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Clear out junk files and repair common Windows errorsFree Scan →Scan for outdated or missing drivers - takes under a minuteDriver Scan →There is no single, universal “contractor insolvency insurance” policy. The right protection depends on whether you are buying a new home, commissioning a commercial project, or supplying a contractor. A UK new-build purchaser may have pre-completion protection under a warranty such as NHBC Buildmark. A project owner may use an owner controlled insurance programme (OCIP), while a performance bond provides a separate contractual surety guarantee. Contractors-all-risks cover and trade credit insurance address different risks and do not automatically repay a deposit or finish a failed project.
Read the actual policy, bond and building contract before signing or paying substantial sums. Eligibility, triggers, limits, exclusions, notice requirements and the effect of replacing the contractor determine what you can recover.
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What “contractor insolvency insurance” can mean
The phrase is used for several different arrangements. They protect different people against different events, so treating them as interchangeable is a common and expensive mistake.
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| Arrangement | Who it primarily protects | Trigger | Typical benefit |
|---|---|---|---|
| New-home warranty insolvency section | Eligible home purchaser | Builder becomes insolvent before completion and cannot complete or refund qualifying part-payments | Deposit repayment or a contribution toward reasonable additional completion cost, subject to the policy |
| Owner controlled insurance programme (OCIP) | Project owner or employer | Insured physical loss or damage and, in some products, a contractor ceasing trading or being unable to complete | Project insurance under the owner’s control, potentially including works, liability and delay-related cover |
| Performance bond | Employer or project owner | Contractual contractor default, with insolvency often a central concern | Payment or other remedy from a surety under the bond’s call conditions |
| Contractors all risks (contract works) | Party identified as insured in the policy | Covered physical loss or damage to works, materials or the site | Repair or reinstatement of insured property, less applicable excesses and subject to exclusions |
| Trade credit insurance | Contractor or supplier | Customer fails to pay an insured trade debt, often because of insolvency | Protection for credit exposure and the insured business’s balance sheet |
The table shows why the first question should be, “Whose loss are we trying to protect, and what event causes it?” An owner worried about an unfinished building needs a different solution from a supplier worried about an unpaid invoice.
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New-build home buyers: how pre-completion warranty protection works
Section 1 of Buildmark
For a UK new-build purchaser, NHBC says Section 1 of its Buildmark policy can respond when the builder becomes insolvent before the completion date and consequently cannot finish the home or refund amounts paid under the contract as part-payment. NHBC’s wording is:
“Section 1 of your Buildmark policy provides cover if the builder becomes insolvent before the completion date and this means that they cannot finish construction of your home or refund you the amounts paid to the builder under the contract as part-payment for the home.”
That is not an automatic refund of every payment. NHBC says it may either repay a lost deposit or pay the reasonable additional amount needed to finish construction. The policy booklet and schedule set the financial limits, exclusions and claim details, so the headline description must not be read as a guaranteed full recovery.
See the current eligibility and claim guidance at NHBC Buildmark before you complete.
Eligibility conditions matter
NHBC says a claimant must show that, when entering the contract, they had good reason to believe the builder could perform it. They must also have intended to complete the purchase and use the property as a home or for tenants or licensees. A short-term investor who intends to sell for a return rather than complete the purchase is expressly excluded from this Section 1 claim route.
- Confirm that the specific property and builder are within the named warranty scheme.
- Check when the insolvency protection starts; it is tied to the policy and purchase stage, not simply to paying a reservation fee.
- Read the maximum amount, qualifying payments and exclusions in the schedule and booklet.
- Check who may claim and what evidence is required to prove intended occupation or letting.
- Follow the stated notification and claim process immediately if the builder stops trading.
Do not confuse the three Buildmark stages
NHBC describes Buildmark as 10-year cover divided into distinct stages:
- Before completion: insolvency protection after exchange of contracts, subject to Section 1 conditions.
- Years one and two after completion: the builder’s warranty period.
- Following eight years: insurance against certain defects.
The later warranty and defects stages do not turn into pre-completion insolvency cover. If the builder fails before completion, the relevant question is whether Section 1 applies on the facts and within its financial limit.
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Commercial and major works: owner controlled insurance programmes
What an OCIP changes
In a conventional arrangement, the construction contract often places construction and third-party liability insurance on each contractor. An OCIP lets the owner or developer arrange and control insurance for the project. That control can be important if a contractor is replaced because of non-performance, insolvency or another form of contract frustration: the owner is not relying solely on the failed contractor to keep project insurance in force.
Chubb’s UK OCIP description lists protection for an owner if a contractor ceases trading or cannot complete work for another reason. It also describes new-build and alteration projects, physical-damage perils, contractor all-risks cover, optional public liability, non-negligent damage liability, delay in start-up and advance loss of profit. Existing structures may be included subject to underwriting. These are described product features, not a promise that every project, cause of loss or financial consequence is covered. Review the wording and schedule at Chubb’s UK OCIP page.
The common OCIP sections
Marsh identifies three common classes of OCIP cover:
- Construction all risks: physical loss or damage to the contract works.
- Third-party liability: liability for injury to third parties or damage to their property.
- Delay in start-up: certain financial loss when a covered construction-all-risks event delays completion.
Depending on the location and project, an OCIP may also include latent defects, environmental impairment, transit, terrorism or professional indemnity cover. Marsh’s overview is available at its owner controlled insurance programme guide.
What an OCIP does not promise
An OCIP is project insurance, not an unconditional insolvency guarantee. A policy may respond to a contractor’s inability to complete, but the exact trigger, valuation basis, exclusions, deductibles, limits and mitigation obligations control the result. Some losses may arise from contractual delay or poor performance without an insured physical event. Ask specifically whether the policy pays additional completion costs, protects advance payments, covers temporary works and materials, and remains effective while a replacement contractor is appointed.
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Performance bonds: a separate contractual safety net
A performance bond is a surety instrument in favour of the employer, not the same thing as an insurance policy. In an England and Wales construction overview, the Association of Corporate Counsel describes it as a surety’s guarantee of the contractor’s due performance, with contractor insolvency protection a primary purpose. Read the overview at the Association of Corporate Counsel construction guide.
Conditional and on-demand bonds
A conditional performance bond generally requires the employer to establish the contractual default and satisfy the bond’s evidential conditions. An on-demand bond can operate more like a demand payment mechanism, but its wording still controls what must be presented and when. Calling a bond without meeting its conditions can create disputes or liability.
Bond points to verify before signing
- Trigger: does insolvency alone activate it, or must there also be a certified default, termination or other event?
- Amount: is the cap a fixed sum or a percentage of the contract price, and does it cover the likely cost of re-procurement?
- Expiry: when does the bond end, and is there a notice or claim deadline before expiry?
- Call procedure: who may sign a demand, what documents are required, and where must they be delivered?
- Remedy: does the surety pay money, arrange completion, or have an election between remedies?
- Changes: do extensions, variations, novation or contractor replacement require the surety’s consent?
Do not assume that a bond covers every loss suffered after a contractor collapses. The contract and the bond must be read together, and specialist construction-law advice is sensible for a material project.
Cover that is often mistaken for insolvency protection
Contractors all risks and contract works insurance
Contractors all risks or contract works cover is principally directed at physical loss or damage to the works, site materials and related insured property. It is not automatically a guarantee that the contractor will finish the job or refund the owner’s payments. A fire, storm or accidental damage claim may be covered while a pure failure to perform, cash-flow collapse or unpaid advance is not.
Check the insured parties, property description, policy period, excesses, exclusions, limits and the process for maintaining cover when the contractor is replaced. The Marsh explanation of OCIPs sets out how construction all risks sits alongside liability and delay-related sections: Marsh OCIP overview.
Trade credit insurance
Trade credit insurance protects a business’s exposure when customers fail to pay insured debts. The Association of British Insurers’ construction guide presents it as balance-sheet protection for contractors or suppliers managing customer credit risk. It is relevant when a contractor’s customer becomes insolvent and leaves invoices unpaid; it is not a homeowner’s policy for an unfinished build. See the ABI construction trade credit guide.
Rights against an insolvent contractor’s insurer
The Third Parties (Rights Against Insurers) Act 2010 can give a third party rights directly against an insolvent person’s insurer where the claimant has a claim covered by the insurance contract. The Insolvency Service explains that the Act allows direct proceedings in the circumstances set out in the legislation. It does not create a general promise by an insurer to complete construction or reimburse every project loss. Guidance is at the Insolvency Service page on the 2010 Act.
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Raise the issue before exchanging contracts, paying a substantial deposit or starting construction. There is no universal rule established here that every project must buy one particular insolvency policy. The right structure depends on the contract allocation of risk, project size, funding requirements and the owner’s tolerance for delay and replacement cost.
Checklist for a new-home purchaser
- Ask for the named warranty provider, policy number and property eligibility confirmation.
- Read the pre-completion insolvency section, not only the post-completion defects summary.
- Record the policy start point, financial cap, qualifying payments and exclusions.
- Confirm that your intended use of the property meets the eligible purchaser conditions.
- Keep the signed contract, receipts, deposit evidence and all builder communications.
- Identify the exact notice route and deadlines before an insolvency occurs.
Checklist for a project owner
- Map the losses you need to protect: physical damage, third-party injury, delay, additional completion cost, advance payments or lost revenue.
- Review the construction contract’s insurance clauses and any lender or funder requirements.
- Decide whether owner-controlled cover, contractor-arranged cover, a performance bond or a combination is appropriate.
- Set insured parties, limits, deductibles, policy period and territorial scope in writing.
- Confirm whether the arrangement continues seamlessly if the contractor is terminated or replaced.
- Have the broker, insurer and construction lawyer review the final policy wording, schedule and bond before work begins.
What to do when a contractor shows signs of insolvency
Act before the site, records and insurance position deteriorate. The steps below are a practical sequence; the policy, contract and bond may impose different deadlines.
- Check the facts. Preserve notices, missed-payment records, Companies House or administrator communications, site reports and photographs. Do not rely on an informal statement that the contractor is “going bust.”
- Secure the site. Protect people, materials and partially completed work. Arrange temporary security or weatherproofing only after checking authority, cost recovery and safety responsibilities.
- Notify the relevant parties. Contact the warranty provider, OCIP insurer, broker, bond surety, employer’s representative and lender as applicable. Use the notice method and timing in the wording.
- Protect contractual rights. Before terminating, withholding payment or appointing a replacement, obtain advice on termination clauses, step-in rights, possession of materials, insolvency restrictions and bond conditions.
- Quantify the loss. Separate unpaid invoices, deposits, physical damage, professional fees, delay losses and the reasonable additional cost of completion. Each may fall under a different instrument or none at all.
- Submit a supported claim or bond demand. Provide the contract, schedule, payment evidence, insolvency proof, valuation and mitigation record requested by the policy or surety.
UK scope and limits of this guidance
The examples above are UK-focused. The NHBC and Chubb examples relate to their described UK offerings; the bond overview concerns England and Wales, while the Insolvency Service guidance on the Third Parties (Rights Against Insurers) Act extends across the UK. Elsewhere, insolvency law, warranty schemes, surety practice and insurance regulation may differ materially.
Product language and availability can change. For a significant purchase or construction project, obtain the current policy booklet, schedule and contract, then ask a regulated broker and construction lawyer to explain how the documents interact. No current, reliable statistic on contractor insolvency rates or average payouts is established here, and premiums cannot be inferred without project-specific underwriting.
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