Builders' Risk Insurance

CHRIS RYAN - Chief Executive of the New Zealand Insurance Council

Theft of material and appliances from building sites is a growing problem. Builders' risk insurance policy provides cover for theft. However, depending on how well the site can be protected, policy deductibles vary.

Last year an Insurance Council member paid a $30,000 claim for damage caused by thieves who ripped out a dishwasher over a weekend from a nearly completed home while the water was on. The flooring in the house, after being subjected to hours of flooding, began to disintegrate. Significant repairs were required.

We are told that home appliances, even electric cabling, copper piping, and electric hot water cylinders are attractive to thieves. Piping and wiring is often stolen so that they can can earn proceeds from the scrap.

Even though insurance will cover the financial loss, the building project can be delayed months while consequential damage caused by thieves is repaired.

The Insurance Council urges property owners, builders and developers to pay particular attention to building site security. Often, if you are still living in your home while the building work is ongoing, theft risk is greatly reduced.

There is a tendency for homeowners to overlook builders' risk insurance when renovating. Some insurers provide a small extension in cover under the normal household policy, but this cover is often limited and is really for the homeowner who does their own maintenance.

Significant renovations need to be advised to your insurer in advance so that a builders' risk insurance policy (also known as contract works) can be arranged. The insurer will normally ask you the following questions:

What is the value of the building work?
How long will the building work take?
Who are your builders or contractors?
What are the construction, building consent and engineering issues?

Insurers will also want to know about any excavation work that may be involved in your project.

Your insurance company will then issue you with a policy, which should be in joint names of you as the owner, and your builder. This ensurers that both you and your builder are jointly insured. Your mortgage lender may ask you for their interest to be noted on this policy.

When doing your renovation you have to consider liability insurance in case your building works damage neighbouring properties. For instance, you might have loose building materials blowing around or, at worst, part of your construction could collapse on your neighbours property.

The recommended steps are:

Make sure your builder has public liability insurance of at least $1million
Ask for a copy of his public liability insurance certificates before you sign any agreements
When you discuss the builder's risk insurance with your insurance company, ask for a separate liability policy that will act as a back-up to your builder's liability policy not responding to a liability claim. This can happen. Liability policies do have exclusions, or your builder could inadvertently void his own policy

Builders' risk insurance covers damage to the building works, but will not cover faulty workmanship or bad design. Ensure that your builder is qualified and that building work has got your councils approval.