Contract Works and Liability for Builders — What You Need to Know

Builders and contractors operate in an environment where the financial consequences of something going wrong on site can be significant — and where the insurance requirements in contracts are often more specific than a standard business package can meet. This post covers the core covers relevant to builders, where gaps commonly appear, and what to look for when reviewing your insurance program.

Contract works insurance (Contractors All Risks)

Contract works insurance — also called Contractors All Risks (CAR) cover — protects the physical works under construction. It responds to accidental loss or damage to the project itself, including materials on site and sometimes materials in transit or off-site storage.

What it covers

• Physical damage to the works during the construction period — storm, fire, flood, accidental damage, theft of materials
• Materials and equipment awaiting installation on site
• Temporary works — formwork, scaffolding, temporary structures
• Third-party property damage arising from the works (when combined with public liability section)

Key policy considerations

• Contract sum or project value — the sum insured should reflect the full contract value including all materials, labour and preliminaries. Underinsuring the contract value risks a proportional reduction in claim payouts.
• Defective work exclusions — CAR policies do not cover the cost of rectifying defective workmanship itself. What they typically cover is damage to otherwise sound parts of the works caused by the defective work. Understanding this distinction is important.
• LEG clauses — in more complex commercial projects, Defects Exclusion clauses (LEG 1, 2 or 3) define how broadly or narrowly defect-related damage is excluded. LEG 3 is the broadest cover and more favourable to the insured.
• Maintenance period cover — most CAR policies include cover during the defects liability period following practical completion, but this is typically limited to damage caused by an insured event, not rectification of latent defects.
• Annual vs single project policy — for builders with ongoing work, an annual CAR policy is generally more cost-effective and simpler to administer than taking out single-project cover for each job.

Public and products liability

Public liability cover is essential for anyone working on construction sites — it responds to third-party bodily injury or property damage arising from your operations.

Getting the limit right

Most contracts specify a minimum liability limit — commonly $5 million, $10 million or $20 million depending on the project size and principal. Check your contract requirements before arranging cover. Carrying a limit lower than what the contract requires creates a compliance issue and may affect payment under the contract.

Products liability

Products liability covers damage or injury caused by products you supply, install or manufacture. For builders, this is relevant to materials and prefabricated elements you supply as part of the construction. Most liability policies combine public and products liability in a single section.

What to check in your liability wording

• Principal’s indemnity — many building contracts require the contractor to indemnify the principal and have them noted as an interested party. Check whether your policy allows for principal’s indemnity clauses and how cross-liability is treated.
• Vibration, removal or weakening of support — work near existing structures often triggers this exclusion. Some policies exclude it outright; others provide it up to a sublimit or with specific conditions.
• Hot works conditions — welding, cutting and grinding are typically subject to conditions including fire watchers and permit requirements. If your workers perform hot works, check the policy conditions and ensure site procedures comply.
• Underground services — damage to underground pipes, cables or services is a common exclusion or is subject to conditions around locating services before excavation.

Professional indemnity for design-and-construct

If your business involves any design input — whether full design-and-construct, temporary works engineering, or providing advice to clients — professional indemnity (PI) insurance becomes relevant. PI covers claims arising from errors or omissions in professional services or advice.

For builders taking on design-and-construct contracts, the professional liability cannot be addressed through the CAR or public liability policy alone. A separate PI policy — or a combined policy with a PI section — is needed.

Note that PI is a claims-made policy: it responds to claims made during the policy period, not when the work was performed. Maintaining continuous PI cover — and ensuring the retroactive date covers all prior work — is important for builders who have provided design services over multiple years.

Workers compensation

Workers compensation is governed by state and territory legislation and is compulsory where you have employees. The rules around who is a worker, what constitutes wages for premium calculation, and how contractors and labour hire are treated vary by jurisdiction.

For construction businesses operating across multiple states, understanding the workers compensation obligations in each jurisdiction — and ensuring your premium declarations are accurate — is worth reviewing with your broker.

When principal-supplied insurance applies

On some larger commercial or government projects, the principal arranges a project-specific CAR policy that covers all contractors on site. If this is the case, check:

• Whether you’re actually covered under the principal’s policy and for what
• Whether you still need your own public liability policy, even if the principal provides project CAR
• What the excess is under the principal’s policy and whether you’re exposed to it

If you’d like to review your construction insurance program, contact WebInsure. We work with specialist construction underwriters and can help you structure cover that matches your contracts and operations.

This post provides general information only and does not constitute personal advice. Cover availability, terms, exclusions and premiums vary by insurer, product and individual circumstance. Always review the Product Disclosure Statement and confirm suitability before making a decision.

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