Contract works insurance, also known as contractors all risk or builders risk insurance, is designed to protect the construction project from physical loss or damage. This typically includes the work in progress and materials on-site.
However, one area of concern often arises: does the contract works insurance also cover existing structures? This depends on a number of factors.
The definition of Existing Structure in the policy wording
This is critical as it limits the type of existing structures that can be covered without expressly being approved by the insurer. Here is a common definition:
Structures and/or property which existed at the contract site prior to the commencement of the contract works and which are included in the sum insured for existing structures shown in the schedule and which will be worked upon as part of the contract works.
Highlighted in bold is the critical phrase “and which will be worked upon”. Any existing structure on site that is not being worked on, regardless of whether the policy has an existing structure value specified, won’t be insured.
Examples of this type of structure are retaining walls, septic systems, fences, sheds or garages that are on the property but not being worked on. These are quite likely to be uninsured if there isn’t an existing building already on the site. But including them as “existing structures” on the contract works insurance isn’t an option as they aren’t being worked upon. In this case these structures need to either be separately insured or the insurer needs to expressly approve them being added to the contract works policy as an endorsement.
Existing Structures that are already insured
For good reason, if a building is already insured then cover for the works should ideally be arranged with the same insurer. That way if there is damage that affects both the existing structure and the works there won’t be any arguments between insurers over which parts of the claim are covered as existing and which are new.
However, in some cases the existing insurer, while continuing to maintain cover on the house from normal perils, won’t cover damage caused by the performance of the building work. For example, accidental damage caused by a subcontractor; water damage in the lounge from a leaky plumbing fitting in the new upstairs bathroom; or a fire that starts in the works and spreads to the existing structure.
This is where “contract perils” or “performance damage” cover comes in. This extends the contract works insurance to cover damage to the existing structure caused by the performance of the building work. The definition of existing structure still applies as above and a sum insured equivalent to the replacement value of the existing structure must be noted on the policy.
Uninsured Existing Structures
An existing structure could be uninsured at the start of the works either because it was not insurable in the first place (usually due to its condition) or the work that will be done to it is so substantial that the existing insurer won’t continue covering it during the works.
In this case the contract works insurance can cover the existing structure for “full cover”. This includes all perils, not just those caused by the performance of the building work.
Remember, only existing structures that are being worked upon are covered (unless explicitly added by the insurer).
Complications introduced by the new Natural Hazards Insurance Act
The new act defines a dwelling as a building that is:
self-contained with the facilities necessary for day-to-day living on an indefinite basis (including somewhere to cook, sleep, live, wash, and use a toilet).
It also extends that definition to include buildings that temporarily cease to meet the above criteria because building work is being done or disaster damage has occurred, but will met those criteria again once the building work is completed or disaster damage repaired.
For an annoying legal reason this can complicate the ability to arrange contract works insurance on existing structures now, but it also means that your house insurer is more likely to maintain cover on the existing structure while building work is being done, even if that work is substantial.
In a Nutshell
Contract works insurance can cover existing structures, but they need to be being worked upon. Cover can be for performance damage only or for full cover depending on the nature and extent of the work and the condition of the building prior to the work commencing.