Declaring insurance and guarantees

From January 1, 2015, new Building Act rules will require builders to disclose certain information to clients on jobs worth more than $30,000, or face a penalty. The disclosures include information about the insurance you hold and the third party guarantees you can arrange for your customer. So, what do you need to have in place and what do you need to disclose?

For insurance disclosures, regulations cite specific policies. You must specify the amount and any relevant exclusions. But how can you decide which exclusions are relevant, and what if you get it wrong?

Contract Works Insurance

Provides protection from hazards such as theft, accidental damage, storms, fire and natural disasters. Every job should have contract works insurance in place – contracts will require it and, if it’s a new build, builders are generally responsible for arranging it. It should name the builder, owner and sub-contractors, so all parties are covered.

For renovations, alterations or additions, usually the owner should arrange contract works insurance through their own insurance provider. Again, it should cover all the parties involved in the build.

Common exclusions include:

• Damage to existing structures.
• Consequential loss.
• Contractor’s tools.
• Equipment.
• Partial occupation.
• Workmanship & design.

Public Liability Insurance

Provides protection if you’re held liable for accidentally damaging someone else’s property and, in some cases, causing injury. Every builder should have public liability insurance in place, and most modern contracts require it.

People want to know that, if their builder (or one of their subbies) causes some major damage, an insurance company with deep pockets will pay for the loss.

Common exclusions include:

• Faulty workmanship & materials.
• Damage to the property you’re working on.
• Your own products and professional advice.

Professional Indemnity / Errors & Omissions Indemnity

Provides protection if you’re held liable for a financial loss that someone suffered, which hasn’t resulted from accidental damage (ie use of the wrong materials or failure to correctly follow a design or specification).

Today, people are more willing to take the original builder of their house to court if they’re unhappy with some aspect of it. In the past, it has been difficult for trade professionals to get indemnity cover suitable to their occupation; this is now available and more contracts are requiring it.

Common exclusions include:

• Property damage & injury.
• Financial estimates.
• Building surveys and inspections.
• Faulty materials and workmanship.
• Financial failure.

Another policy not specified, which is worth disclosing, is the commercial motor vehicle cover you hold – particularly third party liability, which covers damage caused by your vehicles to other people and their property.

Finally, if you have to transport components of the build from around the country or overseas, what insurance do you hold to protect those goods in transit? The biggest challenge for builders will be deciding what “relevant exclusions” they need to disclose. If there’s one good thing to come from this, it will be a greater awareness among builders of the cover their insurance provides.

Guarantees

Guarantee disclosures include product warranties, non-completion and defect guarantees. You must specify the time period covered and any limits or exclusions.

Builders who are members of the Master Builders Association or Certified Builders Association are able to offer their clients non-completion and defects guarantees. These guarantees last up to ten years for major defects and have varying levels of financial cover for homeowners. Builders who aren’t members of a trade association can apply for accreditation to offer their clients the Homefirst 10 Year Builders Guarantee at www.builtin.co.nz/homefirst, which is independently managed and underwritten by a licensed insurer.

These guarantees typically protect the homeowner if their builder is unable to complete the job or return to fix defects, usually because the company has been liquidated or stopped trading. It gives homeowners the peace of mind that if there is a problem, their financial investment in the build is backed by a third party.

They are also transferrable to subsequent owners, providing an attractive marketing benefit. However, they are not automatic and must be individually applied for on each job – in much the same way as contract works insurance.

The owner will receive a certificate of guarantee acknowledging their policy is in place. There are limits on the amount of cover for each section of the guarantee and their durations – two years for non-structural defects and ten years for structural defects.

Common exclusions include:

• Owner-supplied materials, and sub-contractors.
• Consequential damage.
• Works outside the building envelope.
• Damage or loss covered by other insurance.
• Contractual disputes.

About Builtin New Zealand

Builtin New Zealand is a specialist in insurance for the construction industry. For more information visit www.builtin.co.nz/Insurance, email Ben Rickard at ben@builtin.co.nz or call him on (07) 579 6259 or 0275 212 014.