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Question...

I have a company who is constructing a building in their own name. They have arranged contract works insurance, but have also asked about defective workmanship. As the building is owned by them, I advised they could not have a liability cover as they cannot hold themselves liable. They have since been advised they should form a new company and that new company could then "own" the building from construction onwards and thus their existing liability would cover them as they are not the same insured. I do not believe that the insurer would accept this as both companies would have common directors and shareholders. What is the legal stance on this?

 

Reply: Crossley Gates

In short, that sounds like a scheme to hoodwink the liability insurer. 

While each company is a separate legal entity, and therefore one of them can be liable to the other, the whole arrangement creates a false liability if both companies are effectively owned and controlled by the same people. 

One of the foundations of insurance is the honesty of all parties.



Sept 2019

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