Whether you are looking at starting your own building company or looking to go out as a sub-contractor a common question that is asked is what insurance do builders need? In this article we are going to provide you with information about the policies available to builders and construction companies.
There are a number of different insurance policies for builders however, most builders only take out policies that are contractually required. This is mainly due to two main reasons:
Keeping cost to an absolute minimum too assist with margins and cash flow
They are typically overwhelmed with not knowing what policies cover and what they don’t
Unfortunately, most information sources are from other tradies in the industry and it becomes a game of Chinese whispers where important pieces of information get lost in translation when construction workers are talking about their builders insurance policies.
Public Liability Insurance for Builders
Builders public liability insurance is a very common policy and is often taken in the first instance as it is usually required by head contractors and license regulators.
What does it cover?
Your public liability insurance covers your negligent acts that lead to personal injury or property damage to a third party or member of the public. With most construction workers operating under a sub-contractor arrangement a public liability insurance policy for builders will typically cover you if you were to injure another contractor on the work site.
A common misconception is that the head contractors insurance covers this, this is not true. Injury and property damage claims always comes back to who was legally liable or at fault and what portion of liability relates to who.
In QLD, the QBCC requires builders to hold public liability insurance as part of their licensing requirements and this is a common request in most states here in Australia.
Our answer: Yes, a builder needs public liability insurance.
Management Liability insurance is designed to provide protection to both the business and its directors or officers for claims of wrongful acts in the management of the business.
A business insurance pack can provide cover for your business premises and contents, against loss, damage, theft or financial loss from an insured interruption to the business.
Professional Indemnity insurance is a broader level of cover than public liability insurance however, it covers different losses.
Professional Indemnity insurance for builders will usually cover things like:
Brach of professional duty
Defence costs against actual or alleged breaches of professional duty
Vicarious liability
Mitigation costs
A common claim example of how professional indemnity insurance would likely cover you is the best way to answer if a builder needs PI insurance or not.
Claim example: A roof of a warehouse collapsed after heavy rainfall occured. The builder has a design and construct contract with the owner of the building. The builder sub-contracted out the design component and built the warehouse to the specification of the design. When a claim was lodged by the owner of the building it was pursuing the builder for damages as thats who they held the contract with. The builder however, lodged a subrogated claim against the engineering company that signed off on the design. The builders PI insurance covered the defence costs and the claim was successfully paid by the engineering companies PI insurance.
There are 2 key components for you to consider in the above instance;
Do you have the cashflow available to cover the defence costs and solicitor fees to defend against allegations being made against you regardless if you are found liable or not?
If the engineering company had stopped trading then the responsibility for damages may have solely fell on the building company
Does a builder need PI Insurance?
Our answer: If you are taking on design and construct contracts or have a contractual requirement to hold PI Insurance then yes, it should be taken out,
Contract Works and Construction Insurance for Builders
Contract works insurance is a form of construction insurance which covers builders under construction for material damage. In very simple terms a contract works policy is usually taken out by builders to protect their construction project against damage whilst it is under construction.
For example, if you took on a new build or extension project where a fire or rain depression came through destroying materials or components of the build that had already been constructed then the contract works insurance policy would cover the costs of getting the project but to the state it was in pre-weather event.
Key components of a Contract Works Insurance Policy:
The policy can be taken out on a single or annual basis including a defects liability period
This policy can be combined with your public liability insurance
This policy can cover material components that you are deemed liable for under contract (for example, materials in your posession)
Cover for existing property can be provided
Our Answer: Although we recommend that builders should have a contract works insurance policy in place the reality is a number of builders don’t operate with this policy. What we advise our clients is to consider the value of your contracts and how damaging it could be to your cash flow if you had to replace and re-purchase materials after a weather event.
What other insurance policies do builders need?
If you’ve gotten this far through, we know its a lot to take in and you’re probably thinking that this is a lot of insurance to take out and probably costs a lot of money. Most insurance policies for builders are quite affordable and is scalable based on the work that you’re doing. There are a number of other insurance policies that a builder may need to consider however the public liability, professional indemnity and contract works policies above are the 3 we recommend the most.
Other builders insurances that you may need to consider:
Personal Accident and Illness Cover
Personal accident and illness insurance for builders will cover you for injury and or sickness (if included) and you are unable to work. There are a number of things to consider when you are considering this type of policy and common things that we come across are:
Are you paying yourself a regular wage and can you provide ‘proof of income’. If you can’t this isn’t an issue however, we will need to take out a policy that doesn’t require you to provide proof of income. If you take out an inferior policy and can’t prove your income then you are likely to either be declined or paid a heavily subsidised amount.
This is not a form of life insurance. If you are wanting to be covered up until retirement age then you need to consider a seperate life or income protection policy. These policies will usually only have 1, 2 or 3 years of benefit payments paid in the event of a claim.
These policies are usually used for sub-contractors or company Director’s that are unable to get WorkCover or workers compensation insurance.
Our answer: Yes, its definitely recommended that you consider this cover as with most trade occupations you are the core component of your business. Your income and margins would be heavily reduced if everything had to be sub-contracted out to other trades to cover your workload. There is also a good chance that should you take out a contract with a larger contractor they will ask you for proof of workers compensation cover. If you are ineligible for this cover then this policy will usually satisfy your contract requirements so it’s somewhat inevitable that you may need to consider this policy in the future.
Portable Tools Cover
It’s not uncommon for tradies tools to be stolen leaving the owner of these items having to foot a large bill to replace these items at short notice. During an economic downturn, materials and tradesman tools are usually some of the higher risk items that are stolen due to opportunistic and desperate criminals trying to make a quick buck. If you are regularly carrying around tools and leaving them in your car then it’s a good idea that when you ask yourself ‘what insurance do builders need’ you add this policy into your budget.
Speak to a Broker to get tailored advice on what insurance that you need.
We offer all of our clients and prospective clients a completely free consultation with one of our Brokers. This will allow you to speak with someone and get professional advice about what policies you or your business should consider. This is not a sales push, this is just an open, honest and transparent conversation to give you the information that you need to make informed decisions about your business.
If you would prefer not to speak to someone, we have a generic risk hazard report for builders and building companies that can provide you with a risk matrix schedule of insurances that are most important for builders in the industry.
General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.
All information above has been provided by the author.
Priority Insurance Brokers, ABN 95 655 563 616, AFSL 233750
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