David Chmiel | Construction Executive
Liability claims in construction are increasing in frequency and complexity. Make sure your company is prepared to wade through the legal waters.
A priority for every construction firm, regardless of size, is the effective management of risk.
The industry is rife with dangers, more than any other. Too often, risks—of various types—are underestimated or overlooked, making it critical to closely follow and manage policies and practices to guard against them.
What has complicated construction’s risk-management challenge has been the environment for liability claims—which have grown in frequency and complexity.
Part of the problem is a booming market as costs rise and workers are hard to find, pressuring project timelines and budgets and resulting in more claims. Construction work itself leads to higher claims than in other industries, with total lost time severity for claims 50% higher than average. Natural disasters are worsening, and engineering claims also have a role. And construction-related workers compensation mega claims (over $2 million) are prevalent, in 2024 accounting for over 2% of total loss dollars—over $1 billion.
The trends make the case for construction firm management. Preventing and managing potential losses remain a top priority. But equal vigor must be taken in how the aftermath of losses is managed. Honing claims management practices will make risk management overall far more effective.
Here are four important measures that will build a culture of preparedness:
1. Be ready for high-risk claims. Certain claims pose unique risks requiring careful advance preparation. These may involve serious injury, significant third-party property damage or regulatory attention. All require advance careful preparation, including fast, informed responses—especially for incidents like pollution spills or cyber breaches. Advance preparation allows for protocols for immediately reporting incidents to be set, along with guidelines for collecting supporting documentation and track the situation’s progression. It’s essential to leverage your insurer in the response plan. When events occur, this will minimize their financial impact and protect your organization’s reputation.
2. Maintain comprehensive documentation and reporting standards. A successful claims process is built on timely reporting and complete documentation. Liability policies typically require incidents to be reported as soon as possible; delays might impact coverage. Supporting documents like incident reports and statements must be accessible and accurate. Detailed documentation that’s clear and consistent allows insurers to make informed decisions quickly. Further, it deters potential claim denials due to missing information. Ultimately, this comes together to streamline claims processing and control costs.
3. Understand the scope and limits of your policy coverage. It’s important to avoid unexpected coverage gaps. This makes it key to know specific terms, coverage limits and exclusions of your liability policies. Different policies, such as Commercial General Liability, Directors and Officers, and Employment Practices Liability, feature unique conditions. For example:
- Occurrence-based versus claims-made policies: Some policies require incidents to happen within the policy period (occurrence based). Others require the claim to be made within the policy term (claims made).
- Common exclusions: Many policies exclude specific scenarios, such as intentional misconduct, damage to owned property or contract breaches.
Coverage should be reviewed regularly in partnership with a risk advisor to ensure it aligns with your business’ current risks.
4. Stay on top of cyber and environmental exposures. Liability policies are evolving. This is especially true for cyber and environmental liability, as claim frequency and severity are escalating.
Cyber liability often requires multiple policy types (i.e., cyber vs. cybercrime), as incidents have escalated and the threats have become more difficult to manage. Between 2023 and 2024, phishing and ransomware attacks alone on construction companies increased by 83% and 41%, respectively.
Environmental policies may include both third-party and first-party coverages, such as property cleanup and crisis management. Some environmental insurance requires pollutant levels to meet specific thresholds before coverage applies. Understanding how cyber and environmental policies are changing can help your risk management and response preparation long before an incident might occur.
Managing liability claims effectively means building a culture of risk awareness and preparedness. Further down the road, smart practices go a long way to building and strengthening an organization’s resiliency.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.