Contract Works Insurance: Who Pays for Damage?

Contract works insurance pays to rebuild your own work in progress when it is damaged before you hand it over. Public liability covers damage you cause to other people and their property. Contract works covers the thing you are building — the half-laid floor, the studwork, the first-fix pipework, the materials stacked in the garden — if fire, storm, flood, vandalism or theft wrecks it mid-job. Without it, the cost of doing the work twice usually lands on you.

The gap most trades don’t know they have

Ask a builder what insurance they carry and you will usually hear public liability, employers’ liability if they have staff, and tool cover. All sensible. None of them pay for the scenario that ruins a small firm’s year: you are six weeks into a single-storey extension, the roof is on but not felted, a storm comes through and fills the structure with water. Nobody was injured. You didn’t damage anyone else’s property. You damaged nothing at all — the weather did.

Public liability will not respond, because there is no third-party claim and no negligence by you. Tool cover will not respond, because plasterboard and joists are not tools. And unless the contract says otherwise, the work is still yours until you hand it over. So you strip it out and build it again at your own cost.

That is the gap contract works insurance fills.

What contract works insurance actually covers

Contract works — sold by many insurers as contractors’ all risks, or bundled inside a contractors’ combined policy — covers the physical works while they are under construction, plus the materials on site waiting to go in.

Typical cover includes:

The permanent and temporary works — everything you have built so far on that contract, including scaffolding, hoardings and propping where the policy says so.

Materials on site, whether fixed in place or stored ready to use.

Free issue materials — items the customer bought and handed to you to install, which is very common on kitchens and bathrooms.

Damage from fire, storm, flood, escape of water, impact, theft and malicious damage.

Debris removal and the cost of clearing the site before you can rebuild.

Most policies are written on an “all risks” basis, meaning anything not specifically excluded is covered. Read the exclusions carefully, because that is where the policy is really defined.

What it typically does not cover

Faulty workmanship itself. If you set out a wall in the wrong place, contract works will not pay to move it. Some policies will pay for damage caused by defective work while excluding the cost of putting the defect right — a distinction worth checking.

Wear, gradual deterioration and shrinkage.

Theft where the site was left unsecured, or where there was no forcible entry. Insurers are strict on this.

Works left unattended beyond a stated period, often relevant over Christmas shutdowns.

Existing structure — the customer’s actual house. That is a separate section and a separate argument, covered below.

Who carries the risk on work in progress

This is the part that decides who pays, and it is contractual rather than insurance-led. The insurance follows the contract, not the other way round.

On most domestic work with no written contract, the risk sits with you. You have agreed to deliver a completed extension. Until it is complete and handed over, you have not delivered it. If it is destroyed, you still owe the customer the finished article, and you fund the rebuild.

On JCT and similar standard-form contracts, the position is set out explicitly. The contract will name who insures the works and who insures the existing structure, and it will list specified perils. On a new build the contractor usually insures the works in joint names. On extensions and refurbishments to an existing building, the employer — the homeowner or the developer — is often the one required to insure both the existing structure and the works, again in joint names.

Joint names matter more than most trades realise. If the policy is in joint names, the insurer cannot pay out and then chase you for the money afterwards. If it is not, you can find yourself defending a subrogated claim from the customer’s insurer, which is exactly the outcome insurance is supposed to prevent.

If you take on anything larger than routine domestic work, the two questions to ask before you start are: who is insuring the works, and is my firm a named insured on that policy?

Why the customer’s home insurance often will not respond

Homeowners assume their buildings policy covers everything that happens at their address. It rarely does once builders are on site.

Standard buildings insurance typically:

Requires notification of building works above a modest value, and can restrict or suspend cover if the customer did not tell them.

Excludes the works themselves. The policy covers the existing structure, not the new extension being built onto it.

Excludes damage arising from the works, which is the very thing most likely to happen.

So when a customer says “don’t worry, my house insurance covers it”, treat that as a prompt to check rather than a reason to relax. It is worth a line in your quote asking the customer to confirm they have notified their insurer of the works — it protects them, and it protects you from being blamed for a declined claim.

Getting the sum insured right

Contract works is usually written one of two ways:

An annual policy with a maximum contract value. You declare the largest single job you expect to run — say £75,000 — and every contract below that figure is covered automatically for the year. This suits most small firms with a steady mix of work.

A single-project policy for one unusually large or long job that sits above your annual limit.

Set the maximum contract value on the full value of the works, including materials and your labour to date, not on your profit. And check the basis of settlement: you want the cost of reinstatement, which means the cost of doing it all again at today’s prices, not a depreciated figure.

Underinsurance is the common failure. If you declare a £40,000 maximum and run a £90,000 job, expect the insurer to reduce the settlement proportionately — or decline it outright.

Practical steps that keep a claim payable

Photograph progress weekly. A dated set of photos is the fastest way to prove what existed before the damage.

Keep material delivery notes and invoices. They evidence the value on site.

Secure the site properly — lockable storage, tools and materials out of sight, hoarding where the risk warrants it. Most theft declines come down to site security.

Sheet up and strap down before bad weather. Storm claims are routinely reduced where a contractor left an opening unprotected.

Tell your insurer about unusual work — anything involving hot works, heat guns, blowtorches or bitumen boilers. Many policies carry hot works conditions requiring a fire watch afterwards.

Notify a claim immediately, before you clear anything away.

FAQs

Is contract works insurance a legal requirement? No. Employers’ liability is the only insurance most trades are legally required to hold, and only once you employ staff. Contract works is commercial protection, but many main contractors and some homeowners will make it a condition of the contract.

Does public liability cover my work in progress? No. Public liability covers injury to third parties and damage to third-party property caused by your work. It does not pay to rebuild your own unfinished works.

Do I need it for small domestic jobs? If your work in progress is never worth more than a few hundred pounds and never left overnight, the exposure is small. Once you are running multi-week jobs with materials on site, the exposure grows fast — a stripped-out kitchen or a partly built extension is a five-figure problem.

What is the difference between contract works and contractors’ all risks? In practice the terms are used interchangeably. Contractors’ all risks is often the broader package, bundling contract works with plant, tools and sometimes owned or hired equipment. Compare the schedules rather than the labels.

Who insures materials the customer bought themselves? Free issue materials are usually covered under contract works once they are in your care, but only if the policy says so. Check the wording before you accept a customer-supplied worktop onto site.

Does it cover damage caused by a subcontractor? Generally yes, where the subcontractor is working under your contract, but the policy may require them to hold their own public liability. Confirm this before you let anyone start.

Get work that is worth insuring properly

The whole point of carrying the right cover is that a bad week does not end the business. The other half of that is a steady enough flow of decent local work to absorb the cost.

Trade Pilot is free to join and only charges when a real local job lands in your inbox — pay-per-lead credits, no monthly plans — and each lead is sold to no more than three trades in your area. Reviews are verified against real invoices, so the trades who do the job properly are the ones customers see.

This article is general guidance, not insurance advice. Policy wordings and exclusions vary, so check your own schedule or speak to an insurance broker before relying on cover.