What insurance and guarantees do I need to declare to my customers under the new Building Act rules?
From the 1st of January 2015 all builders are required to disclose certain information to every client on jobs worth more than $30,000. If you don't you could potentially face a penalty. This disclosure includes 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?
This includes product warranties, non-completion and defects guarantees. You must specify the time period covered and any limits or exclusions.
Builders can offer their clients the type of non-completion and defects guarantees mentioned here. These typically protect the homeowner in the event that their builder is unable to complete the job or return to fix defects. This is usually because the building company has gone into liquidation or otherwise stopped trading. These guarantees last up to 10 years for major defects and have varying levels of financial cover for homeowners.
Benefits for homeowners include the peace of mind of knowing that if there is a problem their financial investment in the build is backed by a third party. These guarantees 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 that their policy is in place.
There are limits on the amount of cover for each section of the guarantee as well as time limits, two years for non-structural defects and ten years for structural defects. Common exclusions include: owner supplied materials and owner arranged sub-contractors, consequential damage, works outside the building envelope, damage or loss covered by other insurance, contractual disputes.
The regulations mention some policies specifically and say that you must specify the amount and any relevant exclusions. But can you decide which exclusions are relevant, and what if you get it wrong?
Contract Works Insurance – protecting the project from hazards such as theft, accidental damage, storm, fire and natural disaster.
Every job should have contract works insurance in place, contracts will require it and if it’s a new build the builder is generally responsible for arranging it. It should name the builder, owner and sub-contractors, so all parties are covered.
However, if the job is a renovation, alteration or addition it is usually the owner, not the builder, who should arrange contract works insurance through their existing house insurer. Again, it should cover all the parties involved in the build.
Common exclusions include: damage to existing structures, consequential loss, contractor’s tools and equipment, partial occupation, workmanship & design.
Public Liability Insurance – 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, there is an insurance company with deep pockets available to 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 – protection if you’re held liable by someone for a financial loss they have suffered (that has not resulted from accidental damage). Eg. use of the wrong materials or failure to correctly follow a design or specification.
People are now more willing to take the original builder of their house to court if they’re not happy with some aspect of it. It has been difficult for trade professionals to get indemnity cover that suits their occupation in the past, but 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 but probably worth disclosing is the commercial motor vehicle cover you hold, in particular the third party liability aspect, which covers the 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 having to decide what the “relevant exclusions” are that 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.
For a quote from CBA Insurances please complete our online quote request form here: Quote Form. Or give us a call to discuss your situation.