Contractors will frequently have a ‘contract works’ section under their contractors all risks policy. This section enables contractors to insure the materials, fittings and works in progress on behalf of their clients. It is perfectly possible, and in some cases, appropriate to rely on this cover – but it will never be possible for the contractor to insure the existing structure, so policyholders will still need to source buildings cover.
The problem here is that specialist contract works providers such as ourselves are not able to insure structures on their own. Our product is a contract works package, so the essential element of cover is the works insurance. This will leave a policyholder needing to source cover from the standard buildings market; and there is very little appetite for structures, usually unoccupied, in the course of a renovation. As a result, the cover achievable is likely to be very limited (FLEEA = Fire, Lightning, Earthquake, Explosion & Aircraft risks only) and pretty costly.
Additionally, if this route is taken, the following difficulties will be present:
- There will be two separate insurers involved, two excesses to pay and the potential for disputes between insurers in the event of a loss.
- The policyholder will not control the works insurance and will not be able to guarantee ongoing cover if the contractor goes bust, walks off site or fails to pay his premium.
- If a JCT contract is being used, and there is a joint names requirement, the buildings cover will almost certainly be in breach of this and this could result in a problematic claims process.
- There will be a disparity in the levels of cover available under each policy (works will be All Risks, structure will likely be FLEEA only; meaning only Fire, Lightning, Earthquake, Explosion & Aircraft risks are covered)
- Damage caused by the contractor will be excluded under the buildings insurance and a policyholder will be forced to pursue the contractor’s liability insurers.
Bear in mind that the contractor’s works insurance will not be project specific. It will be available for any and all projects the contractor is involved in during the policy period. The mere fact that the cover is available does not mean that it has to be utilised.