News & Views
Richard Andrewes, Director of Andrewes Risk Management deciphers risk management.
Making something really suit your own needs through an alteration, an extension or building from scratch can be an incredibly exciting time. But it can also be a very stressful time. Whenever you are undertaking contracted building work, whether domestic or commercial make sure you have contract works insurance in place!
What is Contract Works Insurance?
Contract Works Insurance specifically covers all risk of loss or damage where there is a contract in place for building work. This can include:
The purpose of the cover is to make sure that the contracted work, and any existing and surrounding buildings are covered in the case of any incidents.
I have a home or commercial policy so why do I need this cover?
If you are building from scratch it is simple. There is nothing physically to insure until the build is finished. Instead you insure the work that has been contractually agreed to. Contract Works Cover is the only cover you will be able to take out - and you should always factor this cover as part of your build costs.
For alterations and extensions it is a little more confusing. Insurers exclude not only the structural alterations themselves but also the building itself from the existing cover. This means that your policy doesn’t cover any claims for existing structures if the loss is caused by the contracted work.
Say you are adding a room on to your house. Any loss caused by that addition is not covered under the house policy you already hold. If the addition were to catch fire and that fire were to carry on to your house then any damage caused to the house would not be covered.
But what about the builder’s liability?
Most, if not all, builders and contractors carry public liability insurance so any damage they do is covered under their policy. However they have to be proven to have been negligent. Liability is very complicated and time consuming to prove and fight.
They may also have limited liability through which they can claim that they are not responsible for damage to any surrounding properties. If your fire was to extend to your neighbours house then you are in for a VERY expensive time. Make sure the Builders Policy does not have any such limitation clause attached to it.
Additionally, some contracts even include a disclaimer cause, releasing the company from any liability at all. Watch out for this as it’s a trap for young players and well worth a legal opinion.
What will it cost?
For a Domestic build or alteration, the sum insured is based on the total contract value
Note: You need to factor in Earthquake and Natural Disaster Damage cover as well, especially if the Works are within an Earthquake prone Region. The cost for this is additional to the standard Contract Works premium.
If it looks like the project might be going over budget it pays to contact the insurer and get a bit more put on the Sum Insured - just to be safe. The policy usually also includes a maintenance period of 12 months as the builder usually has to remedy any issues arising under the contract.
Commercial rates are equal to the risks associated with the works. The policies tend to be a lot more expensive than domestic policies because of all of the Compliance requirements. Commercial Contract Works insurance is prepared entirely on a case by case basis.
What would insurers suggest?
Firstly make sure you plan to take out a works policy including Liability protection so the existing property and the extensions continue to be covered.
Secondly, before you sign your contract see your insurance broker to talk through the Builders liability covered in the contract. If there are any concerns with the wording they will recommend seeing a lawyer. It is extremely important that you cover off this aspect to assure yourself of total protection under the contract.
Finally if it is for a commercial build or alteration look at Business Interruption/Loss of Business cover in case there are delays or issues and you are unable to operate.
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