These days you can have insurance for anything and everything and it seems to be one of the necessary evils of modern life. But when it comes to a new build or renovation project, one of the necessary costs to include in your budget is construction insurance (also commonly known as contract works insurance).
Very often, organising insurance is left to the last minute or even until after the work has started. But organising coverage needs to be a priority before any work gets underway. This month we are going to look at what contract works insurance is and why it is an important part of your project planning and how it can protect you during your construction project.
Unfortunately, many things can go wrong on a building project, and all construction work no matter how small or simple contains an element of risk. From the excavation and foundation stage to the construction itself, some of the risks common to all construction works can include:
- Construction collapse
- Natural disaster – earthquake, flooding, storm
- Defective design, workmanship or materials
- Damage or loss by a third party
You need construction insurance if you are:
- Undertaking a new build
- Renovating your home but continuing to occupy the home
- Renovating a house where the house is unoccupied.
It is also important to know that your bank may want an insurance certificate before it will release any funds, if you have taken a loan to undertake the work. Trying to arrange insurance after work has begun can delay your project while this is sorted out.
So what do you get?
A contract works policy covers sudden and accidental loss or damage that occurs to the insured property during the construction period. The policy should cover the full replacement value i.e. the cost of rebuilding the whole project. It should also include the full replacement value, including any materials or goods you are supplying; for example kitchen appliances or electronic equipment. These are most vulnerable when they have just been installed and the house is not occupied or secured.
Contract works insurance can be arranged on a specific project or on an annual basis. Annual policies automatically cover all of the work which fall within an agreed time frame, up to a specified value.
Cover for existing structures
This protects the part of the house that is being worked on. Your normal house insurance policy may not cover you while you are making alterations, so this is a good idea if you are carrying out alterations to an existing house.
Cover for building materials
Cover for any loss or damage to building materials on your building site, including those supplied by your builder or sub-contractor.
Cover for loss in transit
Cover for any loss or damage to building materials while they're being transported to your building site.
Cover for professional fees
If you need to do rebuilding work after a loss or damage covered by this policy, insurance will pay for the services of an architect, engineer or other consultant.
Cover for speedy recovery
Sometimes it's important not to hold up construction. If your partially built house is damaged, but you still need to finish building on time, the insurance cover can pay for overtime labour costs, as well as express delivery or airfreight costs for materials you need to repair the damage quickly.
• Cover for any inflationary increases in the cost of labour and building materials
• Reinstatement of insurance
• Cover for demolition and clean up.
Who arranges the contract works insurance?
For new house builds most standard building contracts will require the builder to arrange the contract works insurance.
Where a project includes work on an existing property, such as renovation or an extension, the insurance should be arranged by the homeowner. This is because the homeowner is best placed to deal with the insurer of the existing property, and it is preferable to have one insurer covering both the existing home and the new construction work.
When does the insurance cover end?
Cover will automatically end (whichever comes first):
- When any part of the new build or renovation extension is occupied, taken over or back into normal living use by the owner
- On completion of the project
- On the expiry date shown on the policy
It is a good idea to err on the side of caution when choosing an end date, as construction projects frequently run over time. Trying to organise an extension to the policy can often be more costly than if you were to simply overestimate the initial construction period. Worse still, if you forget to extend the policy you’ll have no cover, at the very time the build value (and potentially the risk of loss) is at its greatest.
What’s not covered by contract works insurance?
It’s important to be aware of what’s not covered by the policy. Although they vary between insurers, these are some of the common exclusions:
- equipment and tools
- loss due to delay, penalties, liquidated damages
- Existing property – unless it has been specifically agreed to be included in the cover
- Faulty design, workmanship or materials
- Your builder failing to complete the work
Public liability insurance
Each contractor working on your project should have public liability insurance. This type of insurance covers damage to third party property as well as personal injury to others that is not covered by ACC.
Professional indemnity insurance
Your designer or architect should have professional indemnity insurance. This insurance is for their benefit, but can ensure they have sufficient funds to compensate you if something goes wrong.
If your designer or architect fails to design a safe, durable, and weathertight building and they cannot pay for any necessary repairs, you are likely to have to cover the costs.
Professional indemnity insurance covers the advice and services they provide to you.
Insurance after project completion
After your build work is finished you need contact your insurer to make sure that your house and also your contents insurance reflect the value of the new work and any new items you may have purchase to furnish or decorate your new space.
If you have borrowed from a bank to undertake the works they will often require a new property valuation to prove the increased value the works have added to your property. This is the best time to re-evaluate your existing insurance policy to make sure you are now not under insured.
The important thing to remember, as with all contracts and policies, is to fully read and understand what your contract works insurance does and does not cover. This enables you to include specific items or circumstances right at the start of the insurance cover and to understand your rights and responsibilities as the policy owner.
Disclaimer: This article is for information purposes only. It is not intended to be comprehensive advice on insurance. For this professional advice, individuals should contact their insurance providers. Kit Markin Homes carries no responsibility or liability for any information expressed above.