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TL;DR: A contractor’s insurance protects the contractor’s works and liabilities, not everything the owner has at stake. Owners and developers usually still need to deal with existing buildings, their own property, neighbouring properties, delays and lost income, the professional team’s design risk, and the insurance gap at handover. The building contract decides who insures what, so the time to check is before work starts.
When a building project starts, many owners assume the contractor’s insurance covers the whole site. It rarely does. The contractor’s policies are built around the contractor’s own obligations under the contract. The owner still carries risks the contractor has no reason to insure, and some of those risks only become visible after something has gone wrong.
This guide is written for property owners, developers and businesses commissioning a build, extension or renovation in South Africa. It explains who normally insures what during construction and where the gaps tend to sit. It is general information, not advice on a specific project or policy.
In this guide
Who insures the works?
The works themselves, meaning the new building or structure, materials on site and temporary works, are covered by contract works insurance, often called contractors’ all risks (CAR) cover. The building contract decides which party takes it out.
Standard contracts used in South Africa, such as JBCC, NEC and GCC, set out the insurance each party must arrange. Under a JBCC agreement, the contract data records whether the contractor or the employer takes out the works insurance. On many projects the contractor arranges it, but owners and developers can elect to do so themselves.
Where the owner or developer arranges the works cover, it is usually called an owner-controlled or principal-controlled insurance programme. It is common on larger developments because it gives the owner control over:
the sum insured and the limits for each section of cover
the policy wording, extensions and excesses
how claims are handled and who receives the payment
continuity of cover if the contractor is replaced during the project
Where the contractor arranges the cover, the owner’s interest should be noted on the policy, and owners commonly ask for the policy schedule and wording rather than relying on a certificate alone. Our overview of construction and engineering insurance explains the main sections of cover, and our article on what is hiding in your construction contract looks at the contract clauses that shift risk between the parties.
What a contractor’s insurance usually leaves with the owner
Even a well-arranged contract works policy tends to leave several exposures with the owner. These are the ones that most often surprise owners:
Existing structures. Contract works policies are designed for the new works. Damage to existing buildings that are being altered or extended is often excluded or limited unless specifically arranged.
The owner’s own property and contents. Stock, equipment and contents in an occupied building remain the owner’s responsibility.
Loss of income. If insured damage delays completion, the contractor’s policy pays to repair the works, not the owner’s lost rent or revenue.
Neighbouring properties. Liability for damage to adjacent buildings from excavation and loss of support is frequently excluded or limited in standard wordings.
Design errors. Physical damage caused by a design error, and the cost of putting the design right, depend on the professional team’s own professional indemnity cover.
Defects after completion. Contract works cover typically ends at practical completion.
Renovating or extending an existing building
Renovations and extensions to a building you already own or occupy are where owners are most exposed, because two sets of insurance meet: your existing property insurance and whatever cover applies to the works.
Notifying the property insurer before work starts. Many property policies require notification of major alterations, and some restrict or exclude cover while building work is under way. Having the position confirmed in writing avoids disputes later.
How the existing structure is covered during the works. Responsibility for damage to the existing building needs to be agreed between the property insurer, the contractor and any works policy.
Unoccupied premises conditions. Property policies often restrict cover if a building is unoccupied for a period, which can happen during a major refurbishment.
Security and hot works. Open sites, stored materials and hot works such as welding and roofing change the fire and theft risk, and insurers may impose conditions.
For occupied commercial premises, the interaction between the works and your commercial property insurance is worth settling before the contractor arrives on site.
Neighbouring properties and lateral support
South African common law places a duty on property owners and contractors not to withdraw lateral or subjacent support from neighbouring land. Basement excavation, deep foundations, piling, retaining walls and underpinning can all cause movement, cracking or collapse in adjacent buildings.
Many standard contract works wordings in South Africa exclude or limit liability for removal or weakening of support, so specific cover is often needed where excavation happens close to a boundary. A pre-construction condition survey of neighbouring buildings, with photographs, gives everyone a clear baseline if a claim arises later. Our page on lateral support insurance explains how this cover works and what insurers need to quote it.
Delays and lost income
For income-producing developments, such as rental property, retail, hospitality or industrial facilities, the biggest financial loss from a fire, flood or collapse during construction is often not the rebuilding cost. It is the months of rent or revenue lost while the project is delayed.
Delay in start-up insurance, also called advance loss of profits, covers that lost income, and in some forms the additional finance costs, when insured damage to the works delays completion. It is usually arranged alongside the contract works cover and may be a requirement of development finance.
Design risk and the professional team
Architects, engineers and quantity surveyors carry professional indemnity insurance for claims arising from errors in their designs and advice. As the owner, you rely on that cover if a design error causes loss. It is worth checking, before appointments are signed:
that each consultant holds professional indemnity cover appropriate to the size and complexity of the project
that the limit is maintained for a stated period after completion, because design claims can arise years later
the retroactive date on each policy, which determines whether earlier work is covered
Construction guarantees protect the owner if the contractor fails to perform. A performance guarantee pays out, up to its value, if the contractor defaults, and retention and advance payment guarantees protect money the owner has paid or withheld. Guarantees are usually required by the building contract and issued by an insurer or bank on the contractor’s behalf. See bond and guarantee insurance for how they are arranged.
Handover: the gap at practical completion
Contract works cover typically ends at practical completion, or earlier for any part of the building the owner takes occupation of. From that moment, the building is the owner’s to insure. If the owner’s property policy is not in place on that date, there is a gap, sometimes of only a few days, in which a fire or storm would be uninsured.
Owners usually agree the handover date with their insurer in advance and set the new building’s sum insured on its full rebuilding cost. Defects that only appear after completion are a separate risk. Latent defects insurance can be arranged to cover certain structural and other defects for a period after completion.
Building a new home
New homes built by a home builder must be enrolled with the National Home Builders Registration Council (NHBRC) before construction starts, and home builders must be registered with it. Enrolment gives the owner warranty protection against major structural defects for a period after completion. It is not a substitute for insurance during the build, so the questions above about who insures the works, liability to neighbours and cover at handover still apply.
Checklist before construction starts
Before construction starts, owners and developers typically confirm:
Which party insures the works under the building contract, and on what terms
That the owner’s interest is noted on the contractor’s policies, with the schedule and wording provided
That the sum insured covers the full contract value, including materials on site and professional fees
How existing structures are covered during the works
That the property insurer has been told about the works, with the position confirmed in writing
Whether lateral support cover is needed, and that a condition survey of neighbouring buildings has been done
The contractor’s public liability limit, and any contract requirements for higher limits
The professional team’s professional indemnity cover, limits and retroactive dates
Whether delay in start-up cover is needed or required by the lender
The guarantees required from the contractor
The handover date and when the owner’s property insurance starts
How Berkley Risk helps
Berkley Risk is a specialist commercial insurance broker working with owners, developers, contractors and professional teams on construction projects. We review the building contract and the cover already in place, identify where the owner’s exposures sit, and arrange works, liability, lateral support, delay in start-up and specialised project insurance where it is needed. To discuss a project, get in touch with Berkley Risk.
Berkley Risk (Pty) Ltd is an authorised financial services provider (FSP #54407).
Frequently asked questions
Who is responsible for insurance during construction?
It depends on the building contract. Standard South African contracts record which party insures the works, and in many projects it is the contractor. The owner usually remains responsible for insuring any existing buildings, their own contents, loss of income from delays and, depending on the contract, some liabilities to neighbours and the public.
Does my building insurance cover renovations?
Not automatically. Many property policies require you to tell the insurer about major alterations before they start, and some restrict or exclude cover while building work is under way. Notifying the insurer and confirming the position in writing avoids a dispute if something goes wrong during the works.
Does the contractor’s all risks policy cover my existing building?
Contract works policies are designed to cover the new works being built. Cover for existing structures that are being altered or extended is often excluded or limited unless it is specifically arranged, so it needs to be checked for each project.
What happens to the construction insurance at practical completion?
Contract works cover typically ends at practical completion or when the owner takes occupation. From that point the owner’s own property insurance needs to be in place. Latent defects insurance can be arranged separately to cover certain defects that only appear after completion.
What is lateral support and why does it matter?
Owners and contractors must not withdraw lateral or subjacent support from neighbouring land. Excavation, basements, piling and retaining works can damage adjacent buildings, and many standard contract works policies exclude or limit this liability, so specific cover is often needed where excavation happens close to boundaries.
Can the owner arrange the construction insurance instead of the contractor?
Yes. On many projects the owner or developer arranges the works insurance through an owner-controlled or principal-controlled programme. This gives the owner more control over the limits, terms and claims process, and is common on larger developments.
What is delay in start-up insurance?
Delay in start-up, also called advance loss of profits, covers the owner’s loss of rental income or revenue when insured damage during construction delays completion. It is usually arranged alongside the contract works cover on income-producing developments.
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