Contract Works Insurance NZ: Who Insures the Build, and What It Covers
Contract works insurance, also called builders risk or contractors all risk, covers the building work, materials and temporary structures on site against accidental physical loss or damage from the start of the project until handover. Who must arrange it is set by the building contract, so read that clause before the first day on site. It usually sits alongside public liability, which covers injury and damage to other people's property.
In short
- Contract works covers the job itself: the part-built work, materials on site and often temporary works. Public liability covers harm to third parties. They are different covers.
- The contract decides who buys it, the owner or the contractor. Do not assume.
- On a renovation, the owner's house policy and the contractor's policy can overlap or leave a gap. Settle it in writing before work starts.
Who Insures the Build?
A homeowner asks a builder who insures the house during the work. The answer is whoever the contract says.
Most building contracts name one party to insure the works. On larger commercial jobs the principal often arranges the project cover. On smaller residential jobs the contractor commonly does. NZS 3910 and similar standard forms deal with insurance in their own clauses, so the answer on your job depends on which form is used and what was amended.
For residential work, the Building Act adds a disclosure step. A contractor dealing directly with the homeowner on work of $30,000 or more including GST must provide a written contract and a disclosure statement, which covers any insurance or guarantees they provide. Building.govt.nz sets this out. Subcontractors are not covered by that rule.
On a renovation there are two things to insure: the new work, and the house you are cutting into. Contract works covers the new work. Damage you cause to the existing house is normally a public liability question, and the owner's house policy sits behind both. Renovations are where cover most often goes wrong.
Three questions settle most disputes:
- Does the contract say who insures the works, and for what value?
- Is the owner named as a joint insured, or only the contractor?
- Does the insurer know the work is happening?
If you are the contractor, your certificate of currency is what the owner or main contractor will ask to see. Have it before they ask.
What Contract Works Insurance Covers
Cover is written for accidental loss or damage to the project. A policy typically responds to things like:
| Situation | What the policy is designed to cover |
|---|---|
| Fire or storm damage to the part-built structure | Repair or rebuild of the insured works |
| Materials stolen from site or damaged before they are installed | Replacement of materials, subject to the policy's security conditions |
| Accidental damage by a subcontractor or another trade | Making good the works |
| Temporary works such as scaffolding or formwork | Often included, sometimes only as an extension |
| Debris removal and some extra costs after a loss | Commonly available, check the sub-limit |
The sum insured should match the full contract value, plus any materials the owner supplies. Underinsure and a claim can be reduced. Policies commonly run from project start to practical completion or handover. Ask about extension terms for an overrun before you sign.
Extensions such as a maintenance period, existing structures or plant are separate questions for the insurer. Your own tools and vehicles usually need their own cover.
Renovations and the Owner's House Insurance
A renovation is where cover most often goes wrong, because two policies are in play.
The owner has a house policy. The contractor has contract works and public liability. Insurers commonly want to be told when major building work starts on an insured home, because it changes the risk: more people on site, openings in the building envelope, materials stored on the property. Wording varies, so the owner should ask their insurer in writing rather than assume the house policy carries on unchanged.
The practical fix is a short written agreement before work starts:
- The owner tells their house insurer about the renovation and gets a reply.
- The contractor confirms the works are covered by contract works for the full contract value.
- The contract states who insures the existing structure and who insures the new work.
If the existing house is damaged by your work, that is normally a public liability question. If the new work itself is damaged, that is contract works. A fire that starts in the roof frame can touch both.
Natural Hazards and Homes Under Construction
The Natural Hazards Commission (formerly EQC) provides natural hazards cover on top of a private fire policy. It says it does not cover a building that did not have a valid home insurance policy including fire at the time of the natural disaster. The building cover cap is generally $300,000 plus GST, per the same page.
The Commission's page does not say how these rules apply to a house part-built or being renovated. So do not assume the Commission carries the build. Ask the contract works insurer how earthquake, flood and landslide are treated on your project.
Common Exclusions
Exclusions differ by insurer, so read the wording. These are the usual areas:
- Faulty design or workmanship. Many policies do not pay to redo the faulty work itself, though they may pay for resulting damage to other parts. A leaking window installed wrongly is not the same as the water damage it causes.
- Wear, tear and gradual deterioration.
- Theft with no sign of forced entry, or where site security conditions were not met.
- Loss that is only discovered at a stocktake, with no evidence of when or how it happened.
- Work outside the contract description or after the period of cover has ended.
- Contractual penalties and delay costs, unless specifically added.
- Professional advice errors. Design faults sit with professional indemnity.
When to Arrange Cover
Before the first day on site, and before you sign if the contract requires proof of insurance as a condition. Some contracts bar work starting until a certificate is supplied. That is a genuine deadline, not a sales one.
If you take on a larger job, tell whoever looks after your cover. Policy limits, subcontractor conditions and the period of cover all depend on the contract value and type. A single annual policy can suit a builder with several small jobs. A single-project policy can suit a larger one.
By industry: Builders, Carpenters, Roofers and Landscapers.
Each trade and profession has its own contract clauses, so see the guides for builders, carpenters, engineers, architects, commercial property.
Frequently Asked Questions
Is contract works insurance compulsory in NZ?
No law requires it for every job. The building contract usually does. Owners, main contractors and lenders often ask for it, and may ask to be noted on the policy.
Is builders risk the same as contract works insurance?
In NZ the terms are used for the same idea. Builders risk is common in conversation. Contract works and contractors all risk appear on policy documents. Check the wording rather than the label.
Does contract works cover my tools?
Not usually. Tools and plant are a separate cover or an extension. See our page on tool insurance.
Does public liability cover damage to the building I am working on?
Generally no. The work itself is the contract works question. Public liability responds when you damage property you are not working on, or injure someone who is not your employee. Because ACC bars most personal injury compensation claims under section 317 of the Accident Compensation Act 2001, claims on public liability are mostly property damage and legal costs.
Who pays the excess?
The insured party, as set by the policy and the contract. Check whether the contract passes it to a subcontractor.
Can a sole trader builder get this?
Yes. Cover is available to sole traders, partnerships and companies. See insurance for contractors and the wider business insurance overview.
Protect the Owner as Well as the Job
Contract works protects the project. It does nothing if the person running the business is unable to work. For that, see business protection and key person insurance.
Contract works cover may be referred to another licensed Financial Advice Provider, who may charge fees. A Smiths adviser will phone you to talk it through, and we will tell you which firm, and how they are paid, before your details go to that firm. There is no cost to talk it through. Smiths Insurance & KiwiSaver may receive a commission or referral payment if you buy.
Financial advice is provided by Craig Smith Business Services Limited, trading as Smiths Insurance & KiwiSaver, a licensed Financial Advice Provider (FSP712931). Cover and price depend on insurer underwriting and the policy wording.
References
- Building.govt.nz, Consumer protection measures for contractors
- Natural Hazards Commission, About natural hazards cover
- Accident Compensation Act 2001, section 317
Read the full insurance guides
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