Home extensions and renovations may expose home owners to financial stress, loss and even litigation, caused mostly not of their doing!
High value projects expose different risks from smaller projects mainly as a result of sub-contractor involvement, scheduling, and greater value of materials, appliances and fit-outs. A common requirement to sometimes to vacate and relocate the family, for short periods during main structural works, introduces new risks, which should be managed appropriately.
Home owners undertaking the role of owner builder, carry one card that is not replicated nor considered by professional builders, contractors and building professionals. The differentiator is significant and is the level of economic risk, and potential long term penalty if risk aversion or mitigation is poorly managed.
The overarching difference between professional or licenced builders and owner builders is that an owner builder owns tangible, ‘bricks and mortar’ assets in their family name. Whilst licenced builders more often hold little personal assets in their company structure. Owner builders are property owners and a builder; by definition, and therefore any damage, breaches, loss or legal challenges, fall on their shoulders. And for this reason only, owner builders require the right insurance. In other words, insurance must be designed, structured and respond to owner builder’s situations and risk, and not general cover because an owner builder is far from ‘general’.
So what are the risks? Can they be managed effectively? And what should an owner builder should look for in comprehensive cover?
When all is said and done, unequivocal difference between good insurance and poor performing insurance is who promising to fairly compensate and then pay up when a policy is called to upon. So an insurer’s documentation, particularly clarity and preciseness of their written word, reputation and company values, are the all-important drivers.
Risks are characterised into five (5) key classes. A high quality insurance product will provide cover as follows:
Class 1: physical or person loss caused by:
- Loss, theft or damage of building materials and equipment including appliances, cabling, heating, cooling, power, water equipment.
- Weather events damaging or destroying site preparation works, steel works, foundations, structures, internal cladding, fit out
- Bushfire, accidental, welding error or malicious arson activities
- Vandalism, graffiti and other malicious damage
Class 2: Personal and family liability resulting from legal litigation or legal actions by others, which threatens an owner builders financial position and security. These actions are primarily caused by:
- Sub-contractor failings or behaviour which injure other persons, cause distress to neighbours or other workers on site, or damage other people’s property
- Sub-contractors or suppliers risks, causing injury or damage or defective workmanship which drags an owner builder into legal disputes, demanding expensive financial compensation
- Worker to worker injury
- Civil infrastructure damage such as storm water, electrical, telecoms, gas, roadways and footpaths infrastructure
- Damage to neighbouring property including vehicles and pools
- Public liability and legal liability
- The most common ‘risk’ of all: liability ‘due to your negligence’, omission or error. This is where ‘stuff’ happens, not of your doing, but as the site owner and builder you will be held to account
Class 3: Existing structures. Prior to commencing construction actives, a residence has tangible value because it’s a livable residence. But during construction works, with demolition and partially completed structures under progress and general construction site mayhem, a property devalues until competed. If the residence has a mortgage then the bank or financial services lender will require appropriate insurance against loss or damage to their bricks and mortar asset. When considering owner builder insurance for new works, consideration should be directed to existing structures, including garages, driveways, sheds, pools and fences. This situation is seriously risky.
In our practice we recommend existing structures should be aligned to owner builder works insurance to eliminate any gaps in cover between new works and existing structures and to cover the home site with one public liability insurance.
Class 4: Following a Loss or Incident Special Provisions for Family Support & Relocation Cover
- Relocation Program to relocate you and your family including pets though Temporary Accommodation Expenses
- Temporary Home Site Protection to safeguard family members and their friends
- Repair, reinstate or replace your lost property insurance guarantee
Class 5: Voluntary Workers, family and friends helping out on site insurance. Asking family and friends for a helping hand is common owner builder practice. But, building sites are inherently unsafe. Accidents happen. Owner builders carry the burden of making sure all helpers and workers have ready access to insurance if needed.
Can I retain Contents Insurance When Renovating, Extending or Adding an Addition to My Home? A safe and workable solution is not as straight forward as some make out because all insurances contain powerful, overarching claim denial clauses – read more go here.
In conclusion, when home extensions and renovations are planned, insurance should be on the check list.