Blog Question: Practical Completion under a Contract Works Policy

Good Afternoon,

I am writing to seek some advice around interpretation / intention of a definition in the XYZ [Insurer’s name withheld] Annual Construction / Liability Policy.

Unfortunately XYZ Insurance were unable to provide any assistance at all, which is why I have forwarded my email.

At your earliest convenience, can you please provide your comments around the intention / interpretation of a buildings ability to be capably occupied as it relates to the definition of ‘Practical Completion’ as defined in the attached XYZ wording.

Please don’t hesitate to call should you wish to discuss.

Kind Regards,

Jim [surname and email provided]






I replied as follows attempting to explain the meaning in layman’s terms.

Hi Jim,

Thanks for your note.

This is an issue that we do come across from time to time and it is right for your client to seek clarification.

Practical Completion as you know is a milestone within a contract works project and typically it means that a payment is due to the builder at that point in time.

There are cases where a) the site is occupied and or used by prior to practical completion either for commercial /residential use or just to get a head start in fitting out and or restocking.

At this point the risk moves from a contract risks type coverage to a “static” risk, that is, an Industrial Special Risks or business pack policy depending on it size for commercial, or a strata or home policy.

I  have done a comparison of the wordings in the Australian market,using LMI PolicyComparison, copy attached and you will note that the majority of insurers have the same words or something similar. Policy_Comparison (3)

There is no clear cut point when it comes to what constitutes the change over. It is a case by case judgment call.

For example, if there has been a final inspection and half a dozen or fewer small cosmetic defects have been indemnified and were easily remedied, then, it is, in all likelihood, best to insure it under an what I am referring here as a “static” policy.

If major defects are found that would prevent the property from being safely occupied without inconvenience to the occupier then I would argue it is still being covered by the Contract Risks policy.

What the Contract Risks Insurers are all trying to do is not extend the period they on risk when it should have moved to the “static” policy.

The benefit of course with moving it to a “static” type policy is that you can now also insure the loss of profits/loss of rent which often affords greater protection for the owners.

I hope this makes sense to you.



In an email exchange the following comment was made:

It is just disappointing that an insurance underwriter can no longer spell out what is meant by their own wording.

It is fast moving to a “computer says no” mentality which not only upsets me but damages brand insurance. It would be like saying that BMW do not know why you should run your tyres at x PSI.

This is a discussion for another day but something  I feel our industry fails to address at its peril!


As always, if anyone wants to add more comments to assist in Jim, his customer and or other readers to understand, please do not hesitate to add a comment.

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