Construction Works Insurance otherwise known as Contract Works insurance, is taken out to cover either a specific single project construction, or annually to cover all projects of a certain type.
Coverage is generally arranged by the principal or head contractor and provides access to two sections of coverage. Section one covers Material Loss or Damage and Section two covers both Public Liability and Products Liability for third party property damage or third party bodily injury arising out of the actions you are liable for.
Types of Contract Works Insurance
There are two basic types of Contract Works insurance policies, either
1. Turnover (Transfer), or
2. Run-off (Contract commencing)
The differences are important and are best illustrated by this explanation below.
Turnover (Transfer) cover
This insures all projects being, or planned to be, worked on during the policy period. You are insured for any incident that occurs during the policy period.
If the project is not completed prior to Practical Completion Date at the expiry of the policy, the insurance ceases, unless the policy is then renewed with a Turnover (Transfer) policy. In terms of the Defects period, if the project is not completed prior to the the expiry date of the policy, the Defects insurance period is not provided.
Run-off (Contract commencing) cover
This insures all projects that meet the limit and type of projects advised to insurer, that begin construction during the policy period, right up until the construction and its defects liability period is completed.
There can easily be a gap in coverage if you change from a Turnover policy to a Run-Off Contract Commencing policy if a policy is changed at renewals. A thorough review of your policy type should be undertaken, if the insurer is being changed at renewal in order to ensure their are no construction projects uninsured inadvertently.
Who is insured under Contracts Works policy?
Based on a Principal Controlled Insurance Programme (PCIP) the entities or persons normally insured by a Contract Works policy that will also reflect the provisions of the construction contract in place will include:
- The Principal
- Project Manager
- Any director or employee of above
- Any contractor or sub-contractor whereby a sub-contract or sub-agreement exists for the performance of any part or parts of the Contract Works.
What does Contract Works insure?
The policy schedule will describe the type of property or business activities that can be insured eg. Residential New Build, Renovations or Commercial construction project builds.
The actual work itself can comprises construction or erection itself including formwork, falsework, temporary works, temporary buildings, scaffolding, hoardings, principal supplied or free-issue materials, and materials for incorporation in the works. In some policies, insurers will agree to coverage for the pre-existing buildings or structure that is having renovation work or an alternation performed on it.
Advantages of Principal Controlled Insurance Programme (PCIP)
The major advantages of a principal having control over your construction insurances in comparison to individual contractors having separate Contract Works policies are that.
- Uniform level of coverage over a complete project. Individual contractors will have different cover levels.
- As a principal, you know if the policy is still in force, and not cancelled.
- Claim monies are paid to you as Principal unless you direct otherwise.
- Building construction insurance is covering in most cases significant dollar value assets.
- As insurers cover the complete project, there is no dispute between insurers and the proportion of liability following a claim.
- Massive reduction in your administration time, by not having to review individual contractor policies.
Standard Benefits within a Construction insurance policy
Standard automatic benefits in a Construction policy include:
- Removal of Debris - the costs of demolition and disposal of damaged Contract Works;
- Professional Fees - Architects’, surveyors’, consulting engineers’ fees necessarily incurred
- Expediting Expenses - the costs of overtime rates of wages, the hiring of additional labour and equipment, and the costs of purchasing resources necessary to repair or replace urgently damage to the Contract Works
- Mitigation Expenses - the reasonable costs and expenses incurred in containing, mitigating, suppressing or preventing further loss or damage to the Contract Works following insured damage.
What is not covered by Construction Policies
Construction insurance policies have various exclusions and limitations. In some cases these exclusions can be limited or restricted by agreement with insurers. We would recommend that the exclusions.
The major exclusions under Material Loss or Damage section are:
- Consequential Loss
- Ocean Shipments
- Cessation of work after a certain period of time
- Defective Design, Material and Workmanship
- Wear, Tear and Gradual Deterioration
Major exclusions under the Liability section include
- Asbestos Liability
- Demolition greater than certain height
- Fines, Penalties
- Contractual Liability
- Use of Explosives
- Liquidated damages
Our experiences indicate the major exclusion that insurers apply upon, relates to incidents arising from Design, Material and Workmanship issues. We strongly recommend having a discussion on all exclusions, but certainly this one, when discussing coverage with your insurance broker. There are different types of exclusion wordings available in the market.
Additional coverage for Builders that may be added
Construction policies can be individually tailored to your needs and can include additional benefits such as:
- Contract of Sale extension
- Earthworks insurance
- Partially completed projects insurance
- Liquidated Damages (for Residential Buildings)
- Difference in Conditions insurance
- Contractors Pollution Liability insurance
- Display Homes insurance cover
- Construction Errors and Omissions insurance
- Existing Structure insurance
For a full discussion relating to these benefits, please discuss with Business Insurance Specialists.
Related covers to consider
There are other insurance products which can be considered by builders including:
- Design and Construct
- Builders Warranty Insurance
A residential Owner Builder who takes out their coverage can consider an Owner Builders policy also.
Construction Insurance Expertise
Construction projects are unique and have their own challenges. If an incident or unexpected disruption occurs and you do not have the right protection in place, it can significantly impact your project timetable and leave your business exposed on both the bottom line and legally.
Business Insurance Specialists Pty Ltd is a specialist insurance broker to the construction industry.
Our insurance brokers have significant experience covering commercial and residential building (including high rise), civil, industrial and infrastructure projects. and can therefore provide you with the expert risk advice you need to thrive.
For a no obligation review of your Contract Works insurance contact us today on (07) 3139 3900.