Building insurance: How to protect yourself against construction risks
Australia has had its share of building defects. Many remember Sydney's infamous Opal Tower which was evacuated on Christmas Eve 2018 when residents noticed large cracks in the structure. Media reports suggest that structural repairs to the building have so far cost $24 million.
Last year a nine-year-old footbridge linking buildings in Perth's CBD crumbled with a sound witnesses described as an earthquake. No one was hurt as the bridge had been cordoned off when cracks started to appear.
There have been 667,394 apartments, flats or units built nationwide from the end of 2000 up until March this year, according to data from the Australian Bureau of Statistics.
The 'Shaky Foundations: the National Construction Crisis' report released last year revealed the cost of addressing the structural and safety defects in affected buildings sits at an approximate $6.2 billion.
It's evident how high the costs of remediation work can be when a construction project doesn’t go to plan. It also underlines the importance for builders of holding a good structural-defects liability insurance policy, to protect against liabilities arising from a structural defect in one of their buildings.
That’s certainly not the only building insurance policy you’ll need, particularly with the boost the residential construction is set to receive with the introduction of the new HomeBuilder program. While requirements differ between states, builders are generally required to hold certain insurance policies as part of the licensing process.
Industry bodies such as Master Builders Australia and the Property Council of Australia can be excellent resources when it comes to working out the insurance requirements in your state. However, as a general guide, builders should carefully consider the following insurance policies:
Home building compensation (HBC): This used to be called home or builder’s warranty insurance. It’s mandatory insurance designed to protect homeowners if you can’t complete the building project or fix defects due to insolvency, deregistration, disappearance or death.
Workers’ compensation insurance: This is mandatory in all states. It provides financial cover against claims associated with illness or injuries your employees experience at the workplace.
Construction works insurance: This generally includes two main parts - liability cover, for third party claims made against you or your business, and cover for damage to physical materials.
Management liability insurance: This protects you from claims associated with how you manage your business, such as regulatory infringements and unfair dismissal.
Income protection insurance: This helps reduce your financial losses if you’re unable to work due to personal illness or injury.
Contractors will likely need their own public liability insurance policy, even if the builder you’re working for has one, as you’re liable for your own actions on a building site. The builder’s insurer may also seek to recover their costs from you if the incident was due to your negligence. A Tradie's insurance policy will not only cover you for public and products liability, but can also include cover for your tools of your trade.
Income protection insurance can also be useful, and legal expenses insurance provides cover for legal expense incurred from an industry-specific contractual dispute with a customer or supplier.. Tool and vehicle insurance policies are also effective ways to protect your possessions on a building site.
It is important to understand any insurance requirements for building contracts that you enter into. Not only do contracts often list the types of insurance that the contractor must carry (typically public liability and workers compensation), however they may also stipulate the amount of cover required.
You should always check that your builder is licensed in your state and holds a current HBC policy. Your builder should also agree to perform building maintenance for a set period after the project is complete, and stipulate a defects and liability period. The terms should be clearly set out in your contract with the builder.
If you do experience a dispute with your builder, there are a few steps you can take. Keep records of conversations with your builder, and take photos of the work you believe is substandard. Put your concerns in writing to the builder, and if you don’t receive a satisfactory response, you can lodge a case with the relevant regulatory body in your state.
Where the building works are renovations, the homeowner should also contact their home buildings insurer or insurance broker to understand how the building works may impact their home buildings insurance.