Insurance: Breaking Ground, Not the Bank - Smarter Coverage for Smarter Projects
Things happen in construction, and the right insurance can save the day. While legal battles are sometimes unavoidable, having solid insurance in place can streamline the process of collecting funds when your project suffers damage. Losses and claims are far more common than many realize.
At Align Owner Representation, we have seen that over the past five years, only a small minority of the projects we managed avoided claims entirely.
Even when insurance is in place, Align has seen carriers deny coverage, despite premiums being paid and well-meaning brokers placing the policy. The reality is that insurance is complicated, expensive, and carriers often look for reasons to deny claims. With the right structure, however, insurance can protect your investment and keep your project moving.
Far too often, we find contractors lacking coverage for the type of work they are performing. Insurance is costly, and unwitting contractors and brokers often place them in the wrong products. Contractors may unknowingly operate without coverage for enlargements, exterior work, or self-performed work. Even worse, some policies only provide coverage if every subcontractor on the project carries fully compliant insurance, leaving gaps that can expose the contractor and, ultimately, the owner to unnecessary risk.
The Three Main Types of Construction Insurance
General Liability (GL)
Protects against third-party claims for bodily injury, property damage, and personal injury on-site. When someone asks, “Do you have GL coverage?” they’re referring to this.
Builder’s Risk (Property Insurance)
Protects the property under construction, including materials, equipment, and partially completed structures.
Errors and Omissions (E&O, Professional Liability)
Protects against claims of faulty design or consulting services, a critical safeguard for design-forward projects.
Securing the right insurance coverage isn’t difficult if you know what you’re doing. Policies must be structured carefully to avoid gaps that claimants can exploit. Too often, Align sees owners pay for policies that provide little or no coverage.
General Liability Insurance
GL insurance typically costs 2% to 5% of a contractor’s construction costs. Some contractors charge 4% while buying inadequate coverage at a fraction of the price, using insurance as a hidden profit center. Charges for insurance should reflect actual market costs, not be a profit line.
Locking Up the Insurance Market
Carriers often give pricing only to the first broker who approaches them for a specific project. Choosing the right broker from the start is critical. The wrong broker can limit your access to competitive pricing and terms, something Align Owner Representation helps owners manage to avoid costly missteps.
Coverage for Owners and Contractors
Both owners and contractors need GL coverage, but with different scopes. Owners should always maintain a GL policy on their property, even outside of construction. Owners face liability for project oversight decisions, while contractors are responsible for site operations.
Large projects are attractive targets for claims, even if a contractor or subcontractor is at fault. An owner’s GL policy must provide adequate limits and a strong legal defense to manage high-stakes claims.
Joint Policies
Owners and contractors can purchase joint GL policies, providing broad, economical coverage. This approach, often overlooked in residential construction, benefits both parties and simplifies claim handling. Align frequently recommends this approach where appropriate, ensuring coverage while reducing cost.
Coverage for Consultants
Architects, engineers, and consultants should have their own GL policies. These cover third-party injury or property damage during site visits and other activities unrelated to professional services.
Does Your Insurance Cover the Work?
A GL policy needs to cover the specific work being performed. Coverage for exterior work, projects above three stories, or additions may be excluded without careful review.
Align Owner Representation recently encountered a contractor on a complex Manhattan townhouse project with no coverage for underpinning, demolition, or exterior work—despite being under construction. Fortunately, there was no claim, but the potential exposure was enormous.
Separate Policies vs. Combined Coverage
When owners, contractors, and consultants maintain separate policies, coordination is critical to prevent gaps. Clear contracts, additional insured clauses, and aligned limits help manage potential conflicts when claims arise.
GL Policy Nuances
A few critical points:
Coverage often requires a written contract naming you as an Additional Insured.
A Waiver of Subrogation prevents third-party policies from pursuing claims against your policy.
Know the difference between “Hard Hammer” (no coverage for non-compliance) and “Soft Hammer” (higher deductible for non-compliance).
Plan for adequate policy “tail” coverage in case of delays.
Negotiate the smallest possible minimum earned premium.
Consider financing premium payments if required upfront.
Wrap-Up Policies (OCIP/CCIP)
Wrap-Up policies cover all participants under a single GL policy and may make sense for projects exceeding $90 million. However, in residential markets, these are rare and can limit trade contractor participation.
Builder’s Risk Insurance
Builder’s risk insurance typically costs between 0.15% and 1% of construction costs, providing cost-effective protection for high-value construction.
Owners should secure this policy, as they have the greatest financial interest in protecting the structure under construction. Builder’s risk covers structures, materials, and equipment against fire, theft, vandalism, wind, and other risks during construction.
Align has seen builder’s risk coverage save projects facing severe losses, including water damage in high-rise buildings, broken glass during crane lifts, and rain-damaged elevators. This relatively low-cost policy protects assets that can be worth tens of millions.
Errors and Omissions (Professional Liability)
All design professionals should carry E&O insurance, which protects against claims of design errors and professional negligence.
In luxury residential construction, design mistakes can result in extensive remediation and significant financial exposure. Align Owner Representation consistently advises owners to verify that their design team has adequate E&O coverage in place to protect against these high-stakes risks.
Umbrella and Excess Liability Insurance
These policies provide additional GL coverage above your underlying policy limits.
Excess insurance covers only what the base policy covers, while umbrella insurance may extend to claims not included in the base policy.
For example:
Your GL policy covers $1 million.
A $5 million umbrella policy increases total coverage to $6 million.
If a claim is for $2 million, the GL pays the first $1 million, and the umbrella covers the next $1 million.
Automobile Insurance
Contractors and project teams should have commercial auto insurance for vehicles used in construction, covering third-party injury, property damage, and physical damage to the vehicles themselves.
Workers’ Compensation
Required by law, workers’ compensation covers medical costs and wage replacement for injured workers. It does not replace GL insurance and does not cover employee liability exclusions within GL policies, a gap Align often sees overlooked.
Bonds
Bonds, including payment and performance bonds, are also essential tools for protecting your project. We will cover these in a future post - but between SDI, Performance and Payment Bonds, and Completion Bonds we’ve had experience.
Conclusion
Insurance planning for high-value residential construction requires deep expertise and attention to detail. Success begins during project development and continues through construction and the warranty period.
Align Owner Representation helps owners develop proactive insurance strategies that protect your investment, reduce risk, and support successful project outcomes.
