Hope for the Best, Prepare for the Worst: Insurance Policies for Addressing Risks on Construction Projects

By: Callie A. Kanthack

Construction projects involve significant risks to owners, designers, and contractors. Many of these risks are allocated in the parties’ contracts. Risks may also be allocated to insurance companies through policies. By providing coverage for losses, insurance companies protect against certain financial losses and may also indemnify and defend against any claims or lawsuits filed against you. The most common policies for construction projects include worker’s compensation, employment practices liability, commercial general liability, and builder’s risk insurance. However, there are several other types of insurance policies that should be considered:

• ‍Pollution Liability Insurance: Pollution liability insurance covers environmental damage, bodily injury, and property damage for pollution incidents caused by work performed at the project site. For example, the policy would cover the release of hazardous substances in building materials during demolition, construction, or project completion. This policy serves to fill the gaps or inadequate coverage in the typical commercial liability policy.
• ‍Cyber and Privacy Insurance: These policies are becoming increasingly popular as a result of cyber security threats.  Cyber and privacy insurance policies generally cover costs incurred responding to data breach, loss of data resulting from extortion, and theft of money or data from unlawful access to company computers.
• ‍Drone Insurance: Contractors have started using drones to document project progress, perform inspections in of difficult-to-reach areas, and take photos and videos for marketing purposes. However, damage to the drone and damage caused by the drone are likely not covered under commercial liability policies. If drones are used on projects, contractors should consider adding coverage through an endorsement to their general liability policy or purchase additional insurance, such as an aviation policy.
• ‍Subcontractor Default Insurance: This type of insurance is purchased by a general contractor to cover losses associated with a subcontractor’s failure to perform on a project. Subcontractor default insurance covers the cost of completing the work, the cost of correcting defective or nonconforming work, and other costs incurred in the investigation and defense of losses caused by the defaulting subcontractor. Some subcontractor default insurance policies also cover indirect costs including liquidated damages, job acceleration, and extended overhead.
• ‍Contractor’s Equipment Insurance: Contractors that move materials and equipment from one project to another often purchase contractor’s equipment insurance (also known as inland marine insurance) to protect property in transit. Project owners should also consider purchasing equipment insurance to cover valuable materials and equipment while they are being stored or transported to the project site. There are many ways to project yourself from the risks involved in construction projects. The purchase of insurance policies applicable to your risks associated with your construction business is a useful risk allocation tool.For more information, please contact Callie A. Kanthack.