One of the most common (and complicated) issues we see from builders isn’t good old fashioned accidental damage. It’s far more costly over time, in reputation, time and money: defective workmanship allegations and the inevitable question of who pays to put it right.
What consistently catches builders out is not a lack of care or competence, but the gaps these issues fall into between:
- Your contractual responsibility (what your contract says you are liable for)
- Your legal responsibility (what the Building Act and Consumer Guarantees Act for example say you are responsible for)
- Subcontractor liability (what they are contractually and legally liable for)
- Site documentation (what has been agreed in terms of scope, variations, sign-offs)
- Client expectations (often different to the builder because of poor communication)
- What your insurance policy actually responds to (what it is intended to cover vs what the builder hopes or wishes it will cover)
When those don’t align, disputes escalate quickly, and builders can find themselves personally exposed even when they believed they were “insured for it”.
Contract Responsibility Isn’t the Same as Insurance Cover
Most building contracts place broad responsibility on the builder for workmanship and defects. That’s normal, and in many cases unavoidable. The problem is assuming that because the contract says the builder is responsible, the insurance policy must automatically step in.
In reality, most contract works and liability policies are not designed to pay for the cost of fixing defective workmanship itself. They are designed to respond to resulting damage or accidental loss, not the original fault. That distinction is where many claims fall over.
Many public liability policies now include cover for fixing defective work, but the cover differs from insurer to insurer and it only applies in specific situations, such as after the work has been completed and handed over before the defects are discovered.
The other point to note is the liability insurance specifically excludes cover for liability assumed in contract, unless that liability also attaches as a result of legislation or common law (such as negligence).
Documentation Is Often the Weakest Link
Even where insurance could respond, poor site documentation regularly undermines a builder’s position. Unclear scopes, verbal variations, missing approvals, or incomplete sign-offs make it difficult to show where responsibility truly sits.
We often see disputes where the real issue is not the work, but whether a change was agreed, who instructed it, and whether it was signed off at the time. Without clear records, insurers, lawyers, and adjudicators default back to the contract, which may not favour the builder.
The same applies with regard to subcontractors’ obligations, where the main contractor is held liable for defective work caused by subbies.
Policies Do Exactly What They Say, Nothing More
Insurance policies are technical documents, and they respond exactly as worded. Exclusions for defective workmanship, “your product” definitions, and sub-limits all matter. Assuming cover exists because “this happened on site” is one of the fastest ways to be disappointed at claim time.
Reducing Exposure Without Over-Complicating
The good news is that reducing this risk doesn’t require endless paperwork, turning builders into lawyers or taking out more insurance. The simplest steps are often the most effective:
- Use contracts, including with both your customer and your subcontractors
- Be disciplined with scopes, variations, and written approvals
- Keep contemporaneous site records and sign-offs
- Take photos, document everything and get it in writing every time
- Understand, before there’s a problem, what your policy does and does not cover
In a Nutshell
Defective workmanship disputes are rarely about one single mistake. They’re about gaps. Closing those gaps early is one of the most practical forms of risk management a builder can put in place.
For more on this, check out our free Risk Audit: https://builtininsurance.co.nz/risk-audit and risk checklist: https://builtininsurance.co.nz/forms/key-risks-checklist
