David Pfeffer, Sean Scuderi and Eric Zipkowitz | Tarter Krinsky & Drogin
With increasing frequency, at Tarter Krinsky & Drogin, we find our attorneys assisting owners and developers in connection with assessing and procuring the necessary policies of insurance associated with their construction projects, as well as ensuring that all design professionals, contractors (and their respective subcontractors) are similarly and properly insured.
The insurance products associated with a construction project are unique and often mis-understood. This alert summarizes the variety of available insurance products that a prudent and responsible developer/builder must access and procure before undertaking a construction project.
THE OWNER’S/DEVELOPER’S INSURANCE COVERAGES
1. Commercial General Liability (CGL) Insurance
This foundational underlying policy protects against third-party claims for bodily injury, property damage (other than to the work itself), and personal injury arising from the construction activities. Although the General Contractor/Construction Manager will provide CGL coverage as well (see below), a prudent Owner/Developer will maintain a level of its own CGL coverage. CGL insurance coverage is procured with a “base” or “underlying” policy and is often supplemented by “excess liability” or “umbrella” coverages that provide additional coverage beyond the limits of the underlying policy.
2. Builder’s Risk Insurance
Sometimes also referred to as “course of construction insurance,” this covers damage to the building under construction due to fire, vandalism, weather events, and other perils. It may also include coverage for materials, equipment, and temporary structures, and is the primary coverage available to cover the costs associated with “rebuilding” in the event of a casualty or other covered perils.
3. Owner’s Protective Professional Indemnity (OPPI)
This policy protects the owner/developer from design-related claims and liabilities arising from the negligence of architects, engineers, and other design professionals. This policy supplements the professional liability insurance (“PLI”) carried by design professionals, much in the same way that an excess liability or umbrella policy supplements a base/underlying CGL policy.
4. Directors & Officers (D&O) Liability Insurance
This coverage protects the owner’s/developer’s executives and board members from claims related to management decisions, especially in projects involving joint ventures, co-development, and/or complex financing.
5. Cyber Liability Insurance
Increasingly relevant given the rise of web-based digital project platforms for file sharing and project management and administration, these policies provide coverage for data breaches and cyberattacks.
6. Owner Controlled Insurance Programs
For large-scale construction projects, substantial savings can often be achieved through a program of insurance procured by the owner/developer for the benefit of the owner/developer, as well as its GC/CM, and their subcontractors. Products vary and are customizable, and can provide Builder’s Risk, CGL and Workers’ Compensation and Employer Liability, D&O Liability, and Cyber Liability coverages (or any combination of the same) for both the Owner/Developer and the GC/CM and their respective subcontractors.
GENERAL CONTRACTOR’S/CONSTRUCTION MANAGER’S INSURANCE COVERAGES*
*Coverages are also applicable to all subcontractors, although the limits of coverage required will generally be lower.
1. Commercial General Liability (CGL) Insurance with appropriate Umbrella/Excess Liability Insurance*. As noted above, the GC/CM is responsible for procuring the primary policy of CGL, related excess liability or umbrella coverages, and for ensuring that all subcontractors do the same. Required coverage limits for both the CM/GC and their subcontractors is usually dependent on the size, scope and nature of the project, as well as any applicable legal and lender requirements.
*Note- Umbrella/Excess Liability policies also provide supplemental coverage over the Employer’s Liability and Commercial Auto policies set forth below.
2. Workers’ Compensation and Employers’ Liability
Required by law, this covers medical expenses and lost wages for employees injured on the job. Employers’ liability provides additional protection against lawsuits related to workplace injuries. These policies apply to both the CM/GC and all subcontractors.
3. Commercial Auto Insurance
Covers vehicles used in the course of construction, including trucks transporting materials or equipment. Applicable to both the CM/GC and all subcontractors.
4. Environmental Liability Insurance (where applicable)
Covers pollution-related risks, including site contamination, hazardous material handling, and mold.
5. Cyber Liability Insurance
(See above – the GC, CM, and all Design Professionals should all be required to obtain and maintain this coverage where a file sharing site or similar web-based platform for communication and project management is to be employed).
6. Subcontractor Default Insurance (SDI)
Increasingly required by the GC/CM as an alternative to “Bonding” (Payment and Performance Bonds*), SDI provides the CM/GC with coverage to cover the additional costs and liability that might arise in the event off a subcontractor default.
*Note- Bonds are a “surety” transaction, not “insurance,” and although beyond the scope of this Alert, will be covered in detail in a subsequent Alert.
7. Contractor Controlled Insurance Program (“CCIP”)
Similar to an OCIP Policy, for large-scale projects, significant savings can often be achieved through a program of insurance administered by the Contractor that provides the relevant and appropriate polies and coverages for the CM/GC, its subcontractors, and the Owner.
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.