Philip Holland Financial Independence financialindependence

The fire at the Te Aroha's Silver Fern meat processing plant last Friday is a very timely reminder to contractors to ensure they are correctly insured.

It appears that a contractor may have left a residual heat source which ignited some time after work was completed. This potential error has not only destroyed most of the buildings of the meat processing plant, but also the livelihood of hundreds of employees.

Now the process really begins. The investigations into the fire and the insurance company's investigations could take over a month to complete. The contractor at the centre of this will be hoping that they have their insurance policies in order, and they have a good insurance adviser.

WHY? Firstly the insurance company for the plant's owners will want to know exactly how the fire started, and if a subcontractor was responsible, they will most likely pursue those who caused the damages for the costs. Potentially the loss could be more significant than initially obvious. There will be legal fees, reinstatement of the building, ongoing loss of profits and if there was an injury there may also be Department of Labour and OSH investigations, with defence costs covered by a Statutory Liability policy.

This is why it is vital that contractors seriously consider their liability exposures through an insurance adviser.

As contractors you need to ensure that you have received the right insurance advice. There are many traps that you need to make sure that you are actually covered for:

• Activities – is the activity you are doing actually covered by your insurance policy? Your policy and activities need to be regularly reviewed as all businesses change over time, and new activities may not be covered by your existing policy.

• Policy Wordings – Some liability policies will also cover labour-only subcontractors and others will provide no cover at all, so this needs to be tailored to suit the contractor's needs.

• Endorsements and Warranties – Insurers often apply endorsements and warranties which alter the insurance cover. For example the may apply an underground services warranty to an earthmover, or a hot work and welding warranty to an engineer or plumber. In order for the liability policy to cover the loss these warranties and endorsements must be complied with, and failure to comply can lead to a loss not being covered at all.

So if you are a contractor or if you hire sub contractors it is vital that you check your insurance cover regularly. If in any doubt, make sure that your insurance adviser is fully informed of your activities at all times.

Philip Holland is the Managing Director for the Financial Independence group, Tauranga's leading specialist insurance and mortgage advisers. For further information please contact an adviser at Financial Independence 578 4414 or email info@yourbroker.co.nz. A Disclosure Statement is available free of charge on request.