Insurance Basics for a Labour Only Builder
If you’re doing labour only, what insurance is your responsibility and what is up to your customer to arrange?
There are a few different situations where a builder could be working on a labour-only basis. You could be building for a homeowner who thinks they can save money by buying the materials, organising all the trades and managing the project themselves. Or perhaps you’ve been contracted to a building company to do the carpentry work on a new home. In both scenarios if insurance isn’t arranged properly it could have real consequences for the builder. But do you know who is responsible for making sure the right insurance is in place?
Working for a homeowner:
Firstly, having a written contract is a good idea, because it will usually set out who is responsible for arranging insurance. In general, for labour-only work the common practice is: Contract works insurance - homeowner arranges it.
Whether it’s a new build, an alteration, or renovation, it’s their responsibility as they’re effectively acting as the main contractor. You’re simply one of a number of subcontractors.
a) The policy needs to include cover for subcontractors (often an extension that needs to be added).
b) You should request a copy of the insurance certificate before starting work, to check that it correctly covers the job and does include subcontractors. We have heard of cases where homeowners have not arranged the insurance to save a few hundred dollars. This can leave you at risk if something goes wrong. For example, if you cause damage to the site, which would normally come under the contract works insurance, you may be responsible for the cost of fixing it if they haven’t arranged the insurance, even if they’ve breached the contract by not doing so (unless the contract specifies a penalty for not arranging it, which is a good idea but is not common).
c) Sometimes, for a number of reasons, homeowners struggle to arrange the right cover with their domestic house insurer. If this is the case you can point them to Builtin’s website where they can arrange the cover they need directly without you needing to take on this obligation.
d) In some cases you may be asked to take on a “labour-only plus” type role, where you do some of the project management and site supervision. In that case you need to clearly agree with your client who is responsible for arranging the insurance.
Public liability insurance – you both need it. If the homeowner is acting as the main contractor they could be held liable for damage caused to third party property, such as neighbouring property or underground services caused by any of the subcontractors on site. A policy arranged by them is unlikely to protect you as a subcontractor however. If it’s you that caused the damage you may need to claim on your own public liability policy, as the homeowner’s insurer may seek to recover their costs from you. It’s a roundabout way of doing things but that’s the way liability insurance works.
10-year defects guarantees – as a labour only builder an independently-insured 10-year guarantee would cover defects in your carpentry workmanship only. It would not include any materials or subcontractors arranged by the owner. A Homefirst Guarantee would also give you protection from your liability for defects for the last 9 years of your defects liability period. Working for a building company If you’re contracted to a building company there will be different insurance responsibilities depending on what kind of relationship you have with them.
Contract works insurance – the building company usually arranges this. They should have a policy that includes subcontractors. It may be they have an annual policy that covers all their projects, rather than arranging one per job. Either way, it’s a good idea for you to see a copy of it to be sure you’re properly protected.
Public liability insurance if you’re subcontracted on a job-by-job basis – the subcontractor should have their own. The safest approach in this situation is to have your own policy. If the building company has to make a claim and their liability insurer pays it, they may (and often do) seek to recover their costs from the responsible party. If it was you that hit the underground services or damaged the neighbour’s driveway they may come after you, so you need your own policy to protect you. This also allows you to choose the cover that best suits you, like including cover for damage caused by faulty workmanship. Some building companies may have a policy that does cover subcontractors when you’re working on projects for them, but this comes with some conditions, so it pays to check.
Public liability insurance if you’re contracted on an ongoing basis – you could be covered by the building company’s policy. In this case you may be considered a 'deemed employee' for the purposes of insurance (also ACC, IRD, holiday pay, employment legislation etc) and covered under the building company’s liability policy. Again, it pays to check whether this is the case. In general, the safest bet for a subcontractor is to have their own public liability policy. It means if you’re doing jobs for yourself, other customers, or weekend work for friends you’re still covered. And you have control over the policy you choose, so you can get one that best suits you.
The new Health & Safety at Work Act makes health & safety on site the responsibility of all the PCBUs, which includes labour only subcontractors. Does the insurance you’re covered by (whether your own policy or that of the building company you’re working for) include this?
Damage caused by faulty workmanship is often excluded under a public liability policy, but cover can be added back in. If you’re contracting to a building company, but their policy doesn’t cover this, will they pass the buck to you? Could you be included in any legal action?
In a nutshell As a labour only builder, the insurance you need is no different than if you’re the main contractor. The difference is who is responsible for arranging it, and whose policy you’re covered by.
Whether you’re working for a homeowner or a building company you need to check the terms of your contract closely and make sure the right cover has been put in place before you start work.
This article has covered some of the most common policies necessary for labour only builders, but there are other risks and other insurance cover available. If you’re unsure about what you need we recommend speaking to a construction insurance specialist.