What Insurance Should Your London Building Contractor Have? A Homeowner's Guide

**1. Public Liability Insurance (PLI)**:

• Public liability insurance is the most important insurance for a building contractor working on a residential property. It covers the contractor's legal liability to pay compensation for:
• •Bodily injury to a third party (a member of the public, a neighbour, or the homeowner) caused by the contractor's work or negligence
• •Damage to third-party property (including the homeowner's property and neighbouring properties) caused by the contractor's work

• *What PLI covers in practice*:
• •A contractor's worker accidentally breaks through a party wall and damages a neighbour's plastering — PLI covers the repair cost
• •A subcontractor leaves a hole in the floor unguarded; the homeowner falls and injures themselves — PLI covers the injury claim
• •Vibration from piling works damages a neighbouring property's plasterwork — PLI covers the damage claim
• •A contractor's van hits a parked car in the street while delivering materials — PLI (or motor third-party liability) covers the damage

• *What PLI does NOT cover*:
• •Damage to the contractor's own plant and equipment (this is covered by contractor's plant insurance)
• •Defects in the contractor's own workmanship (this is covered by professional indemnity insurance or a structural warranty — see below)
• •Employer's liability claims from the contractor's own employees (covered by EL — see below)

*Minimum PLI limits*: The industry standard for a residential contractor is £2,000,000 public liability (£2m). Some clients require £5,000,000 (£5m). For major works (basement, large extension), £5m PLI should be required. For very large or complex projects, £10m PLI is appropriate.

**2. Employer's Liability Insurance (ELI)**:

Employer's liability insurance is legally mandatory in the UK for any business that employs people. It covers the employer's legal liability to pay compensation to an employee (or former employee) who suffers injury, illness, or disease as a result of their employment.

• *What ELI covers*:
• •An employee falls from a scaffold during an extension project and is injured — ELI covers the compensation claim
• •An employee develops occupational deafness after years of working with noisy equipment — ELI covers the claim
• •An employee is injured when plant or equipment malfunctions on site — ELI covers the claim

*ELI is a legal requirement*: Any contractor with employees (including part-time, temporary, or apprentice workers) must by law have employer's liability insurance with a minimum limit of £5,000,000 (£5m). Failure to have ELI in place is a criminal offence — the Health and Safety Executive (HSE) can impose daily fines of up to £2,500 for non-compliance.

*For sole traders with no employees*: ELI is not required if the contractor is a genuine sole trader with no employees. However, most building contractors use subcontractors — and subcontractors who are controlled by the contractor (directed, equipped, and integrated into the contractor's operations) may legally be classed as employees for the purposes of EL legislation, even if they are nominally self-employed. A contractor using subcontractors should have ELI unless they can confirm that all subcontractors are genuinely independent businesses with their own ELI in place.

**3. Contract Works Insurance (also called Contractor's All Risks or CAR insurance)**:

Contract works insurance (also called 'Contractor's All Risks' or 'CAR') covers physical loss or damage to the works under construction — the extension being built, the materials on site, and the existing structure of the property while works are being carried out.

• *What contract works insurance covers*:
• •Fire destroying the partially completed extension — covers reinstatement
• •Theft of materials from site (timber, copper pipe, tools) — covers replacement
• •Storm damage to partially completed roof structure — covers reinstatement
• •Accidental damage to the existing house during the extension works — covers repair

• *Who should hold contract works insurance?*:
• This depends on the contract:
• •Under most standard building contracts (JCT Minor Works, JCT Homeowner/Occupier), the contractor is responsible for insuring the works during construction
• •Some contracts require the employer (homeowner) to insure the existing structure — particularly where the existing house is not being structurally altered and the contractor's risk is limited to the new works

*Important*: Contract works insurance typically does NOT cover the contractor's tools and plant (contractor's plant and equipment insurance is separate) and typically excludes deliberate acts, inherent defects, and gradual deterioration.

*Does the homeowner's buildings insurance cover works under construction?* Most standard buildings insurance policies do NOT cover works under construction — many policies specifically exclude damage arising from building works and may void the policy during a major renovation if not notified. The homeowner should notify their buildings insurer before works start — the insurer may require an amendment to the policy or may void cover. Some specialist policies ('renovation insurance') cover the property and works during construction — these are available from specialist insurers (e.g., Renovation Underwriting, BuildStore).

**Professional Indemnity Insurance (PII)**:

• Professional indemnity insurance covers claims arising from errors or omissions in professional advice, design, or specification. It is relevant for:
• •*Architects and designers*: If an architect's design is defective (structural failure, Building Regulations non-compliance, planning breach), PII covers the architect's liability for the resulting loss
• •*Structural engineers*: If the SE's calculations are wrong and the structure fails, PII covers the SE's liability
• •*Design and build contractors*: If the contractor is responsible for design (not just construction), PII covers design errors

For a traditional build-only contract (the homeowner appoints the architect and the contractor builds to the architect's drawings), the contractor typically does not need PII — the design liability remains with the architect. For a design-and-build contract (common in London extension and loft conversion projects where the contractor takes on the design), the contractor should hold PII for the design element.

*Typical PII limits for residential contractors*: £500,000–£2,000,000. Architects' PII minimum is typically £500,000; engineers typically £1,000,000+.

**Structural Warranties**:

A structural warranty (also called a latent defects warranty or structural guarantee) is an insurance-backed warranty that covers major structural defects in a new building or conversion for a defined period — typically 10 years from practical completion. Unlike PLI and ELI (which cover third-party claims), a structural warranty covers the homeowner for defects in the structure of the building itself.

• *Why structural warranties matter for London projects*:
• •Mortgage lenders — many require a structural warranty (or Professional Consultant's Certificate from an architect) for new builds and for major structural works including: basement conversions; major structural alterations; loft conversions with structural changes; whole-house refurbishments; new-build garden rooms or annexes
• •Property sale — a structural warranty is transferable to the buyer; it provides assurance to the buyer's solicitor and lender that major structural defects will be covered for the warranty period
• •New builds must have a structural warranty (e.g., NHBC Buildmark, Premier Guarantee, LABC Warranty) or Professional Consultant's Certificate (PCC from an architect) to be mortgageable

*Common structural warranty providers*: NHBC Buildmark (the largest — well-recognised by lenders and solicitors); Premier Guarantee; LABC Warranty; Global Home Warranties; Advantage HCI.

*Typical structural warranty cost*: 0.5–1.5% of the total build cost — so for a £100,000 extension, approximately £500–£1,500.

**How to verify a contractor's insurance before work starts**:

• *Step 1 — Request certificates of insurance*:
• Before signing any contract, ask the contractor to provide copies of their current insurance certificates:
• •Public Liability Insurance certificate (showing the insurer, policy number, coverage limit, and expiry date)
• •Employer's Liability Insurance certificate (similarly)
• •Contract Works Insurance certificate or policy schedule (if the contractor is to insure the works)

*Step 2 — Check the certificates are current*: Insurance certificates are valid for the policy period (typically one year). An expired certificate provides no protection. Confirm the policy expiry date is beyond the anticipated project completion date.

• *Step 3 — Check the coverage limits*:
• •PLI: minimum £2m for a standard residential project; £5m recommended for larger or higher-risk projects
• •ELI: minimum £5m (the legal minimum — this is standard in all compliant policies)
• •Contract works: should cover the full reinstatement value of the new works plus the existing structure at risk

*Step 4 — Contact the insurer directly if in doubt*: An insurance certificate can be falsified or may not reflect the actual policy. For significant projects, you can ask the contractor's insurer to confirm the policy is in force and to note your interest as the employer on the contract works policy.

*Step 5 — Check industry scheme memberships*: FMB (Federation of Master Builders) members must hold PLI and ELI as a condition of membership — FMB verifies insurance as part of its membership vetting process. TrustMark-registered contractors are similarly vetted. Checking a contractor's FMB or TrustMark status provides some assurance that their insurance has been independently verified.

**CDM 2015 — Construction (Design and Management) Regulations and the Principal Contractor's responsibilities**:

The Construction (Design and Management) Regulations 2015 (CDM 2015) impose health and safety obligations on all parties to a construction project — including domestic clients, architects (Principal Designer), and contractors (Principal Contractor). For domestic projects, CDM 2015 applies when there is more than one contractor working on the project (even sequentially — e.g., a structural steel installation subcontractor followed by the main building contractor counts as two contractors).

• *The Principal Contractor's health and safety responsibilities under CDM 2015*:
• The Principal Contractor (PC) must:
• •Prepare and develop a Construction Phase Health and Safety Plan
• •Coordinate health and safety on site across all trades and subcontractors
• •Ensure all workers are competent (including checking subcontractor CSCS cards or equivalent trade cards)
• •Ensure site is secured against unauthorised access (children, public)
• •Ensure adequate welfare facilities are provided (WC, hot water, rest area)
• •Keep, update, and hand over the Health and Safety File to the homeowner at completion

*For the homeowner — the implications*: Under CDM 2015, a domestic client's duties are normally transferred to the Principal Contractor (the main building contractor). This means the main contractor is responsible for health and safety on the project, including in relation to subcontractors. The homeowner's obligation is to ensure they appoint a competent Principal Contractor — which is another reason why contractor selection (insurance, references, scheme membership) matters.

**What happens when something goes wrong — making a claim**:

• *If the contractor's workmanship is defective*:
• •First: contact the contractor in writing and request remediation within a reasonable period (typically 14–28 days for minor defects, longer for major issues)
• •If the contractor refuses or cannot be reached: consider mediation (low cost, non-adversarial) through RICS, RIBA, or the Construction Industry Disputes Resolution Service (CIDR)
• •If mediation fails: small claims court (up to £10,000); county court for larger claims
• •Check whether the contractor has a structural warranty — structural defects within the warranty period should be covered directly by the warranty insurer without needing to pursue the contractor personally

• *If the contractor causes damage to a neighbouring property*:
• •The contractor's PLI should cover the claim — contact the contractor and ask them to notify their PLI insurer
• •If the contractor's PLI is not in place or the insurer disputes the claim, the homeowner may need to involve their own buildings insurer
• •The party wall agreement (see `party-wall-act-guide`) provides a mechanism for dispute resolution where damage is caused to an adjoining owner's property

• *If the contractor becomes insolvent during the project*:
• •Check whether the contract included a performance bond or advance payment bond (uncommon in small residential contracts but good practice for significant deposit amounts)
• •Structural warranties may still be valid even if the contractor goes insolvent — the warranty is with the insurer, not the contractor
• •Seek legal advice early — there may be options to recover deposits through insolvency proceedings or, where the contractor used a client account, to reclaim deposits held in trust