Building on insurance industry’s solid foundation
In the last 24 months, more than 15 cases of collapsed building have been reported across the country with high human casualties. In Abuja, Cross River, Kwara, Lagos and Osun states, the story is the same: sudden collapse of buildings either under construction or renovation. In certain cases, more floors were being added to the existing floors (possibly without appropriate approvals) and without consideration for the structural strength or quality of the initial foundation.
For instance, in December 2015, a church building collapsed in Calabar during worship session in which over 50 died while the state Governor, Udom Emmanuel, who was one of the worshippers, narrowly escaped death. In response, the government set up an inquiry. In the same Calabar, part of the U.J. Esuene Stadium collapsed, luckily without casualties. The stadium was one of the facilities initially scheduled to be used for the National Festival but was subsequently abandoned. Still in 2015, a guest house under construction collapsed inside the premises of Synagogue Church of All Nations in Ikotun, Lagos, killing over 120 people, many of whom were South Africans. The government initiated a Coroner’s Inquest while judicial trials have commenced against those whom prima facie cases were established.
Early last year, Lekki Gardens’ five-Storey building collapsed in which over 35 people died and several others were injured. In addition to the loss of precious lives, huge investments were lost with negative impact on the real estate industry. The case against its owners is still in court while integrity tests were subsequently ordered for many of the houses in the high-brow estate by the Lagos State government. In the last one or two months in Lagos, several cases of collapsed buildings have been reported: the three-storey Ilasamaja building; a three-storey building near Alaba International Market, Ojoo; the one-storey Meiran building, Abule-Egba; the four-storey building on Lagos Island (which was attributed by eye witnesses to the mounting of a huge telecommunication mask on the weak edifice, etc. All these recorded several deaths.
The regularity of occurrence, huge loss of human lives and property as well as the adverse impact of these incidents call for serious introspection and greater care by landlords, property developers, professionals and regulatory agencies in the building industry. It is time for more regulatory activism in this sector. The weight of the law should be brought to bear on culprits of non-compliance with laws, regulations and standards. It is time for greater premium to be attached to the lives of Nigerians.
Although there are laws on how approvals should be sought and obtained for various categories of property in different parts of the country, it is not certain if the developments of such property receive the appropriate approvals. While the issue of approvals and professional supervision, in Lagos State, are within the purview of the Lagos State Urban and Regional Planning and Development Agencies (LSURPDA) and the Nigerian Society of Engineers, respectively, the thrust of this write-up is to apprise property developers, landlords and other investors in the estate business of the importance of building and construction insurance in mitigating losses.
Building constructions are usually carried out by contractors who are engaged by landowners or developers. In certain cases, direct labour are used by land owners. Notwithstanding the approach adopted, it is common knowledge that several risky activities take place in building sites. For instance, earth moving equipment, concrete mixers, iron benders, carpenters, bricklayers, masons, civil engineers, etc, all play their part in the building processes. These activities involve a lot of risks: people can be injured, equipment can be damaged and the structure under construction can cave in or even collapse completely. In certain cases, the materials procured for the execution of the project may be destroyed by fire, stolen by thieves, damaged by nature (for instance, rain storm, flood), and so on. These risks, as much as possible, need to be hedged against by the contractor, to protect his employees, to protect the organisation against third party injuries/damages.
Contractors and all persons engaged in building activities must comply with safety standards required in construction sites set by regulators of the industry. A “Person” according to the LSURPDA Act 2010 means “an applicant for or holder of development permit under this Law and includes for the avoidance of doubt, an owner, his servant or agent, consultants, an independent contractor or a builder or a corporate or an unincorporated body registered under the relevant Acts”. In other words, all stakeholders in the building sector are required to comply with these standards.
Irrespective of the fact that these safety standards are perceived as very high by a school of thought, they should, in the public interest, be treated as minimum requirements. For instance, besides screening the site away from passers-by, the employees and all who visit the sites are required to wear protective helmets, boots and nose protectors. The latter is particularly important for employees who work in the cement silos where they inhale a lot of cement particles, which are known to cause asthma, and other breathe-related diseases.
Despite these safety standards, accidents still occur in construction sites particularly because operators of equipment and labourers need to move and transport materials from place to place as the phases of the construction work are carried out.
Except the contractor is protected through insurance cover, his business might be run aground, if the damage is very significant, with pervasive social impact. Here lies the need for contractors to procure insurance products that will insulate them from the financial burden of any accident, no matter how it is caused. The contractor can resolve to have any of the following categories of insurance: Contractors’ all risk insurance and /or Building in course of Erection All Risk Insurance.
This policy covers almost all the risks, associated with construction, which a contractor is likely to face on the site. It is an all-inclusive insurance policy which covers every aspect of civil construction projects including, the engineering and structural works, the temporary buildings erected in the site, the working tools, existing properties of the principal, materials meant for the contract, etc. It is therefore a good product for such projects as residential/commercial buildings, theatres, factory sheds, warehouses, roads, bridges, dams, reservoirs, tunnels, gas and oil pipelines, water and sewage disposal works, etc. It provides cover for fire and allied perils, storm, flood, cyclones, tempest, collapse, water damage for wet risks, etc. It also provides cover to third party liabilities in respect of death, bodily injury to persons and damage to third party property. This is the insurance policy statutorily required to be procured by contractors by the Lagos State Urban and Regional Planning and Development Agencies Act, 2010.
According to Section 48 (1-2) of this LSURPDA Act, “A developer or owner of a construction involving a structure of more than two (2) floors shall at the time of submitting his application to commence building works to the Building Control Agency submit a General Contractors All Risk Insurance Policy Certificate. An owner or occupier of a building shall within thirty (30) days of service of demand notice, produce the Certificate of Insurance to the Building Control Agency for verification and on an annual basis.
The premium payable depends on the nature of the construction work and the construction period of the project. In many cases, it is possible to extend the policy to cover other areas such as storage risks at fabrication sites, breakages of glasses, clearance and removal of debris, surrounding property and excavation.
However, irrespective of the cover and extensions offered, safety standards cannot be compromised. In other words, the fact that this insurance product has been procured does not mean that the contractor would not meet the safety standards prescribed by law and regulations for the industry. The existence of those minimum standards is a precondition for the procurement of the policy, otherwise, the insurer will be reluctant to provide the required cover or would do so at a higher premium. This explains, for instance, why many construction sites are fenced off to prevent pedestrians from malingering around the project site. In spite its wide scope of coverage, there are often exclusions to this policy. It is therefore advisable and indeed, expedient, to seek the opinion of an experienced professional insurance broker, before deciding to procure the policy, so that the insured can obtain maximum value at least cost.
A property under construction can be insured under Erection All-Risks Insurance policy. This product is particularly important because it protects the contractor from financial losses that may arise from any unforeseen damage to the structure under construction. In other words, this policy provides compensation to the insured for any sudden and unforeseen loss or damage at the erection site as a result of material damage to the insured property, damage to the existing property of the principal, damage to plant and machinery of the contractor at the site, insured’s liability to third parties (death, bodily injury and loss or damage to properties) consequent upon the happening of an event at the erection site and employees’ personal effects, if required.
When the unexpected happens, the insurer will redeem its promise to indemnify the insured against any loss. Given its resilience and renewed responsiveness to stakeholders’ needs, there is no doubt that the insurance industry could have provided succour to the affected companies and families whose building structures collapsed if they were insured as statutorily required. It is therefore expedient, that fledgling property developers, landlords and construction companies take advantage of this product to minimise their risk exposure and possible losses. There is evidence that major construction companies are already complying with this. This call is therefore for the young and upcoming property developers.
In line with legislation, Insurance for buildings with more than two floors is compulsory from the construction stage. According to Section 64, Subsections 1 and 2 of the Insurance Act, 2003, “No person shall cause to be constructed any building of more than two floors without insuring with a registered insurer his liability in respect of construction risks caused by his negligence or the negligence of his servants, agents or consultants which may result in bodily injury or loss of life to or damage to property of any workman on the site or of any member of the Public. The duty to insure shall arise when a building is under construction”. Any person who contravenes the provision commits an offence and on conviction, shall be liable to a fine of N250,000 or imprisonment for three years or both. To further reinforce the provision of the Insurance Act, Section 75 of the Lagos State Urban and Regional Planning and Development Act 2010 has a long list of penalties for contravention of the building regulations and laws as well as failure to insure.
Since these penalties for non-compliance may not appear stiff enough to serve as deterrence, Section 74 of the aforementioned Lagos State Act further provides that, “in the event of the collapse of any property or structure due to negligence on the part of the owner, or the developer, such property shall be forfeited to the state Government after due investigation and or publication in the State Official Gazette”. Above all, the stigma of conviction will have negative impact on the affected entity’s corporate image and clients’ patronage.
Given this express provision of the law for the insurance of buildings of more than two floors, there is no question of a building collapsing without the insurance industry coming to the rescue of the stakeholders. The key issue is whether the affected persons complied with the law abinitio by taking out a policy and paying the required premium. As part of the investigations being carried out by the government into the building collapse saga, it would be necessary to ascertain if the property developers and owners of these collapsed buildings complied with these provisions of the Insurance law and Lagos State Urban and Regional Planning and Development Agencies’ Act. Given the high human traffic expected at public buildings, Section 65(1) of the Insurance Act, 2003 provides that every public building shall be insured with a registered insurer against the hazards of collapse, fire, earthquake, storm and flood. Public building, in this section, includes a tenement house, hostel, a building occupied by a tenant, lodger or licensee and any building to which members of the public have access for the purpose of obtaining education and or medical service, or for the purpose of recreation or transaction of business. The simple interpretation of this provision is that all houses, after construction, should be insured against damage or collapse. In fact, Section 48 (3) of the LSURPDA Act, 2010 provides that, “an owner of a building or structure existing and in use before the commencement of this Law shall within three (3) months of its commencement submit the Certificate of Insurance to the Building Control Agency for verification”. From experience, this section of the law is observed largely in the breach. Yet, its intent is to protect the inhabitants and users of such property. There is need to create awareness about the benefits of this provision of the insurance law.
The ordinary meaning of the word “collapse”, is for a building structure to completely fall down. According to the New 7th Edition of Oxford Advanced Leaner’s Dictionary, the collapse of a building means, “to fall down or fall-in suddenly, often after breaking apart”. This is in tandem with the traditional insurance meaning of building collapse in law which is, “the sudden falling-in, loss of shape or flattening into a mass of rubble” of a building. As a dynamic concept, the definition of building collapse has been broadened over time. The definition now includes the dilapidation of a building in such a manner that it is no longer usable or inhabitable. In many jurisdictions, the courts no longer require that the building completely falls to the ground for it to be regarded as collapsed. With a great deal of damage, building collapse coverage can now be triggered. Some courts have actually expanded the traditional definition to include “substantial impairment of the structural integrity” of a building. Incidentally, there is no common law definition of “structural integrity”.
In view of this gap in law, the courts have adopted “broad view” on the amount and type of damage necessary to trigger coverage. While some courts, according to Alan R. Miller of the law firm of Robinson and Kaplan, would actually require caving or falling in before they will find a building’s structural integrity to be impaired, others require only a danger of collapse, or, in a few cases, a slim possibility of collapse. Additionally, they may or may not require that the damage occur or be likely to occur suddenly.
Irrespective of how collapse is defined, the trust of a property insurance policy is to provide protection to the owners and third parties in the event of building collapse which, in this case, includes falling down, fall into disuse or being uninhabitable due to distress or threat of falling down. Inability to use the property due to distress amounts clearly, in my view, to constructive collapse. To wait for a complete falling down before accepting a building collapse, will unwitting expose everyone to avoidable risks and also negate the thrust of the policy, which is to mitigate disaster. To avoid ambiguity and problem of interpretation, each policy must clearly define what collapse is and the applicable exclusions. The potential client must be specially educated to avoid a feeling of “product deception” when the incident occurs.
The benefits of property insurance policy are enormous. The asset of the property owner will be restored to the state it was before the occurrence of the incident. Third parties affected by the collapse will also be compensated in line with the terms and conditions of the policy. The contractor’s business will remain a going concern. These benefits are however contingent on their compliance with building codes, legislation and professional cum industry standards.
The spate of building collapses in Nigeria and the attendant losses of lives and property are avoidable. Property developers and contractors must learn to comply with building laws and regulations as well as engage professionals in the building industry to scrupulously supervise the projects. The role of insurance is to provide protection and recompense stakeholders in the event of a disaster, like building collapse, occurring. Irrespective of precautions taken, the risk of an accident exists at all times in construction sites. Here lies the propriety of insurance as it would help to mitigate the risks and compensate the insured in the event of the occurrence of the incident insured against. The point must be stressed that the procurement of an insurance policy as advocated is not a substitute for non-compliance with industry laws, regulations and standards. Insurance claims will most likely fail, if these regulations and standards are breached. It is therefore important for players in the building and construction industry, and in particular, the fledgling entities, to strive at all costs to comply with set standards and regulations. Compliance can then be reinforced with insurance policies. Nothing is too much to protect human lives.
Babington-Ashaye is the president/chairman of Council, Chartered Insurance Institute of Nigeria.
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