Adjudication has put insurers under pressure. So what do they do? Pass the burden of risk on to their policyholders, of course, inventing all manner of get-out clauses to make it hard for them to recover.
What were you doing in March 1998? Whatever else you were doing, you were probably wondering what was going to happen when the Housing Grants Construction and Regeneration Act came into force in May. If you were a contractor, you may have been dreaming up clever ways of amending your subcontracts to deter your subcontractors from getting too clever with adjudications. If you were an academic lawyer, you might have been joining in one of the many last-ditch attempts to stop this heresy from being introduced at all. But if you were an insurer, you were really worried.

The problem that was concentrating the minds of the insurers was the astonishing suggestion that someone with a claim against an insured party might bring in adjudication and have it resolved in 28 days instead of several years.

They were not thinking about subcontractors' claims for payment, which really did not interest them at all. Their worry was that this 28-day nonsense was going to apply to claims against architects and engineers for damages arising from defective design.

The fact that the adjudication decision was not the end of the story was no great comfort. Instead of hanging on to the money for months or years while the arbitration or litigation ran its course, insurers might have to pay out after a month and then try to get it back through other proceedings. The lucky claimant who had received the insurer's money might go bust, making it impossible for the insurer to recover.

There was not a lot that insurers could do to protect their customers from having claims made against them, but they could make life difficult for the insured by trying to pass the claims on. They turned their inventive minds to the preparation of armour-plated endorsements for policies.

These endorsements look at first glance like generous admissions by insurers that the policy would cover the insured in respect of the decisions of adjudicators. Anyone who takes the trouble to read on may find some less-than-generous clauses beneath the ubiquitous "provided always that …" that always seems to follow any suggestion that an insurer may be setting itself up for potential liability.

Typically, one of those "provided always that" clauses says that an insured party that expects its insurer to cover it, must notify the insurer within two working days of any notice of adjudication, any notice of intention to adjudicate or any referral notice.

If the recipient of an adjudication notice allows more than two working days to go past without notifying his insurer, he may find that he has no cover. But there is worse to come …

A notice of intention to adjudicate does not usually come with bells ringing and lights flashing. It is sometimes written by a solicitor or claims expert with twiddly bits saying something like "pursuant to section 108 of the Housing Grants Construction and Regeneration Act 1996". But more often it is a final sentence in a letter going on at some length about how unreasonable the recipient has been in failing to deal with the obviously legitimate claim of the writer. After three pages of fairly heated rambling, the writer says: "As you have failed to deal with this matter in a reasonable way, I have decided to ask the RIBA to appoint an adjudicator."

If the recipient allows more than two working days to go past without notifying his insurer, he may find that he has no cover.

But there is worse to come. Another typical "provided always that" clause requires the policyholder to ensure that the adjudication provisions in its contract are "no more onerous to the insured than those contained in the Scheme for Construction Contracts".

This may be rather difficult to determine. For example, the Joint Contracts Tribunal's standard adjudication procedure requires the respondent party to deliver its statement in defence within seven days from the referral of the case to the adjudicator. The scheme does not specify a time for the delivery of a statement in defence, leaving such matters to the adjudicator to decide. Which is more onerous? The adjudication procedure in a GC Works contract enables the adjudicator to award costs against a party, whereas the scheme does not. The GC Works version is clearly much more onerous to the losing party than the scheme. The ICE adjudication procedure expressly empowers the adjudicator to award compound interest – unlike the scheme. Do these differences make it impossible for the insured to recover? While insurers were dreaming up this unfriendly clause, those who amuse themselves by drafting contracts and professional retainers were having enormous fun devising adjudication provisions that were really designed to make life easier and cheaper for their clients, and therefore more difficult and "onerous" for the other party. Naturally, the objective was not to make life difficult for the contractor or consultant to recover under its insurance, but that may well prove to be the result.

Consultants and contractors taking on design responsibility should check the terms of the "adjudication endorsement" on their insurance policies. Conditions regarding notification must be respected. Any member of staff who might one day receive an adjudication notice, even one that is heavily disguised, must be aware of any such condition. Any contract containing non-standard adjudication provisions should also be checked very carefully. Even some standard institutional provisions may provide an insurer with an excuse for not paying.