What Exactly Is Construction Risk Insurance and What Does It Cover?

What exactly is Construction Insurance?

Those engaging in building projects in Australia face numerous challenges. Whether it be contractors in charge of particular works, owner/builders, or master builders, they all handle responsibilities related to work safety, caring for equipment and providing quality building outcomes on a day-to-day basis. For those steering the ship, the challenges and responsibilities are great.

Whilst risks differ according to the particular role a business owner or contractor plays in the industry, in all cases it’s imperative that those working on building contracts be adequately insured by a Construction Insurance policy, in the event something goes wrong.

In this article we’ll outline what Construction Insurance is, what it covers, examples of when it’s required, and how you can organise a Construction Insurance policy to cover your business.

Why Construction Insurance is necessary

Those involved in the construction industry face many challenges, including legal and safety issues, environmental considerations, shortages of qualified staff, economic conditions, union strikes, time constraints and technological changes. All of these factors may impact the smooth operation of a construction business, and cause issues with delays or with the delivery of quality work. These issues may result in claims being made against a company, and is why insurance for the construction site is wise.

Having adequate Construction Insurance means you can:

• avoid costs/downtime
• be confident to commence work, despite risks of litigation
• meet regulatory or contractual requirements that stipulate you need a certain level of insurance for the construction site, (financiers, for example, usually need proof of insurance before they will agree to fund a project).

What are the exposures in the construction industry?

The breadth of risk in the construction industry is wide. Here are a few examples.

Fire risk – this could be from staff smoking, storage of flammable items, or tasks that involve welding and hot works.

Security risk – this could be the security of the site itself, or the equipment held on site. It could also be cyber security, where your intellectual property could be at risk, or the system you use as part of your daily operations is subject to failure or cyberattack.

Staff issues – this could relate to the experience level of staff, and the risks at play if they are insufficiently trained.

Natural elements – construction work is especially prone to risks from the elements as it is conducted mostly outdoors. Buildings and machinery may be damaged before work is completed. Workers may be put at risk in difficult weather conditions, and have to down tools and wait it out. This will impact abilities to deliver work as per contractual requirements.

Who needs Construction Insurance?

Any contractor or builder responsible for carrying out works needs this insurance. This could be an owner/builder, a national builder, or a contractor/subcontractor carrying out specific works as part of a larger building project. (This list is not exhaustive, and other workers may require this insurance.)

Why contractors need Construction Insurance

A contractor is self-employed, and therefore, needs their own cover.

Though contractors may not be responsible for the building project as a whole, they still have responsibilities regarding individual aspects of a project. They may face claims if their part of the overall work fails, or for personal injury to a third party or property damage as a result of their action or negligence.

In many cases, contractors won’t be able to sign a contract without holding stipulated Construction Insurance, so it’s imperative they are properly covered.

Case study

A large number of claims in the last 15 years have included injury to third parties or workers engaged on the site (worker to worker).

A roofing subcontractor, working on a 2 level commercial building, fell off the roof as a result of improper guard rail system.

Work cover in Victoria claimed against the contractor on the basis of negligence. A claim was paid to the subcontractor in excess of $120,000.

What Construction Insurance covers

Construction Insurance is an umbrella term for a number of types of insurance required by those working in the building industry. The types of cover that fall beneath the label include:

• Public Liability Insurance: covers project owners, and those operating as contractors or subcontractors, in the event their negligence results in personal injury to a third party, or damage to property. A common misconception amongst contractors/subcontractors is that the company they’re contracting to is liable to pay public liability claims on their behalf, however this is rarely the case. Contractors must hold their own public liability insurance in order to protect themselves in the event of a claim, and the subsequent significant financial implications of dealing with that claim.

• Income Protection Insurance: covers project owners, and those operating as contractors or subcontractors in the event that they’re unable to work due to injury or illness. This is especially important if you’re a self-employed contractor, as workers’ compensation payouts can’t always be relied upon in the event of onsite injury or illness. The cost of income protection insurance varies depending on age, type of work performed, and additional factors. (A specialist in insurance construction services will be able to determine the cost.)

• Contractual Liability Insurance: covers project owners, contractors/subcontractors for any claims made against them based on the contract of works signed. This is different to public liability, because in this case, they may not have done anything wrong or been negligent in any way—it’s just that the contract has stated they wear responsibility if something goes wrong onsite in the circumstance in question. To enter into contracts for big jobs, often workers will agree to terms that leave them open to risk. Whilst a solicitor should be employed to read over contracts, it’s still vital to have contractual liability insurance. (The larger companies running projects may have the money up their sleeves to pay for legal assistance in the event someone claims against them, but those sorts of costs could ruin a small contracting business.)

• Tool Insurance: covers tools in the circumstance that they are damaged in a mishap (fire, collision etc) and against theft. Note that tools should be secured on a worksite, and evidence of forced entry is required to claim on the basis of theft. Also note, worksites aren’t responsible for covering damage to, or theft of, a contractor or subcontractor’s tools.

How do I know what Construction Insurance my business needs?

There are many types of insurance that come as part of a Construction Insurance package. Different businesses will need different components, depending on the tasks they complete and their responsibilities on building sites. If your business takes out construction insurance, it may differ from another business’s type and level of cover.

SteadFast Eastern’s Construction Insurance package includes the following types of cover:

Contract works:

• Protects the contracted work
• Protects the equipment being used
• Covers against public and products liability

Business Pack:

• Safeguards premises against equipment breakdowns
• Protects against employee dishonesty
• Protects against property damage
• Protects against taxes
• Protects against theft

Cyber:

• Protects digital assets

Motor insurance:

• Covers business vehicles

Professional indemnity:

• Protects against breach of professional duty for design work and construction contracts

Workers Compensation

• Covers employee illness or injury as a result of the employment

Talk to Steadfast Eastern

The best way to know what you need in your Construction Insurance package is to speak with an experienced insurance broker. Steadfast Eastern provides expert insurance construction services, and will be able to spend the time with you to work out what cover you need to operate with peace of mind.

For a Construction Insurance quote, contact Steadfast Eastern.