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Last edited 02 Oct 2020
Self build insurance
Deciding to build, renovate or extend a property involves a lot of planning and the risks associated with such a project are quite varied and diverse. It is a serious investment that requires the protection of the right insurance package and specialist risk and insurance advice from a construction professional.
There are a number of online ‘self-build’ insurance ‘products’ that can be purchased with a minimal question-set and with little or no advice around how to assess risk, your legal duties, which aspects are insurable and your options as to how you can effectively transfer the risk in a cost efficient way.
 Construction (Design & Management) Regulations 2015
The Construction (Design & Management) Regulations 2015 (referred to as CDM) are the main set of regulations for managing the health, safety and welfare of UK construction projects and apply to all building and construction work and includes new build, demolition, refurbishment, extensions, conversions, repair and maintenance.
• The client ensures that the construction project is set up so that it is carried out from start to finish in a way that adequately controls the risks to the health and safety of those who may be affected.
• The principal designer manages health and safety in the pre-construction phase of a project. The role extends to the construction phase through the principal designer's duties to liaise with the principal contractor and ongoing design work
• The principal contractor manages the construction phase of a project. This involves liaising with the client and principal designer throughout the project, including during the pre-construction phase.
They are outlined as -
• the pre-construction phase: the inception, design and planning stage of a project (before the construction or building work starts), although it is acknowledged, design and planning continues into and through the construction phase.
At this stage, packaged insurance products are useful in combining the various elements of cover required, but we would always advise you to seek the advice of a construction specialist broker on which product and cover options are best for you and your project to prevent underinsurance, gaps in cover and dual insurances.
Contracts for all types of projects are available from various sources (e.g. JCT, trade associations), however we would recommend that you seek appropriate professional legal advice when considering which contract is most suitable for your project.
Contracts can help all parties agree and clarify insurance responsibilities for a project. They certainly help us understand the insuring responsibilities on a project and ensure we provide the right advice.
The JCT Minor Works Building Contract (Minor Works) is designed for smaller, basic construction projects where the work is of a simple nature. The insurance provisions are therefore shorter and simpler than those in other contract forms, such as the JCT Design & Build Contract. However, it is still very important to carefully consider the insurance provisions contained in Section 5 of this contract form and ensure you meet project requirements.
Public liability (or land owners liability) insurance protects you against the cost of unanticipated incidents that can occur and where property owners are legally liable - such as trip or fall injuries to third parties or visitors - whether the injured party is there for legitimate purposes or not.
Public liability insurance for a plot of land only is not compulsory, but it is important to protect yourself for your legal duty of care as a property owner, whether it contains existing structures, material storage or even if the land is vacant with little or no apparent hazards.
Most contractors already carry public liability insurance however this doesn’t protect you if you are found at fault for an incident on site, unless there is a contract in place to make the contractor responsible for insuring against third party injury and property damage for the duration of the project.
It is not unusual for public liability insurance limits of £5 or £10 million to be carried or requested for public liability insurance. The cost of injury claims on construction sites in the UK can currently reach as much as £25 million.
This insurance cover is much like public liability but designed to cover contractors working, or ‘employed’ for your site. This works in two ways in that it will cover a contractor should they have an accident on site you are held negligent for but also acts as contingency cover for injuries to employees of contractors should your contractors insurance fail.
In a self-build project, you may be held legally liable for a contractor’s injury on site. Something as innocuous as providing a set of ladders to a contractor, who subsequently falls and sustains injury can, and probably will, lead to a claim against you.
This insurance is designed to cover the new ‘works’, materials, fixtures and fittings involved in the project on an ‘all-risks’ basis. Correctly and comprehensively insuring what you are building from start to finish is a key part of managing the risk of any building project.
Once your materials arrive on site, they are vulnerable, particularly if you do not have a facility to store them securely. Small domestic projects are targeted due to the relative lack of security compared to a larger site development. The right contract works insurance is therefore an important part of your insurance package.
Contract works cover also covers you for weather events such as storm and water damage as the property is unlikely to be completely weatherproof and secure. Risks of fire and water escape are also common for project nearing completion and as internal fit-out is completed.
Sometimes policy limits and conditions are insufficient for your project. Sometimes banks or loan financiers will request their interest to be noted on the contract works insurance to protect their financial investment.
With all insurances on an ‘all risk’ basis, our advice is always to carefully consider the policy terms, conditions, warranties and especially exclusions – ‘all risk’ insurance policies can be defined by what they exclude, not what they can appear to cover. Again, speak to a broker to fully explain the limitations of these polices to you.
It is also important that this cover is on the right basis for you. Most UK household insurers will not maintain, extend or hold insurance cover whilst work is being carried out on the property, particularly if that work is structural.
Each project and property is different – our advice would be to firstly speak to your existing insurer or broker, let them know about the project and find out how your cover will be affected. Separate standalone cover can be arranged from various insurers whilst the property is under renovation – speak to a construction specialist for the best cover options for you.
If the contractor is using their own machinery and tools, owned or hired-in, it is best to ensure they insure these items, or even better, remove them for site overnight or when not in use to prevent attracting potential attention of thieves.
Once your new-build project is complete, a structural warranty insurance policy can be placed for a period of 10 or 12 years. It‘s main purpose is to cover the property against latent and structural defects.
If you intend selling a new residential property (or a property converted into a new residential property) within the first 10 years, a structural warranty is required – the buyers’ mortgage provider will normally insist on one from an insurer that is on the CML approved list (Council of Mortgage Lenders).
Under CDM regulations, the ‘principal designer’ is responsible for the design elements of the project – this can include material specification, method of build, dimensions, use of space as well as the structural matters of loadbearing and even shoring, excavating or piling techniques to be used. These are typically architects, engineers, surveyors etc…
Architects, surveyors and engineers typically hold this type of insurance to protect them from claims of professional negligence – this can for any of the risks mentioned above and more as defined by the UK courts (duty to warn, matters of buildability).
JCT contracts can be on a ‘standard’ basis where design liability can be allocated to the project professionals. As mentioned above, sometimes the JCT contract can be a ‘design & build’ version - this is where the contractor takes on roles and responsibilities of both ‘contractor’ and ‘designer’. In this case, they must hold the necessary professional indemnity insurance for the project as well as all necessary liability, contract works and plant and tools insurances.
 Other Insurance Considerations
Sometimes the project’s architect will identify the risk of property damage to third party property that is not likely to be due to a negligent act. An extension to the above insurances may be required – this is called Non negligence insurance and is often given the name of the contract clause that defines it in the JCT building contract suite – JCT 6.5.1 Insurance.
If you are using a JCT contract for your project, you should refer to the architect for advice as to whether this clause should be operative and whether the appropriate insurance is required – each project is different and professional advice should always be sought.
This insurance cover is normally the responsibility of the contractor to take out and hold for the duration of the project – it can be placed on a standalone basis or as an extension to their public liability insurance.
The main issues that can be encountered are - restrictive covenants (freehold and leasehold), lack of legal access/legal rights to use the services, interference with third-party rights such as rights of way, services, mining rights, planning permission and building regulations.
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