Insurance brokers have joined a growing chorus of criticism about new licensing rules for contractors, saying the law is likely to lead to contractors being inadequately insured.

The Association of Insurance Brokers said that the law passed earlier this month was “watered down considerably” from the initial draft and warned that its vague wording could lead to trouble further down the line.

Introduced two weeks ago, the new law requires all demolition, excavation and construction contractors to have a valid licence by 2025.

But the law has drawn criticism from developers, architects and now insurance brokers, who all say that authorities should have made insurance coverage a prerequisite for obtaining a contractors’ licence.

Instead, the new law states that contractors must take out a separate insurance policy for each project they undertake.

In its statement on Tuesday, the Association for Insurance Brokers noted that the law did not specify any minimum limits or other requirements for such insurance policies.

“This unspecified obligation leaves third parties, employees and workers on construction sites in grave difficulty in recovering damages sustained from contractors which are very likely to be inadequately insured,” the AIB said. “We also believe that since the insurance is not a pre-requisite for the licensing of a contractor, it is going to be extremely difficult to ensure compliance with this provision of the law, as enacted.”

Furthermore, the law states that insurance should cover “any loss or damage”. But insurance policies regularly include exclusions and often set a cap on cover in cases when health and safety rules have been breached. These exclusions can be removed by insurers upon request, the AIB noted, but the new law does not set out any such parameters.

Contractors should be legally obliged to take out liability insurance with a minimum third party liability limit of €1.5 million, it argued, saying further legal changes were also needed.

“Following recent incidents, the law which requires developers to have third party liability covering projects other than those where there is no adjacent third-party properties should also be amended so that the requirement applies to all projects,” it said.

The association said it was disappointed that the sector regulator, the Building and Construction Authority, had not consulted it or implemented any of the written recommendations it made.  

“The result is that there is now too much room for interpretation when it comes to insurance coverage standards,” it said.

The AIB's criticism of insurance provisions sets it at odds with many local insurance companies, which are reportedly unwilling to provide blanket all-risk insurance cover to contractors. 

On Saturday, the Public Works Ministry said that it had dropped the insurance requirement as a prerequisite for licencing following concerns by the Malta Insurance Association. 

The Chamber of Architects reacted to that by suggesting that authorities seek "alternatives to local underwriters" to solve the issue. Architects, it noted, are required to obtain insurance coverage as a prerequisite for obtaining their warrant to pratice. 

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