Written by Candice Klau, Managing Director, Be Covered Insurance Brokers
Candice has more than 20 years of insurance broking experience and specialises in construction insurance for builders, developers and trade businesses across Australia.
Public Liability Insurance for builders in Australia is often required before work can start on a construction site, but not every policy covers the same risks.
Liability insurance is one of the most important covers a builder can hold, but it’s also one of the most misunderstood.
Many builders take out a policy, tick the box, and assume they’re covered for anything that goes wrong on site. In reality, liability insurance has specific conditions, limits and exclusions that can significantly affect how a claim is handled.
Whether you’re a residential builder, commercial contractor or specialist trade business, your liability exposure changes as your business grows and your insurance should keep pace.
What Is Liability Insurance for Builders?
Liability insurance for builders typically refers to Public Liability Insurance, which protects your business against claims from third parties for injury or property damage arising from your work or business activities.
In a construction environment, this can include:
- A member of the public injured on or near a construction site
- Damage caused to a neighbouring property during works
- Injury to a client visiting a worksite
- Damage to existing structures during construction or demolition
- Claims arising from subcontractor activities on your site
For most builders and contractors, Public Liability Insurance is a baseline requirement. It is commonly required by head contractors, developers, government bodies and project owners before work can commence.
What Does Builders Liability Insurance Cover?
While every policy is different, Public Liability Insurance for builders typically covers:
Third-party bodily injury
If someone is injured as a result of your construction activities, on site, nearby, or in connection with your work, your policy may respond to cover legal costs and compensation payments.
Third-party property damage
If your work causes damage to someone else’s property, including neighbouring buildings, fencing, vehicles or infrastructure, your liability insurance may cover the cost of rectification and any associated legal claims.
Legal defence costs
If a claim is made against your business, your insurer will typically cover the cost of defending that claim, even if it is ultimately found to be without merit.
Products liability
If a product your business supplies, installs or recommends causes injury or damage after the work is completed, products liability cover, usually included within a Public Liability policy, may respond.
What Doesn’t Builders Liability Insurance Cover?
This is where many builders are caught out. Public Liability Insurance is not a blanket policy covering every possible loss on a construction project.
Common exclusions to be aware of include:
Your own property and equipment
Public Liability covers damage to third-party property, not your own tools, plant, equipment or materials. These require separate cover under a Contract Works or Plant and Equipment policy.
Faulty workmanship
Most liability policies exclude the cost of rectifying your own defective work. If a wall needs to be pulled down and rebuilt because of a construction error, the rectification cost is generally not covered under Public Liability. However, if that faulty workmanship causes damage to a third party’s property, the resulting damage may be covered.
Professional liability
If a claim arises from design advice, professional recommendations or errors in documentation, this falls outside the scope of Public Liability Insurance. This type of exposure requires Professional Indemnity or Design and Construct Insurance.
Workers
Your employees and subcontractors are not covered under Public Liability Insurance for injuries they sustain at work. Worker injuries are covered under Workers Compensation, which is a separate and mandatory requirement.
Contractual liability
Liability assumed under a contract, beyond what would apply at common law, may not automatically be covered. It’s important to check whether your policy includes contractual liability cover, particularly where construction contracts impose specific obligations on your business.
How Much Public Liability Cover Do Builders Need?
Liability limits for builders can vary significantly depending on the size and type of projects being undertaken.
Common Public Liability limits in the construction industry are $5 million, $10 million and $20 million. However, the right limit for your business depends on:
- The scale and complexity of your projects
- Contract requirements from principals, head contractors or government bodies
- The number of subcontractors working under your management
- The proximity of your work to high-value third-party property
- The risk profile of the activities being carried out
It’s becoming increasingly common for commercial, civil and government contracts to require $20 million in Public Liability cover as a minimum. If your current policy sits at $5 million or $10 million, it’s worth checking whether this is still sufficient for the work you’re tendering for.
The Difference Between Public Liability and Other Construction Covers
Liability insurance is just one part of a builder’s overall insurance program. Understanding how it fits alongside other covers is important.
Public Liability vs Contract Works Insurance
Contract Works Insurance covers physical loss or damage to the works themselves while construction is underway, for example storm damage to a partially completed structure or fire on site. Public Liability covers injury or damage caused to third parties.
Public Liability vs Professional Indemnity Insurance
Professional Indemnity covers claims arising from design advice, errors in documentation, or professional recommendations. If you’re involved in Design and Construct projects, consultant coordination or technical advice, you may need both covers.
Public Liability vs Workers Compensation
Workers Compensation is a mandatory, state-based insurance covering your employees if they are injured at work. It is separate from Public Liability and cannot be substituted for it.
When Should Builders Review Their Liability Insurance?
Liability insurance is not something to review once and forget. Your exposure changes as your business changes, and your cover should keep pace.
Key triggers to review your liability insurance include:
You’re tendering for larger or more complex projects
If you’re moving into higher-value commercial, civil or government work, your current liability limit may no longer be sufficient to meet contract requirements or reflect the risk involved.
Your contract requirements have changed
Construction contracts often include specific liability requirements. Before signing, check that your existing policy satisfies what the contract is asking for, particularly around limit of liability, interested parties and contractual liability provisions.
You’ve taken on more subcontractors
The more subcontractors working under your management, the greater your potential exposure. It’s worth reviewing whether your policy adequately reflects your subcontractor use and whether you’re collecting current Certificates of Currency from all subcontractors.
Your turnover or project values have increased
As your business grows, your liability exposure typically grows with it. A policy that was appropriate for a smaller operation may no longer be adequate for a larger construction business.
You’ve expanded into new types of work
Moving into different construction sectors, such as from residential to commercial, or from building to civil works, can change your risk profile significantly. Your insurer needs to be aware of the activities your business carries out.
You’ve had a significant business change
Changes such as new business structures, joint ventures, new employees, or changes to how you engage subcontractors should all be reviewed against your current liability insurance.
Liability Insurance Checklist for Builders
Before your next project or renewal, builders should review:
- Current Public Liability limit and whether it meets contract requirements
- Whether business activities are correctly disclosed to your insurer
- Whether subcontractors carry their own Public Liability Insurance
- Whether the policy includes products liability cover
- Whether contractual liability is included
- Whether high-risk activities have been disclosed
- Whether your turnover and project values are accurately declared
- Whether separate Professional Indemnity cover is needed for design exposure
- Whether Workers Compensation is current and compliant
Frequently Asked Questions
Is Public Liability Insurance mandatory for builders in Australia?
Public Liability Insurance is not universally mandated by law for all builders across Australia, but it is effectively a practical requirement. Most head contractors, developers, government bodies and project owners require evidence of current Public Liability Insurance before allowing work to commence. Some states also require it as part of licensing conditions.
Does Public Liability Insurance cover subcontractors working on my site?
This depends on your policy. Some policies extend to cover subcontractors working under your direction, while others do not. Regardless of your policy terms, it is considered best practice to collect current Certificates of Currency from all subcontractors before they commence work.
What happens if my liability limit isn’t enough to cover a claim?
If a claim exceeds your policy limit, your business is personally responsible for the difference. This is why choosing an adequate limit, not just the minimum required, is important, particularly on larger or more complex projects.
Do I need Professional Indemnity Insurance as well as Public Liability?
Potentially yes. If your business provides design advice, engages consultants, issues specifications or takes on Design and Construct contracts, you may have professional liability exposure that falls outside the scope of Public Liability Insurance. A specialist construction insurance broker can help you assess whether both covers are needed.
Need Help Reviewing Your Liability Insurance?
At Be Covered Insurance Brokers, we work with builders, contractors and trade businesses across Australia to structure liability insurance programs that match the projects, contracts and risks involved in their work.
If you’re unsure whether your current Public Liability Insurance is adequate, or if your business has grown or changed since your last review, speak with the team at Be Covered.
We can review your existing cover, check it against your current contracts and business activities, and identify any gaps before they become a problem.
General information only: This article provides general information and does not take into account your specific business, projects, contracts or insurance needs. You should seek advice from a qualified insurance broker before making decisions about your insurance.
