Construction insurance policies: The main things to know before starting any construction work in Cambodia

According to Article 37 of the Law on Insurance dated 4 August 2014 and the Sub-Decree No. 06 dated 22 October 2001, individual or legal entity who is the owner or the operator of a construction site in Cambodia must take out a construction liability insurance policy before starting any construction work. 

This insurance policy is mandatory in case of carrying out constructions. However, for any small-scale construction or repair, which does not require an approval of design project from a competent institution, owner and builder may seek an exemption of this obligation from Ministry of Economy and Finance. In practice, despite this legal obligation, there are still many owners and builders who operate in Cambodia without any insurance policies. In such a case, and subject to control of the competent authority, an owner or builder (i) can receive a fine which amount will be set between KHR 1,500,000 and KHR 150,000,000 (approximately between USD 375 and USD 37,500) and (ii) will have to take out the required insurance policy. In addition to these legal sanctions, the financial risk for owners and builders can be significant in case of damages caused to third parties. Indeed, we have seen in recent years a number of accidents on construction sites which have caused damages to third parties. In these instances, owners and builders will have to be responsible for the damages. This can significantly impact a construction project’s budget and profitability for both owners and builders, and even worse jeopardize the project altogether. Therefore, it is highly recommended for owners and builders to take out this insurance policy in order to be covered for such damages, injuries or losses caused to third parties. However, this insurance policy does not cover all damages, in particular the damages caused to the building and the construction during the construction period and after their completion. In such a case, if the builders or the owners want to cover these additional risks, they will have to take out additional insurance policies which can be tailored to the needs of their project. In this respect, various insurance companies propose to owners, builders and sub-contractors to take out additional insurance policies such as the contractor’s all risk insurance policy or the erection all risks insurance policy. These non-compulsory insurances policies include the mandatory civil liability insurance policy. The contractor’s all risk insurance policy is a comprehensive insurance policy which covers, during the whole duration of the construction project, losses and damages involved in the construction (damages to the property and third party injury). There is also the erection all risks insurance policy which covers the risks arising from the installation and erection of engineering project (such as power plants, electrical generators stations, cranes and more generally machinery and equipment) The cost of these additional insurance policies will depend on various factors such as the location, nature and amount of the construction project and it will generally correspond to less than 1% of the construction price of the construction project. By taking these insurance policies, owners and builders will better handle their obligations and it will help them to cover unexpected events that can happen on the worksite. Therefore, the roles of insurer brokers, consultants and lawyers will be essential in order to help their clients to choose the appropriate insurance policy to cover a construction project. Note that generally these insurance policies cover the damages which occur only until the completion of the construction project which can be extended in case of a delay. Therefore, if damages occur after the completion of the work, they will not be covered by the insurance policies except if an extension has been taken out for what is called the “maintenance period” and which term is generally between six and eighteen months after the completion of the work. In such case, the insurance policy will cover certain damages appearing during this maintenance period. In order that the insurance policy is fully effective, it is also recommended to extend it to all parties involved in the construction project in order that they all benefit from the insurance policy. These construction insurance policies are really important in case of carrying out a construction project in Cambodia as there is no legal warranty granted by the builders to the owners after the completion of the work according to the laws and regulations currently in force in Cambodia. The Royal Government of Cambodia understood the interest of protecting owners and investors and that’s why it is currently working on the drafting of a construction code which will provide owners with legal warranty granted by builders. However, as the construction code has not yet been implemented, it is only possible to cover these risks by insurance policies and contractual warranty in the construction agreement. In conclusion, it is recommended before starting any construction work to choose the appropriate insurance policy tailored for the construction project and the assistance of an insurance broker, consultant and lawyer will be in this respect very helpful.

ON THE AUTHORS Antoine FONTAINE and Charles AMAR, lawyers at Bun & Associates, advise domestic and foreign clients seeking expert advice and innovative solutions in dealing with significant and complex transactions. Their work includes advising on all issues relating to insurance, real estate, construction and development projects, labor, tax and regulatory compliance. Antoine has developed unmatched expertise in Cambodia’s insurance sector and provides comprehensive advice to multinational companies on their insurance portfolio, including regulatory and tax compliance and counseling foreign insurance companies on their market entry.

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