Construction Insurance – 8 Coverages for Builders

Understanding construction insurance

Construction insurance, often referred to as builders insurance, is a crucial component of risk management within the construction industry. It encompasses a diverse range of policies tailored to protect construction projects from unforeseen risks and losses.

Different commercial policies protect contractors from specific risks or losses. Some course of construction clients will need more extensive coverage than others. By tailoring coverage for each contractor, you'll be able to protect clients and your business against costly losses.

Who needs construction insurance? 

Any party with financial interest in the project should understand the importance of construction insurance, regardless of the scope or value.

Some groups who should consider one or more types of construction insurance are:

• Owners
• General contractors
• Subcontractors
• Homebuilders
• Municipalities
• Developers
• Architecture, design and engineering firms
• Landscapers
• Installation companies that work with plumbing, HVAC or electrical

Essentially, anyone involved in the planning, execution or oversight of a construction project stands to benefit from having adequate construction insurance coverage.

Types of construction insurance: 

A variety of coverages fall under the umbrella of construction insurance. Below you will learn about eight types of construction insurance and how they can protect contractors.

1) Builders Risk Insurance 

As the exclusive administrator of the "A" rated Builders Risk Plan insured by Zurich for more than four decades, we know a thing or two about builders risk insurance. Here's a simple rundown of what you need to know:

Builders risk, also called course of construction insurance, protects a person or organization's insurable interest in materials, fixtures and/or equipment to be installed during new construction or renovation of a building or structure should those items sustain physical loss or damage from a covered cause.

Individuals or entities, including contractors, business owners, homeowners or financial institutions are often your primary builders risk insurance clients. Whether it’s a personal or commercial lines customer, they may need a builders risk policy to comply with government regulations or meet banking and contractual conditions.

Builders risk insurance offers standard and optional coverage endorsements for almost any project. While exact coverages and limits vary between providers and types of construction, comprehensive policies like the one from Zurich usually cover:

• Property damage
• Theft
• Vandalism
• Fire or lightning
• Arson
• Collapse
• Windstorm or hail
• Materials in transit
• Debris removal
• Back up of sewers, drains or sumps

The cost of a builders risk insurance policy generally depends on five factors:

1. Property type
2. Location
3. Construction type
4. Optional coverages selected
5. Additional fees and taxes

Builders risk policies typically don't cover workplace accidents and injuries or liability. However, contractors can secure a stand-alone premises liability policy in addition to builders risk coverage if they own the property.

2) Contractors Equipment / Construction Equipment 

Construction equipment can be a contractor’s most important asset. Damaged or stolen tools and equipment can halt construction. This impacts timelines and, of course, their bottom line.

Contractors equipment insurance, like the policy offered by Zurich, covers mobile machinery and equipment used for a construction project. The contractor can secure coverage for tools and equipment if they purchase, rent, lease, or borrow them from others.

Contractors equipment coverage typically protects contractors and other equipment owners against a variety of exposures, including:

• Equipment breakdown
• Theft
• Vandalism
• Accidents
• Damage caused by fire
• Floods

Some commonly covered equipment includes:

• Bulldozers
• Power shovels
• Loaders
• Forklifts
• Excavators
• Pavers
• Compressors
• Pumps
• Cables
• Equipment that is mobile or portable

Contractors equipment coverage is separate from standard commercial liability coverage, which protects equipment that stays at one location. A contractors equipment policy insures the damage or loss to machinery and tools that are transported from one job location to another.  

3) Contractor Controlled Insurance Program (CCIP) 

Contractor Controlled Insurance Programs (CCIP) is a "wrap up" insurance that covers asset owners, general contractors and subcontractors. A CCIP bundles several coverages into one package managed by the general contractor.

Basic CCIP coverage spans general liability insurance, workers’ compensation and excess liability. You can also add several additional coverages.

A contractor might choose a CCIP for many reasons:

• Lower cost: contractors with strong track records and relationships may receive better rates or higher limits from the provider.
• Better coverage: contractors have more control over coverage, which allows for tailored limits and endorsements.
• Simplified claims: one provider streamlines the claims process by wrapping up all coverage into one policy.
• Site safety: CCIP projects require better safety procedures and loss prevention measures which serve to reduce incidents on-site.

Some downsides to a contractor-controlled insurance program are:

• Administrative burden: the general contractor must manage all administrative documents, control enrollment in the program, and communicate with the insurance provider.
• Complicated bidding: CCIP insurance requires all subcontractors to submit bids with and without coverage under the CCIP. This creates additional work for all parties.
• Risk exposure: the lead contractor would be liable if a claim exceeds policy limits.

CCIP policies are one of the best ways to actively minimize risk exposure, prevent loss, and make project sites safer. You should discuss the benefits of a CCIP with contractors who provide their own insurance policy on construction projects.

4) Commercial Auto 

If the contractor transports tools or employees, they need commercial auto insurance. This coverage protects business vehicles like commercial trucks, large fleets and cars / vans.

Commercial auto coverage is a requirement in most states for business-owned vehicles. Employees who use their personal vehicles for business may also require coverage.

Typically, commercial auto insurance covers:

• Medical expenses
• Property damage
• Vehicle damage
• Towing
• Legal fees

Review their coverage with your client before an accident happens to make sure they have the right insurance for their business.

5) Errors and Omissions (E&O) / Professional Liability 

Errors and Omissions insurance (E&O), also known as professional liability, is a form of liability insurance. It protects against claims based on mistakes or failures to deliver on professional services.

Companies or individuals obtain E&O insurance if they provide services to a customer for a fee. Therefore, it can be useful for contractors, designers, consultants, and financial professionals as well as insurance agents.

Generally, E&O insurance covers:

• Errors, mistakes, or oversights incurred during work
• Failure to meet a deadline or deliver a specific service
• Professional negligence
• Breach of contract
• Legal costs such as attorney fees, court costs, lawsuit settlements, and more

E&O typically does not cover:

• Criminal acts or prosecution
• Bodily injury
• Temporary employees
• Claims stemming from work done before the policy was in force

Even the most diligent contractor can make mistakes. To protect their business from the risk of costly financial loss, it's critical to obtain Errors and Omissions coverage.

6) General Liability / Business Liability 

General liability insurance provides protection from claims that occur to non-employees on the job site. Other names for general liability insurance are business liability, commercial general liability or comprehensive general liability.

General liability usually covers a broad range of damages, including:

• Faulty workmanship
• Job-related injury
• Advertising injury and defamation
• Damage to a rented property

The general liability policy cost will vary based on your provider. However, cost generally depends on factors such as the type of work, location and number of employees.

7) Subcontractor Default (SDI) 

Subcontractor default insurance protects a contractor if a subcontractor fails to comply with the construction agreement. It can be more cost-effective, fast-acting, and provide broader coverage than contract bonds.

The larger the project, the greater the risk that one or multiple subs will fail to complete their work on time or accurately. In addition, subcontractors are at a higher risk of delay because of material delays, price escalation, and labor shortages. If there was a performance default, the contractor can control the claims process and ensure the job stays on schedule.

In the current state of the construction market, it's critical to discuss subcontractor default coverage with contractor clients.

8) Workers' Compensation

Workers' compensation insurance covers medical expenses and lost wages if any employee gets injured or sick on the job. Almost every state requires workers’ compensation for businesses that have employees. This includes general contractors, subcontractors and business owners.

Workers' compensation insurance typically excludes owners, volunteers and independent contractors. In some cases, a business owner might be liable for a subcontractor if they do not have workers’ compensation.

Construction insurance plays a pivotal role in safeguarding contractors and other stakeholders from the inherent risks of construction projects. From property damage to liability claims, these insurance policies offer tailored solutions for mitigating threats to your client’s financial wellness. By determining the right construction insurance need, you can help protect their investments.

US Assure offers access to “A” rated builders risk insurance and contractors equipment. To learn more, visit our products page or contact our team at (800) 800 - 3907. With no volume or premium commitment, you can instantly access our products when you register with us online.

This is intended as a general description of certain types of insurance and services available to qualified customers. Your policy is the contract that specifically and fully describes your coverage. The description of the policy provisions gives a broad overview of coverages and does not revise or amend the policy.

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