Does land need to be insured? In most funding we do lenders do not insist on this. Most developers have contract works cover in place whilst involved in constructing infrastructure on the land (often through the contractors), but once that work is complete most don’t take out any additional insurance from what we have seen.
Events in Canterbury last week caused a lender to look a bit more closely at insurances. Development funding was being provided for some land in Auckland. The infrastructure works had been completed a couple of months ago, and importantly most of it was private and had not vested in Council. There was, some dwellings on the property which were all properly insured. Some of the services served these dwellings and some served the bare lots for which new titles were expected in the next month or two.
On discussion with the brokers it became apparent that:
- services serving the dwellings were insured by virtue of the replacement policies held
- services serving the bare lots were not insured (even though the bare lots were not yet on separate titles and formed part of the land the dwellings were on)
Contract works insurance policies often include cover during the defects or maintenance period by default. If the developer had arranged the contract works cover then the services on the bare lots may well still have been insured under that policy. Here the contractor had arranged the contract works insurance. So as practical completion had been certified and risk in the works passed back to the developer, the contractor’s contract work’s policy was not available.
A material damage policy was therefore put in place by the developer to cover the private infrastructure. This policy can then be adjusted as lots are sold and the insured sum reduced at that time. Once all the lots are sold the policy can be cancelled. It was not that expensive.
Without private insurance there is no cover from the Earthquake Commission either. So without the material damage policy, private infrastructure on the site would not have been insured at all for the natural disasters covered by the Earthquake Commission.