Public liability insurance is one of the most important policies that a tradesman should have. It is intended to protect you from the cost of damaging other people’s property and in some cases causing them injury. Like any insurance policy, there are exclusions to make clear the things that are not intended to be covered by the policy.
In part two of our exclusions series we explain, in plain language, some of the exclusions in public liability insurance policies that are more likely to affect builders & tradespeople.
Building Defects, Mould, Rot, Gradual Deterioration & Water Penetration. As a result of the leaky homes crisis many policies from general insurers now exclude cover from the effects of water penetrating a building envelope. As the multi-billion dollar cost of the crisis became clear, insurers decided that the cost of future leaky building claims was too high for them to bear and amended their policies to exclude it. Separate policies that protect builders from claims of financial loss related to leaky homes, such as Builtin’s E&O Indemnity, are available. Leaks from internal pipes and water systems are still covered by public liability insurance.
Errors in Professional Advice. You are generally not covered for damage that results from bad advice, or where you haven’t given advice that you should have, if you’ve charged for the advice. As an expert your clients are entitled to rely on what you say and if you get it wrong they can hold you liable for the cost of this mistake. If you gave the advice for free then you may still be covered. In some policies, such as that from Builtin, you can add this cover back for a modest additional premium.
Defective Design. Costs arising from to a defective design or specification are excluded from cover. You should be wary of doing any design, whether that’s architectural, engineering, whole house or a specific detail, unless you have separate professional indemnity insurance that specifically covers this.
Your Products, Materials & The Property You’re Working On. Public liability insurance is intended to cover the cost of damage to other people’s property. This means products that you own, supply, install or construct are excluded under most policies. This becomes tricky for tradespeople because of the way insurers define what “your products” are. Along with the obvious, “your product” may also include any property that you have been, or are working on. When it comes to claims from builders, the house you’re building has been interpreted as “your product”, and therefore not covered because of this exclusion. However, some policies make it clear that buildings, or separate components of a property, will still be covered. As a builder, these are the policies you want.
The definition of “your products” is one of the most important aspects of your policy and we strongly recommend that you switch to a policy with a more “builder friendly” definition.
Next article: We cover exclusions for liability you’ve contracted into, loss of use, defamation, defective workmanship and property you’ve hired or are looking after.
This article is intended to clarify some of the exclusions contained within most general/public liability policies available from major insurers in New Zealand. Some exclusions can be removed by purchasing an extension to your policy, so it’s important that you check what your own policy does and doesn’t cover. The specific wording from different insurers will vary and you should seek the advice of a professional if necessary. This article is not comprehensive and should not be relied upon as legal advice. Insurers will interpret and apply their own policy wording depending on the specific circumstances of each individual claim.