Insurance - Homeowners & Developers
Existing Structure
Homeowners:
Many home insurance policies will not allow for heavy works or extensions so it's very important these are disclosed to your existing insurer. Should cover be declined once disclosing works, a specialist unoccupied buildings policy can be obtained.
Developers:
If you are developing a new purchase, standard buy-to-let insurance will generally not be suitable unless works are very light and a tenancy is already agreed. Again, a specialist unoccupied buildings policy can be obtained.
What would be covered for the buildings?
Specialist unoccupied policies will start on restricted cover:
Fire, Lightning, Explosion, Earthquake, Aircraft & Liability only. As you can see, this is very limited. Extra cover is readily available to cover events such as flood, storm, malicious damage etc. This is the same for residential and commercial developments.Many lenders will state it mandatory to take wider perils.
These policies can also include contract works cover as highlighted below.
What is Contract Works Cover?
Contract works insurance is designed to cover the construction works cover from material damage. This covers normal insured events such as storm, flood, fire, malicious damage, accidental damage etc.
This can also be called Contractors All-Risk and can come with separate liability cover for injury, death and property damage caused from the works.
Further cover can usually be added for tools, hired plant & owned plant.
Are you a self-builder, contract managing your own development projects or your own home?
If so, it's very important to make sure the works are covered correctly. Without a main principal contractor, the responsibility is likely to fall on yourself as the developer. This is where contract works cover is essential. It can be included within your building's cover or a separate works only policy can be obtained for the project only.
Even if you employ a principal contractor, don’t assume they automatically cover the risk. Always check their policy. Cover for the extra tools, plant, liabilities and legal, etc. also needs to be established as to who is responsible for covering these items.
JCT contracts with a principal contractor may also mean you need specific cover as part of your contract obligations.
JCT Covers
There are many different types of JCT contracts available. Many will lay out conditions regarding insurance and some of the key ones are highlighted below.
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Requirement for the contractor to obtain a policy for the works only. This is to be in joint names with the property owner.
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Requirement for the property owner to take insurance of the existing structure in their own name. This would mean the contractor takes their own cover for the works.
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Requirement for the property owner to obtain a policy for the existing structure and the works in joint names with contractor.The purpose of joint names insurance is to ensure that both parties are protected from potential risks and liabilities that may arise during the construction project. Joint names policies are an important tool for managing risk in construction projects, and helps to ensure that both parties are protected from potential liabilities and losses.
These covers can be taken on a stand-alone policy for the project only.
JCT 6.5.1 - Non-Negligence Insurance Cover
This type of insurance is to cover damage to surrounding property that is not part of the contract. This can be added to a joint names or contractors cover and also on a stand-alone basis.
Public liability policies require a negligent act to have occurred in order to respond. During a construction project, especially new builds or works at depth, negligence by the contractor can be hard to establish. Non-negligence liability insurance provides protection against the employer's liability for expense, liability, loss, claims, during development, in respect of non-negligent damage or injury to property including neighbouring properties. Cover includes claims for vibration, subsidence, collapse, weakening or removal of support.
The policies are to be in joint names of the contractor and the property owner.
Do you struggle with 1st loss payee clauses or other requirements from the lender i.e. structural warranties, bonds, & structural works?
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First Loss Payee
A first loss payee is a party that is named in an insurance policy as having the right to receive payment directly from the insurer in the event of a loss. The first loss payee is typically a financial institution, such as a bank or lender, that has a financial interest in the insured property. This is generally requested by some lenders as it provides additional security to them.
Many insurers will not accept the addition of a first loss payee clause so make sure you check with your lender if it's necessary and then chose an insurer from the outset that can do it. Don’t wait until the exchange day as the insurance policy may be rejected if you haven’t obtained the correct cover and endorsements.
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Structural Warranties
This is often referred to as Latent Defects Insurance. It covers structural defects and the weatherproofing and waterproofing to development following Practical completion. This is a result of problems with defects in the design, workmanship, material, and/or components of the Structure or failure of the Developer to comply with Building Regulations in respect of chimneys and flues.
It usually covers up to 10 years, however, can be extended in some cases. Mainly for new builds, however, it can also be a requirement by lenders on conversions.
Cover can extend to contaminated land, further failures with building regulations, and failure of other components in the remainder of the building.
Cover can be taken retrospectively however this can often be more expensive and harder to obtain. The warranty coverage should be quoted and commenced before the works commence.
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Surety Bonds & Insurance Backed Guarantees
Surety Bonds: Whether it be Performance Bonds, Section Bonds, Advanced Payment bonds, etc there are many tools that can protect cash flow and contractual obligations being met during development.
Insurance Backed Guarantees: These protect the warranty and workmanship provided by contractors should they cease trading. Often provided for a term of 10 years, IBGs provide added protection to guarantees provided by contractors. It may also be a mandatory requirement from lenders that these are in place. IBGs can cover a number of items such as:
- Underpinning works/Pilling
- Flat roofing - normally excluded from structural warranty policies
- Loft conversions
- Renovations
- Damp proofing
- Glazing
- Many other types of work
Like structural warranties, IBGs can be obtained retrospectively but it's better to arrange these at a time of works.
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