which can often be insured individually or jointly. Building contractors carry risks such as defective workmanship and materials or risks causing material damage at the construction site. There are risks of personal injury to workers or to third parties and risks of damage to neighbouring property or other property of third parties.

Once risks have been identified in a project, the building contract is the primary tool for allocating the risks and liabilities between the parties, for example:

✑ Which insurances should be taken out to cover the risks;

✑ What levels of insurance are required (including possibly the maximum levels of ‘excess’ or ‘deductibles’ under the policies);

✑ Who is responsible for putting the policies in place and paying the premiums; and

✑ How long the policies should be maintained for. 

However, bearing in mind the innovation of Qatar’s projects, it is particularly important to consider the risks and potential liabilities of the professional consultants, who are involved. 

Risks and Liabilities:

Defective Design: 

One of the key risks in a construction project and long-term viability of a structure, is defective design. If a structural defect or more seriously a collapse is due to a fault with the design or with the suitability of specified materials, then the designing architect or engineer may be professionally liable for the consequences. This risk can be covered by Professional Indemnity (PI) insurance, which covers the compensation that a designer is liable to pay if he is found to have been negligent (i.e. has failed to use the relevant professional skill and care) in preparing the design. 

Decennial Liability: 

In addition to the potential contractual liabilities which are commonly insured, Qatar as a civil law jurisdiction imposes an additional statutory liability risk that is very difficult to insure. The Civil Law of Qatar (Law No. 22 of 2004) Article 711(1) provides that contractors and designers jointly:

“… guarantee for ten years the total or partial collapse or fault in the buildings … even if the collapse or the fault has resulted from a defect in the land itself, or the employer has approved the defective buildings … and this guarantee shall cover whatever defects … which threaten its sturdiness and safety.” 

Further, under Article 715 of the same law, any clause in a contract which purports to exclude or limit this liability, will be void.

So there is a joint risk for designers and contractors regarding the ‘collapse or fault’ in a structure. From an insurance perspective, this is seen as a potential ‘no fault’ liability which, together with the inability to contractually limit the amount of the liability, makes this an extremely difficult risk to insure.

Julie Tuck/ Managing Associate, Dentons & Co.

Other professional risks: 

The success of a project relies not only on the design of the structure by the architects and engineers. Great reliance is also placed on the advice of many other consultants, for example:

✑ geotechnical reports identify sub-surface risks and dictate how piling is placed or how underground structures are carried out;

✑ project or programme managers and cost consultants provide critical professional advice, which can have a significant impact on the project delivery and viability.

Insurances mandated by Qatari Law:

To cover the inherent risks in construction and engineering, Qatar law requires certain insurances to be taken out. The Executive Regulations for Law No. (19) of 2005 (known as the ‘Engineering Law’) contain some insurance requirements for ‘engineers.’ Importantly, this term extends far more widely than the professions commonly referred to as ‘engineers’; it covers broadly almost any consultant offering professional advice in connection with a construction or an engineering project. 

To establish an International Engineering Office in Qatar, the Engineering Law requires: “an unconditional pledge ratified from the related Qatari Embassy, declaring that the office will: …insure the office, employees and engineering works implemented by the office at one of the Qatari insurance companies.” 

To establish a local engineering office in Qatar, the Engineering Law requires specific levels of insurance depending on the category of registration sought. A ‘Category A’ licence requires PI insurance of no less than QAR 500,000, whilst a ‘Category B’ and a ‘Category C’ licence each require cover of at least QAR 1,000,000 and QAR 2,000,000 respectively. 

The insurances for a local engineering office must also be taken out with one of the Qatari insurance companies and must be maintained for at least 3 years following completion of the project: “In order to guarantee the compensation for damages arising from negligence and professional errors and defects that might appear during the indicated period." This extended cover makes sense considering the point made below regarding the 'claims made' basis of PI insurance. 

In addition to these basic requirements for PI, it is common for responsible 'project clients' to require far more detailed provisions in their contracts regarding PI for their consultants.

PI insurance in contracts:

The issues listed above, which are to be considered for insurances in construction contracts apply very much to PI insurance in professional consultancy agreements. However for PI, particular attention should be given to how long the policy should be maintained for. 

PI is sometimes overlooked and believed that it is for liability rather than for loss or damage. The consultant is insured in case he is found liable for professional negligence and the cover is provided on a ‘claims made’ basis (a claim is raised against the policy in place at the time that the liability arises, not at the time that the negligent act was carried out). 

As design defects in structures typically become apparent some years after the project is completed, it is important that the insurance clauses in the contract require PI to be maintained for several years after project completion. 

A common misconception is that the consultant’s liability under the consultancy agreement is somehow automatically limited by the cover of the insurance required. This is not the case. The parties may agree in the contract to expressly link the liability cap to the insurance cover; but if they don’t do this, the liability could well be far higher than the required insurance.

Insurance brokers and advisers:

If liability arises, the insured consultant may be indemnified under the policy taken out to comply with the contract. However, if the consultant’s liability is not covered, or not covered in full, (either because the liability is above the amount of the required policy cover; or different to the kind of risk covered by the policy) then the consultant will need to meet that ‘excess liability’ from his own pocket. 

Consultants would therefore be well advised to take advice from brokers, insurance advisers and lawyers to know:

✑ What legal and liability risks arise for their business under the contracts they are entering into; and

✑ Whether the insurances taken out to comply with the contracts are sufficient to cover these risks.

Where it is identified that the risks to the consultant exceeds the insurance cover required in the contract, the consultant should consider taking out additional insurance for his own benefit, to cover the ‘excess’ risk. It is particularly important to remember this point when considering the types of liability which can arise under Qatar law and which cannot be limited in the contract.

The insurance industry has wide international expertise and experience of the risks with innovative and complex construction and engineering projects. Standard and bespoke insurance products (such as ‘project’ or ‘inherent defect’ policies) can be procured to help manage risks in major projects like the ones facing Qatar today. There are great opportunities for the insurance sector to help Qatar achieve its vision for 2022, 2030 and beyond.