There has been a growing of the so-called “tenders mafia” extorting money from construction companies operating around Umlazi in KwaZulu-Natal. It is alleged that the group has threatened to bring construction sites to a standstill if their demands for jobs and a considerable slice of the contract profits aren’t met.

Unfortunately this type of situation is becoming an increasingly common occurrence in the construction industry, and it seems that contractors are finding themselves with less support from an insurance perspective.

The South African Special Risks Insurance Association (SASRIA), in particular, does not cover loss of income without physical loss or damage to the construction project. Insurers’ appetite for risks related to project standstill caused by riot, strike and lock-out without physical damage have also decreased in the face of rising claims year-on-year. As a result, this type of risk has been rendered almost un-insurable.

In the case of Umlazi, it is reported that a number of contractors were complying with the group’s demands in an attempt to coexist. Without predicting the outcome of this narrative, this sort of conduct still has a significant knock-on effect on the contractor’s existing insurance.

Companies need to be well aware that exercising all reasonable care to prevent any injury, disease, illness or damage in the selection, employment and supervision of all employees, is a condition of their insurance. Careful consideration must be given when employing local labor to make sure this condition is met. The counter-effect could render claims voidable resulting from unskilled labor. But what about corrupt actions, employment and behaviors?

Firstly, insurance policies do not cover loss or damage resulting from fraudulent acts. Construction insurance is designed to cover multiple parties, all with a vested interest to perform the work laid out in the contract. As a result, the insured comprises more than one insured party, each operating as a separate and distinct entity. This means that cover applies in the same manner and to the same extent as any individual policies issued to each party contracted.

Theoretically, if any one of these parties ‘contributes’ profits to the ‘tenders mafia’ and other contracting parties are being intimidated by means of riot, strikes or other violent means, the insurance will certainly refuse to pay for damages to any of the parties.

If damages are sustained through riot and strike actions resulting from such activities, SASRIA cover may also be forfeited. The SASRIA coupon incorporates the terms, conditions, exceptions and exclusions of the underlying policy, which would certainly contain the exclusion regarding circumstances of fraud, material misrepresentation, material non-disclosure or breach of any warranty or condition.[/cs_text][/cs_column][/cs_row][/cs_section][/cs_content]