Get it covered

It is easy to see why the complexities of insurance can be a burden and even intimidating for many in the construction industry. Here Steve Mansour, Group CEO of construction insurance specialist CRL, gives some clarity on construction insurance for housebuilders.

As legal documents, it is necessary for insurance contracts to be packed full of dense legal terminology – leading many to dismiss it as simply another regulatory hurdle to be overcome.

But getting to grips with the details of contractors’ insurance can help to protect a business from worst-case scenarios. There are a number of insurance requirements that need to be met by those working in the housebuilding sector. This article will attempt to break down the main types of insurance that may be needed.

Despite the best of intentions and safeguards, accidents can and will happen on construction sites and contractors simply would not be able to operate without covering themselves from these eventualities.

While it is recommended that developers undertaking new build projects seek advice from their respective insurance and financial advisors in order to understand their exact requirements, here are some of the basics that need to be take into consideration.

Employer’s liability

This type of insurance covers contractors against accident or injury claims made by employees. It is a legal necessity for contractors and they are required to keep a certificate at their place of business.

Some insurers will cover against a set amount of damages, while others will provide unlimited cover – this level is typically reflected in the premium you pay.

Unlimited cover has become rarer in recent years due to a number of issues, including the increasing use of sub-contractors, which can lead to ambiguities in terms of who and who is not covered.

With changing cover limits, it is important for contractors to be aware of what they are covered for – both to ensure they are not overpaying, while having sufficient cover in place to indemnify all parties should the worst occur.

Public liability

This type of liability insurance covers contractors against injury to members of the public, surrounding property that is not involved in the project and sub-contractors. Public liability will not only meet the cost of compensation claims, but will cover legal fees related to settlements or defence in terms of such claims. Premiums are determined by the type of project being undertaken, how large the firm is and whether or not it’s claimed in the past. Given the vast sums that public liability claims can potentially involve, many employers require contractors to prove they have this in place before they commence any work.

Commercial vehicle insurance

A commercial insurance policy provides cover for any of the contractors’ cars, vans or heavy goods vehicles under the Compulsory Insurance Act (1969). While these are all necessities, there is also a range of extra cover options that many contractors could choose to invest in.

These policies can serve to make contractors more favourable in the eyes of prospective developer partners – since they can greatly reduce the risk of delays or serious impediments to the project at hand.

All Risks

If anything happens to the equipment needed to complete the works, contractors can end up having to replace them out of their own pocket. As such, All Risks policies cover a broad range of equipment from fire, theft or damage – whether they are on-site at the time or not.

As with the standard All Risks policy, a Plant, Machinery and Tools All Risks policy covers all the tools contractors need to carry out their job – from heavy plant to huts and hand tools.

As contractors can vary greatly in the kinds of work they carry out – most insurers permit a degree of customisation – allowing contractors to include their motor and engineering policies under the same umbrella of cover.

Given the high cost of replacing such equipment, these type of policies, which effectively transition the burden of risk on to their insurers, tend to be highly popular with larger contractors especially.

Inspection contracts and plant protection

Under health and safety legislation, the onus is on contractors to ensure their equipment is safe and working to specification. Many insurers offer inspections from certified engineers, which is tied to their provision of cover – streamlining both prevention and the claims process should any equipment be at fault.

Structural defects insurance

Also known as a home builder warranty, structural warranty, structural insurance or latent defects insurance, is a special kind of cover used for new homes.

Most new homes will come with a two-year developer warranty period and during this period of time the developer in question will be responsible for putting right any issues covered under the warranty.

However, structural defects insurance is different to the two-year developer warranty typically offered on a new home by the builder. Instead a warranty is offered from a third party and usually lasts for a period of 10 years, with the issuing company responsible for any repairs needed from years three onwards.

The reason a structural defects warranty is important is that structural defects in new homes can take time to become apparent, which means structural faults can appear after the two-year developer warranty has expired.

Should this happen, with the 10-year home builder warranty in place, the homeowner will be covered for the costs to repair or rebuild the faulty aspects of the property. Usually structural defects specialists will help protect you against things such as faulty building materials like lintels or steel supports, a faulty architectural design of the home that leads to structural problems, or issues such as land contamination. It is important to always check exactly what you will be covered for.

Mortgage lenders require that a structural defects warranty is in place on every new build property before mortgages are approved. Once the build is complete the warranty passes from the contractor to the owner of the property.

Remember to talk to your insurance advisor to discuss the specific requirements of your house building project.