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Contract Works Insurance

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Contract works insurance

This cover, sometimes referred to as "construction insurance" or "builders risk insurance", is a type of policy that protects your project from unintentional or accidental loss or damage that may occur during the construction phase at the contract site, such as accidental damage, theft, or natural disasters like earthquakes and storms.

Why is contract works cover important? 

Contract works insurance is important because construction projects are often high-value investments involving significant costs and risks.

While everyone hopes for a smooth construction process, the reality is that accidents happen, and the cost associated with them can be substantial. These unexpected incidents can cause financial loss due to the damage to the construction work itself or the delay in project completion.

It’s crucial to have this coverage if your business:

  • Engages in construction projects

  • Carries out renovations or extensions

  • Works with high-value materials

  • Operates in disaster-prone areas

What does contract works insurance cover?

Construction Work

This encompasses all works in progress, such as the structure being built or the project under renovation. If an unanticipated event like a storm, fire, or vandalism causes damage to the work in progress, the cost of repair or redoing the work will be covered by the policy. It's important to ensure the contract price is accurate to avoid underinsurance.

Construction Materials

Construction projects often involve the use of costly materials stored on-site. If these materials are stolen, damaged, or destroyed due to unforeseen events, contract works insurance will cover the cost of replacement. This means your project won't have to suffer unnecessary delays or bear unexpected additional costs. If the principal is supplying there own building materials, make sure they are noted separately under the principals supplied materials limit.

Loss During Maintenance Period

The maintenance period is a specified time following the completion of the construction project during which the contractor is obligated to rectify defects that have become apparent. Contract works insurance can also cover loss or damage that occurs during this maintenance period. If any defects or damages are identified in this period, the cost to repair or rectify these issues can be claimed through your policy, offering additional financial protection even after the project has been completed.

Professional fees

This coverage helps pay for certain professional fees you might need after a loss to your property. These fees can include the costs for architects, surveyors, consulting engineers, and clerks of works, as well as the fees for getting building and resource consents. It doesn’t cover fines or penalties, nor does it cover fees related to preparing an insurance claim or estimating these costs.

How much does contract works insurance cost in NZ?

Contract works insurance premiums are calculated on several different factors including:

  • Type of work 
  • Contract Value
  • Location 
  • Claims history

Contract works insurance in NZ typically costs between $1,000 to $2,000. 

Who needs contract works insurance?

Anyone involved in the construction industry should consider contract works insurance. This includes but is not limited to:

  • Builders and Contractors
  • Property Developers
  • Property owners undergoing renovation or extension work
  • Anyone doing structural alterations

While not legally required in New Zealand, many clients and banks require proof before commencing a work on the building site. Having this coverage can also be a deciding factor when tendering for work.

Yes, you can get cover for a single project (single cover), or an annual policy if you undertake multiple projects throughout the year (annual cover). Your choice will depend on the nature and frequency of your projects.

Can I insure an existing house or structure on this policy?

Yes you can get existing structure cover however it’s important to read through the policy wording so you understand what is insured. Here is a brief overview:

Types of Coverage:

  • Contract Perils Only: If this is noted in your schedule, it means the policy covers accidental damage to existing structures under your control, but only under specific conditions:

    • The damage must occur while you’re actively working on these structures.

    • The damage must be a direct result of the work you’re performing.

    • The incident must happen during the active period of your insurance coverage.

  • Full Cover: If your policy mentions “Full Cover,” any accidental damage to the existing structures you control is covered, as long as it occurs during the coverage period.

Exclusions:

  • The policy does not cover damage to floor and wall finishes or any contents within the structures unless they are specifically listed in your insurance schedule.

  • It also does not cover any consequential losses or liabilities.

Coverage Limits:

  • The maximum payout under this extension is the sum insured stated in your schedule specifically for existing structures.

How Claims Are Settled:

If the structure is completely destroyed:

  • They will cover the cost of replacing it in a condition similar to its new state.

If the structure is damaged but not destroyed:

  • They will cover the repairs to the damaged parts, restoring them to a condition comparable to new, although not necessarily identical.

Conditions for Reinstatement:

Reinstatement is not applicable if:

  • The damaged structure is not repaired or replaced.

  • Repairs or replacement are not started within a reasonable timeframe.

  • The actual costs of repairs or replacement are not incurred.

  • The structure was pending demolition or disposal at the time of loss.

  • Legal or regulatory issues prevent the repair or replacement of the structure.

Site of Replacement:

  • Rebuilding usually needs to occur where the original damage took place, unless local or national regulations require a different location.

Payment Limitations:

  • If the structure is not replaced, or if the reinstatement work isn’t started promptly, the insurance will not pay more than the lesser of the sum insured for the existing structures or their actual value.

Non-covered Charges:

  • The policy does not cover any additional rates, taxes, duties, or charges that might arise due to capital improvements needed to meet regulatory compliance.

How do I get proof of contract works insurance

You can usually get proof of insurance same day when you purchase contract works insurance through Gerrards.

Acquiring contract works insurance from traditional insurance brokers may require a few weeks, a delay that could create problems for policyholders who need instant insurance proof for a project that is about to start. 

To obtain insurance coverage promptly, contact us. We may require you to provide some fundamental details about the project, such as:

  • Type of project
  • Value of contract
  • Location
  • Length of project
  • Your claims history

What does contract works not cover?

There are certain key areas where contract works insurance may not provide coverage:

Defects due to Poor Workmanship

If damage is caused by poor workmanship, most policies won’t provide cover. It’s essential to ensure work is carried out to a high standard by qualified professionals.

Wear and Tear

Normal wear and tear or gradual deterioration of materials over time isn’t typically covered.

Cost Overruns

Delays or cost overruns that aren’t related to an insured event, such as poor project management, are usually not covered.

Existing Structures

For renovation or extension projects, the existing part of the building isn’t generally covered under contract works insurance. You can extend the policy to cover this in most circumstances. 

War and Terrorism

Most insurance policies, including contract works, do not cover damages caused by acts of war or terrorism.

When Does a Contract Works Policy Finish?

A contract works insurance policy is designed to protect your project from the start of construction until it’s completed. But when exactly does “completed” mean according to the policy? The end of the policy, also known as the finishing date, can happen at one of the following four points – whichever happens first:

a) Partial Completion

If only a part of the project is finished and that part is either: (i) officially declared as practically completed (you get a document saying it’s done) or (ii) already being used by the person who owns it or someone they’ve allowed, the insurance coverage for that specific part ends.

b) Full Completion

The insurance policy ends for the whole project when either: (i) the entire project gets an official stamp of completion (a practical completion certificate), or (ii) the finished project is being used by the owner or someone they’ve allowed.

The policy ends at whichever of these two events happens first.

c) Speculative Project

For projects where there isn’t a buyer yet (speculative projects), the insurance coverage ends when 95% of the project’s budget has been spent and the project is open for people to see.

d) Scheduled Date

The end date shown in your insurance policy. However, if you need more time to finish the project, this date could be extended. You’ll need to ask the insurance company to agree to this in writing before the current end date arrives. They might say yes, but it’s their decision.

Remember, when your contract works policy finishes, you must have your next form of insurance, like building or house insurance, ready to start immediately. This is to make sure there’s no gap in your coverage. If something were to happen in that gap, it could lead to huge out-of-pocket costs. So, plan ahead and make sure you’re always covered.

Other common questions about business motor vehicle insurance NZ

Yes, theft of construction materials or building materials on the construction site is typically covered, as long as reasonable security measures were in place.

Subcontractors are usually covered, but it’s crucial to check the specific terms of your policy. Some policies might require subcontractors to have their own insurance.

Insurance providers typically allow adjustments to the policy during the construction period if the project’s scope changes significantly or if there are delays. Always contact your broker to discuss changes.

Most policies cover damage caused by natural disasters like earthquakes, storms, and floods, but it’s essential to check the specifics of your policy.

Upon project completion, the policy usually ceases. However, depending on the policy terms, there may be an ongoing period of coverage for a specified period to cover potential defects.

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