How residential insurance works during a major build or extension

During a home extension or new build in New Zealand, you need contract works insurance to cover the work in progress, public liability insurance from the builder and key sub-contractors, and a review of your existing homeowner's policy to confirm its status during construction. The contract works policy is typically held by the main contractor, but the homeowner needs to confirm that the policy covers the full rebuild value of the project and understand what it does and does not cover. Notification of your insurer before structural work begins is an obligation under most New Zealand homeowner policies, not an optional courtesy.

What is contract works insurance and who holds it?

Contract works insurance is a specialist construction policy that covers damage to work in progress on a building site. It covers the materials incorporated into the building, the work completed to date, and plant and equipment on site against risks including fire, storm, flood, accidental damage, and theft. It is different from the builder's general liability policy, which covers the builder's legal liability to third parties.

In New Zealand residential construction, it is standard for the main contractor to hold the contract works policy covering both the builder's work and the homeowner's interest in the project. The policy should be in both names or note the homeowner as an interested party. At W O Flatz Construction we hold contract works insurance on our projects and confirm the coverage with our broker at the start of each project. The cover should equal the full contract value, including the value of materials not yet installed that are stored on site or in transit.

What does public liability insurance cover?

Public liability insurance covers the builder's legal liability to third parties for bodily injury or property damage arising from the construction activity. If a sub-contractor's work damages a neighbouring property, or a site worker's action injures a visitor to the site, the public liability policy responds to the claim. W O Flatz Construction carries a minimum of $2 million public liability cover, and we require our sub-contractors to carry their own public liability policies at the same level. Sub-contractors without adequate public liability insurance are not permitted on our sites.

The public liability policy does not cover the builder's liability for defective work. A wall framed incorrectly that must be demolished and rebuilt is not a public liability claim. It is a contractual defect that is addressed through the contract and the builder's workmanship warranty. Understanding the difference between liability cover and workmanship warranty is important when assessing what protection the insurance programme actually provides.

What happens to the homeowner's existing buildings policy during construction?

Most New Zealand home and contents insurers require notification before major building work begins. The specific obligation varies by insurer and policy, but the most common requirement is that the insurer is notified in writing before any structural work starts, and that the policy may be subject to conditions or an endorsement during the construction period. Some insurers will require that the standard policy is replaced with a construction-phase policy for the duration of the work. Others will continue the standard policy with a notation.

If you fail to notify your insurer and a loss occurs during construction, the insurer may decline the claim on the grounds that the risk changed materially and they were not given the opportunity to assess the change. This outcome is not theoretical. It happens. The cost of a phone call or letter to your insurer before work starts is trivial compared to the consequence of a declined claim on a partially completed building.

What is typically excluded from construction insurance?

Contract works policies in New Zealand typically exclude losses arising from faulty design, defective materials, or faulty workmanship. This exclusion means that if a retaining wall fails because it was under-engineered, the cost of rebuilding it is not covered by the contract works policy. The cover is for external events causing loss, not for the consequence of the building not being built correctly. Workmanship defects are addressed through the builder's warranty and the contractual obligations, not through the insurance policy.

Storm and flood damage during construction is typically covered, but with sub-limits and conditions. A storm that blows down partly erected framing before the building is dried-in is covered subject to the policy deductible and any condition about securing the site before a forecast weather event. A flood that inundates a site in a known flood-risk area may be subject to a higher excess or specific conditions if the risk was known at the time the policy was taken out.

Most policies exclude theft without evidence of forcible entry. Materials stored on an open site that are taken without any sign of break-in are difficult to claim under a standard theft provision. Securing the site, controlling access, and storing high-value materials in a locked container or building is good risk management that also supports insurance claims if theft does occur.

What about professional indemnity for the design team?

Professional indemnity insurance covers the design professionals, the architect and engineer, for claims arising from errors or omissions in their design. This is separate from the construction insurance programme and is held by the relevant professionals. Confirming that your architect and structural engineer hold current professional indemnity cover before work starts is a reasonable due diligence step. Ask for evidence of cover at the engagement stage. A professional who declines to provide this confirmation is raising a concern worth investigating.