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Construction Insurance Types

understanding construction insurance types and its impact to business
understanding construction insurance types

Construction projects are risky business. Every day, accidents or other unexpected worksite events result in losses or liabilities. By having construction insurance policies, the risk will be mitigated in ways so that the costs do not outweigh the benefits of a construction project.

There are five main construction insurance types :

  1. Commercial General Liability Insurance
  2. Property Insurance
  3. Builders' Risk Insurance
  4. Professional Liability Insurance
  5. Wrap Up Insurance.

These various construction insurance types create a seamless net of complementary coverage for all chosen risks without overlap with each other. 

  1. COMMERCIAL GENERAL LIABILITY INSURANCE

Commercial General Liability (CGL) insurance is the insurance construction types that will respond to liability resulting from damage to third parties. It does not cover damage to the insured property or injury. 

Should an accident event occur due to insured negligence, mishap or occurrence, it is not expected or designed. Liability insurance kicks in.

It covers the insured's legal obligation to pay compensatory damages to a third party within the following categories:

  1. Bodily Injury (Commonly known as physical injury or distress to another person caused by external force including associated medical expenses)
  2. Personal injury (separate from Bodily Injury above covering, such as malicious prosecution, libel, slander and false imprisonment, which is not direct injured another person but involved intangible injuries)
  3. Property Damage of the other party (sometimes also defined as the loss of use of, tangible property)

Some CGL policies also cover non owned auto and tenants' Legal Liability.

2. PROPERTY INSURANCE

While commercial liability insurance coverage is triggered by liability to pay damages to third parties, the property insurance coverage covers the insured's property. Commercial property policies intended to protect the insured against damage to its property from various risks. These including intentional damage to the property by third parties, and be a peril falling within the insurance policy's scope. Most importatnly ssssssssThe loss or damage must be fortuitous -- accidental, out of the ordinary or unexpected.

Construction insurance companies that cover Property insurance respond to any direct physical loss or damage to property. It comes in forms where the insured has the option to protect against "named / specific perils" or "all-risks" that protect their property unless expressly excluded. Insured's loss result by accident will be covered, subject to policy exclusions. 

3. BUILDERS' RISK INSURANCE

The construction insurance types of "Builders' risk" construction insurance types is a specialized property insurance applied by contractors in the industry to protect against liability on physical loss or damage to a structure or project they have contracted to build. 

Each construction project often has this coverage, commonly known as the "course of construction" insurance, as it usually only remains active until the project completion. 

The insurance starts when the project begins. It covers all property for the construction project, including installation, repair, and temporary property located on-site such as scaffolding or forms. 

Builders risk often underwrite property with soft cost and hard cost. Should any claims happen, building material damaged on site will be covered, adding work done on-site. A typical example, such as a half-done basement flooded, the contractor's cost to remove and redo the work will be covered, not just the material to replace.

Since the course of construction insurance types covers several parties, the owner, contractor, engineer, or project manager can purchase this insurance types. The construction contract will often define which party is responsible for buying the insurance. The owner and general contractor typically accept the policy and will be covered under "named insureds" to protect their financial interest in the project.

The course of Construction insurance types of policy will include subcontractors as "unnamed insureds," and have the same coverage benefits on the project as both are protected from legal suits if they are found responsible for the loss. The insurer cannot take legal action against someone covered by the same insurance policy. However, the insurance will not include mechanical breakdown, faulty design, exclusive named brand, wear and tear, inherent vice, contractor's tools and equipment, owned, leased, or loaned. 

In summary, the Course of Construction Insurance types of insurance is not catchall insurance. Be careful to review as some insurer will include exclusion on soft costs too.

You may want to consider the following addon as they are not part of the coverage for a typical builder's risk insurance policy.

Equipment breakdown, Tools and equipment floater, Commercial Auto

The course of Construction insurance types Policy Coverage?

The course of construction insurance types of insurance is a policy that protects insured against financial loss accidents. 

The typical course of construction insurance types insurance coverage includes:

  • Fire, Explosion, Impact by aircraft or vehicles, Riot, Vandalism and malicious acts, Windstorm, hail and rain, Burglary and theft, Lightning, Collapse and Subsidence

Sample coverage such as vandalism on the project caused damage to the property, stolen tools, including the materials and supplies necessary to complete it. Should there be a flood or earthquake, COC will cover expenses incurred to remove site debris and any potential demolition needed to repair the damaged structure.

Valuation of the project covered by insurance could include extra work fees for architects and engineers, barricades and additional site structures, including temporary buildings. It may consist of soft costs, such as legal fees or premiums.

4.PROFESSIONAL LIABILITY INSURANCE

Professional Liability insurance, also known as Errors and Omissions (E&O Insurance), is protection for your business from claims of negligence related to a professional service. In the construction insurance types of insurance, this should be considered by trades such as electrician, architect, engineers, plumbers and others.

Businesses that provide professional services or give advice to clients should consider purchasing professional liability insurance. It protects when a business owner is sued for negligence because their work doesn't meet a client's expectations.

Businesses that should carry professional liability insurance can include:

Consultants, Attorneys, Engineers, Architects, Accountants, Real estate agents, Healthcare practitioners. Professional liability policies are distinct from general liability (CGL) policies that commercial liability insurance won't protect against these risks.

Professional liability insurance protects a business against actual or alleged errors and omissions when providing professional services, such as giving incorrect advice, an omission, or failing to deliver a service.

Professional liability insurance can also offer coverage for claims arising from services provided in the past and work performed anywhere in the world.

The insurance is highly specialized and tailored to professional services. The liability that professionals face for failing to exercise the required degree of care and skill in providing services is very different from the standard commercial risks covered by CGL insurance. Therefore, CGL coverage Liability does not substitute professional services.

In the construction insurance types context, architects, electricians, plumbers or engineers acting as consultants or directly involved on a project must have professional liability coverage in their professional capacity. 

However, not every act performed or an error made by an architect, engineer, or other professional covered by an E&O policy: to attract coverage, the mistake in question must constitute the performance of a professional service. 

There will be a test for whether a particular activity will be considered a "professional service." It analysis if a service provided would constitutes both mental or intellectual exercise from an application of specialized skill or knowledge and requires training to the situation involved.  

In short, should someone performed a service that can done by non-professional, that service not covered by E&O. 

This analysis is based on case by case circumstances. In all cases, a skilled person must perform the activity alleged to be a professional service in their professional capacity.

5 WRAP UP INSURANCE FOR CONSTRUCTION INSURANCE TYPES OF POLICIES

This insurance policy intends to provide peace of mind that everyone involved in a project is adequately insured. Wrap up insurance is comprehensive blanket coverage that protects the owner, contractor, subcontractors, and consultants for Commercial General Liability, Professional Liability and Employers' Liability, among other liability risks. 

Wrap up insurance very effective in ensuring that all of the liability risks are covered adequately, it avoids the need for contractors and subcontractors to have seperate liability insurance of their own, this will avoid potential coverage gaps of insufficient limits when dealing with seperate insurance policies.

The Wrap Up Insurance has a term encompassing the period of construction of a project plus an additional number of years after completion to deal with any issues arising during the warranty period.

With wrap-up insurance, individual CGL insurance policies will not provide any coverage; all party's liability policy will no longer be available to project claims that are subject to the global insurance policy.

The wrap up insurance policy will result in contractors having access to higher policy limits at a lower cost. It extends over an additional length of time after project completion, which means that the owner has security and coverage after project completion.

It is usually serves as all-encompassing insurance on large projects costing over $10 million that protects all their contractors and subcontractors .

There are two types of wrap-up insurance, namely owner-controlled and contractor-controlled. 

The owner of a project sets up owner-controlled insurance wrap up insurance to benefit the builder or contractor to cover all listed contractors. 

The general contractor sets up a contractor-controlled insurance program to extend coverage to all the contractors and subcontractors signed up on the project.

For example, consider an owner-controlled insurance program purchased by the owner on behalf of the builder or contractor. The insurance includes bodily injury, general liability, excess liability, pollution liability, professional liability, builder's risk, and railroad protective liability. While wrap up insurance costs can be expensive, but the price will make sense when divided among the general contractors and sub-contractors.

Types of Wrap Up Insurance Coverage from construction insurance types of policies

Wrap up insurance is crucial in the construction insurance types coverage as it covers several risks for you, your project, and your workers. Policies can vary, but may include:

General Liability with a Broad Form Endorsement

For a project's general liabilities, this covege will protect claim from third-party injuries that occur on the site, or any injuries result from work-related activities by the contractor, subcontractor, or owner. Also, it protects the third-party property against damage caused by anyone covered under the policy.

Builders Risk 

Builders risk covers for any water, weather, and fire damages to a building under construction. In other words, builders' risk is essentially the same as property insurance, except this covers buildings under construction.

The Umbrella Liability Insurance

Umbrella insurance will provides blanket coverage beyond the coverage limit for a general liability policy. A typical example of a 10 million umbrella policy, if there is an 8 million dollar claim, the general liability insurance will cover the first $2 million, while the umbrella policy would cover the remaining $6 million.

Commercial Automobile Insurance

This insurance covers commercial used cars, vans, trucks, or specialty vehicles for construction project against liability claims and property damage.

Property Damage

This coverage will protect property damage for parties named. 

If required, you can select external "floaters" for specialized equipment and inland marine insurance for tools and equipment transported to and from the job site.

understanding construction insurance types

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