Contract Works Insurance covers losses or damages happening to your projects due to certain events. Events that are not excluded by the policy.
We discussed the fundamental details of the coverage in the first article of these series. In this article, we cover some of the other coverages and exclusions that usually don’t get a mention in conversations which results in people don’t fully understanding their insurance.
This results in two problems:
- You may have coverage but don’t end up claiming in the event of a loss
- You may not have coverage but think you are resulting in a big disappointment and financial loss.
We think the second one is a big problem, that sort of situation results in disputes, soured relationships, serious financial loss and loss of trust.
All of that can be and must be avoided. A simple step to take is to be aware of what is covered and what isn’t.
What is covered:
Apart from protecting the project under construction (project site) there are some additional benefits in a Contract Works Insurance policy. These are mentioned below:
- Removal Of Debris: Say after a storm, the project site is damaged as a large tree from neighbouring yard came crashing over the project site, you’d need to remove the debris. This removal of debris is a cost that is can be covered under the additional benefits of your policy. Insurers usually allow 10% of contract value for this benefit.
- Escalation Allowance: Say you were 11 months into a project and it was nearing completion when an event happened that generated a claim. The market dynamics have changed since you started the project and it is now going to cost more to build exactly what you built 6 months ago, problem! Escalation allowance comes in quite handy. Insurers usually allow 15% of the project value for this benefit.
- Professional Fees: Needless to say, that professional costs can often be quite a lot. Should you need to pay for architects, engineers or other professionals to avail their services again to sort out repairs to the damaged works, this section of policy can cover that. Insurers usually allow 10% of project value for this benefit.
- Expediting Expenses: Perhaps your contract has built in penalties for not completing the project in time and that you need to speed up the repairs to complete the handover in time. To make things go faster, you need additional money. This benefit helps you with just that. The allowance on this varies from insurer to insurer but you can expect 10% of contract value. Some insurers also have a maximum dollar value limit also on this benefit. Like 10% of contract value to the maximum of $50,000. Worth checking on your schedule.
- Mitigation Expenses: They save prevention is better than cure, it sure is in the world of insurance and often, “Make Safe” repairs that prevent further damage are seen quite favourable. It’s just common sense approach to prevent further damage. Insurers usually allow 10-20% of project value for these costs but often restricted to a maximum dollar value like $50,000 depending on your projects.
- Materials Stored Offsite: Pretty straight forward, you buy in bulk and keep things stored in a factory until you use them. Those material need coverage and the policy can provide that. The limits on this benefit differs from insurer to insurer.
- Materials in Transit: Imagine a truck load full of your materials that are getting transferred from offsite storage to the site and the truck is in an accident. This covers you for such a situation. The limits on this benefit differ from insurer to insurer and your project values/policy limits.
Common Exclusions – What is not covered
As much as we’d like everything to be covered by insurance, it isn’t the case. No insurance policy can cover everything. What’s not covered is called an exclusion and here’s the list of common exclusions in a Contract Works Insurance policy. We wanted to start with a very frequently asked question.
Does Contract Works Insurance cover defective workmanship?
The answer is No. Insurance policies can’t cover that. If insurers started to do that, then pretty much all unskilled people would take out insurance, make defective goods and then claim on insurance. Insurers will go bankrupt and will not be able to offer insurance any more.
Fixing defects in any work that you have done is your responsibility. You have charged a fee for that and producing goods, projects that work is your responsibility. Hope it makes sense.
Some other exclusions are:
- Fines and Penalties: Say as part of your project, EPA made a site visit and found you in non-compliance resulting in fine. That’s not covered by insurance.
- Professional Indemnity: Professional Indemnity is a separate insurance policy that covers you against claims made for poor professional advice etc. Unless you have a coverage extension on your contract works insurance for professional indemnity, you will not be covered.
- Workers Compensation type claims: Covered under workers compensation insurance
- Wear & Tear: No insurance covers wear and tear or issues that arise out of normal use of products etc.
- Losses covered under Builders Warranty Insurance.
Hopefully this was straightforward and easy to understand. If you’d like to learn more, continue reading the next article. If you are too busy and just want us to sort it all out for you, please give us a call.
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