Most Material Damage and House insurance policies contain general exclusions for Contract Works, so if you are doing construction work on any existing structure (e.g. adding an extension to your house or building) it’s important that both the work itself and the existing structure are covered. 

If you have construction planned you need to either have it covered by existing coverage points (there is often limited cover under a house or material damage policy) or a contract works policy needs to be added (with any existing structure included).

What can be covered with contract works insurance?

What is covered by your contract works policy can vary depending on the policy and the insurer, but in general, contract works insurance typically covers you for unforeseen and unintended physical damage or loss during the contract period, such as:

• fire damage (such as related electrical work, power surges on site that lead to fires)

• natural disasters (EQ related damage during the contract works period)

• storm & flood (heavy rain during the early stages of your project can have devastating consequences)

• theft of materials/equipment (plant and equipment sent to site and in storage before installation can be at risk of theft)

• vandalism (vandals break-in to the site causing damage and associated costs to clean up).

A contract works policy will likely also contain cover for: 

• materials the Principle has supplied
• additional costs incurred following accidental loss. This can include expediting, clean-up, debris removal and additional professional costs. 
• allowance for an increase in the construction costs during the construction period. 
• allowance for increased reconstruction costs (beyond the original construction cost) following accidental loss.  
• maintenance period – covers the period of time from when any part of the contract works is put into service, taken over, occupied or issued with a certificate of partial or practical completion.
• possible allowance for the testing and commissioning of new plant and equipment.

What’s required to get costs and cover? 

 The cost of contract works insurance depends on a wide range of factors, including the project's size, its nature, location, duration, and the level of coverage required. Generally, insurers will require the following before being able to provide you with a cost for cover:

• proposal form
• copy of the construction contract (if applicable – note any contract $30k+ requires a contract in NZ)
• copy of the plans and specifications
• copy of the construction contract (if appropriate)
• Gantt chart/project timeline (commonly within the construction contract)
• Geotech report (on bigger project or complex sites)

And here’s a short summary of key information that the insurer will need to start the conversation:

1. Who is responsible for taking out the contract works? Insurers will generally cover for all parties required to be insured in terms of the construction contract.  Principal-arranged insurance can include all contractors and sub-contractors with automatic waiver of cross-recovery.
2. A general description of the works to be undertaken. This may drive certain specific questions and coverage points.
3. The contract value.
4. The expected period of works – up to when the project officially finishes. Ordinarily, the cover ends on the earlier of the expiry date on the policy, practical completion or when the owners start to occupy the works. It is common for contract works policies to be extended past the initial contract period. This is OK and your adviser will ensure an extension of cover is arranged and any additional costs on the project are included in the extension. It’s important to align the expiry of the contract works policy with the practical completion of the works.
5. Cover for any existing structure, existing cover and sums insured. 

What’s recommended once the project is complete?

But once the project is complete, it’s important to endure you still remain covered. If the project has been a new house, then we highly recommend taking out a new house policy. The construction process may be complete, but as with any asset, the risk of something going wrong, such as a fire or an earthquake, still exists. This will also ensure your existing policies sum insured reflect the value of the newly completed work.

At AIB Group, we have many years of experience in this type of insurance cover from the simple residential renovation to a complex commercial risk involving a range of policies and managing risks. 

Please contact your AIB adviser or email us at [email protected] to obtain further advice.