The coverage gap that keeps surfacing in construction disputes on both sides of the Tasman isn’t usually about whether a contractor bought insurance at all. It’s about the category error embedded in many head contracts: commercial pain (delay, escalation, performance failure, reputational loss) gets treated as if it’s insurable in the same way as physical loss or third-party injury.
That mismatch becomes brutal when projects blow out because the contract often allocates time-and-money consequences with a confidence that the insurance market simply doesn’t share. By the time the parties discover the difference, the solution can shift from broking to litigation and finger-pointing.
“Liquidated damages are obviously a really common issue in the instance of delays, and that's obviously something that insurance won't normally be able to respond to,” said Austin Rosier (pictured left), principal risk adviser for Omnisure.
The shock is not that liquidated damages (LDs) exist - everyone in construction knows they do - but that they can land with a force that smaller contractors and subcontractors can’t absorb, precisely because they are contractual and financial in nature rather than a covered insured peril.
Rosier’s second warning is about time, not paperwork. Project teams often behave as if policy periods stretch as long as their project does.
“Once you get over that 18 months to two years there can often be an assumption that coverage can continue indefinitely,” he said. In practice, construction period limits, defects liability constraints, and binder authority collide with the reality of modern build programs. Once a project slides into year three, the “admin exercise” of extending cover can become a restructure of risk - sometimes with a premium the client didn’t budget for, and sometimes with capacity that simply isn’t available on acceptable terms.
Peter Jeeves (pictured, centre), head of construction for Lockton, added a subtle but consequential twist: sophisticated head contractors may understand the broad outline of cover yet still get caught on the grey zones that emerge after a loss.
“There are nuances in the policy wording and covers, particularly around things like betterment or improvements to the construction post a claim arising,” said Jeeves. “Particularly where there's been a design issue or a workmanship issue and they need to improve the original construction,” said Jeeves.
That’s where head contract logic: “fix it properly; deliver the asset you promised”, can diverge from insurance logic: “indemnify you back to what was there, subject to exclusions, deductibles and the insured event”.
Then there’s the slow creep of values and time.
“Policies will have limitations around escalation and how much the value of the project is allowed to increase by, as well as time,” said Jeeves. For example, most annual policies have maximum construction periods and maximum defects liability periods that the policy needs to remain within. In other words, the policy doesn’t automatically expand with the project. Someone has to notice the drift, quantify it, disclose it and renegotiate before the loss happens.
A dramatic real-world illustration is playing out in New Zealand. In June, SkyCity said it was suing Fletcher Building seeking liquidated damages of more than NZ$330 million for losses arising from ongoing delays building the New Zealand International Convention Centre (NZICC). The delays included those linked to the 2019 fire, with delivery described as about six and a half years behind the contractually agreed date. The case is a reminder of the structural problem brokers keep trying to explain: even when there is insurance responding to aspects of a major incident, LDs and delay-driven commercial losses can sit outside the insuring clauses that many head contracts implicitly rely on. Related litigation has also touched the insurance response around aspects of the NZICC build, highlighting how contested and technical the boundary can become once parties are in dispute.
From an underwriting standpoint, one dangerous assumption by construction firms about their delayed projects is the mistaken belief that an extension is priced like a simple calendar adjustment.
“If there's a delay early on - maybe in breaking ground because of getting equipment in or getting the staff on site or labour shortages,” said Dominique Vagi (pictured right), chief underwriting officer for Hutch Underwriting. “That’s a very different risk profile compared to having a delay at the end of a project when you're 80 to 90 percent completed, values are fully exposed and you're in your testing and commissioning phase.”
The risk isn’t linear. Near completion, the asset values are at their peak, systems are being energised and tested, interfaces multiply and a defect can cascade into expensive rectification - exactly when the project is also most sensitive to time pressure.
That’s why the premium conversation can turn confrontational. “Further delays there could see the additional premium not being at the pro rata the contractor might expect, but something like 250% of pro rata,” said Vagi. “So it’s not just about the ability to get the extension but also what the cost of that extension looks like.”
To the insured, it feels like being penalised for bad luck. To the underwriter, it’s a repricing of a materially altered exposure - often after the project has already signalled distress.
For brokers, the practical lesson could be that closing the contract–policy gap is less about finding a mythical policy that “covers everything” and more about forcing alignment early: interrogating head contract insurance schedules, stress-testing LD exposure, mapping what “delay” means in policy terms and setting governance triggers so time/value drift gets disclosed and renegotiated before it becomes a claim-shaped surprise.
