Key Takeaways
- Under the standard JCT arrangement for works to an existing building, the owner insures both the existing structure and the new works, in joint names with the contractor.
- Joint names cover stops the insurers pursuing the other party after a loss, which is how projects avoid mid-build litigation.
- A contractor’s public liability policy responds only where negligence can be established; storms, theft and unattributable damage fall outside it.
- Tell your existing insurer about the works in writing, and use a single project policy for significant works.
When arranging insurance for a building project, there are two key initial questions which need to be addressed. First, which party is responsible for insuring the new works: the materials, the extension itself, everything the project adds? And secondly, who insures the existing building that was in place before the works commenced? The answer is typically stipulated by the building contract. This article sets out the standard arrangements under the building contracts in common use, and how they relate to single project and renovation insurance.
The three standard arrangements
The JCT family of building contracts, the most widely used in the UK, answers both questions by asking the parties to select one of three insurance options before the contract is signed. In the Standard Building Contract and the Design and Build Contract the options sit in Schedule 3 and are referred to in clause 6.7; the Intermediate Building Contract carries the same options in Schedule 1; and the Minor Works Building Contract covers the same ground at clauses 5.4A, 5.4B and 5.4C, although its lettering does not line up with Options A, B and C, as the table shows. Other contract families do not mirror this structure: NEC4, for example, sets a single default position under which the contractor insures the works, so who insures what should always be checked against the contract actually being used.
| Arrangement | Who insures what | Standard Building Contract, Design and Build (Schedule 3) and Intermediate (Schedule 1) | Minor Works Building Contract | Typically used for |
|---|---|---|---|---|
| Contractor insures the new works | Contractor: all risks cover on the works, in joint names with the employer | Insurance Option A | Clause 5.4A | New buildings |
| Employer insures the new works | Employer: all risks cover on the works, in joint names with the contractor | Insurance Option B | No equivalent | New buildings where the employer wants control of the policy |
| Employer insures the existing structure and the new works | Employer: specified perils cover on the existing structure and contents, plus all risks cover on the works, both in joint names with the contractor | Insurance Option C (paragraphs C.1 and C.2) | Clause 5.4B | Renovation, extension and refurbishment of an existing building |
| Alternative arrangements where joint names cover on the existing structure cannot be obtained | As agreed between the parties and recorded in the contract | C.1 Replacement Schedule | Clause 5.4C | Tenants, and homeowners whose insurer declines joint names cover |
Option A: the contractor insures the new works
Used for new buildings. The contractor takes out an all risks policy on the works in joint names with the employer, the person the work is being done for. In practice this is usually the contractor’s annual contractors’ combined or contractors’ all risks policy rather than a policy bought for the project, and the employer’s name is not normally endorsed onto it. Instead, many of these policies carry a clause in the contract works section of the policy wording, typically headed joint names or joint insured, which extends the cover to any party the contractor is contractually required to insure jointly with. The clause only operates where a written contract actually requires joint names.
Once the employer has verified that the contractor has a joint names type clause within the policy wording, the employer simply needs to ensure that the rest of the contractor’s insurances are adequate for the project: that the contract works sum insured is adequate to cover the value of the works, that the business description covers the works being carried out, and that the policy is in force for the duration of the project or will be renewed before expiry. In the Minor Works Building Contract the same arrangement is clause 5.4A.
Option B: the employer insures the new works
Also for new buildings, but the arrangement is reversed: the employer takes out the all risks policy on the works in joint names with the contractor. This allows the employer to arrange the policy and control its appropriateness and quality rather than leaving this to the building contractor, although the employer should still ensure that the contractor has cover in place for their own exposures, such as employers’ liability and public liability. The Minor Works Building Contract has no equivalent of this option.
Option C: the employer insures the existing structure and the new works
This is the option most relevant where there is an existing building undergoing renovation, extension or refurbishment. The employer insures the existing structure and its contents against specified perils, meaning the named perils such as fire, lightning, explosion, storm and flood, and also insures the new works on an all risks basis, both in joint names with the contractor. In the Minor Works Building Contract the equivalent is clause 5.4B, which is why the lettering can mislead: Minor Works 5.4B corresponds to Option C, not Option B. This is also the arrangement a single project policy is designed to deliver in one place.
Where joint names cover cannot be obtained
Insurers are often reluctant to add a contractor as a joint insured on an existing buildings policy, particularly where the employer is a tenant whose landlord controls the buildings insurance, or a domestic homeowner. The contracts anticipate this. The Standard Building Contract and the Design and Build Contract allow paragraph C.1 to be replaced by bespoke arrangements set out in a C.1 Replacement Schedule, and the Minor Works Building Contract provides at clause 5.4C for the works and the existing structure to be insured by other means recorded in the Contract Particulars. In practice this is exactly the gap a single project policy fills: one insurer covering the existing structure and the works together, in joint names, without asking the household insurer to do something it would rather not.
Therefore, from a homeowner’s perspective, under the standard arrangement for work on an existing building, insuring the house is the responsibility of the homeowner and not the builder. Under Option C the contractor’s own insurance obligations are limited to their liability covers, principally employers’ and public liability, with the works themselves being insured under the employer’s own policy.
Where there is no contract, or the contract says nothing about insurance
Many domestic projects run on informal arrangements: either a contract exists but the insurance position is not spelled out, or there is no written contract at all. Where nothing has been agreed, each party tends to assume the other has cover in place, and often neither does. In practice the existing building remains the owner’s to insure, and unless someone has specifically arranged cover for the works themselves, the new works may not be insured by anyone at all. The safest course is to agree insurance responsibilities in writing before work starts, even on the most informal project.
What a “joint names” insurance policy means
A joint names policy is not always mandatory, but it is often specified by certain contracts, such as several of the JCT options described above. When a policy names both the employer and the contractor as insured parties, it means the insurer cannot pay a claim and then pursue another named insured party to recover its money, even where that party was responsible for the damage, a process called subrogation. Where there is no joint names policy in place, that is exactly what the standard position in insurance allows: the insurer pays for the damage and then seeks to recover it from a separate party who may be responsible. Suppose a fire breaks out during a rewire and the builder has potentially been negligent: the buildings insurer pays the homeowner’s claim and then looks to recover its outlay from the responsible builder, through the builder’s public liability insurance. Two parties who should be collaborating to finish a building project are not well served by becoming opponents in litigation, and joint names is how the standard contracts prevent that happening. It is also one of the specific things a single project policy is designed to facilitate.
“My builder is insured”
A contractor’s public liability policy responds when the contractor is legally liable, which in practice means when their negligence can be established. Much of what goes wrong on site does not fit that shape, and damage to the existing structure is where the gap shows most clearly. Take escape of water, one of the most common claims during building works. A pipe fails in a part of the existing house untouched by the project: that has nothing to do with the builder at all, and the builder’s insurances are not likely to respond. Between the clear cases sit the contentious ones. A storm strips the temporary roof; materials are stolen over a weekend; an electrical fire breaks out overnight and it is unclear whether it started in the newly installed wiring or in the electrics that were already in place and unrelated to the project. Meanwhile, the owner’s existing household or property insurer, told about major works, has typically restricted cover to a short list of perils for the duration, and may exclude damage caused by the contractor altogether. The result is the classic dispute: the contractor’s insurer declining because negligence is not proven, the household insurer declining because the damage arose from the works. Each position is arguable, and the building owner is potentially left falling between the gaps of two policies. Placing the existing structure and the works with one insurer, in joint names, is the arrangement that makes this particular argument impossible and the coverage position clear. It also means the single project insurer pays the claim in the first instance. Where negligence on the contractor’s part can be established, and the contractor is not protected by the policy’s joint names provisions for that particular coverage section, the insurer may then look to recover the loss from the contractor’s public liability insurers; where negligence cannot be established, the loss simply rests with the single project insurer.
Top recommendations before starting a building project
Three steps cover almost every project.
1. Before signing, read the contract’s insurance clauses and decide who insures what. Even if the contract is informal, agree the insurance position in writing anyway.
2. Tell your existing insurer about the works and get their position in writing, to understand what the existing building insurer will and will not cover, which may help you judge whether a single project policy is more suitable instead.
3. Where the works are significant, arrange a single project policy covering the existing structure, the new works and your liabilities together, with non-negligent liability cover added where excavation, underpinning or demolition happens close to the neighbours.
Our single project and renovation insurance page sets out the cover in full, and we can review the contract position.
