We recently helped a new customer change insurer (and broker) after it was discovered that they had been insured, incorrectly, as a project manager rather than a building contractor.
It turns out if that customer had needed to make a claim (which fortunately they hadn’t) it most likely would have been declined, since the insurer they had been placed with did not provide cover for anything that involved physical construction work.
This highlights a common disconnect between how builders describe what they do and how insurers interpret those activities.
The Example – PM Homes
In this particular case PM Homes (not their real name) is a typical building company that provides full design & build solutions, from consultation and design through to construction. The also advertise house and land packages.
Because they don’t employ any builders and engage sub-contractors to do all the carpentry and other works they considered their services to be that of simply managing each project, rather than doing construction.
However, they are entering into full build contracts with customers (and in some cases turnkey contracts), so in that sense they are providing construction services, even if those services are delivered on their behalf by sub-contractors.
The same applies to their design services. Even though this work is actually done by a qualified designer, the contract the homeowner has for the design is with PM Homes, so they are responsible for it.
The Insurer’s View
Party to the Building Contract = Building Contractor
Insurers consider project management to be when a person or business manages someone else’s project for a fee. For example, if you are contracted as an independent party to oversee (manage) a contract between a homeowner and another builder.
If you sign a building contract with a customer then you are considered by insurers to be a building contractor, even if you don’t physically do any of the work and just manage the sub-contractors, buy materials etc. That’s because you have the liability of a building contractor (since you are the main contractor on the building contract). This is very different from the liability of a project manager and means the premium charged needs to be different according to the higher risk profile.
House & Land Packages = Property Developer
If there is an aspect of developing land then your insurer may consider this to be property development, which attracts a different risk profile again (premium and policy conditions). House and land packages, where the builder owns the land and is subject to the Resource Management Act, has RMA conditions imposed, and/or is doing work considered to be civil construction, may fall into this category.
If your policies have the wrong occupation listed then you won’t be covered, since you are only insured for the activities shown on your policy schedule.
What Now?
Review your liability and professional indemnity policies to make sure the activities shown accurately reflect the work you do. If you take on a job that isn’t covered make sure you inform your insurer.
In a Nutshell
You are only insured for the activities described on your policy. Insurers consider project management differently than what you as a builder might consider it. If you are signing building contracts with clients then you are a builder, even if you subcontract out all the work and don’t physically do it, or employ carpenters yourself. You have the liability of a builder, so the insurer needs to charge a premium and set policy terms based on that. The same applies if you are taking on risk associated with developing property.