Construction Insurance – even it is an old term many people in New Zealand still use to these days when they want to insure a building site
This article is about Construction Insurance.
If you are building a new house or planning to do major restoration to your home, you must have a Construction Insurance policy or Site Cover Insurance. This article is designed to help you to answer all possible questions you might have in relation to Construction Insurance policy so that once you ready to start your project you will be equipped with enough knowledge about the right insurance policy for your building site.
A building company can apply for a yearly renewable cover that would cover multiple projects.
Construction Insurance can be arranged by your builder or by yourself. I would strongly advise having Construction Insurance on your personal name or the name of the entity building the house like your trust or company. Or if you use a mortgage to build your new home and the loan is drawn on your personal name then you would want to insure your construction site under your name and if you use your trust or company then Construction Insurance should be issued under the trust or company’s name.
If you are planning to build new house Construction Insurance will cover your losses and damages in events like fire on the building site or natural disaster (think of earthquake as an example).
Keep in mind if you want to do a “do-up” or to add a bedroom to your house or any work which can be seen as “constructional changes to your house” you must have Construction Insurance. Effectively you are going to have the following insurance structure:
- House Insurance
- Construction Insurance
- Building company must have Public Liability Insurance.
Let me explain it even further, let’s say you had a fire due to the fact that builders were using an open flame (using a torch while installing new roof shingle) you will not be able to claim under your house insurance if you did not have Construction Insurance. You would have to chase down builders’ insurer for Public Liability. Most likely by that stage, you would also have problems with your bank, due to the fact that house insurance is your responsibility and one of the home loan conditions.
Construction Insurance – what is important?
There are a few important parts which you would want to know about Construction Insurance:
Contract works – what is that?
All permanent and temporary works to be executed in the performance of the insured contract during the period of insurance, plus all goods and materials to be incorporated therein, being your property or for which you are responsible, while at the contract site.
Sum insured definition:
The sum insured applicable to contract works must not be less than the estimated replacement value of the contract works on completion of the work.
Replacement value: how to calculate it?
The replacement value must include all materials, wages, freight, customs duties, and dues if any including the value of any goods or items supplied by the principal. Work being performed by subcontractors may be included provided provision has been made for such work within the sum insured.
Principal supplied goods what is that?
Those goods, materials, plant, equipment or other items supplied to the contractor free of charge for inclusion in the contract works. Keep in mind that Construction Insurance can be issued under your name and you can specifically nominate a building company.
Removal of debris (if you had a claim) what would be covered?
The costs and expenses necessarily incurred at the contract site in consequence of an insured peril (example:- you had a fire on the site and now all the debris have to be removed) which results in loss to the contract works in:
- removing debris of the portion(s) of the property insured which has sustained loss;
- demolishing undamaged portion(s) of the property insured to enable the contract works to be continued;
- shoring, propping up or supporting of undamaged proportion(s) of the property insured to enable the contract works to be continued;
- effecting other necessary measures including temporary repairs to protect the property insured from further loss, or to allow the continuation of the insured contract.
Professional fees: what does this cover?
If you had a claim and now have to use again professionals like architects, surveyors, and consulting engineers. All those fees that have been necessarily incurred in the reinstatement of the “contract works” consequent directly upon loss to the contract works for which indemnity (cover) is provided (but excluding any fees for preparing a claim); provided that the amount payable for such fees will not exceed those authorised under the scales of the various institutions regulating such charges prevailing at the time of loss.
Increased costs during construction (this one is very important)
The costs incurred for fluctuations and variations in the contract price agreed between the contractor and the
principal and variations and increases in the cost of labor, goods, and materials during the period of construction. An example here is – think about Christchurch’s situation – it is a completely different situation when you have to rebuild a house to compare to the situation where many houses getting build. Builders charge higher fees when the market has higher demand.
Increased costs during reconstruction (same as above and)
The actual amount by which the costs of reconstruction of the contract works exceeds the original estimated replacement value of the contract works provided that the reconstruction is completed without delay. Keep this in mind – see or think of this as a contingency plan better be ready rather than sorry.
Insurer’s total liability under Construction Insurance will not exceed, in respect of each item, the sum insured shown for that item on the schedule. Example – at the time of application you decided and specified that your Construction Insurance contract should be for $500,000 and this would be the limit your policy would pay.
Transit of goods and materials including temporary storage
Construction Insurance will cover you in respect of goods and materials for incorporation in the contract works whilst in transit from suppliers including any temporary storage in premises, other than manufacturers premises, within New Zealand to the contract site, provided that:
- you are responsible for the property whilst in transit (make sure this is discussed, it can potentially be a very grey area of your Construction Insurance contract).
- any temporary storage of goods and materials on the way to the contract site will not exceed 90 days.
Construction Insurance will pay up to $50,000 anyone conveyance.
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Note: Construction Insurance is only for Contract works where the contract period is less than 24 months, contract value is less that $4 million dollars and replacement of existing structure is less than $2 million dollars.
If you have a valid claim under your Construction Insurance your insurer will also cover you for the costs incurred for the delivery of any part or parts by overseas airfreight, provided that the airfreight carriage is by regularly scheduled airline service. Construction Insurance will pay up to 5% of the contract sum insured including the value of principal supplied goods unless an alternative amount is shown on the schedule.
What is “Hot Work”?
“Hot work” means work such as grinding, cutting or welding operations, the use of blow lamps and torches, the application of hot bitumen or any other heat-producing operation.
Hot work condition (this one is extremely important to make sure your builder understands it)
You will make all contractors aware that when any hot work is carried out by their employees or sub-contractors that the following procedures should be complied with:
- hose reels or adequate portable firefighting equipment must be kept at hand within the vicinity of any hot work operations;
- waste material is to be removed from the contract site at least once weekly. In addition, any combustible waste is to be cleared from the vicinity of any hot work performed at the end of each working day;
- the area of any hot work is examined one hour after the work has been finished;
- any hot work is to be carried out under the supervision of the site foreman, or equivalently designated person responsible for the performance of the insured contract;
- adequate protection will be given where necessary to any other part or parts of the contract works.
It is warranted that tarpaulins will be securely fastened over any part of the roof or other exposed openings at the end of each workday or when work ceases due to weather conditions.
Reinstatement of the amount of insurance
In the event of a loss for which a claim is payable under Construction Insurance, and in the absence of any written notice by the insurer the amount of insurance canceled by such loss will be automatically reinstated.
How would your Construction Insurance claim be paid?
In the event of loss to the property insured, for which indemnity (cover) is provided under Construction Insurance, the basis of any settlement will be:
- in the case of damage which can be repaired, the cost of repairs necessary to restore the item(s) to their condition immediately before the occurrence of the damage less any salvage and less any excess; or
- in the case of a total loss, the actual value of the item(s) immediately before the occurrence of the loss, less any salvage and less any excess; but, only to the extent that the amounts claimed have been borne by you and to the extent that they have been included in the sum insured.
Keep in mind that your insurer will make payments only after being satisfied by the production of the relevant invoices, receipts and other documentation showing that the repairs have been effected or replacement has taken place.
All damage that can be repaired will be repaired, but if the cost of repairing any damage equals or exceeds the value of the items immediately before the occurrence of the damage, the settlement will be made on the basis provided for in above. If the repair has commenced and any parts are found to be unprocurable, our liability will be discharged by effecting such repairs as may be possible and paying to you in respect of those parts that are unprocurable the cost that would have been expended in purchasing parts of an equivalent condition to those lost.
How would excess apply?
- a series of events arising from or caused by an earthquake, hydrothermal activity, volcanic eruption, subsidence, erosion, flood, inundation, landslip, cyclone, storm or tempest during any period of 72 consecutive hours will be treated as one event;
- the excess shown as applying to contract works will also be applicable to professional fees and removal of debris. In the event of a loss arising from the same source and original cause giving rise to a claim against more than one of these items, the excess will not be cumulative. The aggregate adjusted loss will be subject to the highest excess only being applied.