Top 8 commonly asked questions about contract works insurance
To help builders arrange their next contract works policy, we’ve collated answers to the top eight questions our brokers receive about contract works insurance.
1. What does contract works insurance cover?
Contract works insurance is designed to cover construction-related activities and assets on a single project or on an annual cover basis. Typically, contract works insurance includes two key types of insurance cover as part of a packaged policy; material damage insurance and public and product liability insurance.
Material damage insurance is designed to cover physical loss or damage to buildings, materials, temporary works and equipment that are part of construction-related activity. This can include accidental damage from:
- Fire
- Theft
- Vandalism
- Construction collapse
- Storm and flood damage
- Natural catastrophes – earthquakes and cyclones
Public liability insurance can help cover builders for legal liability following allegations of third party bodily injury or property damage arising from the contracted work.
2. What is not covered by a contract works insurance policy?
Contract works insurance varies from insurance provider to provider and there are coverage triggers, exclusions, deductibles, excesses and limits that you should review before deciding the appropriate policy for your business.
Examples of typical exclusions:
- Delay penalties and consequential loss
- Wear and tear
- Loss or damage due to faulty design
- Loss or damage discovered only at the time of taking inventory
- Mechanical and/or electrical breakdown of construction equipment and machinery
- Contractual liability such as where you assume liability in a contract regardless of fault
- Terrorism
To learn more about the full details of the exclusions that may apply to your specific policy, please speak to your insurance broker or read the product disclosure statement.
3. Who needs contract works insurance?
While contracted builders more commonly take out this cover, there are also circumstances where other project stakeholders may consider arranging contract works insurance. Parties who may take out a contract work insurance policy include:
- Licensed builders who complete residential or commercial contract work
- Owner builders who are taking on the management of their entire domestic building project - a current Australian Standard Owner Builder’s license is required to obtain a contract works policy
- Principal controlled projects
If an owner builder does arrange the insurance, contractors and sub-contractors should seek a copy of the certificate of currency to ensure they are listed in the insured parties' section before initiating work.
4. Can I arrange an annual policy instead of single project cover?
Yes, builders can choose to take out a policy for an annual period instead of a project-based occurrence. An annual policy can often be a cost-effective and efficient option for builders with multiple projects scheduled over the coming year that are within a similar price range.
Many single project policies will not include products liability insurance, consideration should be given to this risk at the time of making a decision.
Speak to one of our construction brokers to determine the type of policy structure that is most appropriate for your business needs.
5. Can I extend my contract works policy period if the project is expected to go over the original timeframe?
It is important to understand the construction period allowed for under a contract works policy.
Under an annual policy, a maximum construction period will be allowed for. In the event a project has the potential to extend beyond this period, it’s important to make your insurer aware as soon as possible to allow time for any negotiations that may be required. Without agreeing to an extension with an insurer, the project will become uninsured.
6. Are my tools and equipment covered while I’m working on site?
Generally not, however, an extension can be applied to your contract works policy which will cover your tools and equipment from damage, loss or theft up to an agreed sum insured.
When applying for a new policy, be sure to let your broker know that you wish to apply for this additional cover.
7. As a builder, am I covered for providing design advice to my clients?
If a company offers building design advice or services as part of their business activities, we highly recommend that they consider arranging professional indemnity insurance cover as well. For example, a client may claim that an error in the design advice or service they received from a business has caused injury, damage, or financial loss. In that case, that business may be held liable for any losses suffered as a consequence.
Professional indemnity cover can help protect a business against allegations of incorrect advice, breach of professional duty or negligence from a third party (usually a client).
8. Does public liability insurance cover sub-contractors?
Unfortunately, this is not a simple yes or no answer. There are situations where the sub-contractor may be covered under a builder’s public liability policy and others where they would be required to cover the claim under their own.
Many contracts require the contractors policy to extend to sub-contractors. As such, it’s common to see the definition of Insured under the policy extend to sub-contractors. That said, it may not be beneficial for a builder to expose their policy to claims for sub-contractors negligence.
Management of sub-contract insurance and indemnity provisions should be considered to ensure sub-contractors are responsible for effecting their own insurance so losses caused by a sub-contractors negligence effects their premiums, not the contractors.
We strongly recommend sub-contractors arrange their own public liability insurance to ensure they are appropriately covered.
