Insurance for Builders:
The Ultimate Guide

Everything you need to know about insurance for Builders

As a builder, there are various types of insurance that may be required to operate your business. Depending on the size of your business, where you operate, and the type of projects you are undertaking, there may also be legislated insurance requirements that you need to consider.

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What is a Builder?
The Definition for Insurance Purposes

The term ‘Builder’ when it relates to insurance requirements is very broad, and is defined as:

‘Anyone who carries out any of the building work.’

Building work can be defined as:

  • Construction
  • Alteration
  • Extension
  • Restoration
  • Repair
  • Demolition
  • Dismantling

of any buildings, structures or works that form, or are to form, part of land, whether or not they are permanent.

‘Building work’ also includes activities which involve the installation in any buildings, structures or works of fittings forming, or to form part of land, including:

  • Heating
  • Lighting
  • Air conditioning
  • Ventilation
  • Power supply
  • Drainage
  • Sanitation
  • Water supply
  • Fire protection
  • Security
  • Communications systems

Finally, ‘building work’ includes operations that are preparatory to, or to complete, any of the building activities listed above, including, for example:

  • Site clearance
  • Earth-moving
  • Excavation
  • Tunnelling
  • Boring
  • Laying of foundations
  • Erection, maintenance and dismantling of scaffolding
  • On-site prefabrication of made-to-order components to form part of any building, structure or works
  • Site restoration
  • Landscaping
  • Roadways and other access works

A ‘Builder’ for insurance purposes is not limited to that of a Head Contractor only. Most trades will also fall under the definition of a builder, and therefore may have the same, or some of the same, insurance requirements as outlined below.

Types of Insurance
Required for Builders

Insurance coverage for a Builder will largely depend on;

The size of the operations

For example, a sole trader may have different requirements to a company structured business.

Location of the business

For example, some states have different insurance requirements to others.

Who the work is for

For example, working for Government entities on a large project may have different insurance requirements to working for an individual on a private residence.

Type of work or projects undertaken

The main types of insurance that a builder may require include;

Contract Works Insurance
What Is It?

Contract Works Insurance, sometimes referred to as ‘Construction All Risks Insurance’, covers accidental risks of physical loss or physical damage to the project during the construction period. The project is generally insured for up to the value of the contract.  

Further to insuring the value of the contract, a Contract Works insurance policy can include sub-limits for:

  • Employees tools
  • Principal supplied materials (that are not included within the contract value)
  • Materials stored onsite / offsite
  • Materials in Transit 
  • Mobile machinery & equipment

There are two main types of Contract Works insurance policies. These are:

  • Annual Contract Works, covering all projects for a 12-month period
  • Single Project Contract Works, covering a single, defined project

Coverage under an Annual Contract Works policy is taken out either on a:

  • Turnover Basis (also known as Transfer Basis)
  • Run-Off Basis

A Turnover Basis policy will cover all work that is undertaken within the policy period, whereas a Run-Off Basis policy will cover the full value of any project that is started within the policy period, right through to the completion of that project.

Care needs to be taken when selecting the right option to ensure there is no gaps in coverage. 

Public Liability Insurance can be, and is recommended to be, included within a Contract Works insurance policy, rather than taken as a separate policy. Public Liability is generally known as Section 2 coverage under a Contract Works policy. The cover provided is generally broader in nature than a standalone liability policy, and can include Sub-Contractor Liability, Products Liability and Cross Liability.

Common Exclusions Under a Contract Works Policy

Below are some common exclusions often found under Contract Works policies.

Section 1 (Material Damage):

  • Machinery Breakdown
  • Consequential Loss
  • Defective Design, Material, Specification, Plan and / or Workmanship
  • Wear, Tear and Gradual Deterioration 
  • Pre-existing Property, unless specifically insured

Section 2 (Public Liability):

  • Asbestos (Separate cover is required for Asbestos Liability)
  • Contractual Liability
  • Employers Liability 
  • Faulty Workmanship 
  • Pollution (Unless an extension is taken) 
  • Underground Services (Unless correct process was undertaken to identify location)
Cityscape at sunrise, featuring construction cranes and rooftops of buildings. The sky is clear with warm sunlight casting a glow over the urban area, highlighting a crane prominently to the left and the skyline in the background. It's a scene that underscores the importance of insurance for builders.

Public Liability Insurance
What Is It?

Public Liability Insurance protects you, and your business in the instance where property damage or bodily injury is caused to a third party as a result of negligence in connection with your business activities.

It comes in all different shapes and sizes, meaning that it is important to ensure that your business is adequately protected. 

Generally, Builders who are running their own projects should obtain a Contract Works policy that includes Public Liability. Sub-contractors that are not running their own projects, however, can generally be sufficiently protected under a standalone Public Liability policy. 

It is important for each contractor involved on a construction project to ensure they have their own insurance program in place, as relying upon a sub-contractor extension in someone else’s policy can lead to a financial risk.

We recommend always speaking to a qualified insurance broker to determine what coverage suits your individual requirements.

Builders Warranty (Builders Indemnity) Insurance
What Is It?

Builders Warranty Insurance is a statutory insurance product that is required in most states of Australia. 

This type of insurance protects the homeowner (and subsequent homeowners) from:

  • Non-completion of the Building Contract, including loss of deposit
  • Incomplete or defective building work if the builders becomes insolvent, dies or disappears on the job; and
  • Failure of the builder to correct faults which are the builders responsibility by law, such as poor workmanship and the use of inappropriate or unsuitable materials.

Claims can usually only be made on this policy up to 5 years from the practical completion of the work.

Builders Warranty has different requirements in each state and territory, which are outlined in the table below:

State Requirements
South Australia In SA, cover is known as Building Indemnity insurance and is required for projects over $12,000. Webber Insurance Services is licensed to provide this cover to builders in SA. More information can be found here.
ACT Builders Warranty, also known in ACT as Residential Building Warranty Insurance, is required for any home building work that requires building approval and costs $12,000 or more. More information can be found here.
New South Wales Known in NSW as Home Building Compensation Fund, projects requiring building approval over $20,000 are required to be insured. More information can be found here.
Northern Territory In the NT, there is no legal requirement of Builders Warranty insurance.
Queensland In Queensland, cover is simply known as Home Warranty insurance as it required for work valued over $3,300. More information can be found here.
Tasmania Tasmania has a voluntary scheme known as Residential Building Warranty Insurance. More information can be found here.
Victoria In Victoria, the cover is known as Domestic Building Insurance and is required for work valued over $20,000. More information can be found here.
Western Australia In WA, cover is known as Home Indemnity insurance as it is required for work valued over $20,000. More information can be found here.

To obtain this type of cover, please visit the relevant link above for your state.

Tools of Trade Insurance
What Is It?

Tools of Trade (sometimes also known as General Property) Insurance ensures that you are protected if you suffer accidental damage or loss to your own tools. 

Often, builders have the choice to insure their own tools under the Material Damage section of a Contract Works policy, but cover can also be taken as a standalone policy. 

Cover will differ across all policies, so it is important to check;

  • For what value are the tools insured on the policy? Are they covered for ‘new for old’ replacement, or will depreciation be applied in the event of a loss? 
  • How broad is the cover on the policy? Is it limited to damage caused by fire, vehicle rollover or collision, or is it broader for all accidental loss or damage? 
  • Are the tools covered at all times, or is loss or damage ‘in open air’ excluded from the policy? 

Speaking with an insurance broker will ensure that you get the right Tools Insurance for your business.

A worker operates a grinding machine, producing a shower of bright sparks. The worker wears protective gloves, focusing on the task. The background includes industrial equipment and safety barriers. This scene of intense manual labor underscores the importance of insurance for builders in such an industrial setting.

Commercial Motor Insurance
What Is It?

Commercial Motor Insurance is a comprehensive motor insurance policy that protects business motor vehicles and trailers, and allows businesses to insure all of their vehicles under one single policy. 

Under a commercial motor policy, cover for each vehicle can be taken as any of the following:

  • Comprehensive cover
  • Third party Fire & Theft cover
  • Third party property damage only cover

There are many different vehicle types that can be covered under a commercial motor insurance policy (dependent on the individual Insurer), including:

  • Sedans & Utilities
  • 4WDs & Vans
  • Light Commercial (Up to 4.5T)
  • Commercial Trailers
  • Forklifts
  • Registered Mobile Plant, Machinery & Equipment

Generally, unlike a Private Motor Insurance policy, a Commercial Motor policy can include additional benefits such as:

  • Automatic cover for newly purchased vehicles 
  • Some mechanical breakdown cover
  • Employees tools and personal effects
  • New vehicle replacement
  • Choice of repairer

Every Commercial Motor policy is different, so it is important that you speak with an insurance broker to find a suitable policy for your business requirements.

More information on Commercial Motor Insurance can be found here.

Plant & Equipment Insurance
What Is It?

Plant and Equipment Insurance can provide cover for a wide range of registered or unregistered equipment, including, but not limited to;

  • Asphalting machines and equipment
  • Bobcats
  • Bulldozers
  • Concreting equipment
  • Drilling rigs
  • Dumpers
  • Earthmoving equipment
  • Excavators
  • Forklifts
  • Farming machinery
  • Lifting equipment
  • Loaders
  • Logging machinery
  • Mining machines and equipment
  • Pavers
  • Road works equipment
  • Scissor lifts
  • Skid steers
  • Self-loading vehicles

A Plant and Equipment Insurance policy is intended to cover loss or damage to owned or hired equipment, and can be customised to insure a wide range of other risks associated with the equipment, such as:

  • Public Liability
  • Road Risk Liability (for registered items)
  • Equipment Breakdown Cover
  • Dry Hired Plant & Equipment
  • Consequential Loss 
  • Downhole Cover
  • Hired in Plant  
  • Equipment in Transit
  • Wet Hired Plant & Equipment

More information about Plant and Equipment insurance can be found here.

Asbestos Liability Insurance
What Is It?

Asbestos Liability Insurance is required for any builder that works directly or indirectly with asbestos. Under a standard Public Liability policy, there will (almost always) be broad exclusions surrounding the handling and removal of asbestos. 

Whilst a builder themselves may not directly handle asbestos, it is imperative that they are checking that their contractors have the correct cover in place when any of the following work is undertaken:

  • Working With or Making Safe Asbestos Sites
  • Asbestos Related Advice
  • Asbestos Removal
  • Demolition
  • Strip-outs
  • Excavation, Earthmoving & Digging
  • Underground Work

If you need further information about Asbestos Liability, please visit our page or visit the Australian Government’s information site.

Workers Compensation Insurance
What Is It?

Workers Compensation is a compulsory state-based insurance scheme, providing insurance protection to employees, including working directors who get hurt or sick at work.

Workers Compensation Insurance is designed to cover the wages of a worker if they suffer a work-related injury or illness. These policies can also cover medical expenses, treatment and rehabilitation costs. 

Each state is governed by its own local legislation. Some states allow policies to be issued through intermediaries (insurance brokers), whilst others are handled directly by the state government itself.

State Legislation
ACT Workers Compensation cover in ACT can be handled by insurance brokers through selected insurers. Please contact us to assist with your insurance requirements or alternatively you can find more information via Worksafe ACT.
New South Wales In NSW, Workers Compensation is handled via icare
Northern Territory Workers Compensation cover in Northern Territory can be handled by insurance brokers through selected insurers. Please contact us to assist with your insurance requirements or alternatively you can find more information via NT Worksafe
Queensland In Queensland, Workers Compensation is government owned and underwritten by Q-Comp. Find out more at Worksafe Queensland.
South Australia In South Australia, Workers Compensation insurance is handled by Return to Work SA, with claims handled by its two claims agents, Employers Mutual and Gallagher Bassett.
Tasmania Workers Compensation cover in Tasmania can be handled by insurance brokers through selected insurers. Please contact us to assist with your insurance requirements or alternatively you can find more information via Worksafe Tasmania
Victoria In Victoria, Workers Compensation Insurance is handled by Worksafe Victoria. A managing agent is then selected to handle the claims. The list of managing agents can be found here.
Western Australia Workers Compensation cover in Western Australia can be handled by insurance brokers through selected insurers. Please contact us to assist with your insurance requirements or alternatively you can find more information via Workcover WA

When dealing with sub-contractors, it is important to check that they have their own Workers Compensation cover in place. Failure to do so may result in fines and penalties, subject to each states law.

Management Liability Insurance
What Is It?

Management Liability Insurance is intended to protect a company and its directors & officers against risks associated with running a business, and will protect the financial wellbeing of the company, and the personal wealth of its directors. 

This type of policy can be made up of multiple different sections of cover, with some of the most common sections highlighted below.

Directors & Officers Liability

Directors & Officers Liability will protect the past, present and future directors and officers of a business. It can also cover anyone else involved in the management of a company, including employees.

Director & Officer claims can arise from acts such as:

  • Engaging in Unfair Competition
  • Fraud or Breach of Fiduciary Duty
  • Misappropriation of Trade Secrets
  • Insolvent Trading
  • Manslaughter
  • Intellectual Property Breach

These types of claims can be made against an individual, the company or both.

Company Liability

Company Liability can also be known as Entity Liability or Corporate Liability, and provides cover for actions arising from managerial matters. Many of the claims made against the directors and officers will typically be brought first against the company.

Some examples of common claims under this section include; 

  • Wrongful Act including Fraud
  • Shareholder Dispute
  • Unfair Treatment of Shareholders
  • Environment Prosecution
  • Breach of Contract
  • Accidental Death
  • Identity Fraud

Employment Practices Liability

Employment Practices Liability is often the most commonly claimed under section of a Management Liability Insurance policy.

The cover provides protection to the company, directors, officers, and employees for employment related breaches. Claims can arise from current, past or prospective employees as well as, in some cases, contractors and sub-contractors.

Claims traditionally arise from:

  • Bullying and/or Harassment
  • Unfair or Wrongful Dismissal
  • Discrimination
  • Employee Duress
  • Employee Misconduct

Statutory Liability

Statutory Liability can be one of the most beneficial sections of a Management Liability policy for Builders – it can pay fines and penalties awarded against the business for allegations of wrongful breaches of certain legislation. It also provides cover for legal costs to defend the matter, as well as representation at an investigation or inquiry.

Statutory Liability can cover fines or cash penalties arising from unauthorised or irresponsible actions of:

  • Directors & Officers
  • Partners
  • Employees
  • Contractors
  • Agents

Claims can arise from breaches to the following legislation, depending on the state in which you operate:

  • Occupational Health and Safety
  • Spam Act
  • Liquor Licensing
  • Environmental Protection Agency
  • Building Act
  • Fair Trading Act
  • Privacy Act

Businesses in Australia are expected to comply with a variety of legislation across all industries relating to workplace safety. If a business were to breach a law imposed by a Government or regulatory body, they could potentially face an investigation or prosecution, resulting in hefty fines and penalties.

Professional Indemnity Insurance
What Is It?

Professional Indemnity Insurance is intended to protect you should you become legally liable for costs as a result of; 

  • An actual negligent act, error, or omission, or
  • Any alleged negligence act, error, or omission 

Professional Indemnity Insurance is no longer just for the traditional professionals such as Accountants, Architects, Lawyers, and Engineers. Now, many other types of businesses, including builders, have Professional Indemnity exposures that they should consider protecting.  

A large proportion of contracts for construction require design and construct entities to maintain their own Professional Indemnity Insurance policies. More importantly, customers are becoming increasingly aware of their rights to pursue construction companies where they believe those entities are responsible for a loss they have suffered in relation to poor or inadequate design.

Facts from a Construction Insurer

45% of buildings that fail are due to design issues, so design risk is always present.

Builders who engage consultants are exposed to any liability that results from that consultant’s work or advice.

Design & Construct vs Standard Professional Indemnity Policies

Standard Professional Indemnity policies are not generally suitable for anyone performing physical construction work, as most Professional Indemnity policies will contain a standard exclusion for claims in connection with construction, installation or fabrication of any goods or products. 

Design & Construct Professional Indemnity policies have been specifically designed to cater for businesses that perform the physical construction or manufacture of products, goods, structures or buildings, as well as having responsibility for the provision of any design, advice or any other professional services relating to those works. 

Refer to our Design & Construct page for further information, including some insightful Claims Examples.

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