Principal Supplied Items - Beware!

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Principal supplied items are materials, fixtures, or equipment that are supplied by the project owner, rather than the contractor or builder. These items may be purchased or supplied by the owner and installed by the contractor during the construction process. Examples of principal supplied items may include lighting fixtures, plumbing fixtures, joinery, cabinetry, appliances, and other types of equipment that are necessary for the completion of the project.

In an annual construction insurance policy, coverage for principal supplied items typically includes protection against damage, loss, or theft of these items. The policy may also cover the cost of replacing or repairing the principal supplied items if they are damaged or lost during the construction process.

It's important to note that the specific details of coverage for principal supplied items may vary depending on the insurance provider and the terms of the policy. If you are a project owner or a contractor involved in a construction project, it's important to carefully review the insurance policy and discuss any questions or concerns with your broker.

Mecon Insurance has written the following case study to explain this further.

Background:

A commercial electrician who held an annual construction policy covering both material damage and public liability with a limit of $200,000 any one contract, based on an annual turnover of $1,000,000 per year. The electrician was contracted to install two substantial transformers supplied by the principal. The contract value was within the policy limit of $200,000. The policy had an automatic 10% (of contract value) limit for principal supplied materials (so a maximum limit of $20,000 would apply).

What Happened:

During the installation work on site, both transformers were totally destroyed in a catastrophic flood. The value of each transformer supplied by the principal was $1,000,000!

Outcome:

The $20,000 limit for principal supplied materials under the annual policy was totally inadequate to cover the value of the transformers. Also, the policy was one of average which compounded the under insurance factor even further. The (standard) contract made the contractor liable for the replacement value of the transformers. The client did not inform the broker of the value of the transformers, nor of their obligation under contract.