Contract Works Insurance for builders and owner builders includes cover for loss or damage of building works ( as per the product Disclosure Statements) whether they be new buildings, renovations or extensions.
Public Liability can also be added to this policy and if the contractor has no separate Public Liability policy this inclusion is highly recommended. This insurance gives the builder and the principal ( the person or entity that woks is being completed for) cover under the Material Damage section for such occurrences as Fire, Storm, Cyclone, Malicious Damage, Theft of building materials, storm, lightning, flood, water damage, accidental damage & collapse. It is the builders and the principals protection for losses that may occur during the course of the construction.
There are basically two alternatives for this for builders and one choice for owner builders
1/ Single Contract Insurance – Builders and Owner Builders
This insures one contract that is specified by the builder at one location for a particular entity ( can be the builder for spec home) for a particular time. The normal term for these is 6 months but we recommend insuring the construction for 12 months as the premium is usually the same and it will cover the works if the contract goes over the 6 months standard period. For owner builders they may need to extend for a greater period than a year so it is important that the initial term selected fit with their expectations around how long the construction will take and /or before they occupy the premises. If the builder has no separate Public Liability then it is important that this be included. This inclusion should be mandatory for Owner/Builders.
2/ Annual Contract Works Insurance
This is the policy we recommend at it has some distinct advantages. The premium is calculated on your estimated turnover for the coming twelve months. A declaration is sent out prior to the next renewal where the builder needs to disclose all the contracts completed and commenced in that 12 months period. The premium is then adjusted up or down – a refund of premium if turnover overestimated and an additional premium if under estimated. At that time the insurer will require an estimated turnover for the next 12 months and of course the contractors does not need to include the contracts already commenced in the previous 12 months providing they are included on the annual declaration where they should be included.
Advantages of the Annual Contract Works Insurance is that contracts are automatically insured that have commenced during the term without having to notify the insurer. Premiums for Annual Contractors can be paid at Tradesure monthly at no additional cost ( at the time of writing this Tradesure were the only facility we are aware of who offer this). This also assists with cash flow for the builder as the builder avoids a one off upfront payment. The Annual Contractors insurance includes cover under the Public Liability section for Products Liability as well and we know that this is not always the case with all One – Off Contract Works Insurance policies.
Product Liability cover is briefly described as cover for you for claims made against you for personal injury to third parties and property damage to third parties property caused by the nature, condition or quality of the builders products If the Material Damage section and Public/Products Liability sections are both included we have found a significant saving of premium in comparison with doing One Off Contract Works policies. This can vary, depending on circumstances and insurer underwriting, but up to a 20% saving can be achieved by combining these two sections so it can be substantial particularly when you take into consideration the monthly premiums at no additional charge option.
Please also note that the cover ceases;
1/ when the home is officially handed over or 2/ When the building becomes occupied ( even if not completed or officially handed over). This is when the owner needs to arrange insurance for the home and of course also needs to disclosure to their insurer that the builder has not handed the home over officially.
It is also crucial that when completing insurance for One Off contracts that the insurance is arranged prior to the commencement of the work. Insurers are reluctant to insure dwellings and commercial buildings under a Contract Works Insurance policy if the building has already commenced as it appears that they have some concerns around some builders where a claim has already occurred and then arranged the insurance for the partly completed building in an endeavour to have their claim met. Also and importantly as there is a misconception among some contractors that they may save premium if only insuring the contract for a short period. There is no saving in premium for this as the premium is based on the contract value and not the length of time the cover is required. So it is very important to insure the contract prior to the commencement of work and insure the contract for12 months as the premium is most likely the same as any period which is less.
What if you underinsure the contract value?It is also important to insure for the total contract value as underinsurance penalties apply in the event of claim under the Material Damage section if you select a sum insured less than the contracted amount. As you have no doubt experienced, many contracts exceed the original contract price so it is also important that the increase be advised to the insurer of this as soon as you become aware of the increase. Most policies have an Escalation Allowance available and if this has been selected there will be an automatic increase which is usually shown by a percentage which is usually around 15% of the contract value when included but you would need to check this with your insurer. A few builders, and particularly owner builders, insure for a lesser amount and then increase the sum insured as the building value increases. There is absolutely no point in doing this and it will cost the same as the insurer will calculate the premium on the highest sum insured during the period of the insurance anyway and charge extra for the increase.
Do I need to Insure the existing Dwelling if I am doing an addition or renovation?If you are working on an existing dwelling it is also important that the dwelling owner notify their insurer of the work being undertaken and the amount of the work involved. This can not only effect the property damage section of their policy but also the Public Liability cover for the home owner. The Contractor will still need to insure the value of the works as this will not be covered by the home policy of the owner. If the owners insurance declines to keep the home insured because of the work being undertaken then the contractor can and needs to include the home on his Contract Works insurance. We strongly recommend when this needs to be done that the sum insured of the home be selected and advised by the home owner. Although it is not an issue for the Builder the home owner may also need to check if their contents insurance is still covered under these circumstances as their current insurer may cancel the policy in full once this is known.
There are many additional benefits included on Contract Works insurance under the Material Damage section and among these are;
Existing Dwelling – as explained – where the work relates to renovations and/or additional there may be a need to include the existing home under the Contract Works insurance
Contract Value Increase – this additional cover allows automatically for a specified increase in the contract value under completion
Expediting Expenses – where products need to be sourced quickly this covers additional costs un freight and wages
Removal of Debris – This is for clean-up costs after a claim. Once again many Contract Works policies have an allowance for this and we recommend a percentage value of at least 10% of the Contract Price
Professional Fees – when a claim does occur often architects, draughtsman, surveyors and other consultants need to be consulted to assist with the claim
Materials In Storage – off site – materials on site are included in the standard cover automatically but if loss or damage occurs to building materials that were to be used for a particular contract at another site then this should also be included. Some insurers will allow a percentage awhile others may have a specified amount
Materials In Transit – this covers building products and materials in transit to your building site. Once again this can be shown as a percentage or a specific amount depending on the insurer.
Mitigation Expenses – this is the additional cost incurred by the builder in an effort to reduce further loss to the building involved
Fire Extinguishment Costs – This is to cover the cost of extinguishing a fire at the contract site
Contractors Plant, Equipment and Tools – Cover can be included for these but they are restricted o the building site or sites (if annual). Many builders have a separate cover for their tools and equipment as the cover covers them automatically Australia Wide and not just to the Building site. HIRE ??
Cranes, Hoists, mobile construction machinery – these items are not included generally in the Contractors plant above so need to be specified separately to be insured. Depending on the item once again it may be better to arrange an annual cover for these items if they are owned by the builder. HIRE??
As with any of these additional benefits it is important to see they are included on your insurance and also to check that all the limits are adequate for the contracts you are involved with and remember these can be changed if where required.
Licensed tradesman must be used at all times
Faulty Workmanship not insured
Penalties, fines, liquated damages are not covered
Are subcontractors covered under My Contract Works Insurance and when do they require their own?