EFFECTIVE AND EFFICIENT PROJECT MATERIAL FOR MBA,BSC, BTECH,HND,ND, SEMINARS: September 2015

THE IMPACT OF INSURANCE POLICIES TO BUILDING PROJECT CONTRACTS (A CASE STUDY OF IMO STATE, OWERRI) BY MBAIAMEZIE CASMIR 09H/0394/BT DEPARTMENT OF BUILDING TECHNOLOGY FEDERAL POLYTECHNIC NEKEDE OWERRI IMO STATE, NOVEMBER, 2011. TITLE The Impact of Insurance Policies to Building Project contracts. A project work presented to the department of building technology, Federal Polytechnic Nekede Owerri Imo State. In partial fulfillment of the requirement for the award of higher national diploma (HND) in Building Technology. Mbiamezie Casmir 09H/0394/BT APPROVAL This report has been approved by the department of building technology Federal Polytechnic Nekede Owerri, Imo State By …………………………………. …………………… Mr. Ethelbert Uwuka Date (Project Supervisor) …………………………….. …………………… Bldr H.O. Udeagwu Date Project co-coordinator ………………………. …………………… Bldr.G. C. Ukah Date Head of Department …………………………. ………………… External Examiner Date CERTIFICATION Mbiamezie Casmir is a higher National Diploma student of the Department of Building Technology Federal Polytechnic Nekede, Owerri, Imo State has satisfactorily completed the requirements for the award of higher National Diploma (HND) in Building Technology. ………………………………… Mbiamezie Casmir 09H/0394/BT DEDICATION This research work (project ) is dedicated to God Almighty for his infinite mercies, wisdom and knowledge for the fulfillment of this work and to my parents Mr. Titus Mbiamezie Late and Mrs. Helline .N. Mbiamezie. ACKNOWLEDGEMENTS I thank God immensely for my parents, brothers and sisters, friends and well wishers who in one way or the other contributed towards the successful completion of this project. Unreserved gratitude goes to my supervisor Mr. Ethelbert Uwaka for assisting me in producing this report through corrections and prompt attention to problems relating to the report attention to problems relating to the report writing. I am also grateful to my Head of Department Bldr. H.O Udeagwu, Charles .O, Bldr. Amobi etc, who has contributed a lot to my life throughout my duration in the school, God bless you all. I sincerely recognize and appreciate some dignitaries and sponsors of this great report in the person of Mr. Goodwill Asoha , Engr. .P. Igwe E.R to Ahoda East west Road construction River State, Mrs. Silas O, Mrs. Benedict Eze and Chybele communications /Business center for their good work and my colleagues in the school of environmental Design. I say thanks to you all. Mbiamezie Casmir TABLE OF CONTENTS COVER PAGE------------------------------------i TITLE------------------------------------------- ii APPROVAL-------------------------------------iii CERTIFICATION-------------------------------IV DEDICATION-----------------------------------V ACKNOWLEDGEMENT-------------------------VI TABLE OF CONTENTS-------------------------Vii LIST OF TABLE--------------------------------- xi ABSTRACTS-------------------------------------xii CHAPTER ONE 1.0 INTRODUCTION----------------------------1 1.1 Background of the study-------------1 1.2 Statement of the problems-----------2 1.3 Aims and objectives of the study----3 1.4 Significance of the study-------------4 1.5 Research questions-------------------4 1.6 Scope of study------------------------5 1.7 Limitations of the study--------------6 1.8 Definition of terms.-----------------------6 CHAPTER TWO 2.0 literature Review------------------------------9 2.1 insurance contracts.---------------------9 2.1.1 History of Insurance: Ancient Insurance Idea. ---------9 2.1.2 Evolution of Modern Insurance in Nigeria-------------14 2.2 The nature, scope of insurance---------21 2.2.1 The meaning of insurance.-------21 2.2.2 The nature of insurance----------25 2.2.3 The scope of insurance-----------28 2.3 the theory and purpose of insurance---33 2.4 classes of insurance----------------------35 2.5 types of insurance Required------------50 2.6 What is contract--------------------------64 2.7 Types of building contract.--------------69 2.8 Functions of insurance-------------------80 2.9 Design build risk and insurance.-------------84 CHAPTER THREE 3.0 RESEARCH METHODOLOGY-------------------------88 3.1 Research plan-----------------------------------88 3.1.1 Design of the study.---------------------88 3.1.2 Area of the study------------------------88 3.1.3 Population of the study-----------------89 3.1.4 Sample of the study---------------------89 3.2 Method of data analysis------------------------89 3.2.1 Sources of data collection.-------------90 3.2.2 Primary sources of data collection----90 3.2.3 Secondary sources of data collection-90 3.2.4 Instrument for data collection--------90 3.2.5 Method of data analysis.---------------91 CHAPTER FOUR 4.0 DATA PRESENTATIONS ANALYSIS AND DISCUSSION.----------------------------------------92 4.1 presentation and analysis of data------------92 4.2 Discussion of findings.-------------------101 CHAPTER FIVE 5.0 CONCLUSIONS, RECOMMENDATIONS--------102 5.1 summary of findings----------------------102 5.2 Conclusion----------------------------------103 5.3 Recommendations-------------------------103 References------------------------------ -106 Appendix ----------------------------------107 LIST OF TABLES TABLE ONE ------------------------------93 TABLE TWO------------------------------94 TABLE THRRE----------------------------95 TABLE FOUR-----------------------------95 TABLE FIVE------------------------------96 TABLE SIX-------------------------------97 TABLE SEVEN----------------------------97 TABLE EIGHT--------------------------- 98 TABLE NINE-----------------------------99 TABLE TEN-----------------------------100 ABSTRACT This study was aimed at evaluating the problems that insurance policies come in contact to building projects contract. This may be due to lack of client awareness or others involved in the building project contract and its insurance. This study will determine what impact insurance has to building project contract and what extent it covers in project contract. The study shall also determine how client be it public, individuals or institutions etc. Can insure their building and property. Using data from field survey and activity sampling, the study revealed that generally, most building project and other project contract are not insured effectively in Imo State, from the result of oral interview conducted among key players in the insurance company, this situation was attributed to the financial resources and audience attitude towards response are not okay. Therefore, the research study, that is from the questionnaires and audience response shows that people are not educated on the impact of insurance policy to the building project contract and recommended that the registered insurance company are in better position to enlighten the people on how important it is to insure their, not only property but lives and what steps to follow in doing so. CHAPTER ONE 1.0 INTRODUCTION 1.1 BACKGROUND OF THE STUDY The insurance policies to building project contract cannot be over emphasized. The term insurance is a cover used for projecting one self from the risk of a financial loss. In the construction industries, building project contract are contracts that exist and agree between the client and the contractor, therefore, this study shall go a long way to determine the extent to which insurance will cover in building project contract. The type of contract which one involves itself with can affect him/her in insuring the contract. It chose the Turkey contract system, the contractor can then insure the site, this makes his work more interesting and effective. In construction period, clients are expected to insure their property, this study also creates awareness of insurance policy to client and other bodies involved in the contract. Construction sites are inherently dangerous places. This is why construction insurance is an important policy to have if you own, run or manage a construction site. Construction insurance provides safeguards for you as an employer against your construction workers being insured on site. Construction insurance does not exempt one from maintaining a safe work place. Usually construction insurance policies only pay out if a strict set of health and safety guidelines are followed. 1.2 STATEMENT OF THE PROBLEM The building project contract in cooperation with insurance policy cannot be ignored. In the construction industries there is need for every project contract to be insured. The following points are reasoned for the study i. The non incorporation of insurance policies to building project contract. ii. The lack of client awareness to building project contract insurance. iii. The insuring of construction site iv. The insuring of building and property v. The non compensation towards failure of structures. 1.3 AIMS AND OBJECTIVE The major aim of this study is to incorporate the insurance policies to building project procurement. Objective i. To determine the level of risk in construction site that needs to be insured. ii. To analyze the building project construct insurance. iii. To ascertain the impact of insurance in building projects. iv. To determine the awareness of client with regards to insurance. 1.4 SIGNIFICANCE OF THE STUDY The significance of the study indicate that insurance policies create immeasurable awareness to building project contract especially in building project contract, insurance policy ensured that every part of the contract involved are benefited. The following list benefit in building project contract with insurance; i. The construction site ii. The owner of the size (client) iii. The general public iv. The area that need more academic pursuit 1.5 RESEARCH QUESTION i. What is insurance ii. Do insurance policies have impact on building project contract? iii. What areas do insurance policies cover in building project contract? iv. Who are involved in insurance policies? v. What factors affect insurance policy vi. Does most erected infrastructure in Nigeria undergoes insurance process. vii. Most insurance companies are they really registered or not? 1.6 SCOPE OF THE STUDY The scope of this study focus on identifying the insurance policies to building project contract. In project contract insurance policies, incorporate making sure that all activities on construction site were properly managed. This determines the extent of insurance policies towards the construction site that need to be insured. The area which the insurance policies cover in building project contract ands also some of the factors that could affect the insurance process to building project contracts. The fact that project contract needs to be insured, the client awareness towards the building project contract insurance and also the contractors are all necessary and should be determined properly. 1.7 LIMITATION OF THE STUDY This study is limited to Owerri, Imo State. The study is also limited by the constraints of time, financial resources and lack of literature materials. In spite of the above limitation and constraints, it would be hoped that the study would achieve the intended aim and objective. 1.8 DEFINITION OF TERMS INSURANCE POLICY All law lexicons define insurance policy as a contract whereby, a person called the insurer or assurer, agrees in consideration of money paid to him, called the premium, by another person called the insured or assured, to indemnify the later against loss resulting to him on the happening of certain events. POLICY The policy is the document in which is contained the terms of the contract. Source: Osborne’s Law Dictionary, 4th edition p. 178 INSURANCE Insurance is the act of purchasing a security risk, the assured, anxious to protect himself against a risk, purchases from the insurer the right to be indemnified if the risk should materialize. Source: Slater’s Mercantile Law, 14th edition by Lord Chorley and O.C.Giles CONTRACT A contract is an agreement between two or more persons enforceable at law. Source: J.O IRUKWU (1971) INSURED OR ASSURED The person who has purchased an insurance policy and is protected by it, sometimes also referred to as the assured. INSURER Insurance Company PERIL A cause of loss such as fire, earthquake and flood. Source: Risk Management Division 1st edition effective- March 2007 PREMIUM An amount of money that you pay once or regularly for an insurance policy. Sources: Oxford Advanced Learners Dictionary 6th Edition. CHAPTER TWO 2.0 LITERASTURE REVIEW 2.1 INSURANCE CONTRACTS 2.1.1 HISTORY OF INSURANCE ANCIENT INSURANCE IDEA According to Dr. (Mrs.) Felicia A. (2010), the origin of insurance dates back to ancient civilization. The evolution of insurance is not so precise that one can point out with confidence the year. The origin of insurance can be traced back to the biblical times. Thousand years before the Christian calendar precisely, the Babylonians and Hindus used contracts known as “bottomry” loans to shift the burden of risk from owner of ships and cargoes to money lenders who agreed to cancel the loan if the ship or cargo was lost during a voyage. But if the venture was successful the charges for the bottomry loan was very high including both interest and the cost of risk involved. Insurance then was being regarded as the hand made of commerce for it was with the commercial activities and the great danger of travel and trade that brought about the necessity for contract of insurance. The phoneticians, Greeks and the Romans on their own part developed agreements that correspond to written conducts used two thousand years in marine to the new world. Besides shifting risks in ancient times from one party to another, the idea of poling risks was also used in marine trade or activities. For instance the Chinese merchants divided their cargoes among several ships for perilous voyages on the rivers of ancient china for the purpose of not having any one merchant suffer loss of cargo because of one disaster. The famous storage of grains during the “seven fat years” in preparation for the “seven lean years” is adequately explained in the Bible to devote a clears recognition of the principle of community and group sharing of risks. Life insurance can also be traced to ancient civilization in Rome, where burial funds were common in those days in Greece religious organization collected and dispersed funds for burial costs of their member. Feudal guilds also included such services in their dues. All these are manifestations of insurance in the olden days. In Africa, it is worthy of note that before the introduction of the modern form of insurance there existed trading and other commercial activities without any organized insurance in the form we have it today. But there were in existence local forms of sound insurance scheme in the form of grade association town unions meetings extended family system, Osusu and other localized scheme in villages, autonomous communities and towns. These associations served as mutual insurance. The associations aided their numbers in term of weddings, burials and provided loan scheme for their members. Insurance is therefore not a new thing in Nigeria and Africa. What was absent then was the modern form of insurance as we have it today. Middle ages and merchant tar; The real origin of insurance as we know it today came from the increase in commerce during the middle ages for instance the Venetian merchants in the 15th century regulated marine insurance contract, while the hanseatic league use indemnity contract for trade with Europe and the near east, expanded the need for specialized services in the guaranteeing of financial losses in the event of navigation disaster. Anew financial specialist known as an “under writers”, therefore appeared. He under writers his name on a contract of insurance accepting marine risks. Also in the coffee house of England, other individual insurers grew up due to increased England and France supremacy in naval activities. Lloyds of London because the best known center of marine insurance in the world. Welford and Otter-Barry also indicated that fire insurance was the next in origin in 17 century. This was promoted by a desirous fire which destroyed 85% of London in 1666 and was followed by life assurance. According to available historical records marine insurance existed first and was followed by fire insurance and then the life assurance in 1750. The great fire of London in 1666 made popular the fire insurance. The scope of insurance has however been extended to cover all kinds of contingencies presently only few things exist outside the scope of insurance business. Such things outside or not covered by insurance includes gambling loss or profit due to mal-administration or due to competition, speculation and insurance of subject matters where the insured has no insurable interest. 2.1.2 EVOLUTION OF MODERN INSURANCE IN NIGERIA: J.O. IRUKWU, second edition stated that, although modern insurance started in Nigeria in the early part of the 20th century, historians and sociologists argue that what is today known as insurance was not totally alien to indigenous Nigerian culture. For before the advent of modern insurance various communities in Nigeria were believed to have operated customs which looked similar to present-day insurance for instance, the “ESUSU” system in western Nigeria was a traditional insurance custom. It was a social insurance where some members of the community agreed to pool their resources together by providing help and succor to any of them when help was directly needed. The system was wholly contributory. Only those who belonged to the groups reap from the benefits they provided in other words, each member of the ESUSU group was obliged to contributes either money on labour, as the case might be whenever the need arose to give to a member who needed it. All members of the group usually had one another’s risks. Risk under this system covered both occupational perils and other social exigencies in which a member might be involved. Through the system, an unproved wealth distribution system was achieved for the society, where the lot of the poor was better expanded the losses that a person might suffer were considerably reduced. The Esus appeared to be similar to the age grade and communed union systems of eastern Nigeria. The Igbo society for instance was traditionally organized into various groups which comprised people of the same age brackets. As members of the groups grew older, they matured into some other age grades. Each age grade has certain responsibilities, both to the society as a whole and to the individual members of the respective age grades. Whenever any member of the age grade was involved in any social event (such as marriages, funeral of parents and other social exigencies) or in any mishap, the age grade would rise in aid of such a person by donating generously, especially to provide restitution to the imperiled, members could contribute money and materials for the member so concerned. As in the rest of west Africa, modern insurance was introduced in Nigeria by British merchants at the beginning of the 20th century. This was necessitated by the increased activities of the British trading companies including the Royal Niger Company, Patterson Zochonis and Elder Dempster, who dominated commerce in Nigeria. As the volume of business of the trading companies grew the need arose for them to organize their insurance locally in the colony. For convenience, insurance companies in the united kingdom decided to grant insurance agency licenses to trading companies, expatriates and banks. Thus, the trading companies, expatriates and banks put together agency companies which began to handle the insurance of the trading companies locally. Such agencies were empowered as chief agents to issue covers and to handle claims. They were concerned mainly with marine insurance especially of export of cash crops, minerals etc. Evidently, the first of such agencies was the royal exchange assurance agency which was formed by the Africa and east trading companies. Other agencies were the Liverpool London and globe (of Patterson zochonist legal and general assurance of BEWAC) and the law union and rock. The first agency of a British company to be given to a Nigerian citizen, -Sir Mobolaji Bank-Anthony. These agencies merely organized cover for European trading companies with insurance companies in the agencies home countries. Later, the companies appointed agents in Nigeria. Again, the insurance companies gave the chief agents and Nigerian traders’ powers of attorney to secure insurance business, issue cover notes and assists in claims settlement. This was the situation until British insurance companies began to open branch offices in Nigeria. The Royal Assurance Agency was raised to a full fledged branch office of the royal exchange assurance company in 1921. In this way, till today REAN is regarded as the first insurance company in Nigeria. Almost 30 years passed before three other British insurance companies opened their branch offices in the country. The three companies were the Norwich Union Fire Insurance society now known as Gutner insurance company limited, the tobacco insurance company limited and the legal and general insurance society limited. The advent of the World War II brought a lull to trading in Europe and Africa and invariably affected the pace of the development of insurance in Nigeria between 1921 and 1949. as soon as the war ended, business picked up again and the insurance industry in Nigeria resumed its growth process. In spite of this growth trend, before Nigeria attained independence on October 1 1960, the volume of insurance business done in the country was very small. Marine insurance for instance merely consisted of produce exports since the economy and its external rested mainly on agriculture. Mortgage security was transacted mainly by expatriates. Also, fire insurance was not yet popular even as from the late 1950’s, the Nigerian government had been taking active interest in the direction of the development of insurance in Nigeria. Although foreign insurance companies were credited with the birth of modern insurance in Nigeria, their pervasive stronghold of the nation’s economy was a source of concern to the newly emerging self government in the country. In 1952, the western Nigeria government intervened by establishing its own insurance firm, African insurance company was also established. By 1959, the federal government’s interest in insurance had so increased that it formed a major subject in the federal House of Representatives which extensively considered the need for the government to explore the vast economic potential of insurance as a major income earner to the emerging independent state. At independence, however the federal government had not intervened directly and so only 4 of the 25 insurance companies in the country belonged to Nigerians. These were great Nigerian general insurance company limited and universal insurance company limited. By 1965, there were over 50 companies some of them founded by Nigerians. Between 1963 and 1975, the industry witnessed a proliferation with over 150 companies operating in the market. It was within this period that the Nigerian government decided to intervene directly in the management of insurance companies as a check on their operation. The first step was the establishment of the NICON now NICON Insurance Plc. As a follow up and in line with the provisions of the Nigerian enterprises promotion Act (1972) otherwise known as the indigenization decree, the federal government of Nigeria decided in 1975 to participate in the equity shares of 14 foreign owned insurance companies to the tune of 49 percent. And ever since then the Nigerian modern insurance market has been developing in various dimensions. 2.2 THE NATURE AND SCOPE OF INSURANCE 2.2.1 THE MEANING OF INSURANCE Dr (Mrs.) Felicia .A (2010) stated that insurance is the modern man’s means of protecting himself against losses. It is the device by which man is able to protect himself against risk. In other words, insurance is the system by which an insurance company upon the receipt of a certain amount of money from a person agrees to pay compensation or render certain services to that person, if and whenever the person suffers the kind of loss that was specified in the insurance agreement. What this means is that insurance is the means by which people can save money to take care of unforeseen dangers and accidents especially in building project contracts. When a person agrees to take insurance policy to protect himself against certain accidents, he will pay a sum of money (which is called premium) to the insurance company. Once the insurance company (called the insurer) accepts the premium from the person who intends to take insurance cover (such a person is called the insured) the insurer has thus, agreed to pay an amount of money (called claims or compensation) to the insured whenever the insured loss occurs. This agreement is usually contained in a document called policy. We often wonder how an insurer will be able to pay whenever we suffer the loss against which we had insured. An insurance company is able to pay because there were usually very many people who will insure themselves against the very same risk. At any given time, only a small proportion of such people will suffer the loss. So the insurance company is able to pay compensation to those who suffered the loss. At another time the loss may be suffered by a different set of people. Thus at any given time, the capacity of the insurer to pay claims remains as constraints as the volume of its operations. This is about the same thing that is referred to when we define insurance as the pooling of risks or the process by which an insurer protects an individual against his own losses by spreading the loss over others who have yet not suffered the loss such as death, property damages from exposure to many other risks. Apparently, insurable is the most popular and effective method of handling the above risks to which men are exposed to in everyday life. Almost everything we do carries some element of risk. Our modern living condition, social and business also contract project, activities expose us to endless risk of sustaining losses which may be small or large. Against these backdrops, the term insurance has been defined in various ways by many authors; some of these definitions cover the understated areas; - Insurance reduces the effects of uncertainties. - It is a provision made against a specific loss. - A social device which provides compensation for the effects of misfortune. - A pool of risks whereby, the insured pool their resources together in order to indemnify any one victim among them who suffer losses. - A device for exposure units to make their individual losses collectively predictable. The substance in each of the definition lies on the fact that the contribution of many is used to compensate the one among them who were affected by the misfortune insured against. By way of summary, insurance can be defined as “A scheme or mechanism whereby individuals, groups and organizations are able to transfer their risks to specialized risk carrier (insurers) for an economic price called premium”. Premiums: That is the cost of purchasing an insurance which are not fixed arbitrarily, they are usually properly calculated by insurance experts, mathematicians called actuaries. High risks usually attract high premiums. For instance if a 20 year old man is taking a life insurance policy, his premium will be much less than that of an 80 years old man who insists on taking a life insurance policy. The premium a pilot will pay much higher than that of a teacher for a life insurance policy. Finally, the insurance industry is regarded as a service industry which gives security and protection to other business enterprises. In Nigeria, organized insurance business did not stand until 1921 when the office was opened in Lagos as an agent of the royal exchange assurance London. 2.2.2 THE NATURE OF INSURANCE Dr. (Mrs) Felicia A. (2010), in her textbook proves that insurance nature is said to be of a personal contract. It is a contract between the insurer and the insured. Therefore, the insured cannot transfer or assign the benefits of the policy to a third person in the same way that the insured goods could be sold. Dr. (Mrs.) Felicia. A (2010) in her text book proves that insurance nature is said to be of a personal contract. It is against this nature that insurance is defined as a contractual arrangement in which one party (usually an insurance company) agrees to pay up to a preset amount of money to a name recipient if a specified loss occurs. Other nature of insurance is that of existence of “insurable interest”, expressing that there should be direct financial interest in the life of the insured or in the insured property while what is required for an effective insurable interest differs from property and life insurance. The information supplied for action (indemnification) must be based on “utmost good faith”. There should be the existence of an offer and acceptance because most insurance companies are cooperators and operate through agents; therefore the law of agency is involved in insurance consequences the insured the (offeror) makes an application the (offer) to the insurance company by communicating risk related faults which have been requested by the company on the basis of these facts and frequently upon further investigation, the insurer determines whether it will accept or reject the application. When this is done, a written notation called a binder is issued as evidence of the oral contract. By statute, the insurance contract must be written. The nature and location of the property and the kind of protection are clearly stated. Considerations are yet another nature of insurance business. Payment of the premium for an insurance contract is usually made in advance of the payments, however are commonly permitted so that large premiums can be spread over the length of the policy period. Capacity of minors; minors because of their statutory lack of capacity, can avoid most contracts including insurance contracts. However, most states have statues which prevent minors from avoiding contracts for health, life or disability insurance. Because of the importance of insurance to the society as well as to the insured, the business of insurance is ordinarily limited to corporations organized for that purpose. 2.2.3 THE SCOPE OF INSURANCE The scope of insurance covers areas like; Insurance’s of persons Insurance’s of property Insurance’s of liability and Insurance’s of pecuniary (Financial Loss) Insurance of person: This includes, the ordinary life insurance, insured pension business and health insurance. Life insurance is a contractual arrangement under which an insurer promises to pay an agreed amount of money to a named party upon the death of a particular person. The kinds of life insurance policies include; - Term life insurance policies - Combination policies. The additional coverage in a life insurance policy include the double indemnity coverage which provides that the insurer pays double if the insured’s death is accidental and disability coverage which provides for coverage for permanent incapacity to work due to injury or disease. It is against this background that provisions such as; - Incontestable clause - Days of grace - Lapses and reinstatement - Misrepresentation of age - Suicide - Non forfeiture options are commonly found and taken care of in life insurance policy. Insurance of property: This is an insurance intended to indemnify for harm to the insured’s such as fire, theft and windstorm. The risk which is covered by fire for instance is the direct loss to property resulting from fire, lighting strikes or removal from premises endangered by fire. Any fire insurance contracts written to cover these risks is composed of a basic or standard fire policy and one or more forms that modify the standard policy to make it apply to the specific type of property being insured. The standard policy and forms may also be modified by endorsements (also known as riders). Insurance of liability: This is a type of casualty insurance that protects the insured against claim arising from thoughts that cause personal injury or property damage to other persons for which the insured may be legally liable. Since many liability insurance claims arise from the operation of motor vehicles the scope of the liability insurance therefore covers automobile insurance. Thus, it offers protection to the insured from loss or liability in the following four major instances: 1. When the insured is liable for injury to or death of other people or for damage to the property of others resulting from the ownership, maintenance or use of the specified motor vehicle 2. when the insured must pay for the medical treatment of occupants of the insured’s car who are injured in an accident 3. When the insured’s own vehicle is damaged, destroyed or stolen and 4. When the insured is involved in an accident with a driver who is liable but is uninsured and potentially insolvent or who is a hit-and-run criminal. Liability coverage under an automobile insurance policy provides for the defense of the insured and protects against the payment of damages by the insured for negligence, ownership maintenance or use of the motor vehicle. Insurance of pecuniary: This covers the fidelity and surety bonding insurance. It is an insurance that provides coverage against financial loss caused by dishonesty, such dishonest acts would include; - Embezzlement - Failure of one person to perform a legal obligation to another such as constructing a building as promised. Contracts of fidelity insurance are often in the form of surety bonds. The insurance of pecuniary covers both the debtor and creditors and the third party such as the guarantor who promises to pay a debt if the creditor cannot collect by suit from the principal debtor. 2.3 THE THEORY AND PURPOSE OF INSURANCE John H. (1961) shows that every human being is faced with the possibility that one or more of the hazards which form part of life will sooner or later befall him and cause him some financial loss. According to that person’s position in the community, the loss may be very small or very large. If a villager’s hut is damaged by fire, he can replace it simply by gathering the necessary building material from the forest outside his door. If however, a big modern factory is damaged by fire, the cost of repairs may be immense and would involve the purchase of machinery from abroad. The maintenance of personnel during repairs, loss a profit as a result of delays in production, compensation to injured employees and other numerous responsibilities which the factory owner would be ill prepared to meet at a time when his assets are in ruins as a result of the fire. Some people may be lucky and live all their lives without suffering any serious disaster or misfortune but even these few lucky ones cannot at any one moment say with certainty that misfortune will never fall on them. Quite apart from those financial disasters which are or may not happen. There are many hazards which also entirely beyond human control. For example, the family breadwinner knows it is beyond his control to prevent death from coming his way. He knows he would die sooner or later, but he is uncertain as to when he would die. If he dies at an early age, his family would be left without someone to provide for them. Similarly, the family would suffer some financial loss should the breadwinner loss his earning power as a result of an accident. In addition to those losses just mentioned, there are several other losses which may arise as a result of damage or destruction of one’s property. A landslide, an earthquake or a crashing airplane may destroy a person’s house. A man’s motor car which he has purchased with his life’s savings may be wrecked in an accident or might get stolen. A flood or thunderstorm might ruin a family’s home. Rioters and strikers may wreck a person’s house and other properties. These and many others are the hazards which are inherent in life and the fear of the disastrous financial losses that would follow if any of these happens ha been responsible for development of insurance. The purpose of insurance is to compensate or indemnify the victim for his financial losses, insurance neither eliminate the loss nor does it undertake to stop the misfortune or disaster from happening. All it does is to help soften the blow from a purely economic view point. Thus, the fact that the breadwinner has been wise enough to have taken out a life policy would not prevent him from dying in a motor accident but the proceeds of the life policy which is payable to the dependents will help lighten their burden. 2.4 CLASSES OF INSURANCE THE COMMON CAUSES OF INSURANCE Dr. (Mrs.) Felicia A. (2010), in her edition sub section 2.1 stated that insurance can be divided into seven major categories. These categories are , Life Insurance, Fire Insurance, Casualty Insurance, Social insurance, Marine Insurance, Inland Marine Insurance and Fidelity and Surety Bonding Insurance. LIFE INSURANCE This type of insurance pays a predetermined amount of money to a beneficiary upon the death of a specified person when you take a life insurance policy. It enable you to save money for your old age when your income earning capacity may have reduced considerably even up to zero. At such a time you will be able to fall back on your life assurance policy by which the insurance company will take care of you at your old age. Life assurance is sub divided into three main types: Term assurance policy Whole life policy Endowment policy Term Assurance: Note first that assurance is used generally for all classes of insurance but traditionally standard practice restricts the use of assurance to life business and marine, while insurance is used for general, non life business. Term insurance covers the life of the insured for a specified period only. There are two basic types of term insurance, the first “level term life insurance”, requires the payment of the same premium amount. Throughout the term in return for a face value that will not change during the term. The second and less expensive type is” decreasing term life insurance”. It requires the payment of the same premium amount throughout the term in return for a face value that will steadily decrease during the term.” Decreasing term” can be used to insure that a credit instrument such as a mortgage (which steadily declines in amount) would be paid off if the primary wage earner should die. Term insurance often is sold on an individual basis with the policies having high face values, for example, to young parents who need maximum protection at the lowest price, it is also often sold to cover a relatively large number of similarly situated people each for moderate face value. For example, an employer may want to provide pure life insurance for employees at a minimum cost per person. COMBINATION INSURANCE POLICY For many years two basic combination policies exist, endowment and whole life “An endowment policy” requires the insurer to pay the beneficiariary the policy” face amount during the period of coverage (usually for 20 years or until the insured reaches retirement age). However, if the insured lives to the end of the coverage period, the owner of the policy (usually the insured) is paid the face value. The premiums are comparatively high but the necessity of having a large lump sum of money available at a set point in time (for example to buy a retirement home upon reaching age sixty-five (65) has attracted many to this type of insurance. On the other hand a child via his parents arranges for child’s deferred assurance policy or educational endowment policy. The deferred policy is the one that is effected on the life of the parents with an option date which normally coincides with the child’s eighteenths or twenty-first birthday when the child must have attained maturity. If the parent survives until the option date, the child may decide whether or not to continue with the policy. If the child dies before the age and the parent is still alive, the premium paid will be returned to the parent. Else the policy could be continued for the benefit of other dependents or as an investment. The original option date at the child’s birthday would be cancelled. CASUALTY INSURANCE Casually insurance provides coverage in a variety of specific situation in which the intentional negligent or accidental acts of others or mere chance may result in loss some of the most important types of casualty insurance include; 1. Burglary, robbery, theft and larceny insurance. Such insurance protects against losses resulting from identifiable criminal behaviour. It also protects against the mysteries disappearance of property that is, when the cause of the property’s varnishing cannot ascertained. 2. Automobile insurance: The type of insurance indemnifies for losses arising from the ownership and operation of motor vehicles. Consequently, automobile insurance offers protection to the insured from loss or liability in the following four (4) major instances. - When the insured is liable for injury to or death of other people or for damage to the property of other’s resulting from the ownership, maintenance or use of the specified motor vehicle. - When the insured must pay for the medical treatment of occupants of the insured’s car who are injured in an accident. - When the insured’s own vehicle is damaged or stolen and - When the insured is involved in an accident with a driver who is liable but is uninsured and potentially insolvent or who is a hit- and- run criminal. In most literature property insurance is discussed along with casualty insurance. This is because property insurance indemnifies for loss to the personal and real property of the insured. INLAND MARINE INSURANCE Inland marine insurance covers personal property against loss or damage cause by various perils while such property is being transported (other than on the oceans) or whenever such property is located. Problem “while the Okorie’s were on vacation and traveling by car from Nekede to Umuahia, a suit case containing more than N8000 in personal items was stolen from them, would their inland marine insurance policy with a personal property floater cover the loss?” Inland marine insurance is therefore modeled after marine insurance covering goods being transported on high seas. However, it was developed by fire insurance companies to indemnify for loss to most personal property while it is being transported across land. However, the carrier, such as the automobile, air plane or rail road car, is not covered by this insurance “inland marine”. In response to the changing needs of assureds overtime, the basic inland marine policy was altered to produce a second type called a personal property floater. This was issued to cover any and all insured’s personal property against practically and peril regardless of the location of the property. The term floater means that the protection floats with or follows the property rather have the policy written to cover all the insured’s personal property. It is also possible to contract for coverage of scheduled (specifically identified) properly such as jewelry, stamp collections, musical livestock, athletic equipment, wedding presents and photographic equipment. One can also arrange to insure a single piece of personal property such as an organization mail order dealers frequently take out a blanket policy to cover all losses including breakage and mysterious disappearance of goods shipped. Laundries and dry cleaners may take out policies covering possible losses to customers property in their possession. Such a policy is known as bailee insurance. Like others, all risk policies, personal property floaters do not cover all risk of loss. There are certain exclusions and limitations. For example, generally excluded losses are those caused by repairing wear and tear, dampness and extremes in temperature war confiscation and dishonesty of a bailee. In the problem above, the Okorie’s personal property floater would cover the loss of their stolen suitcase and all its content. FIRE INSURANCE A typical fire insurance policy indemnifies for loss or damage resulting from fire and usually smokes as well. In addition, the policy may cover loss due to special perils such as windstorm, earthquake, rain, riot, hail, civil commotion; flood etc. insurance historians trace the origin of modern fire insurance from the great fire of London which occurred in 1966. The incident in which most parts of London were devastated is believed to have influenced public acceptance of the need for fire insurance. Fire insurance offers protection “against all direct loss by fire, lighting and by removal from premises which are dangered by perils of fire”. When fire occurs owners usually attempt to salvage some of the property by removing them from the burning house. If in the process theft may not be covered by the price insurance unless a clause (called extension clause) had been inserted in the policy to cover such perils likewise is risk of damage to property by flood as a result of the water being used by fire fighters to put out the fire. In other words, when selling fire insurance, insurers usually advise potential policy holders on the necessary extension endorsements to make on their policies so as to make the policy wholly beneficial to the policy holder. One thing is however certain in fire insurance, this emphasizes on direct loss as opposes to consequential loss of fire. However a standard policy and forms may also be modified by endorsement also known as riders. These endorsements are attached to the policy and forms to provide for special and individual needs. In order to prove that a special and individual needs. In order to prove that a particular loss should be indemnified by fire insurance you need to; 1. Show that there was an actual fire (glow or burning). The mere scording or bustring of property by heats insufficient for establishing loss by fire. 2. Show that loss was caused by a “Hostile fire”, a hostile fire is stated by accident, negligence or a deliberate act or friendly fire (fire in its intended place that escape from its intended place or for other reasons becomes uncontrollable. For example, any damage caused by smoke escaping is not considered to be from a hostile fire unless the fire actually escapes from the fire place or stove. FIDELITY AND SURETY BOUNDING INSURANCE This insurance provides coverage against financial loss cause by dishonesty such dishonest acts would include embezzlement or failure of one person to perform a legal obligation to another such as constructing a building as promised. Contracts of fidelity insurance are often in the form of surety bonds. Suretyship is a contractual relation in which a third party becomes primarily liable for the debt or obligation if payment or performance becomes over. Three parties involved are; - the principal debtor: Is the party who originally owes the debt or obligation - the creditor: Is the one to whom the obligation is owed - The surety: Is the third party who promises to be liable in case of the default of the principal debtor. MARINE INSURANCE A contract of marine insurance is a contract where by the insurer undertakes to indemnify the assured in manner and to the extent thereby agreed, against marine, that is to say the losses incident to marine adventure. Marine insurance indemnifies for loss of or damage to vessels, cargoes and other property exposed to the oklest type of insurance dating back to ancient times. Maritime perils means the perils consequent on or incidental to, the navigation of the sea, that is to say, peril of the seas, fire, war, perils pirates, rovers, thieves captures seizures, restraints and detrainments of princes and people jettisons barratry and any other perils either of the like kind or which may be designated by the policy. The marine policies though common in one area of different kinds and known by different names. A voyage policy in contrast to a time policy is one in which the limits of the risk are defined by termini or places. The subject matter of the insurance being insured for a particular voyage. A time policy is one which expresses the insurance as being for a specified period of time as for twelve months commencing at noon 1st January. These two kinds of policies are contracted and dealt with under the marine insurance act under the act we have different specialized policies depending on the type of policy (Time and Voyage). These types include 1. A construction policy, sometimes known as a builder’s policy. It covers risks incidental to the vessels. 2. A port risks policy is one which covers a vessel for period whilst in port. It is a risk of a character peculiar to a port for the ordinary purpose for which a vessel is in port as distinguished from the risks of a vessel on a voyage. 3. A value policy is a policy which specifies the agreed value of the subject matter insured. In general a contract of marine insurance is deemed to be concluded when the proposal of the assured is accepted by the insurer whether the policy be then issued or not and for the purpose of showing when the proposal was accepted, reference may be made to ship or covering note on other customary memorandum of the contract. 2.5 TYPES OF INSURANCE REQUIRED According to the international risk management institute (2007) pointed out that if you are building under a full contract, the building contract should specify the types and amounts of insurance cover the main contract holds. The builder should have cover for • Accidental damage to the building (builders all risk policy or contract works insurance) • Accidental damage to adjoining property and in some cases, for personal injury(public liability) they may have cover for theft or damage to their tools Subcontractor may be covered by the main contractor’s policy. This is something the main contractor should sort out with the subcontractors but for your own peace of mind, it is good to find out who it covered for what. If the plumber causes a leak, for example when doing work in the upstairs bathroom, which damages the walls below, you need to know that the damage is covered under the main contractor’s policy. If the plumber is working independently, find out if they have cover for this type of mishap. If building under a labour only contract it is usually your responsibility to arrange the insurance you need to tell your own insurer when you are having alterations done to ensure you are covered for accidental damage to you both your house and contents while work is underway. Make sure your contents insurance covers the new appliances and fittings being installed. Under the building act 1993, most people who carryout or undertake work in building must be registered as building practitioners with the building practitioners board and are required to carry the appropriate insurance building practitioners are required to show proof of insurance when registering. There are four (4) types of insurance a registered building practitioner may require, these are • Domestic building insurance • Professional indemnity insurance • Public liability insurance • Structural defects/ builders indemnity insurance Domestic Building Insurance Domestic building insurance is required by all domestic builders who enter into domestic building contracts in which the contracts price for the building work is more than $12,000. Insurance provides important protection for building consumers, in the event that a builder does become insolvent or disappear and can’t finish the building project or fix defects. Professional indemnity insurance Professional indemnity insurance is required by the following building practitioner’s categories and classes: Building surveyor Building inspector Quantity surveyor Engineer-civil, mechanical electrical and fire safety Draft person- building design (Architectural, interior and service) Architect Professional indemnity insurance indemnifies the practitioners against legal liability resulting from any claim or claims made during the period of insurance . Public liability insurance Public liability insurance is required by the following building practitioner categories and classes Builder – Demolisher (low rise buildings, medium rise buildings and unlimited) Erector or supervisor (temporary structures) public liability insurance indemnifies the building practitioner against legal liability resulting from any claim or claims made during the period of insurance. Structural Defects/ Builders indemnity by insurance Builder’s indemnity insurance for structural defects is required by all commercial builders (unlimited) Every type of building whether residential or commercial requires its own unique insurance policy. The primary needs for insurance are to provide coverage for property damage and liability. Commercial building may also need workers compensation. There are many different kinds of building insurance and needs to be added on special featured that may need to be added on. Home owners insurance Buying insurance for your home means that you have a variety to choose from. According to all insurance info.com, there are three different kinds of home owners insurance for a standard home. The first one provides basic coverage (Ho – 1) and it covers the home owner for damage or loss under eleven different types of occurrences. According to home security information.com, this includes fire or lightening, vandalism, theft, smoke, windstorm or hail, vehicles, aircraft, an explosion, riot, glass damage or a volcano. The second and third forms are more extensive than Ho-1, which is no longer offered in a number of states. Ho-2 covers the homeowner against 17 types of damage, including freezing or plumbing discharges damage heating, damage from the A/C, falling objects, the weight of ice, sleet or snow and bursts of steam from hot water systems. Ho-3 covers even more, covering the homeowner from any event except those specifically listed. Typically, the excepted items are floods, earthquakes and hurricanes but these can be added as riders on the main insurance policy. RENTERS INSURANCE This type of insurance, Ho-4, is for tenants, it provides coverage for the same types or events as an Ho-2 for personal contents of the house or apartment, but does not include the building itself. The policy also provides additional expenses for having to live somewhere else if needed, the cost of medical payments and provides liability protection. CONDOMINIUM INSURANCE Ho-6 is for condominium owners. This policy provides coverage for everything not already covered for personal property and liability. In order to be covered properly, the condo owner will need to know what the association’s policy does not cover in order to know what they might be liable for. OLDER HOME INSURANCE An older home or one that has historic value usually cannot be insured for the actual replacement cost, says insure.com. The policy (Ho-8) provides coverage against 17 different events like an Ho-2, but will usually only pay actual cash value and not replacement value. Commercial Building Insurance There are many different types of commercial building insurance, many of them dealing with particular aspects of the commercial building. Renters says that the predominant types of commercial insurance includes property insurance, liability and workers compensation specialized insurance many include Boiler and machinery insurance, Debris removal insurance etc. WHEN TO REQUIRE PROFESSIONAL LIABILITY Professional liability insurance protects against losses that occur when a “professional” fails to practice his or her art to the usual and customary standards of the profession. Therefore, there can be risks to the state associated with errors (or allegations of errors) in the professionals work product or judgment. Professional liability may have a different meaning when it relates to insurance rather than a type of state contracts. In order to determine if you should require professional liability insurance, ask yourself 1. Is the professional licensed or certified (i.e. paramedics, attorneys, engineers etc)? 2. Will the information developed by the professional be used in a decision making process within the state that could create a liability (i.e. prepares documentation used to complete an EPA permit)? If the answer is yes to either of these questions, then professional liability insurance should be required. The types of losses that can occur under such circumstances are often excluded under general liability policies. They can be covered through separate professional liability insurance policies, also known as “errors and omissions” (E & O) liability insurance. Examples of services that would require professional liability coverage include but are not limited to: - Accountant - Cloud care workers/facilities - Appraisers - Engineers/ architects - Attorneys - Financial consultants - Auctioneers - Medical professionals - Auditors - Property managers/real estate agents - Computer/ software design - Social workers - Consultant - Teachers Because professional liabilities insurance is generally written on a claim made basis, there is a concern about coverage for later defects or design errors that may result in claims after the contract has been completed. One solution to this problem is to require the contractor to maintain the coverage for a specified period after the project has been completed or purchased an extended reporting period, other wise known as “tail coverage”. The states standard requirements for professional liability require to two year extended reporting period for all claim made policies. INSURANCE REQUIREMENTS Contractor and subcontractors shall procure and maintain until all of their obligations have been discharged, including any warranty periods under this contract are satisfied, insurance against claims for injury to persons or damage to property which may arise from hereunder by the contractor, his agents, representatives, employees or subcontractors. The insurance requirements herein are minimum requirements for this contract and in no way limit the indemnity covenants contained in this contract. The state in no way warrants that the minimum limits contained herein are sufficient to protect the contractor from liabilities that might arise out of the performance of the work under this contract by the contractor, his agents, representatives, employees or subcontractors. Contractors are free to purchase such additional insurance as may be determined necessary. A. MINIMUM SCOPE AND LIMITS OF INSURANCE contractor shall provide coverage with limits of liability not less than those stated below. An excess liability policy or umbrella liability policy may be used to meet the minimum liability requirements provided that coverage is written on a “following form” basis. 1. Commercial general liability – occurrences form policy shall include bodily injury, property broad form contractual liability and Xcu coverage. Minimum Requirements: General Aggregate $2,000,000 Products-completed Operations aggregate $1,000,000 Personal and Advertising injury $1,000,000 Each occurrence $ 1,000,000 For projects greater than $10,000,000: a. estimated project construction cost from $10,000,000 to $29,999,999 General aggregate $3,000,000 Products-completed operation Aggregate $3,000,000 Personal and advertising injury $3,000,000 Each occurrence $3,000,000 b. estimated project construction cost from $30,000,000 to $49,999,999 General aggregate $5,000,000 Products-completed operations Aggregate $5,000,000 Personal and advertising injury $5,000,000 Occurrence $5,000,000 c. estimated project construction cost from $50,000,000 to 100,000,000 General aggregate $7,000,000 Products-completed operations aggregate $7,000,000 Personal and advertising injury $7,000,000 Each occurrence $7,000,000 d. The policy shall be endorsed to include the additional insured language.” The state of Nevada shall be named as an additional insured with respect to liability arising out of the activities performed by or on behalf of the contractor, including completed operations. 2. Automobile Liability Bodily injury and property damage for any owned, hired and non-owned vehicles used in the performance of this contract. Combined single limit (CSL) $$1,000,000 a. the policy shall be endorsed to include the following additional insured language:” The state of Nevada shall be named as an additional insured with respect to liability arising out of the activities performed by or no behalf of the contractor, including automobiles owned, leased, hired or borrowed by the contractor” 3. Workers Compensation and Employers Liability Workers compensation and statutory employer’s liability Each accident $100,000 Disease-each employee $100,000 Disease-policy limit $500,000 a. Policy shall contain a waiver of subrogation against the state. b. This requirement shall not apply when a contractor or subcontractor is exempt under N.R.S and when such contractor or subcontractor waiver form. 2.6 WHAT IS A CONTRACT? Contract According to J.O Irukwu, (1971) indicate that insurance is a contract. Insurance is a contract: A contract is an agreement between two or more persons enforceable at law. As has been previously stated, the commonly accepted legal definition of insurance is that it is “ a contract whereby a person called the insurer, agrees in consideration of money paid to him, called the premium, by another person, called the assured or insured, to indemnify the latter against loss resulting to him on the happening of certain event”. It follows this definition, that an insurance being a contract. It must conform to the general rules of law relating to all contracts, in addition to those special rules of law that govern insurance transaction. For any form of contract to be valid, it must posses the following characteristics; 1. There must be an agreement between two or more persons based upon an offer made by one party followed by an unqualified acceptance of that offer by another party. 2. The contract must be for a lawful purpose and must be legal in its form. The parties must have intended to create legally binding obligations. 3. There must be either a valuable consideration or form. The term, valuable consideration, in this context means that each side must give something of value for the promise of the other. In an insurance contract, the consideration on the part of the insured is premium he pays to the insurer and the consideration on the part of the insurer is his promise to pay in the event of a loss. A gratuitous promise is not a contract and cannot ordinarily be enforced in a court of law because the prospective receiver or promise has given no consideration. But such a promise can be enforced if there is form, that is, if the agreement is under seal and is signed, sealed and delivered. 4. The parties to the contract must be legally capable of contracting, generally speaking, infants and persons of unsound mind are not capable of contracting. 5. There must be an agreement based on an equality of knowledge of all the material facts. There must be “CONSENSUS AD IDEM” which means that the minds of the parties must be in one accord. If the insured at the time of the negotiation thought he was buying a personal accident insurance and the insurer thought he was selling motor car insurance, there is no contract between the parties as their minds were not in one accord at the material time. THE POLICY The parties to an insurance contract are a. The insurer (usually an insurance company) and b. The insured or assured. In all classes of insurance, other than life, the insured is the person for whose benefit the policy is taken out. He takes the proceeds of the policy in the event of a claim. But in life assurance, there may be three parties to the contract, for example, when a creditor takes out a life policy on life of his debtor or when a wife takes out a policy on the life of the husband. In these cases, the parties to the contract would be a. The insurer, b. the person whose life is insured and c. the assured or the beneficiary under the policy. In this example the creditor or the wife. The agreement between the parties to the contract is set out in the policy of insurance. The policy is the “evidence” of the insurance contract, under which generally, the insurer in return for a monetary consideration, known as the premium, undertakes to indemnify the insured against any financial loss which he may suffer as a result of the happening of the event insured against. The liability of the insured is usually limited to the amount stated in the policy and this amount is known as the sum insured or sum assured in the case of a life or marine policy. Under no circumstance (in the absence of fraud) can the insurer be called upon to pay more than the sum assured. 2.7 TYPES OF BUILDING CONTRACT According to Bldr Hygy O. (2010), lecture hand note book stated that, in the construction of building project contract, there must be an agreement between the parties on how the payment should be made. Based on these view fact, there are some types of contract in practice that need to be noted. The following are 1. Traditional method a. lump sum b. measure and value c. cost reimbursement contracts i. cost plus percentage ii. cost plus fixed fee iii. Cost plus fluctuating fee. 2. Design and build or package deal contract 3. Management contracting 4. Design and manage contract 5. Project management contracting 6. Target cost contracts 7. Continuity contracts 8. Serial contracts 9. Term contracts TRADITIONAL METHOD This type of contract is practiced where there exists a well considered and completes project information and the client is determined not to allow the agreed work to be substantially altered. That is, the contract documents like the drawings, bill of quantities are completed with a final choice of form of contract and contract conditions coupled with coordinated project information. Under the traditional method, three principal types of contract are in use a. Lump Sum Contract This is a fixed price contract where in the contractor agrees to be responsible for the erection and completion of the job at a stated total sum. The contractor is selected on the basis of the most competitive sum which is paid in one lump only when the works are entirely completed. However, this type of contract is limited to projects whose scope and design of the works can be defined accurately in addition of tenders being invited and in which there will be subsequent variations of these works. b. Measure and Value Contracts This is a contract in advance of the contract being let, tenderers submit unit prices for each item of work necessary to construct the project once on site, a continuous measurement is taken each item of work executed by the contractors. The quantity thus arrived at for each item is then multiplied by the relevant unit price and employer pays the resultant sum of money of them. However, this type of contract is sufficiently flexible to allow for the accurate pricing of variations and the preparations of accurate in term of payments to the contractor as the works are constructed. c. Cost reimbursement contracts Cost reimbursement contract involves the payment of the item on the basis of the actual cost of the work and the tendered or negotiated plumages are added to give the total cost within the limits of the contractual arrangement which lay down strict formula for the calculation of that cost. It is also referred to as cost-plus contract in which case the contractor agrees to carry out the work on the basis that he is paid the prime or actual cost of labour, plant and material, in addition to receiving an agreed fee to cover management, over heads and profit. The various ways of affecting payment of the fee results to the following types of cost reimbursement contracts. i. cost plus percentages contracts It is used for works which cannot be defined in advance, like maintenance and repairs. It is also used where there is no time to prepare contract documents as in the case of emergency repairs to damage structures. The contracts are selected from competive tenders on the basis of the “plus” percentage which will be added to the actual cost. ii. cost plus fixed fee contracts This is used in circumstances similar to those of the cost plus percentage type of contract. But in this case, it is possible to define the works in advance and to provide tenderers with possible estimated cost. The contractor is selected from competitive tender on the basis of the “plus” lump sum fee which will be added to his actual costs. The contractor is paid the actual fee to cover overheads and profit. The fee is fixed and is based entirely on the estimated cost and the work. It does not fluctuate with variations in the contractors actual cost. iii. cost plus fluctuating, fee contracts This is a compromise between cost plus fixed fee and cost plus percentage contracts. In this case, tenderers are provided with an estimated cost of the project in which the estimate is appended a sliding scale of percentage adjusted. This scale will be applied to the lump sum plus fee which the tenderers require to be added their actual costs. The contractor is selected from competitive tenders on the basic of this “lump plus fee”. He is paid the actual cost of his work plus his fee calculated on the basis of original adjusted by the sliding scale of percentage adjustments. 2. DESIGN AND BUILDING OR PACKAGE DEAL CONTRACTS This type of contract provides an integrated approach to design and construction where the client is concerned with meeting certain minimum standards in accordance with his performance. Specification by contract. Thus the client invites number of selected contractors not only to price the work but also to design, plan and organize the contract. The client need not necessarily be restricted to negotiation but can encourage competition not only on the basis of price but also on the aesthetic qualities of the schemes put forward, contract period offered, costs-in-use etc. This method proffer advantage to contractor’s construction method, yielding a lower production costs and contracts period and eventually eliminating variations, delays and disputes. 3. MANAGEMENT CONTRACTING This is often times referred to as management fee contract and involves the contractor being limited to the activity of managing the site process. However, he may be involved in an advisory function during the design process. Essentially, the contract is appointed on a Fee basis. The managing contractor integrates his management expertise with the client’s professional consultants. So as to provide a co-ordinated approach to design and construction. The management function for the contract work is divided into packages and subleted to approved contractors who are usually selected on a competitive basis. 4. DESIGN AND MANAGEMENT CONTRACT This method blends the ingredients of design and build and that of management contracting. Basically, the client commissions a single firm to design the project and manage the work but allowing appointed specialist contractors to carry out the work. 5. PROJECT MANAGEMENT CONTRACTING Project management arrangement towards construction project delivery arises as a result of complex process associated with today’s real estate development. This development is occasioned by over changing technology and unstable economic condition. It demands the client to appoint one person to supervise the entire planning and construction operations from acquisition of the site to final completion of the development. This is more professional method of contracting where the project manager starts from the site appraisal, design, construction, completion and hand over to the maintenance or even co-ordinate the letting scale lease as appropriate to the client’s requirements. 6. TARGET COST CONTRACT The method employed on a target cost contract is similar to that used for the cost reimbursement type in that a provisional estimate of the prime cost is prepared but this time the figure is agreed as being realistic by both the contractor and client before work commence. To this sum is added the contractors fee for over heads and profit as before and the resulting figure is adopted as the target cost for the work. 7. CONTINUITY CONTRACTS On occasions where a client envisages further work beyond the immediate project, he may wish to maintain continuity of work with the same contractor. An ideal opportunity to make use of this sort of arrangement would present itself where a long term large scale house scheme is planned involving about 300 dwelling such a large contract if attempted as a single job would not only be extremely cost but also difficult to manage with any one contractor having to commit a great deal of resources to job. Alternatively the job may be awarded to three or four contracts far greater concentration and efficiency although this of course assumes that the client has the funds available to tackle the whole of the work immediately. 8. SERIAL CONTRACT A serial contract differs from a continuity contract in that at tender stage, rival contractors are informed that the successful firm will be called upon to carry out a number of future separate contracts each of which will be very similar if not identical to the original one being price. The price contained in the bills of quantities being used to value similar work on the future projects. Thus, serial is in effect a standing offer to carry out a series of projects all based on the priced bill of quantities for the first project which become the master priced document. Rates contained in the original B/Q’s can be updated to account for inflation 9. TERM CONTRACTS A term contract is a type of continuity contract which has been adopted to suit situations in a continued programme of work is required on a particular site or within a certain defined area. It is usual with government establishments like the armed forces, large scale industrial sites and oil refineries where there will be a constant need for maintenance and repairs together with small and medium scale extension and alteration work. When tendering, contractors are aware of approximate value of work based on previous work but not the actual extent of work though the successful contractor will undertake the whole work given two years. 2.8 FUNCTIONS OF INSURANCE According to Dr. (Mrs.) Felicia A. (2010) sub-section 1.4 shows that, to the average Nigerian on the street, the numerous insurance companies in our cities may well be schools where esoteric languages are used to teach and the agent that roves the street with a brief case extortionist. For over 80 years of modern insurance in Nigeria, the public impression of the industry is certainly far from positive. Consequently, the poor reception of the insurance industry in Nigeria stems from an ignorance of the functions of insurance and lack of confidence arising from the fact that insurance houses do not often pay claims with the same enthusiasm with which they collected the premiums. However, the following functions of insurance abound, I. Insurance primary role is that of public protection and security. Insurance indemnifies or compensates individual, (groups and government) policy holders for financial losses as it acts as a cushion in times of disaster, mishap or catastrophe. ii.Insurance enhance the social and economic well being of Nigeria, be it the construction sector, manufacturing sector or transport and communication, insurance has played tremendous role in their performance. In the construction sector, before a contractor is given funds to execute any sizeable contract, provide any service or purchase and supply any equipment worth millions of naira, he is requested for a performance bonds or advance payment bonds which as their names imply are insurance which protects the initial outlay of the principal by guaranteeing that the principal does not lose financially by the non-performance of the contractor. This is a form of guarantee which only insurers or banks provide in the country is returned for fee. In the manufacturing sector, a number of risks abound–fire, flood, theft and other occupational hazards associated with insurance, by its very essence contends with. Therefore, property understood, insurance is the pooling of resources of many to take care of the misfortune of the few. A prudent manufacturer takes up insurance even before the he begins to operate his business. The government realizes the danger to which citizens are exposed by the use of motor vehicle on the high way and have legislated on the issue under the 1945 motor vehicles (third party) Act. It is a criminal offence to drive a vehicle on the high way without at least a third party in Act cover. The role of insurance in the Nigerian economy cannot be completed without reference to the financial sector of the economy. Insurance is a financial activity and as fund managers reserve fund of the banks are set aside for insurance premium which are reinvested into the economy to enable them meet various obligations which a rise in the event of claims. The recent insurance decree 58, of 1991 is very specific On reverse and solvency margins of the finance houses. The service sector of the economy deserves special attention. It includes the services provided by doctors, lawyers and insurance broker’s accountant, architects, public relations practitioners, media executives, journalists and a host of others whose duties involve providing some form of professional advice, service or information to the public on which the later depends. Members of the public therefore, do not hesitate to seek redress where inadvertent but professional negligence or advice of professionals has resulted in financial losses. A medical doctor, for example may carry out a successful operation but forget a little pair of forceps in the stomach of the patient who later on as a result of damages sustained subsequently dies. The dependent of the deceased may sue for damages such mishaps now form the subject of insurance. Another example may be a client who advices his insurance brokers to increase the sum insured in his house from N25 million to N5 million. If the broker forgets and there is a loss, the client has every right to sue the insurance broker. The benefits of personal insurance in their lives constitute yet another function of insurance. What roles do insurance play in the life of a worker or business? Despite policy provision of specific execution, it provides financial compensation for loss or damage to effect whether lost or stolen in ones home or no ones person anywhere one may go. Other functions of insurance are the “Reinsurance” which provides an efficient system of risk sharing which helps in stabilizing the insurance industry. 2.9 DESIGN BUILD RISKS AND INSURANCE According to the risk management, inc.www.crisew.com (2007) stated that, design build risk and insurance curse was developed to provide an introduction to important risk management techniques and concepts for design build construction project participants. It provides a general overview of the design build construction project delivery method, including the advantages and potential disadvantages of this approach for both projects owners and the design build team. Specific attention is given to risks encountered in design build construction with an emphasis on those provisions that present unique or non traditional risk allocations. Significant attention is given to the scope of coverage contractors have for those risks in their basic insurance program as well as their professional liability insurance policies. A detailed overview of the purpose and function of contractors professional liability insurance and architects and engineers professional liability insurance is provided, including a discussion of coverage triggers, covered damages, exclusions and policy conditions to name a few. Also, Builder Risk Insurance, University of Colorado (2011), shows that builders risk insurance is a special type of property insurance which indemnifies against damaged buildings while they are under construction. Builders Risk Insurance is coverage that protects a person’s or organizations insurable interest in materials, fixtures and or equipment being used in the construction on renovation of a building or structure should those items sustain physical loss or damage from a covered causes. NECESSITY Buildings are subject to many different risks while under construction, they may catch fire, be damaged by high winds or fall victim to other force majcure, a principle of common law is that any new construction or other improvement to land becomes property of the owner of the land. The title holder-once there has been an improvement to the owner’s site, the general contractor may be responsible for any losses caused by his own negligence, but the owner is responsible for most other losses, builders risk insurance indemnifies against some of these losses coverage. Builders risk insurance usually indemnifies against losses due to fire, vandalism, lightning, wind and similar forces. It usually does not cover earthquake, flood, acts of war or intentional acts of the owner. Coverage is typically during construction period only and is intended to terminate when the work has been completed and the property is ready for use or occupancy. CHAPTER THREE 3.0 RESEARCH METHODOLOGY. This component chapter incorporates the procedure and pattern by which the research/ investigation has been carried out. 3.1 RESEARCH PLAN 3.1.1 DESIGN OF THE STUDY The design of this study is the survey research design. It is the design where data/information is accurately collected for further examination of the data through questionnaires to seek the opinion of individuals and also internet research for analysis to achieve the required goals. 3.1.2 AREA OF THE STUDY The area of the study is a case study of Imo State, precisely Owerri. The focus of the research is on the impact of insurance policies to building contracts. 3.1.3 POPULATION OF THE STUDY However, due to the nature of the projects and time constrain, the population of study comes from different field of specialist such as the insurers, the quantity surveyor the builders, the architects, the structural engineers, all are administer question of about 30. however due to the nature of the project, the population of the study was 30 people examined from different firms and sites. 3.1.4 SAMPLES OF THE STUDY This is the method used in arriving or getting the population and what was used for the study is non probability sampling method, which means that not every member in the population stands a chance of being included in the sample. In this sampling the researcher select his sampling on the basis of his understanding of the study. 3.2 METHOD OF DATA COLLECTION The method of data collection however, refers to the way in which the data are collected in the course of study. The sources and instrument of data collection includes method of data analysis are considered. 3.2.1 SOURCES OF DATA COLLECTION The source of data collection of this study is primary and secondary sources of data collection. 3.2.2.1 PRIMARY SOURCES OF DATA COLLECTION I procure information through visiting some construction firms and reaching out to some professionals in building project contract on site. Due to time constraints, the research study was limited. 3.2.1.2 SECONDARY SORCES OF DATA COLLECTION Through professional journals or seminar papers and textbooks, lecture note and internet research etc. to obtain information which tends to review the mind set of the researcher and to proof the study through its findings. 3.2.2 INSTRUMENT FOR DATA COLLECTION This refers to the means used for collection of data, the instrument used in this research work are questionnaires, literature reviews and observations which are analyzed to achieve a result. The questionnaire is an instrument for gathering data beyond the reach of the research, literature review is a written subject of other authors and research as a guide for data collection and observation as physical sight of subject to obtain the information. 3.2.3 METHOD OF DATA ANALYSIS The method in which the data collected are analyzed, using simple percentage method where by the responses obtained from respondents are converted into percentages using this formula below; Number of respondent (positive or negative) x 100 Total number of respondents 1 With the help of this formula, the responses of each of the questions, the respondents answered in the questionnaire were calculated from question to question. CHAPTER FOUR 4.0 DATA PRESENTATION ANALYSIS DISCUSSION This chapter is to present and analyze the data collected in the course of carrying out the research. Here, questions are analyzed base on the responses from the questionnaires distributed, for the data analysis; the simple percentage was used at the responses to the question. A total of thirty eight (38) questionnaires were distributed, thirty (30) were returned and used for data analysis and the remaining eight (8) were as a result of united time to reach the respondents. 4.1 PRESENTATION AND ANALYSIS OF DATA The questionnaires distributed were collected but not all were retrieved in this research work, and the data retrieved are interpreted using simple percentage. The following table presents the number and percentage returned. QUESTIONNAIRES DISTRIBUTED AND RESPONSE COLLECTED. QUESTION 1: Which fields of specialization are involved in the study? The Quantity Surveyors. The Builders The Architecture The Structural Engineers and The insurer Table one Options Yes No Response 30 _ Percentage (%) 100 _ Total 30 100 Source: Survey data 2011. This indicates that the study involved all the professionals in the various field of specialization and was all responds to the question in their best of knowledge. Question 2: Insurance, can it be seen as a legal contract whereby the insurer, for a consideration (the premium) agrees to indemnify the insured for loss from specified perils and under certain conditions? Table two Options Yes No Response 30 - Percentage % 100 - Total 30 100 Source: Survey data 2011. Here, table 2 data analysis shows that a good number of responses prove that insurance is a legal contract between two parties that agrees on one thing under considerate conditions. Question 3: Insurance policy, does it create any impact to building project contract? Table three Options Yes No Response 30 - Percentage % 100 - Total 30 100 Source: Survey data 2011. The analysis shows that insurance policy has an impact on building project contract. Question 4: How would you access the impact of insurance policy in Nigeria? Table four Options Good Very Good Fairly Good Bad Response 8 5 15 2 Percentage % 26.6 16.6 50 6.6 Total 30 100 From the table above, the analysis shows that eight (8) respondents with 26.6% said good and fifteen (15) respondent with 50% said fair good while two (2) response bad. Question 5: Who are involved in insurance policies? Table five Options The quantity surveyor’s The architect’s The structural Eng. The Brokers Response - - - 30 Percentage % - - - 100 Total 30 100 Source: Survey data 2011. Question 6: Does Insurance Policy Company indemnifies any victim person? Table six Options Yes No Response 30 - Percentage % 100 - Total 30 100 Source: Survey data 2011. From this analysis, insurance company indemnifies any victim. Question 7: What factor affects the insurance policy? Table seven. Options i. Lack of client awareness. ii.Failure in compensating any victim or person. iii.Lack of co-operation among the insurance companies iv.All the above. Responses - - - 30 Percentage % - - - 100 Total 30 100 Source: Survey data 2011. Here, the analysis of table 7 shows that all the options listed affect insurance policy. Question 8: contract is an agreement between two or more persons enforceable at law. Table eight Options Yes No Response 30 - Percentage % 100 - Total 30 100 Source: Survey data 2011. Question 9: Who buys builders risk insurance? Table Nine Options i.The agent ii.The workers iii.The insurable policy company. iv.The owner of the building Response 3 5 - 2 - 20 Percentage % 10 16.6 - 6.6 - 66.6 Total 30 100 The table above analysis indicates that, the only qualified person to buy builders risk is the owner of the building with 20 numbers of responses with respect to 66.6%. Question 10: What are the functions of insurance policy over building project contract? Table Ten Options i.To have public protection and security. ii.To indemnify or compensate any individual for a victim of destruction of the destruction. iii.To save people from financial losses. Response - - 10 - - - - - 10 - - 10 Percentage % - - 33.3 - - - - - 33.3 - - 33.3 Total 30 100 Source: Survey data 2011. All response with 33.3% indicates that insurance policy has a better role to play in our daily life activities. 4.2 DISCUSSION OF FINDINGS However, having research through different authors in their textbooks, journals, lecture notes, internet etc. and also taking a trip to some professional fields for more inquiries on the impact of insurance policy to building project contract. Thus, it is relevant to look into findings as regards to what is obtainable in the project exercise. From the data drawn in the exercise, the response to the research work shows that the respondents agreed that insurance policy have a great impact towards building project contract. However, that insurance company should not be told to create a good awareness or educating the client on the importance of insurance policy over the building project contract. In table 7, the insurance company should find means of handling those factors that many disturb them in carrying out their duties and also compensate any victim or person that insured his or her property. CHAPTER FIVE 5.0 CONCLUSION AND RECOMMENDATIONS This chapter summarizes, draws conclusion and makes recommendations. This is because without them, the entire research work would be useless and the aim of this research would not be achieved. 5.1 SUMMARY OF FINDINGS As an end to means or as an aid to actualization, that is to say since insurance policy as a contract whereby a person called the insurer or assurer, agrees in consideration of money paid to him, called the premium, by another person, called the insured or assured, to indemnify the latter against loss resulting to him on the happenings of certain events. This indicates that insurance policy (from research study) should be a necessary issue to handle in many parts of building project contract. 5.2 CONCLUSION Conclusively, irrespective of the findings in the course of this study, the impact of insurance policy to building project contract has it that every construction site, buildings of any kind, life insurance, on going project contract should be property insured so that at any point in time if there is any damages among the element mentioned above, the insurance company would pay or compensate the victims. Construction sites are inherently dangerous places. That is why construction insurance policy is very important to any one that owns, runs or manage a construction site. 5.3 RECOMMENDATION It is however clear that good number of people doesn’t buy the idea of insuring their properties, due to either financial problems or lack of knowledge towards the importance of insurance policy. In the case of research study, the researcher observed that lack of awareness to the importance of insurance policy over the building project contract is the major issue to some contractors, client or individual owners. Therefore, recommended for optimum realization hence, 1. It is important for government to pass a law mandating individual and cooperate client to provide insurance cover before project conception. 2. Prosecution of any professional that embarks on project that does not have insurance coverage. 3. Insurance cover to be part of the contract document during tendering of contracts. 4. Public awareness of importance of insurance. 5. Only registered insurance companies in Nigeria should be the liable one’s to insure any property. 6. Every owner’s of building should be able to pay his or her premium to the insurance company. 7. Infact, every element of life functionality should be insured because it is necessary to do so. 8. The construction site’s should be properly insured so that, it can claim compensation incase of any damages. REFERENCES ADEYEMO (1985) The Role of Insurance in Technological Advancement, Lagos CBN Publication Vol 9 No. Builder’s Risk Insurance, University of Colorado , retrieved 2011-03-02. Bldr H. O. Udeagwu (2011) Lecture Hand Note Book. Dr. (Mrs.) Felicia A. Anyanw.u (2002) Introduction To Insurance 1st Edition. Dr. W.A Dinsdale (1963), Element Of Insurance 3rd Edition. International Risk Management Division (2007) 1st Edition. J.O Irukwu (1971), Insurance Law And Practice In Nigeria 2nd Edition. John H. Magee (1961), General Insurance 6th Edition. Segun Bamigbeton Baju (2008), Growing New Insurance Products In Nigeria 1st Edition, Published By CSS Bookshops Limited. Types of, Building Insurance Retrieved on line: www.ehow.com. APPENDIX Federal Polytechnic Nekede, School of Environmental, design and technology, Department of building tech, Owerri, Imo State. Dear respondents, THE IMPACT OF INSURANCE POLICIES TO BUILDING PROJECT CONTRACTS. The researcher is a final year student of the above institution on a project research topic underlined above solicit for your candid response. The impact of insurance policy to projects with regards to this answering the questions in this questionnaire to the best of your knowledge. You are rest assured that your response will be considered confidential and used for the purpose of this project work. Thanks for your response. Yours sincerely, MBIAMEZIE CASMIR QUESTIONNAIRE INSTRUCTIONS: Please tick (v) against the response you consider applicable and appropriate to the questions. SECTION A 1. NAME OF ORGANIZATION/FIRM ………………………………………………………………………………………………… 2. PROFESSION OF THE RESPONDENT………………………………… 3. POST/RANK IN THE ORGANIZATION ………………………………… SECTION B 1. Which field of specialization is involved in the study? a. The quantity surveyors and builders. b. The architects and structural engineers c. The insurer. d. All of the above. 2. Insurance, can it be seen as a legal contract whereby, the insurer, for a consideration (the premium) agree to indemnify the insured for loss from specified perils and under certain conditions? a. Yes b. No 3. Does insurance policy create any impact to building project contract? a. Yes b. No 4. How would you access the impact of insurance policy in Nigeria? a. Good b. Very Good c. Fair d. Bad 5. Who are involved in insurance policy? a. The quantity surveyors and builders b. The architects and structural engineers c. The Brokers. 6. Does insurance policy company indemnifies any victim person? a. Yes . b. No 7. What factor that affect the insurance policy? a. Lack of client awareness b. Failure in compensating any victim person c. Lack of co-operation among the insurance companies. d. All of the above. 8. Contract is an agreement between two or more persons enforceable at law. a. Yes b. No 9. Why do we have to insure our building project contract? a. Because construction sites are inherently dangerous places. b. Because it provides safeguards for you as an employer against your construction workers being. c. Because it only pays out if a strict set of health and safety guidelines are followed d. All of the above. 10. What are the functions of insurance policy over building project contract? a. To have public profession and security b. To indemnifies or compensates any individual for a victim or destruction. c. To save people from financial losses d. All of the above. 11. Who buy builders risk insurance? a. The agent b. The workers c. The insurance policy d. The owner of the building

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Saturday, September 12, 2015

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