Q&A Resource for Builders and Homeowners
Prepared by Retro Construction Ltd
1. Who should hold the contract works insurance – the owner or the builder?
For renovation and extension projects, it is generally recommended that the property owner arranges the contract works insurance as an extension of their existing home policy. This ensures a single insurer covers both the existing structure and the new works, simplifying claims and preventing disputes.
- Owner Arranges Insurance (Recommended for Renovations/Extensions)
Advantages:
- Single insurer covers all damage, avoiding disputes between two insurers.
- Existing structure and new works are insured under one policy that can avoid disputes between insurers.
- The owner maintains control and visibility over coverage, values, and claims.
- Clear valuation control for total property value.
- Owner can choose coverage extensions and add even more in the process (e.g., natural disasters).
- Owner manages the process with their insurance and may know their existing cover best and how to deal with their insurance, on the contrary the builder probably have past experience with specific contract works insurance so in this case it really is dependant on who the best candidate would be between the parties and who would be able to arrange, manager the cover and any possible disputes best.
- The Builder may add a margin on the cover and charge a management fee, which may be exuberant for the owner is their cover is already on the higher end.
To be aware of:
- Can be complex or costly to arrange through a standard home insurer. Separate cover may be needed by the property owner if their current home insurance cannot offer contract works cover, which might become more complex to arrange, therefor having to use a separate company should be avoided, if possible.
- Homeowners might overlook certain construction-specific risks, but with the help of their broker, they can ensure to avoid cover misunderstandings or risks, having gaps in their coverage. (Where needed the Builder can be consulted about any technical procedures, or for other reasons).
- Requires management to ensure continuity of cover, which is mainly applicable closer to the end of the project to ensure it is extended, if needed and ensures for the correct sums all the way through.
- Builder needs to ensure that the cover document is shared with them.
- Builder Arranges Insurance (Less Suitable for Renovations)
Advantages:
- Builder may be more familiar with insurance requirements and may be able to arrange cover quicker.
- Builder can handle claims related to work performed, if any claims arise, however owner may prefer to handle claims themselves.
- Owner is not involved in the administrative process.
To be aware of:
- Usually does not cover the existing structure—only the new works and materials.
- Covers subcontractors under one umbrella policy, which is usually a “broad-spectrum policy” and may not provide enough cover. It could also easily incur double cover as most sub-contractors have their own cover, therefor it is rather suggested that Builder checks for cover with his sub-contractors.
- Can create disputes between builder’s and owner’s insurers if there is two covers.
- Owner has no control over the policy terms or claims process.
Recommendation:
For renovations and extensions, the owner should extend their existing home insurance to include contract works cover for the duration of the project. The builder must still maintain their own public liability (for third-party or neighbouring property damage) and professional indemnity insurance (if design work is involved).
2. If a client uses their own home insurance for the project, will they be charged extra?
Yes. If a homeowner extends their home insurance to include contract works cover, insurers typically apply an additional premium or loading. The cost depends on project scale and duration.
To be aware of:
- Premium Increase: The insurer reassesses risk and may raise premiums during and after the project.
- Loss of No-Claims Bonus: Any claim made can remove or reduce the discount as with any claim.
- Coverage Adjustment: Insurers may impose higher excesses or exclusions specific to construction during the building period.
- Disclosure Requirement: All works must be disclosed; failure to do so can void coverage.
- Future Insurance: Claims may affect the owner’s ability to obtain competitive future policies, as with any claim.
Recommendation:
Using home insurance for building work is acceptable, but owners should inform their insurer before the start of the project and request written confirmation of contract works cover to avoid invalidation.
3. Which is more affordable – the owner or the builder arranging contract works insurance (not considering benefits in this instance although careful planning to find a good balance is advisable if pricing is a factor)?
For renovations and extensions, it is usually more affordable and practical for the owner to extend their existing home insurance.
Why Owner-Arranged Cover Is More Cost-Effective:
- Avoids duplicate policies between builder and homeowner.
- Often treated as a one-off “renovation extension” by insurers.
- Based only on the specific contract value and project duration.
- Maintains continuity of coverage on both new and existing work.
Why Builder-Arranged Cover Can Be More Expensive:
- Builder’s annual policies mainly suit new builds, not alterations.
- Policies may exclude existing structures, forcing owners to obtain separate cover anyway.
- Builders may apply markups to one-off policy costs.
Indicative Costs:
Specialist renovation policies cover could range between 0.4% and 2% and these rates could possibly be discussed with the owner’s insurance company to obtain the best premium for the duration of the cover. It will also be important to mention to your insurance if the renovation will be done in parts and over different periods and adapt cover accordingly to limit unneeded costs where and if possible.
4. If the owner fails to arrange contract works insurance after agreeing to, can they still hold the builder liable?
Yes, but it becomes more complicated.
Key Points:
- The owner has breached the contract by not arranging insurance, but this does not remove the builder’s legal liability for negligence or breach of statutory warranties.
- Under the Building Act 2004, builders remain liable for work that is not carried out with reasonable care and skill, is not fit for purpose, or fails to comply with the Building Code (up to ten years).
- Builders are responsible for any damage they or their subcontractors cause up to practical completion.
- Builders should still hold public liability insurance to protect against third-party damage or injury.
Practical Outcomes:
- The owner may have to pay for repairs first, then seek reimbursement from the builder.
- Legal action (e.g., through the Disputes Tribunal or courts) may be required.
- Disputes often arise over whether the cause was an insured event or builder negligence.
5. What other insurance should builders carry besides contract works?
Essential Builder Insurance Types:
- Public Liability Insurance: Covers third-party property damage or injury caused by work.
- Professional Indemnity Insurance: Protects against design or advice-related claims.
- Employer’s Liability or ACC Top-Up: Covers employee injuries not covered by ACC.
- Tools and Equipment Insurance: Covers loss or theft of tools on-site or in vehicles.
- Vehicle Insurance: For work vehicles used to transport materials or tools.
Tip:
Builders should keep insurance certificates current and provide copies to clients upon request, where applicable to the build. (We can confirm that we carry all the needed insurance in line with the above and as suggested by our brokerage firm).
6. What are common insurance pitfalls during renovation projects?
Typical Mistakes to Avoid:
- Starting work before insurance coverage is active.
- Failing to declare renovations to the home insurer at all or adequately.
- Assuming the builder’s policy covers existing structures.
- Underestimating total replacement cost (underinsurance).
- Not listing all relevant parties, such as the builder as insureds. (These have more pro’s than con’s, more reading up is suggested).
- Overlooking exclusions for flood, storm, or earthquake damage.
- Not ensuring cover and cover amounts is always in place, especially when extending the cover if the project goes over the scheduled date.
- Not working with a broker to ensure there is no cover gaps and that the cover is taylor made.
- Not paying for the cover.
Best Practice:
Confirm coverage dates, scope, and sums insured in writing before starting work.
7. How should insurance responsibilities be written into the contract?
Recommended Contract Wording Example:
“The Owner shall arrange and maintain Contract Works Insurance covering the existing structure and the new works for the full duration of the project. The Builder shall be named as a co-insured party. The Builder shall maintain Public Liability Insurance and provide evidence of such cover upon request.”
Why This Matters:
- Clarifies who is responsible for each policy and covers each party to the benefit of all parties and the complete build.
- Prevents disputes during claims.
- Ensures both parties remain protected if the unexpected occurs.
