A significant share of industrial works happens not on bare ground but inside an installation in service. A line is replaced while the other three produce, a furnace is added next to the ones running, a new substation is connected to a live network. This case looks minor because the value of the works is modest next to a new-build project, and it is in reality one of the most dangerous in the class: the works are worth two million and the plant around them three hundred, with an operating margin running every day.
The relation between the object of the works and the object exposed is therefore inverted compared with everything this course has described so far. On a new-build project, what can be destroyed is essentially what is under construction. Here, what can be destroyed is essentially what already existed, and the works are merely the cause. A weld on a pipe, a badly maneuvered skip, a supply cut made in the wrong place can stop an entire production line, and the cost of that stoppage bears no relation to the size of the works contract that caused it.
Two policies face each other in this configuration, and each regards the other as responsible for the bulk of the risk. The operator's property policy covers the plant, but most such contracts restrict cover where works exceed a certain threshold, or attach a notification obligation to it, as the module on existing property showed. The construction policy covers the works, and it treats the plant as existing property belonging to the insured, with a sub-limited extension where it carries one. The result is that the site's most valuable asset is covered by both contracts on a secondary basis, and by neither on a primary one.
The operator's business interruption is where this configuration costs most, and it is almost always the worst handled. The construction policy does not cover a third party's business interruption, and where the works' project owner is the operator itself, it does not cover its own either, for want of object. The operator's policy does cover business interruption, but it attaches it to physical damage covered by that policy, and damage caused by works falls precisely within the cases it restricts. Two contracts, one loss, and an articulation that is only verified by reading both on the same day.
Hot work permits and intervention procedures deserve a place of their own, because they are the one point where prevention is both effective and contractually required. Hot work, welding, grinding, flame cutting, is the leading cause of fire on works in occupied sites, and the mechanics of the loss are always the same: a spark passes through an opening nobody saw, reaches combustible material in an adjacent room, and the fire breaks out one or two hours after the crews leave, when nobody is watching any more. Policies for that reason require a formal hot work permit and a fire watch after work, and breach of that procedure is one of the few conditions whose non-observance is sanctioned directly.
Lockout of energy sources is the other procedure insurance depends on without always saying so. Isolating a circuit before working on it is a personal safety requirement, well known and generally observed; but the same lockout error that injures somebody can also destroy equipment, by re-energizing an opened machine or sending fluid into a dismantled pipe. The link between the safety procedure and the property loss is not made spontaneously, because the two belong to different departments, and yet it is the same failure producing both consequences.
What must be done comes down to three checks, and they are made before the site opens because afterwards it is too late to change a contract. First read the operator's policy at the works clause: what threshold triggers the restriction, what notification is required, and within what time. Then read the construction policy's existing property extension: what amount, what conditions, and does it cover damage to the installation in service or only to the building. Finally ask the question neither contract asks: if an intervention halts production for six weeks, which contract pays that loss, and up to what limit. If the answer is neither, which happens often, it is better to know before drilling the first hole.
A paper maker replaces a dryer hood on line 2, a 1.8 million euro contract, while lines 1 and 3 produce. The construction policy carries a 3 million existing property extension for damage caused by the execution of the works. The plant's property policy, sum insured 340 million, restricts cover to named perils for areas subject to works above one million, with prior notification, given here. On June 12 a grinding operation without a formal hot work permit causes a fire that destroys the new hood, damages the roof structure above lines 1 and 3, and shuts the whole plant for forty-one days. Physical damage 9.7 million, business interruption 6.2 million. Where does this stand?
The ratio of magnitudes already says the essential: a 1.8 million contract produced 15.9 million of consequences, and that is the signature of this configuration. On physical damage, the new hood comes under the construction policy without difficulty; the roof structure above lines 1 and 3 is existing property, so the 3 million extension applies to it and is quickly exhausted. For the rest, fire is a named peril, so the plant's policy responds despite the restriction, and prior notification having been given, it cannot be raised. The reflex is to conclude that the file more or less holds. It does not, for two distinct reasons. The first is the hot work permit: its formalization is a condition of cover and not good practice, and its absence on a grinding operation is sanctioned directly, which puts the whole settlement in issue and not just a share. The second is the business interruption, which is the largest head: the construction policy does not cover business interruption, the plant's policy does but attaches it to physical damage covered by that policy, so that 6.2 million depends entirely on the hot work permit question. The non-obvious point is this: the missing document cost a foreman ten minutes, and it commands a sum nine times larger than the entire contract.
- 01The ratio is inverted: the works are worth two million, the plant around them three hundred, and what can be destroyed is essentially what already existed.
- 02Two policies pass the risk back and forth: the operator's restricts cover above a works threshold, the construction one treats the plant as sub-limited existing property.
- 03Business interruption is the heaviest and worst-handled head: the construction policy does not cover it, the operator's attaches it to damage it precisely restricts.
- 04A hot work permit is a condition of cover, not good practice: hot work is the leading cause of fire on occupied sites, and the fire breaks out after the crews leave.
- 05The same lockout error injures a person and destroys a machine: the link between safety procedure and property loss is not made, the two belonging to different departments.