Insurance Cover for Existing Structures: A Guide for Builders

When undertaking construction projects, one of the critical but often overlooked aspects of insurance coverage is Existing Structures on the project site.

As a builder, it is essential to understand how these structures are covered under a Contract Works policy, and the responsibilities of both you and the property owner in ensuring adequate protection.

What Are Existing Structures?

Existing Structures refer to any buildings or other permanent structures that were already on the project site before construction work commenced.

Coverage for these structures under a Contract Works Insurance policy falls under the Material Damage Section, provided they are specifically listed in the policy schedule.

Who is Responsible for Insuring Existing Structures?

By default, it is the responsibility of the property owner (or Principal) to maintain insurance coverage for their property. However, some building contracts may specify that the builder is responsible for insuring the existing structures during the construction period.

To prevent disputes, both the builder and the property owner should clarify this before work begins by:

• Reviewing the insurance clauses in the building contract to determine who is responsible for insuring the existing structures.
• Confirming whether the owner’s property insurance policy (I.e. Home Buildings Insurance, Commercial Property Insurance) includes coverage for their existing structures during construction.
• Determining if Contract Works Insurance should be extended to include the existing structures (Remember: this is not usually included automatically under the policy).

Common Insurance Gaps and Misconceptions

1. Public Liability Does Not Cover ALL Risks to Existing Structures
   Builders often assume that their Public Liability Insurance will cover any damage to the owner’s existing structures throughout the construction period. However, this is only the case if the builder is found legally liable for the damage — meaning there must be negligence on the builder’s part. If damage occurs due to factors beyond the builder’s control (e.g., severe weather, fire), their Public Liability Insurance is not likely to cover this.
2. Limitations in Standard Property Insurance Policies
   Many property insurance policies exclude or restrict coverage for damage occurring during construction work. If an owner assumes their property insurance will cover any loss during renovations or redevelopment, they may face an unpleasant surprise when a claim is denied. Owners should always check with their insurance provider as to whether their existing structure/s will remain insured throughout the period of construction.

The Importance of Arranging Cover Before Work Begins

To avoid gaps in coverage, property owners and builders should establish a clear insurance arrangement before the project starts. If an existing structure needs to be insured under a Contract Works policy:

• The builder should seek approval from the insurer or underwriter before commencing work.
• The agreement should be documented and referenced in the building contract.
• The sum insured for the existing structures should be clearly stated in the Contract Works policy schedule.

Key Takeaways for Builders

• Clarify insurance responsibilities with the property owner before commencing work.
• Do not assume Public Liability Insurance covers all damage — it only applies if negligence is established.
• Check the property owner’s insurance policy for limitations on coverage during construction.
• Obtain insurer approval if Existing Structures need to be covered under Contract Works Insurance.
• Ensure all agreements are in writing to avoid disputes in the event of a claim.

By taking proactive steps to ensure proper insurance coverage, both builders and property owners can mitigate financial risk and avoid unnecessary disputes.

If you have any questions about Contract Works Insurance and coverage for Existing Structures, speak to us today to ensure you are adequately protected.