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The Ultimate Guide to Insurance in the Construction Industry


They say walls and beams make a house, while love and dreams make a home – but whether you’re a builder, tradie or subcontractor, the job you have of building (or helping build) that house is still pretty important. So once you’ve got your tools geared to start building someone’s dream, there is a very important step you can’t afford to forget, insurance! Perhaps not as riveting as the sound of a jackhammer, regardless of how big or small your project is you cannot afford to start without having some form of insurance in place. But how does one decide what cover you need when there seem to be hundreds of options available (kind of like walking through the plumbing aisle in your local hardware store)?

We’ve compiled a list of the main cover options available for tradies and builders, what they cover, and what to think about when deciding which options to take out.

Contract Works Insurance – The ‘Works’   

This is your most comprehensive protection tool kit – Contract Works Insurance (also known as Construction Works Insurance) is designed to protect your project against unforeseen events, and other costs you may incur where something doesn’t go according to plan. If you’re a builder, there are some types of insurance you’re legally required to hold, but the minimum mandatory insurance may not offer you enough protection if an event such as a storm was to damage your materials, or if you were forced to pay extra charges due to a client bringing a lawsuit against you.

Contract Works Insurance has 2 main parts – cover for third party liability claims made against you or your business, and cover for damage to physical materials. In addition to these main coverages, there are also standard inclusions (such as removal of debris and professional fees) designed to ease your financial pressure should you have to make a claim, as well as optional extras you can add to provide you with even more protection

Liability Cover

There’s no such thing as the perfect client, or the perfect project, and whilst you might follow every building plan & instruction in minute detail, and put in place every safety precaution known to man, there is always a risk that you or your business are held liable for injury, loss or damage to a third party – whether that’s during the course of your work, or years later. Contract Works Insurance includes 3 different types of liability cover:  

  • Public Liability

     This provides cover for claims made against you or your business for death, injury, loss or damage to a third party (or their property) during the course of your build project. As unlikely as these events may seem, if they do happen, they can put significant financial pressure on your business, especially if a plaintiff has no-win no-fee lawyers on their side.  
  • Products Liability

     Products Liability protects your business against claims of injury or damage to a third party (or their property) resulting from a faulty ‘product’ your business built for your client. For example, months or years after you complete a project, a client may allege that a waterproofing membrane you installed in their bathroom failed, resulting in water damage throughout their house. If this happened, not only would you be required to fix your waterproofing membrane, but you could also be held financially responsible for all the resulting damage to your client’s house. Remember, these types of claims can surface years after you complete a project, so it's important to check your cover and make sure you’re not left with any gaps.
  • Legal Costs

    Even if a liability claim against you or your business is dropped or ruled in your favour, legal representation doesn’t come cheap, and the cost of that alone can be enough to put a boulder-sized hole in your pocket. Construction Works Insurance can include cover for legal fees, settlements and court charges you incur from defending certain claims5.  

Material Damage

You might not be keeping diamonds or bullions on your construction site, but your building materials didn’t cost any less. Chances are thieves know how much they’re worth as well, (while storms and fires don’t). If your materials were stolen, or damaged by a storm, the cost to replace them could present a significant roadblock for the completion of your project.  Contract Works Insurance can help cover the cost of replacing your materials if they’re stolen, or damaged by a storm, fire or other insured event.

Contract Works Insurance also covers you for expenses you incur to prevent or minimise damage – for example, say you receive word of a major storm approaching, and pay transport and storage costs to remove your materials from your site, and store them elsewhere. If the storm still causes damage to


your project resulting in a claim, not only would Contract Works Insurance cover the cost of repairing (or replacing) the damage from the storm but you could also be reimbursed for the costs you paid to remove and secure your materials.

Tools of Trade

The Romans and Ancient Egyptians may have built architectural masterpieces without power tools, but your tools are a crucial part of your business – turn up to any job without them, and you’ll be laughed off the site. Therefore, your tools are also worth protecting with the right level of insurance. Tools of trade is available as an optional extra on some Contract Works policies, but can also be bought as a standalone policy, with variations in the amount of coverage (see Tradies Insurance below). Under the HIAIS Construction Works Platinum Level of cover, minor plant (including tools of trade) is automatically covered.

Additional Inclusions

If you made a claim under any of the above coverages, additional expenses would likely pop up in managing them. The good news is, depending on the policy you take out, Contract Works Insurance may pay many of these costs, such as the price of removing debris, and even the additional fees to re-engage professionals such as engineers, due to damage. The Platinum level of cover through HIAIS also has additional protection for assets like display homes, and cover for existing structures.

Tradies Insurance

If you’re not building the full house for your client, you might be thinking now you don’t need Contract Works cover. Even if you don’t need the full coverage under Contract Works Insurance, whether you’re a plumber, electrician or bricklayer, your job is equally important – a builder or head contractor can’t complete a project or hand over the keys to a house which doesn’t have power connected, or plumbing installed.

Tradespack has been designed for tradies who need liability cover, and tools of trade, but don’t require the full suite of options offered under Construction Works insurance. It protects against claims of injury suffered by a third party during the course of your work or by your finished product, and for damage to third party property.

You know by now how expensive water damage caused by faults in plumbing can be, or how even the slightest electrical miswiring can lead to entire houses burning down, so if you or your business are held liable for damage due to work you complete, the cost could be enough to put you out of business.



Trades Pack also offers you the option to cover your tools and machinery and electrical equipment (including your mobile phone & tablets).

Home Warranty

Home Warranty insurance is the one type of cover that you as a builder are required to take out, but it actually provides cover for homeowners. This is a mandatory policy designed to ensure the homeowner is not left with a half-finished house if you (or a subcontractor) unexpectedly pass away, disappear, become insolvent or fail to respond to a rectification order within 30 days. The period of the warranty is usually 6 years after the completion of work (except in South Australia where it’s 5 years).  

Workers’ Compensation Insurance

Your employees are also one of your most important assets, and the nature of their work means they’re putting themselves at risk of injury every day. As an employer, you have a duty of care to take all reasonable steps to ensure their safety, however if one of your staff members is injured whilst working for you, the impact on you and your business would be immense. Tools can be replaced, but if an employee is injured whist working onsite for your business, not only will this impact their personal life (and potential future employment), the financial cost to you can be enough to put you out of business as well.  

Workers’ Compensation insurance is a legal requirement for all employers in all states. HIA Insurance Services can assist with Workers’ Compensation insurance in Western Australia, South Australia, Australian Capital Territory, Tasmania, and the Northern Territory. HIA Insurance acts as your broker, and are able to source quotations and arrange insurance on your behalf. If you are in any other state, contact your state’s Workplace Health & Safety regulator to find out about your Workers’ Compensation needs.

Legal expenses

Let us remind you about the story of Joe Massouri* the builder who had to shut down his business because of one non-paying client. Unfortunately, Joe wouldn’t have been the first business ever to shut down due to being inundated with legal costs. If a customer wants to make a claim against a business as they believe they’ve failed to meet expectations, they can get no-win-no-fee lawyers on their side to defend the claim. However, if the reverse is the case and you find yourself having to take legal action against a client due to a dispute (for non-payment or any other wrongdoing), the entire burden of the associated legal costs sits with you.



Construction legal expenses is designed to help cover legal fees incurred in the event you have a contractual dispute with a supplier or customer. This includes cover for legal representation, access to legal advice, and court attendance costs for employees, partners and directors, if required. If a dispute leads to a court order or settlement agreement where you’re required to pay your opponents’ costs, then Construction Legal Expenses can also cover these costs.*

Income Protection

Any business owner will tell you the best part of running their own business is being their own boss, but the worst part? Not having a regular monthly salary. This makes Income Protection Insurance even more important for business owners - if you suddenly find yourself without an income, it would be very hard for you to keep your business running and maintain your lifestyle. Income protection (or salary continuance) insurance pays you a monthly amount when you are unable to work due to illness or injury. Cover can also include lump sum amounts paid to you (or your legal representative) if you are permanently disabled, suffer a trauma or if you pass away.

Other cover

In addition to the policy types discussed so far, HIAIS offer a number of other options which are designed to cover key risks you may face as a construction worker. Policies such as Display Homes Insurance and Environmental Liability Insurance have all been designed with the needs of builders in mind, and help protect you against different areas of risk. While it’s not possible to ever fully de-risk an industry, taking out insurance cover can help make sure you’re not forced to pay large amounts of money out of your own pocket to repair damage, or pay legal costs. Speaking to a broker can help you understand the risks you may face as a business owner, and the insurance options available to you so you can make an informed decision.

How much cover do you need?

When deciding how much cover you need for your construction business, there are a number of factors you will need to consider, such as the total value of your contracts, the number of staff members you have and the value of your tools. As a builder, you’re good at construction, but insurance may not be your area of expertise, and this is where a broker can help bridge the gap. A broker can thoroughly assess the key risks you face as a builder or tradie and talk you through the different options you have.

HIAIS is a brokerage that is well placed to assist builders and tradies get quality cover at a competitive price. Not only are we construction industry experts, we’re also experts in the field of insurance. So, if you take out a policy through us and need to file a claim, we will see it all the way through, and work to ensure you get the best possible outcome quickly.

 

© 2020 HIA Insurance Services Pty Ltd ABN 84 076 460 967 (HIAIS) as authorised representative (No. 275925) of Aon Risk Services Australia Limited ABN 17 000 434 720 AFSL 241141 (Aon).
This information is intended to provide general insurance related information only.  It is not intended to be comprehensive, nor does it, or should it (under any circumstances) be construed as constituting legal advice.  You should seek independent legal or other professional advice before acting or relying on any of the content of this information. Before deciding whether a particular product is right for you, please consider the relevant Product Disclosure Statement (if applicable) and full policy terms and conditions available from HIAIS on request or contact us to speak to an adviser.  HIAIS will not be responsible for any loss, damage, cost or expense you or anyone else incurs in reliance on or use of any information contained in this article.
 
1 https://www.police.nsw.gov.au/__data/assets/pdf_file/0007/95767/brochure.pdf 
2 https://www.insurancebusinessmag.com/au/news/breaking-news/chubb-reports-sharp-rise-in-water-damage-claims-174845.aspx 
3. https://www.ncat.nsw.gov.au/Documents/ncat_annual_report_2018_2019.pdf 
4. This cover applies from 90 days after the start of the period of insurance. The amount in dispute must exceed $5,000.This cover must be specifically selected for inclusion in the Construction Legal Expenses policy.
5. Subject to full terms & conditions of policy.
* All names used in this article have been changed for privacy reasons.

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