Without Appropriate Insurance Owner Builders Risk Sub-Contractor Liability

Recent studies show 90% of incidents involve sub-contractor negligence or lack of care. The problem is they never tell you of their stuff-ups, leaving owner builders with the problem and costs. Owner builders should ensure building insurance arrangements provide adequate cover against sub-contractor negligence.

In summary: owner builders are particularly at risk of sub-contractor wrongdoings and actions that causes or contributes to personal or property damage.

What does this mean? The process of owner building a new home or undertaking renovations is more akin to project management or ‘managing trades on site’. An owner builder therefore retains a duty of care on all who enter and work on site, whether the owner builder is present or not. This duty of care extends beyond the actual activity of the sub-contractor to contractual arrangements that sub-contractors are engaged and work site, safety practices and rules. Owner builders can mitigate their exposure applying best practices in recruiting sub-contractors and securing appropriate insurances.

Best practice when recruiting or engaging sub-contractors is to follow proven sub-contractor engagement rules.

  1. Define the project or requirements –in other words ‘scope of works’ (what is expected, when required and how it is expected to be completed and payment arrangements;
  2. Stipulate site safety requirements – templates can be found at work safe/cover;
  3. Define company status (ABN) qualifications, experiences, industry membership, Public Liability insurance and references;
  4. Select no less than 3 suitable options. Experienced owner builders often suggest identifying suitable tradesman, visiting an active building site and speaking to the principle builder or owner for sub-contractor referrals is a good start;
  5. Section criteria and process;
  6. Engagement contract or written agreement, containing the above noted items.

Insurance is an important element and security instrument when it comes to risk mitigation. Owner builders are particularly exposed when sub-contractors are on site. Recent claims history show, public liability claims[1] are ‘mostly’ triggered by sub-contractor events and often are raised after the owner builder has obtain a certificate of completion or occupancy. The problem for home owners is:

  1. Public liability, third party property damage and negligence is not always immediately seen or evident;
  2. Third parties such as neighbours, site visitors (invite or not), trades and their employees, delivery persons, government and statutory bodies. Personal injury claims are ‘long tail’ claims (they take time to manifest and settle). Property damage claims are normally managed through insurance companies recovering costs and damages from wrongdoers insurance policies;
  3. Owner builders can be dragged into insurance disputes under the proportionate liability regime of Public Liability claims

Owner builder contracts works insurance policies should protect the owner builder from third party claims.

A very important point of clarification. Owner builders are precisely that: the owner of the site (albeit often jointly with their partners), and the builder. Therefore an owner builder cannot by definition hold a contract to build with themselves. Subsequently, a standard all risk contractor works insurance policy is misleading – there is no contract to build. In particular sub-contractors be included under this cover; they are not parties to the non-existent contract.

Owner builders require Owner Builder Construction and Public Liability insurance when building or renovating. The Policy should respond (cover to the limit of liability) as follows:

  1. Defend the owner builder of any claim or legal action seeking personal or property damage;
  2. Pay costs including first aid and medical costs incurred at the time of personal injury;
  3. Pay mitigation costs when trying to protect third party property.

Qtrust Insurances & Advisory is exclusively owner builder insurances serving Australia’s owner builders, renovators and home improvers. Qtrust is 100% independent which means our advice is unbiased without insurance company interference or marketing messages.
[1] Owner builder insurance product portfolio 2008 – 2013 claims analysis: Qamvis Insurance Group Pty Ltd (2013)