When a renovation project goes wrong, the first sign of trouble is often two insurers pointing at each other. The contractor’s public liability insurer says negligence hasn’t been proven. The buildings insurer says the property sat empty too long and cover has been cut back. The developer is left with a large reinstatement bill and no clear route to a payout.
This is not an unusual outcome. It is one of the most common patterns in renovation insurance disputes, and it almost always comes back to the same root cause: the policies in place were built for a different kind of risk.
Renovation projects fall between standard construction cover and standard property cover. Contract works insurance is designed for building something new. Buildings insurance is designed for a standing, occupied property. A renovation is neither, and treating it as one or the other is where the exposure begins.
This article sets out the specific gaps that catch developers out, and what a properly structured renovation insurance programme actually looks like.
Why Standard Cover Falls Short on Renovation Projects
Contractors’ all risks insurance covers new works in progress. It protects materials, the new structure being built, and works completed but not yet handed over.
What it does not do, in its standard form, is cover the existing building that the works are being carried out on.
At the same time, the buildings insurance on the property has its own limitations. Most policies restrict or void cover once significant works begin, and nearly all of them contain vacancy clauses that reduce what they’ll pay once the property has been unoccupied beyond a set period.
Put those two things together and you have a project where neither policy, on its own, covers the full picture.
What “Unoccupied” Actually Means to an Insurer
Contractors working on site during the day does not count as occupied. To an insurer, the property is empty from the moment the last person leaves at the end of the shift. It is empty at weekends and empty on bank holidays.
Most insurers restrict cover once the property has been unoccupied for 30 to 60 consecutive days. Some stricter wordings apply the threshold faster. Once that trigger point is passed, cover typically reduces to what the industry calls FLEA perils only: Fire, Lightning, Explosion, and Aircraft impact.
That means the following are no longer covered:
- Escape of water (burst pipes)
- Theft and malicious damage
- Flood and storm damage
- Subsidence
On a renovation site, these are exactly the risks most likely to materialise. A burst pipe in week ten. A break-in over a bank holiday weekend. Storm damage to a partially stripped roof. None of these will pay out under a FLEA-restricted policy.
Developers who find this out at claims stage, rather than at project inception, are in a very difficult position.
The Existing Structures Problem
This is the gap that generates more disputes than any other on renovation projects, and it is also the least well understood before a claim arises.
Contractors all risks insurance covers new works in progress: the new build element, materials on site, works already completed but not yet signed off. It does not automatically cover the existing building those works are being carried out on.
If a contractor accidentally damages a pre-existing wall, an original floor, a structural beam, or any part of the building that was standing before the project began, a standard CAR policy will not respond. Existing structures cover is a specific extension that has to be added, and many basic or annual CAR policies either exclude it entirely or carry sublimits that are well below the actual value at risk.
This is not a loophole or a technical quirk. It is a design feature of standard CAR insurance. The policy is built to cover what is being created, not what was already there.
Why This Gap Matters Most on Conversion Projects
For barn conversions, commercial-to-residential schemes, loft conversions, and any project where the developer is working within an existing structure, the original building often represents the majority of the value on site. The new works may be a fraction of the total reinstatement cost if something serious goes wrong.
Take a Victorian warehouse conversion. The original brickwork, steel frame, and floor structure might account for the bulk of the asset value. If a contractor removes a supporting element incorrectly and causes structural damage to the existing fabric, a CAR policy without an existing structures extension will not cover that loss. The developer carries it.
The fix is simple in principle: confirm, before the project starts, that existing structures cover has been added to the policy at a sum insured that reflects the actual reinstatement value of the property, not just the contract works figure.
Non-Negligent Damage and the Third-Party Risk That Gets Missed
Public liability insurance covers claims arising from the contractor’s negligence. If a worker drops something and damages a neighbour’s property, the PL policy responds. But a significant category of renovation-related third-party damage is not caused by negligence at all.
Vibration from groundworks can crack the foundations of an adjacent property. Excavation can cause subsidence to a neighbouring building. Removal of a shared or supporting structure can weaken a party wall. None of these require a negligent act. They are the foreseeable consequences of carrying out the works themselves.
Standard public liability insurance will not respond to these claims because it requires negligence to be established before it pays. If the damage is caused by the nature of the works rather than by a specific failure of care, the claim falls outside the policy.
Non-negligent damage cover, often referred to as JCT 21.2.1 insurance (with equivalent clauses in current JCT forms), covers third-party property damage arising from the works where negligence cannot be proven. It is a separate extension, and it is frequently overlooked until a neighbour makes a claim.
Consider a developer undertaking basement excavation in a Victorian terrace. Vibration during groundworks causes cracking to the adjoining property. No negligence is established. Without a non-negligent damage extension, the developer has no insurance to draw on. The cost of repairing the neighbour’s property comes straight out of the project budget.
This cover is often a specific obligation under JCT contracts. Many developers sign contracts requiring it without checking whether their policy actually provides it.
JCT Contract Requirements vs What Most Policies Actually Provide
JCT contracts set out insurance obligations for both the employer (usually the developer) and the contractor. Depending on which JCT option applies, those obligations typically include cover for the contract works, the existing structure, and often non-negligent damage to third-party property.
The problem is that standard CAR policies do not automatically meet JCT requirements. Existing structures cover, non-negligent damage extensions, and specific sum insured levels all need to be confirmed against the contract wording, not assumed.
Where the policy does not match the contractual obligation, a “difference in conditions” gap exists. The developer believes the requirement has been met. The insurer’s position, at claims stage, may be different.
Lenders funding renovation projects are also increasingly asking developers to evidence that their insurance meets the requirements of the building contract before releasing funds. If the policy falls short, this can hold up drawdowns at a point in the project when cash flow is already tight.
The JCT 5.4a option, under which both the developer and contractor are named on a single project-specific policy, is one way to close this gap. It removes any ambiguity about whose insurance responds and ensures both parties’ interests are covered under the same wording.
Underinsurance Is Getting Worse
Underinsurance is a long-standing problem across construction, but it is particularly acute on renovations because declared values are often set at project inception and rarely revisited, even when costs shift during the works.
Construction costs rose sharply after the pandemic. BCIS data points to increases of 30 to 35% between 2020 and 2023, and while inflation has eased since, reinstatement costs remain well above pre-pandemic levels. A sum insured that was declared two or three years ago, or based on an early-stage estimate, may be materially out of step with what it would actually cost to reinstate the property today.
Underinsurance triggers the average clause. If a property is insured for 70% of its true reinstatement value and a claim arises, the insurer will pay only 70% of the loss. On a major claim, that shortfall can be substantial.
For developers running several projects under an annual property developers insurance policy, the risk compounds if a blanket declared value is applied across all sites without individual review. Each project should be assessed against current reinstatement costs, particularly where there have been material changes to scope or programme since the policy was placed.
What a Proper Renovation Insurance Programme Looks Like
A well-constructed renovation insurance programme for a developer typically brings together the following elements:
- Contract works or CAR insurance with an existing structures extension, at a sum insured that reflects the full reinstatement value of the property, not just the new works
- Public liability cover with a non-negligent damage extension, sized to the project and to any requirements in the building contract
- Employers’ liability, which is a legal requirement if any direct labour is being used on the project
- Unoccupied property insurance from day one of vacancy, arranged before the FLEA restriction on any existing buildings policy kicks in
- Professional indemnity cover if the developer is taking on any design responsibility, including specifying materials or coordinating subcontracted design work
- A policy period that reflects the realistic project timeline, with a clear process for notifying the insurer if the programme extends
Single-Project Policy vs Annual Policy with Extensions
A single-project renovation policy is purpose-built for the specific works. It brings existing structures, contract works, and liability together under one wording, removes the risk of gaps between separate policies, and can be sized precisely to the project scope. It is generally the better option for larger or more complex renovations, and for projects where the developer is not running a continuous pipeline of similar work.
An annual policy with renovation extensions can work for developers doing multiple smaller projects, but each extension has to be checked against the actual scope of works on each site. Cover that was adequate for one project does not automatically carry across to the next.
Whichever route is taken, the cover has to be confirmed against the actual risk before the project starts, not after the first claim goes in.
Getting Renovation Cover Right Before the Project Starts
Renovation projects carry a specific set of risks that standard construction and property policies are not built to address in full. The gaps are not obscure. They come up in the same form across similar projects: the existing structure that isn’t covered, the FLEA restriction on the vacant building, the non-negligent damage claim that no policy responds to, the contract obligation that the policy doesn’t meet.
The practical response is to review the cover at the same point as the contract and the build programme, which is before work starts. Check that existing structures are included. Check that the non-negligent damage extension is in place if the works involve excavation, demolition, or groundworks near neighbouring properties. Check that the sum insured reflects current reinstatement costs. Check that the policy period matches the realistic programme rather than an optimistic one.
If the project is being carried out under a JCT contract, confirm that the insurance obligations in the contract are actually being met by the policy. Where there is any doubt, speak to a specialist construction insurance broker who can review the policy wording against the contract requirements and confirm where cover is and isn’t aligned.
Get in touch with Construction Insure for a specialist review of your renovation project’s insurance needs.