You’ve invested hours of blood, sweat, and tears into building your construction company.
This industry can be a risky business, and you want to protect your investment — but the plethora of insurance options out there can be mind-boggling.
How do you know what you need to meet your state’s requirements and keep your assets fully covered?
Here you’ll learn about the types of construction insurance, costs, state requirements, and other coverages to consider, so you can rest assured that your business is adequately protected.
What Is Construction Insurance?
Construction insurance is a broad term encompassing the many types of insurance policies that protect companies during construction projects.
There is a wide range of factors that dictate the type of construction insurance that may be needed for any given project or business, including:
- The individual’s position on the project:
- Property owner
- Architect; etc
- Whether it is business or individual insurance; and
- The type of property to be covered
Why Do We Need Insurance in Construction?
Construction insurance is a necessity to protect you and your business against:
- Property damage
- Product malfunction; and
- Copyright infringement claims
Construction Insurance for Homeowners vs. Commercial Construction Insurance vs. Construction Business Insurance
The construction insurance policies that work best for construction contractors and commercial developers are generally not going to be the best option for homeowners or owner-builders.
Homeowners want to look for insurance companies that have:
- Expertise in construction
- Strong customer service
- Homeowner-friendly coverage options
- The best pricing
A common question is whether a homeowner needs to purchase builder's risk insurance in addition to their homeowner’s policy.
Since there are often gaps in coverage that may not be apparent until a loss occurs, a builder's risk policy can be a good way to avoid surprises.
Advantages of using builder's risk insurance in conjunction with an existing homeowner's policy include:
- Broad property coverage
- Endorsements that offer additional coverage options
- Attractive policy terms
- Flexible coverage limits
- Minimal claims for the homeowner
Commercial developers and contractors, particularly those who bid on large construction progress projects, will need to consider a different set of factors, including:
- The cost of the policy. Even though the expense can frequently be passed to the project sponsor, cost is still a big consideration since it can make your bids on contracts look more attractive.
- Look for a construction insurance provider who has plenty of construction expertise. This will make for a better-designed policy and easier filing of claims.
8 Types of Construction Insurance Policies
#1: Course of Construction — Builder’s Risk — Insurance
Course of construction insurance, also known as COC or builder's risk insurance, is insurance coverage for buildings and other structures throughout the construction process.
These policies generally cover damage caused by:
- Fire; and
Course of construction insurance policies may also provide the option for coverage for the following types of property:
- Building materials
- Temporary structures, such as:
- Excavation support systems
- Work platforms; and
- Roof protections
- Outdoor fixtures, fencing, pavement
- Lawns, plants, and trees installed by the builder
When Is Course of Construction Insurance Necessary?
Course of construction insurance is a necessity for all types of construction, including:
- Residential remodeling
- Small projects, such as replacing doors and windows
- Residential new construction
- Commercial construction
- Model homes and contents
#2: Commercial & Contractor General Liability Insurance
Commercial and contractor general liability insurance provides liability protection to businesses in the instance of property damage or bodily harm during the course of business.
General liability is available for:
- Residential contractors
- Light commercial general contractors; and
- Specialty trade contractors such as:
- Plumbing; and
There are versions of contractor and commercial construction insurance policies to cover:
- Property owners
- Construction companies
General liability policies generally cover a wide range of damages, such as:
- Job-related injury
- Faulty workmanship; and
When Are Commercial & Contractor General Liability Insurance Necessary?
In some states, or to win a contract that calls for it, contractors and developers may be required to have at least a minimum level of liability insurance.
Construction companies that complete design-build projects will want to have liability insurance in case they are sued for mistakes.
Subcontractors also frequently find they are required to hold liability insurance to work for some general contractors.
#3: Errors & Omissions — Professional Liability — Insurance
Errors and omissions insurance, also known as professional liability insurance, supplies coverage against claims stemming from errors in workmanship.
Errors or omissions by professional services on a construction project can lead to a myriad of issues, including:
- Budget overruns
- Scheduling delays; and
- Loss of use
Such issues may result in significant damages — and economic and reputational consequences.
Professional liability insurance helps protect owners and contractors from design-driven losses and risk exposures that may arise due to an error on the part of another professional service provider, such as an:
- Surveyor; or
- Installation subcontractor
When Is Professional Liability Insurance Necessary?
If you're a contractor, it's a good idea to carry professional liability insurance.
Owners hiring contractors frequently include a requirement stating that the contractor’s insurance coverage must include construction professional liability insurance with a specific minimum limit adequate to address any design-driven errors on the project.
#4: Commercial Vehicle Insurance
Commercial vehicle insurance, or commercial auto insurance, is intended to provide auto insurance coverage for vehicles used by your business.
It can help you avoid:
- High vehicle repair costs
- Medical expenses; or
- Lawsuits stemming from vehicle accidents
Commercial vehicle insurance may include coverage for:
- Pickup trucks
- Dump trucks
- Flatbed trucks
- Pump trucks
- Cement mixers
- Bucket trucks
- Straight trucks
- Dry freight trailers
- Auto hauler trailers
- Utility trailer
- Flatbed trailers
- Bulk commodity trailers
- Concession trailers
- Dry freight trailers
- Dump body trailers or transfer boxes
- Pole trailers
- Refrigerated dry freight trailers
- Tank trailers
- And more
Standard coverage options for commercial vehicle insurance may include:
- Physical damage
- Uninsured motorist; and
- Medical payments
Commercial Truck Insurance vs. Commercial Vehicle Insurance
Commercial truck insurance falls under the commercial vehicle insurance umbrella.
Commercial truck insurance refers specifically to large vehicles, such as:
- Dump trucks
- Cement mixers; and
Commercial truck insurance may also offer:
- General liability coverage
- Cargo coverage
- Downtime coverage; and
- Other options
When Are Commercial Vehicle Insurance & Commercial Truck Insurance Necessary?
No matter what type of vehicles your company owns, it’s important to have some form of commercial auto/truck policy.
#5: Inland Marine Insurance
While inland marine insurance was used to refer to ocean-bound vessels and materials, that is no longer the case.
Island marine insurance covers many types of property, including:
- Property in transit
- Property in the custody of a storage facility
- Property in the custody of a repairman
- Mobile equipment
- Property used in different locations
- Computer equipment; and
- Digital information
Inland marine insurance, also known as contractor equipment insurance or tool and equipment insurance, typically applies to the tools and equipment used by developers and contractors.
Inland marine insurance policies cover a wide variety of properties used by:
- Construction professionals; and
- Mobile equipment, such as:
- Loaders; and
- Tractors tools, clothing, equipment, and supplies, including:
- Power saws
- Wood; and
- Leased equipment, like:
- Electric generators; and
- Computer equipment and data, such as
- Laptops; and
- Project data
Policies cover items at replacement cost or fair market value, and may include:
- Equipment or tools damaged en route to a job site.
- Equipment stolen from a job site.
- Equipment at a job site that is damaged by natural disasters or fires.
When Is Inland Marine Insurance Necessary?
If you operate a business that works off-site or moves materials and equipment or are in possession of the property of others, you will want to consider commercial inland marine insurance coverage.
#6: Workers’ Compensation Insurance
Workers’ compensation insurance, also known as workers’ comp, is coverage designed to protect construction businesses and contractors if their employees are injured while on the job.
It provides coverage for the costs incurred following a covered incident, including:
- Medical expenses
- Costs of ongoing recovery related to an injury
- Missed wages
- Legal fees
- Funeral costs; and
- Death benefits
Workers’ compensation insurance can cover a variety of businesses, such as:
- General contractors
- HVAC technician
- And more
When Is Workers’ Compensation Insurance Necessary?
Workers’ compensation insurance is an important piece of coverage for contractors and developers who have employees.
In some states, workers’ compensation insurance is required by law.
#7: Business Owner’s Policy Insurance
Business owners’ policy insurance combines two primary forms of coverage — liability, and property — into one package.
Liability insurance protects against things like:
- Customer injury
- Property damage
- Advertising injury; and
- Product-related claims
Property insurance provides coverage for business property, including:
- Commercial buildings; and
- Movable property owned by and used for the business
- Debris removal; and
- Loss of income and pollution cleanup as part of a covered loss
When Is Business Owner’s Policy Insurance Necessary?
Any construction business that has …
- Assets, like inventory or equipment; or
- A brick-and-mortar business location
… may benefit from having a business owner’s policy.
#8: Contractors’ Pollution Insurance
A contractor pollution liability policy protects contractors against pollution conditions caused by their work — as well as work performed by their subcontractors.
In insurance terminology, a pollutant refers to any solid, liquid, or gas that can be regarded as a contaminant or irritant, including:
- Paint fumes
- Welding fumes
- Chemicals; and
- Waste products
Contractors’ pollution insurance provides coverage for any …
- Third-party injury
- Defense costs
- Property damage; or
… that may arise from pollution conditions resulting from your contracting operations.
When Is Contractors’ Pollution Insurance Necessary?
Even the most carefully executed construction project has the potential for an environmental pollution incident.
Contractors’ pollution insurance is highly recommended for any type of contractor conducting work or performing operations — from general contractors to specialty trades — including those working in:
- Electrical, HVAC, and mechanical
- Abatement and remediation
- Above/below ground storage tanks
- Grading, site, and excavation
- Industrial and pipeline
- Street and road; and
- Sewer, waste, and utility
Construction Insurance Requirements by State
In many cases, construction company insurance isn’t only necessary — it’s required.
All states are required to meet the minimum requirements for auto liability insurance.
Worker's compensation is also required, but the requirements will vary from state to state.
Other types of construction insurance are not required by state or federal law, but many construction contracts will require the contractor to purchase insurance to get the job.
Generally, smaller contractors who are working directly with homeowners are not required to carry insurance — but larger organizations almost always require commercial developers and contractors to carry various forms of coverage. The cost for insurance in these cases is usually covered by the contract sponsor, but the responsibility to find and secure a policy rests on the contractor.
5 Additional Construction Coverages to Consider
#1: Surety Bonding
A surety bond is a financial guarantee that you will fulfill an agreement with the:
- Project owners
- Subcontractors; or
- General contractors
A surety bond guarantees that the work you have contractually agreed to complete will be completed — even if your company goes bankrupt or is otherwise unable to finish the project.
Depending on the project you are completing, and who it’s for, you may be required to carry a surety bond to financially back your contracts and obligations.
#2: Additional Insured Endorsements
Most construction contracts specify that contractors carry liability insurance, with the project owner and primary contractor added as an additional insured on the policy.
An additional insured endorsement adds the required parties to your insurance policy, promising to cover them if a claim arises as a result of your work.
#3: Waiver Of Subrogation Endorsement
Subrogation takes place when an insurance company pursues reimbursement from the responsible party after the initial claim has been paid. Generally, this is because another party was ultimately responsible for the claim, but the insurer had to pay off the claim first.
A waiver of subrogation prevents an insurer, who pays the claim, from recovering any money from the entity listed on the waiver of subrogation after the claim is paid.
As a construction company owner, general contractors or project owners may ask that your insurance company waive their right to subrogate against them. If this happens, your insurance company will be required to pay for the claim and will be unable to sue your general contractor to recover their costs.
#4: Primary & Non-Contributory Endorsement
A primary and non-contributory endorsement policy is used in situations where it appears you were only partially at fault for an accident.
This type of policy states that your insurance company will cover the claim as if you were 100% responsible, and will not seek contribution from the project owner's insurance company — even if they are partially at fault for the occurrence of the claim.
#5: Per-Project Aggregate Limits
When a contractor experiences a single large claim or series of large claims, their liability limits may be exhausted — leaving nothing to cover a claim that takes place on the project owner's site.
On large projects, owners want to make certain all contractors are adequately insured to cover any potential lawsuits.
A per-project aggregate limit guarantees that there will be insurance to cover any losses by creating a separate limit dedicated to a specific project.
Cost of Construction Insurance
There are a variety of factors insurance providers may look at that influence the cost of construction industry insurance policies.
In the long run, the more at-risk the policyholder is based on their …
- Previous claims
- Business size
- Business or project location
- Project size
- Coverage limits and deductibles
- Specific risks; etc
… the more the policy is likely to cost.
The types of coverage included also play a large role in the final cost of a construction insurance policy.
For example, policyholders who work primarily on small to mid-sized construction projects are likely to pay less than those who require umbrella insurance to protect themselves from the risks associated with larger construction projects.
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