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What Is Contract Works Insurance?
If you are involved in extensions, refurbishments, property development or homebuilding where the client contract makes you responsible for partly completed works it is likely you need contract works cover.
Also known as builders all risks or contractors all risks insurance, contract works covers the work in progress on a construction site in the event damage occurs as a result of an insured peril e.g. fire, flood, storm, malicious damage or theft, before responsibility for this has been handed to the owner/principal
- You’re building a new house and a few weeks before completion there is a fire on site and the house is partially destroyed, contract works cover pays to repair or redo the works already undertaken to ensure you are put back in the same position as you were before the loss.
- You’re building a new commercial property when heavy winds and storms rip off the roof. Your contract works insurance covers the cost of replacing the roof.
Contract works insurance is included as a condition of many building contracts and often this is because it is required by the bank lending the money for the project.
So How Much Cover Do I Require?
It is very important that the term and limit of the policy adequately covers the size of the project as in our experience most projects overrun and budgets are often increased. In order to select a limit you must take into consideration the total cost of your largest project, including labour and materials, for example, if your biggest contract is a £1.5 million project to build 4 houses over 15 months then the annual sum insured should be £1.5m.
A contract works policy can be taken out for each single project or most commonly on an annual basis. An annual contract works policy will cover all work undertaken in that year, up to a maximum contract value per job. This has the benefit of being more cost effective for builders who are doing multiple projects per year. It also eliminates issues surrounding when the cover ends which can be a problem for single project policies where there are delays in construction that require an extension to cover.
What Can the Policy Also Cover?
A Contract Works insurance policy can also be extended to include:
- Own Plant
- Hired In Plant
- Your tools
- Your employees tools
- Temporary buildings
A stand-alone Contract Works policy will not include public and employer’s insurance, or, usually, any existing structure. If you also require liability covers we can include these together with contract works cover within a contractors combined package.
Who Buys Contract Works Insurance?
- General Builders
- Building Contractors
- Property developers
- Property refurbishes
- Double Glazing installers
- Carpenters and joiners
- Partitioning contractors
- Dry lining firms
- Floor and wall tillers
What is a JCT Contract and does it Relate to Contract Works Insurance?
The Joint Contracts Tribunal (JCT) suite of contracts are a set of standard documents used by the building industry to help deliver a project. JCT contracts set out the responsibilities of each party including who has the contractual obligation to insure the various elements of the build.
The most common contract used by our clients is The JCT Minor Works Building Contract. It is designed for smaller construction projects where the work is of a reasonably uncomplicated nature. As a result the insurance requirements are more concise and straightforward than those in other contracts such as the JCT Design and Build Contract which also refers to design liability.
Section 5 of the Minor Works contract details three types of insurance: public liability insurance, employer’s liability insurance and cover for the contract works (and potentially of existing structures):
Public and Products Liability Insurance covers you for bodily injury to third parties or property damage which arises in the course of your daily activities, for example damage to a client’s premises or neighbouring property whilst you are undertaking work.
Employers Liability Insurance covers you for liability arising from employees who sustain an injury or illness during the course of their employment with you.
When insuring the Contract Works, the Minor Works contract provides three options from which to choose:
Clause 5.4A – the works by the contractor
Aimed at projects where there are no existing structures (i.e. new builds) it states that the contractor takes out the contract works insurance policy and names the Employer as Joint Assured. This means that in the event the Employer is sued as a result of the contractor’s negligence then the policy will respond as if the Employer was the Insured.
Typically insurers wordings include an extension that automatically note interested parties and/or an Indemnity to Principals clause but if your Employer requires their name to be on the specifically noted policy this can be added upon request.
Clause 5.4B – the works and existing structures by the Employer
Aimed at projects where there is an existing structure (e.g. an extension or refurbishment within an office block). The Employer arranges cover for the contract works and for the existing structures. It is important to note that the insurance cover in respect of existing structures is not always available on an all-risks basis (like the Works insurance) and may be limited to loss or damage due to a ‘Specified Peril’, for example, fire, lightning, explosion, and aircraft.
Similar to 5.4A both the contractor and employer are noted on the insurance policy, this means that the insurer is unable to subrogate against either party e.g. if the contractor negligently causes a fire, the insurer of the existing structure/works cannot look to the contractor’s public liability insurers for payment of the loss.
Clause 5.4C – the works and existing structures by other means
Before the introduction of the 2016 suite this clause under the Minor Works contract envisaged two separate policies
- The Employer insuring the existing structure in its own name
- The Contractor insuring the works in its own name
However, it was realised that Clause 5.4C raised a number of issues which hadn’t previously been considered, for example:
- the contractor not being noted on the existing structure insurance as joint insured meant that the contractor’s public liability policy was open to losses as a result of their negligence
- the homeowner found the cost of obtaining appropriate cover prohibitive
- The nature of the works was more complex than an Employer/Contractor relationship e.g. the works being procured by a tenant or tenants of a multi-let property who were unable to insure the existing structure
In 2016 amendments were made to address these difficulties by improving the flexibility of the provisions and giving both parties freedom to arrange their own bespoke insurance solution. As a result, the new clause 5.4C permits insurance of the Works and existing structures by ‘other means’.
It adopts a sensible practical approach to an issue that is best resolved on a case-by-case basis, depending on the nature of the works, the insurance market and the identity of the contractor and the employer. Because of the flexible approach it is especially important that proper advice is sought from a reputable broker to ensure that there are no gaps in the insurance arrangements.
At Clarke Williams we recognise the complexities of running your own business and understand the challenges of finding the right cover which not only protects your assets and staff but also complies with industry contract requirements and regulation. If you wish to arrange a quotation for Contract Works or Liability Insurance talk to one of our brokers today on 01732 252898, we will be happy to discuss your requirements.
Clarke Williams Insurance Brokers are specialist brokers for the construction industry.
As a liability specialist with over 50 years experience in the industry, we have put together solutions with a range of insurers which allow us to provide cover for the vast majority of trades, below are a few examples of the type of contractors that we work with:
- Property development
- General Building
- Building Contractor
- Property refurbishment
- Kitchen Installation
- Flooring Contractors
- Shop Fitting and Office Fitting
- Carpenters and Joinery
- Tiling Contracting
- Dry lining
- Basement Extensions
Call or email us today for a comprehensive insurance policy at a competitive price.
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Clarke Williams Ltd are authorised and regulated by the Financial Conduct Authority under reference 758683. The Financial Conduct Authority’s Register can be accessed through http://www.fca.org.uk/ . We are registered in England and Wales with Companies House under number 10317065. Our registered office address is 194 High Street, Tonbridge, Kent, TN9 1BE