Contract works (builders all-risks) insurance for NSW residential builders

What contract works insurance is

Contract works insurance, also called builders all-risks or construction all-risks insurance, covers accidental physical loss or damage to the building works during construction. It is typically the policy that pays out when fire, storm, theft, vandalism, water damage or accidental impact damages the partially built structure before practical completion.

For a NSW residential builder, contract works insurance generally sits alongside HBCF (consumer protection for builder default), public liability insurance (third-party claims for personal injury or property damage) and workers compensation. The four policies cover different risks. None substitutes for any of the others.

Currency note: This entry reflects the policy structures, exclusions and limits commonly offered to NSW residential builders by HIA Insurance Services, Marsh, Chubb and similar underwriters as at 2026. Specific cover, exclusions, sub-limits and endorsements vary between insurers and between policies. Builders should always read the actual policy schedule and product disclosure statement for their own policy rather than relying on a general description. The Insurance Contracts Act 1984 (Cth) governs duty of disclosure and remedies for non-disclosure.

What contract works insurance typically covers

A standard residential contract works policy typically covers physical loss or damage to the works while they are under construction. Cover usually extends to:

• The building itself in its partially complete state
• Materials and components on site or in transit to site
• Temporary works (formwork, scaffolding, hoardings) supplied for the project
• Site facilities such as toolsheds and portable office accommodation that belong to the project

Specific perils commonly covered include fire, lightning, explosion, storm, flood, water damage, malicious damage, theft and accidental damage. The exact set of covered perils varies by policy. "All-risks" policies typically cover any cause not specifically excluded, while "named-perils" policies cover only the listed events. Read the policy wording: "all-risks" is a marketing label, not a guarantee that everything is in.

Optional extensions commonly available include cover for the builder's tools and plant, cover for existing structures during alterations or additions, professional fees for redesign after a loss, debris removal and escalation cover for inflation in rebuild cost.

Standard exclusions

Contract works policies generally share a consistent set of exclusions, though specific wording varies.

Defective workmanship and defective materials: the cost of fixing the defective work itself is typically not covered, though resultant damage to other parts of the works can sometimes be covered depending on the policy wording (LEG 2 versus LEG 3 clauses, for example).

Faulty design: errors in design documents are typically excluded. Professional indemnity insurance is generally the policy for that risk.

Wear and tear, gradual deterioration and inherent vice.

War, civil insurrection, nuclear and radioactive contamination.

Cyber risks (typically dealt with by a separate cyber policy).

Loss or damage discovered after practical completion that is not consequent on an insured event during the construction period.

Existing structures (the rest of the building during a renovation or extension) are commonly excluded by default. For renovation work, the builder should typically ensure the policy is endorsed to include the existing structure, or the homeowner must hold separate insurance covering it. Confirm this in writing before site possession.

Single project versus annual policies

Two policy structures are commonly available.

A single project policy typically covers one specific build from the start of construction through to practical completion. The sum insured is the contract value of that single project. It is generally appropriate for one-off custom builds or large projects.

An annual turnover (or annual blanket) policy covers all projects undertaken by the builder during a 12-month policy period up to a declared annual turnover. The sum insured is set per project (typically up to a maximum value declared on the schedule) and the annual premium is generally calculated on declared turnover. It is commonly used by volume builders running multiple projects simultaneously and is often more cost-effective than insuring each project separately.

Who is named insured

The named insured on a contract works policy typically includes the builder and the homeowner as joint insured parties, with the financier or principal noted on the policy where required. This co-insured structure generally means that if the works are damaged, the policy responds for the benefit of all named parties. Subrogation between named insureds is typically restricted, though the precise effect depends on the policy wording.

For renovation work where an existing structure is being insured, the homeowner is usually the lead insured because they own the existing structure.

When the policy ends

A contract works policy typically ends at practical completion of the project. After practical completion the homeowner's home and contents insurance generally covers the building. The transition matters because there is a moment around handover where both policies may either both apply or neither apply. Builders and homeowners should confirm the cover-start date for the home policy aligns with the cover-end date for the contract works policy.

Some policies offer a defects liability period extension that continues to cover the builder returning to rectify defects after practical completion, typically for the contractual defects liability period (often 12 months, but check the schedule).

Why builders hold the policy

Two pressures typically drive the requirement to hold contract works insurance.

Standard residential contracts (HIA and Master Builders NSW forms) commonly require the builder to hold contract works insurance for the contract value plus a margin (often 10 to 20 per cent) for the duration of the project. The exact contractual requirement should be read on the specific contract being signed. The builder typically must provide a certificate of currency to the owner before work starts.

Financiers of new residential construction (banks and other lenders providing construction loans) usually require evidence of current contract works insurance before they release each progress payment. A lapsed policy mid-build can hold up progress payments and create cashflow problems.

Sum insured

The sum insured should typically equal the full contract price plus an allowance for variations, professional fees (often around 10 per cent), debris removal (often around 10 per cent) and escalation. Underinsurance is a common claims problem: where the sum insured is less than the actual replacement value, most policies apply an averaging or co-insurance clause that reduces the claim payment proportionally.

For a $500,000 fixed-price new build, a sum insured of around $625,000 (contract plus 25 per cent) is one defensible starting point. The exact margin depends on the policy wording, the project, lead times for replacement materials and the cost escalation environment. A broker can give a specific recommendation against the policy.

Practical implications

Three habits generally keep contract works insurance clean.

Confirm the policy is in place before any work or deposit. The contract works policy should typically run from the date of site possession, not the date of contract signing. Building on a site that is not covered by the policy is uninsured exposure.

Increase the sum insured as variations land. A signed variation that adds $20,000 to the contract price typically needs to be reflected in the contract works sum insured. Variation-driven underinsurance is one of the more common causes of partial claim payments.

Maintain the certificate of currency in the project record and on the builder's portal. Homeowners increasingly request it before each progress payment. Financiers generally always do.

Safety qualifiers and disclosure

This entry is general information for NSW residential builders, not insurance advice. Policies, exclusions and sub-limits vary materially between underwriters and between editions of the same product. Builders should:

• Read the policy schedule and product disclosure statement (PDS) for the specific policy.
• Disclose all material risks to the insurer before binding cover. The Insurance Contracts Act 1984 (Cth) sets out the duty of disclosure and the remedies for breach.
• Engage a broker or seek written advice from the insurer where a project sits outside the builder's normal scope (large contract value, unusual perils, existing-structure renovation, demolition work).
• Recheck sum insured at each variation and confirm the policy responds before site possession.

Related entries

HBCF (covered in the hbcf-insurance-requirements entry) covers consumer protection for builder default and incomplete or defective work. Public liability insurance for residential builders (separate entry) covers third-party personal injury and property damage claims. Workers compensation (workers-compensation-residential-builders entry) covers workers injured on site. The four policies typically apply to a residential builder at the same time but cover separate, complementary risks.