Renos vs New Builds
Insurance for renovations vs new builds: what's the difference?
We’ve written a lot over the years about risks builders face and the insurance you need to have. It’s been great to see the improvement in understanding across the industry over that time. However, there are still a few issues that crop up regularly.
One of the most common issues we see is when it comes to arranging contract works insurance on jobs that involve work to an existing structure, such as renovations and alterations.
Firstly, what does contract works insurance cover?
It protects the work being done from the cost of hazards such as accidental damage, theft, vandalism, fire, flood, storm damage and collapse, as well as natural disasters like earthquakes. Banks sometimes still refer to it as builder's risk insurance.
Cover runs from when the work starts (unless you’ve arranged it late – another common problem) until the earlier of practical completion or the end date on the policy.
It is important to note that contract works insurance will automatically expire when the work is practically complete, even if your certificate shows it still has time to run. The policy may include an extension for the maintenance period. However, this only covers damage that occurred during the policy period that was discovered after the work has finished, or damage that occurs when you return to fix something.
When working on an existing structure e.g. renovations:
1. Who arranges the contract works insurance should be specified in your contract. Most standard building contracts will say it is the homeowner’s responsibility to arrange it when the work is to an existing structure, such as for a renovation or extension.
2. It is simplest for them to arrange it with their existing house insurer, so that one insurer covers both the works being carried out and the existing structure, just in case there is a claim that affects both. However, some domestic insurers won’t do it, in which case they can obtain cover online from Builtin. We suggest you direct them to do it themselves, rather than arrange it for them.
3. Always ask to see a copy of the insurance certificate before starting work. Regardless of who arranges it the policy will cover both the builder and the homeowner, and should include subcontractors too. If they haven’t arranged any and there’s a problem, if you caused the damage you may have to foot the bill.
4. The homeowner should always inform their existing house insurer, in writing, that work is planned. If they don’t, and there’s a claim that affects the existing structure, their insurer may decline it on the grounds that they weren’t told of a material change to the risk they were insuring. Once again, you could be forced to foot the bill if the damage was your fault, although accidental damage to the existing structure may be covered by your public liability insurance.
When it’s a new build:
1. Once again, who arranges the insurance should be specified in your contract. Typically, it is the builder’s responsibility to do so when the job is a new build. An exception could be if it’s a labour only job, in which case the homeowner is acting as the main contractor and this responsibility would normally fall on them.
2. Make sure you arrange cover before the work starts. Trying to get it after work has started is more difficult.
3. Make sure you arrange it for long enough to account for unforeseen delays. It is much cheaper and simpler to add an extra month or two on from the start, even if you don’t end up needing them, than to have to request extensions to the policy later.
4. The homeowner should be ready to arrange house insurance from the moment of practical completion, as this is when the contract works insurance will expire. They will not want to have a gap in their cover, but some insurers want a CCC in place before they will insure a house. As there is often a gap between practical completion and issuing of a CCC this can create a problem. Do not extend your contract works policy to cover this gap, if the work is practically complete (or in the case of a spec when 95 per cent of the budget has been spent) the policy will have ended regardless of the end date on the policy. The best approach is for the homeowner to ring around until they find an insurer who will insure the house as long as a CCC is issued within a certain time-frame.
5. Do not allow the homeowner to move in or store stuff on site until after the job is finished. This may void the contract works policy, leaving you uninsured.
There are plenty of other issues to be aware of with contract works insurance. You can get up to speed by reading more (or watching the short video) on Builtin’s website.
What other insurance should a builder have?
Assets – e.g. your vehicles, tools and equipment
Liabilities – e.g. damaging other people’s property or making mistakes that cause someone a financial loss, injury to employees, fines and penalties
Financial – e.g. protecting your cashflow, not getting paid for work done, losing your retentions
Personal – e.g. protecting your income if you’re off work due to illness
Each of these areas can be covered by a package of policies, which you can find out more about at www.builtininsurance.co.nz
In a nutshell:
When there is an existing structure involved it will typically be the homeowner’s responsibility to arrange contract works insurance. This is for good reason and protects both them and the builder, so it’s important you make sure they’ve done it before starting work. If you’re doing a new build make sure you arrange cover before the job starts, that it runs for long enough to account for delays and that you clearly understand when the policy ends.