The Benefits of Liability Insurance for Construction Businesses

Providing services in the construction industry comes with a huge weight of responsibility. Enormous sums of money are invested in constructing both large and small commercial buildings and residential projects, and further expense is invested in ongoing maintenance. Having the right insurance should something go wrong is essential.

Why you should insure your construction business

Whether you are a business owner or subcontractor working in construction, you face a number of risks. Having the appropriate insurance is vital from both personal and business perspectives, as being insufficiently insured could mean you are left in the deep end when something goes wrong. Depending on the event, you could be out of pocket, paying for the repair of defects, legal fees, and medical expenses, or your business could be impacted to such a degree that you may need to close operations entirely.

In addition to protecting your business from numerous risks, you may need insurance to obtain construction jobs. Some types of insurance are mandatory for those delivering services in construction and are required as part of landing and maintaining contracts. Without the proper insurance, certain work opportunities may not be accessible.

In this article, we’ll primarily look at liability insurance and its benefits. Still, you should consider some other types of insurance when operating in the construction industry. Let’s start by looking at the common risks.

What are the risks?

Here is a list of some common risks those in the construction industry face.

Health and safety

Construction work is inherently risky. Even those not directly involved in particular tasks may be at risk due to a construction accident.

Several safety precautions need to be followed to prevent accidents and injuries onsite. Ensuring all personnel are appropriately trained, use appropriate PPE, and follow safety guidelines is imperative. However, even with all measures in place, mishaps may still occur, so businesses in the industry must be appropriately insured.

It’s also worth remembering that an incident on a worksite could impact members of the public. For example, if repairs are being conducted on a building facade, an object falls to the street below, and a member of the public is injured, your business could face litigation.

Also, if faulty work has been completed, and someone is injured as a result—or their property is damaged—you may also face liability claims.

Construction works defects

Sometimes things go wrong, and the works completed by your company, whether you, an employee or a subcontractor, are found to be faulty. Your client may claim against you, which could result in lengthy and costly legal proceedings and payouts. Even if you are not found to be at fault, the cost of legal proceedings and the impact on your business in terms of time, energy, and emotional costs may be significant.

It’s essential to have the right cover for such circumstances. It’s also worth noting that such claims may arise long after works are completed—years even—so you need coverage for future claims.

It’s also important to consider the level of cover you need. Be wary of underestimating the amount of cover you need, given the high costs involved in the repair of buildings.

Damage to or loss of tools and materials

As part of everyday operations, tools and equipment owned by your business may be damaged, and the cost of repair or replacement may be high. Your essential equipment must be covered, whether stored at your business premises, worksite, or work vehicle.

In addition, materials you use as part of your work, either supplied by the project owners or purchased by you, could be damaged due to fires or storms or accidentally or maliciously damaged. They could also, of course, be stolen.

These materials may be expensive to replace, and it may not be possible to find replacements, particularly with supply and demand challenges immediately. Not having access to essential materials could impact your ability to complete a job in the required timeframes, which may result in clients taking out claims against you for failure to complete work on time. For these circumstances, it’s vital you hold the appropriate tools and materials insurance so that you are covered in the event that materials are damaged or stolen.

The main types of insurance needed in the construction industry

The main types of insurance you will need if you operate a business in construction, or provide services as a subcontractor, are as follows.

Liability Insurance

Liability Insurance covers you if you are found liable to pay claims made due to personal injury or property damage caused by your actions (or those of your employees) whilst completing work for your business.

What is included under Liability Insurance?

There are three areas of cover as part of Liability Insurance for those in the construction industry.

• Public Liability
• Product Liability
• Legal Costs

Public Liability Insurance

This insurance covers you for claims of injury or damage to a third party or their property while you worked on the project. Examples are:

• Your business was contracted to install windows in an apartment. Due to using an incorrect sealant, the windows have leaked, and the carpet in the apartment has received water damage. The client makes a claim against you for repairing the window and replacing the carpets.
• When working on a construction project, a boom lift operated by one of your workers collides with a vehicle onsite—injuring a third party. Public liability may cover you in the instance that the third party makes a claim against you.

Product Liability Insurance

This insurance covers you if a third party claims that an injury or damage to their property was caused due to work on your behalf. Examples are:

• You send employees out to work on a building installing pipe fittings. There’s an error in the installation, and a subsequent leak damages other parts of the building. In this case, you may be liable to pay for the repair and replacement costs of any damaged property. You may also be liable to pay for the time when a third party could not use the building.
• You build a staircase for a client but fail to install the bannister correctly. The bannister dislodges from the wall, and the third party falls and is injured. They take out a compensation claim against you.

Note that sometimes product liability claims are made long after work is completed, so you must ensure you have a policy that covers you well into the future.

Another thing to note is that there are exceptions to what is covered under Public Liability Insurance. For example, if you are found responsible for building something that doesn’t meet the requirements of the building plan or building regulations, then this would not sit under public liability insurance. It may instead sit under Contract Works insurance or Professional Indemnity insurance if covered.

Legal Costs

One of the significant benefits of Liability Insurance for a construction business is that it may cover your ongoing legal costs. Defending litigation can be enormously costly. Even if your business is not found to be at fault, the costs in legal fees and the time costs can have a huge impact, so it’s important to be covered.

Construction Works Insurance

Construction Works Insurance (also known as Contract Works Insurance) is a form of insurance that covers you during the period of the build for any loss or damage that may occur. The cover period spans from the beginning of your work on the construction to its completion; however, sometimes, the cover may need to be extended if the contract extends. (This would require negotiation with your insurance company to ensure your cover can be extended.)

In addition to often including Liability cover, Construction/Contract Works Insurance generally includes material damage insurance, which covers the damage or loss of materials during their use as part of the construction (this may include hired equipment). It also covers them if they are damaged due to storms and floods, fire, natural disasters like earthquakes and cyclones, construction collapse, vandalism and theft during the construction period.

Tools and Equipment

Your own tools and equipment are not usually covered under Construction Works insurance. As these items are generally costly to replace, taking out additional cover for these important items is worthwhile.

Professional Indemnity Insurance

Professional Indemnity Insurance is highly recommended if you have any involvement in building advice as part of your business activities. It can cover your business in the instance that someone alleges you provided incorrect advice that resulted in property damage, financial loss, or injury to a third party.

It also covers you for claims of compensation for mistakes made by you or one of your employees for shoddy work that resulted in any of the above (property damage, financial loss, or injury to a third party). It may also protect you against allegations that you were in breach of professional duty or negligent in your role.

Worker’s Compensation Insurance

In most Australian states and territories, Worker’s Compensation Insurance is compulsory. Taking out this insurance means your business is able to cover the costs that apply if a worker becomes sick or injured because of work. It includes payments to employees to cover their loss of earnings, medical expenses and rehabilitation.

It’s worth noting that Worker’s Compensation may cover more types of workers than you imagined, including:

• Full-time staff on salary
• Part-time and casual workers
• Contractors and subcontractors
• Those working on a commission for your business.

Suppose you employ staff in any capacity (even subcontractors). In that case, it’s imperative to refer to the worker compensation scheme for your state or territory to see what is applicable in your situation and to ensure you take out this type of insurance if necessary.

How do I know what types of insurance I need?

What insurance you need will depend on a number of factors, including:

• What type of work you are conducting.
• Your role in the project, whether that be as an owner-builder, contractor or subcontractor, and so on.
• What type and size of project you are working on.
• If you’re employing other workers as part of the job.
• What materials and tools you need to use, and how you store, transport and secure them.
• What insurance the owner builder has already taken out, and how you may already be covered under this.

There are many other factors that also come into play. The best way to understand what insurance you need is to have a discussion with an insurance broker well-versed on the insurance needs of those working in the construction industry.

Considerations regarding Construction Insurance

There are some important factors to consider when it comes to understanding how you are covered under general Construction Insurance. Here is a list of some things to think about.

• Be certain of all parties insured under any insurance policies you take out. You need to know if your subcontractors are insured, and if you are a subcontractor, you need to understand if you have any cover under your employer’s insurance.
• If you are under the impression that you are insured under the owner builder’s policy, ensure you obtain a copy of the certificate of currency so that you can show this to your own insurer and be certain you have the cover you need. Do not commence work until you are certain you have the right cover.
• If the contract you are working on needs to be extended, remember to contact your insurer as soon as possible to negotiate an extension.
• Most insurers offer the option of an annual policy as well as project-based policies. An annual policy may be more cost-efficient for you, especially if you work on a number of different projects over the year. Regardless of which arrangement you choose, be sure to make sure that you receive the coverage you need.
• Some things won’t be covered under Contracts Works Insurance, and/or under Liability Insurance, and it may be up to your business to repair damage or pay for repairs out of your own pocket. Be sure to thoroughly read your policy to ensure you understand when you are and aren’t covered.

Mitigating risks

There are a number of precautions to take to mitigate risks of damage to persons, materials and equipment. An insurer will want to see that you have adequate measures in place to ensure that materials, tools and equipment are stored securely, that all your employees are appropriately trained and hold relevant tickets to perform their work, and that they are wearing appropriate PPE, amongst other measures. The precautions you are able to take will impact your insurance premiums, so the more risk-prevention measures you can put into place, the better.

Steadfast Eastern Insurance Brokers

Steadfast Eastern Insurance Brokers are experts in knowing what insurance you need in the construction industry, regardless of your particular role. Contact us today to discuss your specific circumstances and find the best insurance policies for you.