Construction Insurance Bulletin

Environmentally-friendly construction, also known as “green” construction, is increasing rapidly in the United States. Concerns about global climate change, U.S. dependence on foreign sources of energy, and rising energy costs are inspiring individuals and businesses to construct buildings with a reduced carbon footprint. This trend has important implications for settlement of insurance claims when green buildings suffer damage.

A green building is one that has met the requirements for Leadership in Energy and Environmental Design (LEED) certification. The U.S. Green Building Council developed LEED in 1998 as a way to help building owners identify and use practical and measurable designs, construction, operations and maintenance practices that are environmentally-friendly. Green buildings are, compared to standard buildings, more energy and water efficient, produce less carbon dioxide, and have a healthier indoor environment.

Some states and municipalities have begun to adopt building codes that require elements of green construction. California has imposed tougher water efficiency standards on new residential construction; New York City is considering more stringent energy-use standards for large buildings. The impact of these requirements on construction costs will vary by location. Green construction might require specialized materials and methods; in the near term, contractors with expertise in these methods may be relatively scarce. Therefore, in some places the cost of complying with green building codes could be higher than building with standard materials and methods, and that will impact insurance coverage.

The factors that will influence the claim include:

• Whether the green building code applies to new construction only or also to major renovations.
• What the code defines as a “major renovation.” Some codes might consider renovations affecting more than a specified percentage of the building’s area as a major renovation.
• How will use of green building materials affect the building’s appearance? The property owner might lose enthusiasm for a repair if a change in appearance will lower the building’s market value.
• How will the new materials interact with the existing building components? Will integrating the new materials increase rebuilding time and cost?
• Are qualified contractors available in the area?
• Will wait times for green contractors and materials result in costly project delays?
• How does the building code apply in the event of a large natural catastrophe, such as an earthquake or hurricane? Must property owners meet the higher standards at a time when hundreds of properties have suffered damage?
• After a catastrophe, will there be long wait times for contractors to haul away debris because of overwhelmed landfills and recycling centers? Will there be long wait times for building inspectors to visit and approve all of the effected properties?

Standard personal and commercial property insurance policies provide very limited amounts of coverage for ordinance or law” losses — extra costs incurred to meet local building requirements. Additional coverage is available; property owners in areas with green building codes should speak with our insurance agents about options and costs.

Research and publishing company McGraw-Hill Construction has predicted that the market for non-residential building retrofitting with green construction will grow to $15 billion by 2014. Property owners and insurance companies will have to address these questions much more often in the near future; the time to answer them is before the losses occur.

Many modern construction jobs could not exist without the assistance of flatbeds, pickups, off-highway dump trucks, loaders, scrapers, and bulldozers. Needless to say that work sites today are swarming with such heavy equipment. Although crucial to the work being done, this equipment can easily transition from an asset to a danger if it is not properly and regularly maintained and inspected.

What Does OSHA Say? Sadly, the Occupational Safety & Health Administration (OSHA) rules aren’t very comprehensive and can often be vague when it comes to guidelines and checklists on inspecting heavy equipment properly. There are, however, some general guidelines that you should follow:

• Materials and equipment should be inspected by a competent employee on a daily basis, or more frequently if needed.
• OSHA doesn’t have any specific requirements for mechanized equipment and motor vehicles, with the exception of when they’re being transported or used near power lines. That said, OSHA does state that any equipment that will be left unattended at dark should have reflectors, lights, or barricades so that the location of the machinery can be identified easily.
• Off-highway motor vehicles must be inspected at the start of each shift, which should include ensuring all the essential equipment and parts are free of obvious damage that could potentially cause a malfunction or failure and are otherwise in a safe operating condition. The trailer brake connections, emergency stopping system, and hand brake components of the service brakes must be checked. The tires, horn, seat belts, steering mechanism, coupling devices, operating controls, and safety devices must also be checked. Should job site conditions require the use of the defroster, windshield wipers, lights, reflectors, and/or fire extinguishers, these too must be checked. All damaged parts must be repaired properly before the vehicle can be used on the job site, even when the damage is seemingly minor.
• OSHA doesn’t have inspection checklists for earthmoving equipment, such as loaders, scrapers, wheel tractors, crawlers, tractors, bulldozers, off-highway trucks, graders, and so forth, but does state that seat belts must be provided.
• Employers should designate a competent person, meaning someone who has been trained properly in inspection guidelines, to inspect all heavy equipment on a frequent and regular basis. Note that the word “frequently” generally means “daily” in OSHA language.

Drafting Your Own Inspection Checklists. Since OSHA guidelines are so vague on the proper inspection of heavy equipment, safety experts commonly recommend that employers refer to the manufacturer’s manual for each individual piece of machinery being used on their job site and draw up their own inspection checklists using a combination of this information and that from OSHA.

However, heavy equipment manuals rarely include a detailed, comprehensive checklist. For equipment that doesn’t include one, and many likely won’t, you can use the machine’s maintenance procedures and operating instructions as a guide to create your own comprehensive checklist.

You might want to use the equipment’s OSHA inspection guidelines and the maintenance and operating information that you get from the equipment’s manual to develop several different checklists – one for site safety, one for systems, and one of safety equipment.

Once developed and ready for implementation, make sure that you explain thoroughly each of the checklists to your employees. Any employee that operates heavy equipment should be trained on the checklists and the importance of their completion each day before work ever begins.

It might take a little effort on your part, but having comprehensive, easily understood inspection checklists on every piece of heavy machinery on your work site is vital if you want to keep your business operations running smoothly and your workers safe. Don’t forget that having these checklists in place will essentially be pointless if your employees aren’t trained on how to use them properly.

Builders and contractors who buy Commercial General Liability policies with the impression that they will keep them safe from allegations of inadequate or faulty work should beware. It’s important to know that a CGL policy does not provide coverage for work that is faulty. In order to qualify for payment under a CGL policy, there must be a specific type of occurrence that causes property damage. The terms in a CGL policy define an occurrence as an accident. This includes repeated or continuous exposure to conditions that result in bodily injury or property damage. The damages or injuries must occur during the policy period in order to qualify for coverage. These injuries or damages must not be intentional. CGL policy terms specify that property damage is a physical injury to tangible property. This includes all losses of that property that happen as a result of the occurrence. It also covers the loss of use of tangible property that is physically unharmed.

When disputes arise as a result of defects in a building project, there are several factors that must be considered to determine whether the occurrence requirements and property damage requirements have been satisfied. The factors include the work or products that the contract states the policyholder was required to provide, the policy’s definitions, the alleged faulty construction job and the nature of the cause of the faulty work. These dispute conditions apply to defects in a structure sold or built by the contractor. They also apply to defects in a product that the contractor manufactures and sells independently.

If you have this coverage or are considering it, one of our agents will be able to analyze the policy’s terms. We will be particularly interested in the definitions of property damage and occurrence in the policy. This is crucial because each state’s law differs regarding such issues. Our agent will be able to advise whether or not the policy is in accordance with state laws. Some policies’ terms may indicate coverage for situations that a state’s laws may not provide coverage for. Keep in mind that state laws supersede anything written in an insurance contract. Some states specify that third-party property damage is a requirement for potential CGL coverage. Many states also specify that there is no coverage under a CGL policy for replacement or repair of damaged goods provided by the contractor. It’s also important to know that the work of a subcontractor is not covered under this law.

New Jersey was the leading state in addressing and defining defects in a CGL policy. A clear distinction was made between the replacement and repair of faulty materials. This was not considered as property damage covered under the CGL. However, third-party damage to a property may be covered. Since New Jersey’s definitions emerged, many other states have embraced the state’s view of business risks not counting as third-party property damage in the terms of a CGL policy. To better understand what the terms mean, what is covered and what state laws are in effect, contact one of our agents.

Whether it be arson, vandalism, or theft, construction sites are prime targets for criminal acts. These criminal acts can create significant added costs, including insurance deductibles and consequential premium hikes; work delays; and replacement of lost equipment, tools, and building materials. Of course, such an event can also affect your overall job site and your client’s deadline. The good news is there are several steps you can take to diminish the risk and financial impact of criminal acts involving your job site:

1. Research the work area prior to beginning a job. Carefully researching unfamiliar work areas is especially important if you’re not planning to hire on-site security, but should be done regardless. The local police or sheriff department can tell you if a particular area has a high crime rate. If you ask, they might also be able to send a patrol car out to check your site periodically once the work begins. You might additionally ask friendly competitors if they’ve had any problems in a particular area.
2. Ensure the job site is well-lit and fenced. Most thieves and vandals will think twice before acting if they have to climb or cut a fence and perform their ‘work’ without the protection of darkness. Motion detector lights and lights with infrared triggers will illuminate with movement. This can scare off intruders and alert neighboring businesses and houses that someone might be lurking around. Most experts recommend using a chain-link fence since it, unlike many other barriers, will offer an enclosure that still allows visibility. Of course, chain-link can be a more expensive barrier. If it’s not in the budget, then designate enclosed storage areas to hold tools, construction materials, hazardous items, and flammables.
3. Implement an inventory system for all tools and equipment. This will help you to keep track of everything on your work site. Smaller tools that are easier to carry and conceal are often targeted by thieves. Assign the site foreman or supervisor to keep a running log of when a tool goes out, the worker using it, and its return. You can use an etching tool to create a serial number on any piece of equipment or tool that doesn’t have a distinguishing number. It’s also wise to put your company’s logo or name on expensive items.
4. Consider installing ignition cutout switches and GPS. You can immobilize heavy vehicles and machinery by installing ignition cutout switches. GPS should also be a consideration for expensive heavy equipment and machinery. These are relatively compact and easy to install. The GPS will alert you when the equipment is being used, it’s location, and if it leaves where it should be.
5. Security, be it real or faux. A security camera isn’t just a visual deterrence to criminals. It can also help you catch brazen thieves and possibly retrieve your stolen goods. A security guard and/or guard dog only elevates the level of security at the site. There are also electronic devices that emit a barking sound to give the illusion of a real guard dog. Whether you actually have a surveillance system, guard, and watch dog, post the warning signs as if you do.
6. Control access points to the work site. Whenever possible, a site should only have a single entry and exit point. Keep in mind that it will be increasingly difficult to monitor the coming and going of individuals on a site with each additional access point. You might also consider asking employees to park off-site.
7. Plan out deliveries and installations. Items like HVAC systems, plywood, windows, and doors often come days or weeks before they’re actually ready to be installed. Since the target on these items becomes larger the longer they sit around virtually unattended, you should either install them to some degree as soon as they arrive; store them in an enclosed, secure area; or, most preferably, schedule the delivery as close to the projected installation time as possible.
8. Have a lock-up procedure in place. Designate certain employees to ensure the day’s end lock-up, which should include ensuring that all supplies are locked securely in their designed area, vehicles are locked and key-less, and oil/gas tank caps are locked.
9. Involve the community. Ask nearby residential and business neighbors to keep an eye out for any suspicious activity during non-work hours.

Water, water everywhere — and it can bring your entire construction project to a halt. From rain entering a structure through openings in the roof and unfinished windows, to plumbing systems that leak when tested, to flood waters that appear when snow melts, water damage is a significant cause of loss to buildings under construction. It can ruin interiors, spur the growth of mold, damage electrical equipment, and cause slip-and-fall accidents. It can also result in major construction delays as affected areas dry out and damaged materials are discarded and replaced. Even when insurance applies to the loss, the contractor will pay at least some of the costs out of pocket in the form of deductibles, debris removal costs that exceed the insurance coverage, and income lost due to delays. Preventing water damage claims adds to a contractor’s bottom line.

Prevention begins before construction does. During the planning phase, a contractor should:

• Develop a quality control program, if one does not already exist, and make any necessary changes to it based on past experience.
• Review the building plans and specifications for areas that might be susceptible to water infiltration, such as areas around plumbing systems, roof flashing, and foundations.
• Evaluate the potential effects of the materials on building systems for vulnerability to water damage.
• Schedule testing of systems that use water early in the project before much finish work is done.

During the construction process, a number of steps can help prevent water damage, including:

• Establishing a team to track, monitor and repair actual and potential water problems.
• Tracking and resolving all water issues at least weekly.
• Testing for problems frequently and quickly resolving any that are discovered.
• Delaying the installation of finishes until all building openings have been enclosed.
• Inspecting the work to ensure that it meets all specifications.
• Covering finishing materials stored inside the building with water resistant materials.

The contractor should test the roof for leaks upon its completion. The roof should be kept free of scrap and unused materials and monitored for the development of low spots. Any low spots detected should be corrected as soon as possible. Automatic sprinkler systems should be tested for both functionality and leakage; any problems should be addressed immediately. Before letting water into the piping, the contractor should conduct air pressure tests and monitor for loss of pressure. When the piping is charged with water, the contractor should do so one area of the building at a time so that each segment of the system can be evaluated and no large discharges are overlooked. The contractor should have the piping system monitored for several hours after it is opened to water.

After construction is finished, the water damage team should continue to track and resolve water issues on a weekly basis, resolving any that arise as quickly as possible. Should water damage occur, take immediate steps to limit and mitigate the damage.

The contractor’s insurance company might have technical experts who can assist with preventing water damage claims. A contractor’s history of preventing or suffering water damage losses can make or break its reputation for quality work. Focusing on prevention will help the contractor get future projects, increase profits, and lower its insurance costs.

There are a multitude of American businesses that produce some type of pollutant throughout the course of daily business operations. A business can be held liable for some very costly damages when these byproducts pollute another property or harm another individual.

Pollution liability clauses were once part of General Liability policies, but the extensive asbestos problems in the 1970s spurred most insurers to remove pollution protection from their General Liability policies. Today, pollution liability protection is obtained through a separate Pollution insurance policy. Pollution insurance policies are being written for businesses of all sizes, shapes, and forms – from pig farms and prisons to apartment complexes, salons, and dry cleaning businesses.

Why Are Pollution Insurance Policies Needed? Many businesses run the risk of creating pollution during normal daily operations. There’s also a risk from any existing pollution already on a business’s site of operation. In either case, a business could be at a liability risk if its pollution ends up on another property and causes damage to the property or harms an individual.

What Do Pollution Policies Cover? The basic premise of a pollution policy is that an insured party gets a claim related to damages caused by pollution. The insured party then reports that claim to their insurer for their pollution policy to cover the claimant’s property damage. Like most types of insurance, the specifics of a pollution policy can vary somewhat from insurer to insurer. Depending on the insurer, a pollution policy may cover damage only to properties -or- both properties and individuals; the cost of cleaning up pollution on another property; only pollution incidents from new pollution that occurred after the policy was obtained -or- incidents from both new and preexisting pollution; and investigative, legal, and court costs should the claim enter the legal system.

What Else Should I Know? There are several points that play a pivotal role in determining what type of policy a business needs. Prior to purchasing a pollution policy, a business owner should determine what insurance coverages are required for their specific situation and unique needs. It’s also important to assess what degree of risk is shouldered by the business and have a quality assessment done on the business property.

In some geographical locations, Pollution insurance might be offered through the government. For example, the state of Washington has its own Pollution insurance program through the Pollution Liability Insurance Agency. Businesses can contact their local environmental agencies to obtain more information about any applicable programs in their area and Pollution insurance in general.

Don’t overlook Pollution insurance as an important element of risk management. Contact our office with questions or concerns about Pollution insurance and/or insurance requirements.

Construction sites are ranked high on the list of the most dangerous workplaces. Nail guns, heavy falling objects and saws are often the cause of serious injuries. The possibility of serious injuries or fatalities is higher in construction than most other industries. It’s essential for employers to strive to create the safest possible work environment for their employees. The following are a few commonly overlooked areas of safety:

1. Fall Protection. In addition to providing fall prevention training, employers should conduct a test or review of employees’ knowledge. It’s important to ensure that they know how to prevent themselves from falling. Develop an efficient safety plan that includes a team effort. Be sure to have fall protection equipment checked regularly. Observe it after each use for any apparent damage. In addition to this, have the equipment inspected and documented annually. Remember to keep OSHA regulations in mind for inspections and documentation.

2. Respiratory Safety. This safety issue is serious enough that OSHA developed many regulations about it. The types of chemicals, dust or other harmful substances that cause respiratory problems might vary from one work site to another. However, there are precautions that must be taken to avoid overexposure or accidental inhalation of a substance. OSHA’s 29 CFR 1910.134 regulation details respiratory safety standards. Employers should always have a work site assessed by an occupational health specialist to determine the risk of exposure to harmful substances. In addition to this, contact a personal business insurance company to find out what their rules about harmful substance exposure are.

3. First Aid & Fire Safety. Since the risk for injuries is higher in the construction field, it’s essential for employees to know first aid. Show them how to use kits, how to treat common injuries, and how to prevent infections. They should also be instructed to report their injuries, however small or large, to their supervisor. Show them how to use eyewash stations, burn kits and emergency drench showers. Be sure they know how to use a fire extinguisher and are familiar with evacuation plans. Conducting regular fire drills is a safety essential.

4. Proper Documentation. Not only is thorough documentation required by OSHA but it’s also required by the law. In the unfortunate event of injuries or fatalities, it’s imperative to have thorough documentation of everything. Investigations are common in legal proceedings, so having a lack of documentation might place an employer in a bottomless pit of problems. Always keep injury logs, work logs, and employee injury records current.

5. Training. Be sure to provide ample training for employees. Weekly safety meetings, monthly seminars and voluntary training classes should all be established. OSHA offers an outreach training program that is voluntary. To give employees the chance to complete it, contact OSHA to receive complete information about the program.

6. Scaffolding. Providing extensive scaffolding training for any workers who will use it is essential. Not all workers automatically know how to use scaffolding. They must be taught about the dangers of power lines, unstable platforms and falling debris. Be sure any suspended or supported scaffolds have guardrails. Scaffolding must always be strong enough to support at least four times the intended load.

7. Ladder Safety. Ladders should be inspected visually before each use. Show employees how the check the side rails, rungs and feet for damage or defects. All ladders’ side rails should extend no less than three feet above the ground, and the top must meet a sturdy support. Educate employees about the dangers of ladder misuse. Ladders should only have weight loads that they’re designed to support. Be sure they also comply with the OSHA’s 29 CFR 1926.1053(a)(1) regulation.

8. Personal Protective Equipment. Most employees know this term simply as PPE. This equipment is essential for protecting employees from various hazards. Latex gloves are used when handling chemicals, dust masks are worn when sawing and earplugs are worn when using noisy tools. Hard hats and goggles are usually worn at all times to protect workers from dangerous falling or flying objects. OSHA requires employers to provide PPE when it is essential for the workplace. Construction sites are never an exception to this rule. Many employees find these accessories uncomfortable to wear. To prevent them from refusing to wear PPE, employers should offer comfortable equipment that is specially made.

9. Confined Space Safety. Working in a small space could result in injury or death from being exposed to a toxic, combustible or oxygen-deficient atmosphere. Such spaces should always be connected to a reliable monitoring system. Employees exposed to the area should also be educated about the risks and how to identify them. Be sure to implement a Lockout/Tagout system to protect workers from unwanted starting of dangerous machines. To learn more about this system’s regulations, read the 29 CFR 1910.147 OSHA regulation. Compliance with this standard prevents approximately 55,000 injuries and 120 deaths annually.

10. Welding Safety. Eye injuries and burns happen to welders too often. These injuries can cause extended damage or permanent disfigurement. By making sure welding employees always wear the right PPE, this risk is reduced greatly. To prevent welders from refusing PPE, be sure their equipment is paid for, comfortable and fits properly. Be sure to provide them with flame-retardant clothing also. ANSI Z87.1 rules that helmets are essential. They are a secondary form of eye protection, so goggles or glasses must also be worn. It’s also essential to ensure there are fans or ventilation systems in place to reduce the risk of airborne hazards.

The wildfires experienced by Californians recently are just one of the many examples we see when it comes to just how threatening and damaging fire can be. Since job site fires pose a constant threat to construction projects, contractors should prepare for a potential fire by periodically confirming that their risk management plans adequately address the issue.

Don’t wait until you actually have a fire on-site to start your fight against fire. The following tips have been recommended by the International Marine Underwriters Association to help keep construction sites free from the threat of fire:

• No smoking – Have and enforce a no-smoking policy on the construction site.
• Loss control plan – The written loss control plan should comprehensively address the risks of fire exposure and include specific objectives to be enforced by management on the job site, general safety measures, and a named person to be in charge of on-site safety coordination.
• Inspections and logs – Project managers should do daily on-site inspections of all materials and equipment, the work area, and any other nearby location with potential hazards. A running log should be kept of these daily inspections.
• Hot works – Cutting, brazing, welding, and other hot works operations should have a person designated to observe the working area, as well as areas adjacent to it. The person should maintain a line of sight and watch combustible products, sparks, and slag. The surrounding areas should be inspected for a minimum of 30 minutes after the hot works operation ceases.
• Portable heating equipment – Place all portable heating equipment on non-combustive platforms or flooring. Use recognized standards and/or the manufacturer’s specifications for ensuring the appropriate maintenance, fueling, and clearance.
• Enclosures – Construct temporary enclosures with designated paths for transporting materials. For the best results, only construct the temporary enclosure with non-combustible approved materials and locate it away from overhead exposures.
• Flammable materials – The labeling and identification requirements of gas and flammable liquid containers should be reviewed carefully before they’re brought on the construction site. Make sure that safe storage areas for flammables have been clearly designated and that the area includes surrounding barriers and signs.
• Firefighting equipment – Keep firefighting equipment on-site and easily available at all times. The project manager should ensure that there is always a reliable water supply available for the equipment to connect to and that the equipment will adapt to local fire department equipment if necessary.
• Rooftops – Roof vents should be adequately cleaned to decrease sources of ignition like lint. Additionally, a minimum of one portable fire extinguisher should be located at-level during rooftop operations. Make sure the extinguisher has sufficient capacity for the fire risk.

The growing trend of staying competitive by using the mobility and freedom provided by technology can often be a double-edged sword. Although taking your show on the road to off-site business meetings is a lot more efficient and easier when everything you need to make an eye-catching presentation is right there on the laptop, the mobility of technology does open the door to losses from theft.

Here are some simple loss prevention practices that employees can adopt to ensure their laptop stays safe and secure at and away from their worksite:

1. Carry the laptop in a case that doesn’t standout or scream expensive technology with logos or emblems. The idea is that only the carrier knows the case contains a computer. To bystanders, the case could be full of useless papers or files.
2. When traveling, use the hotel safe to store your computer. Never leave an unattended computer in a hotel room. Hotels usually warn customers that they aren’t responsible for valuables left inside rooms. And, don’t think that a locked room door is a sufficient safeguard. Maid services routinely leave rooms wide open as they’re being cleaned, meaning a passer could easily swipe your computer while the maid is busy cleaning the bathroom.
3. Never leave a laptop on the seats or otherwise in plain view in a vehicle, even a locked vehicle. Trunks are also a highly-targeted area for thieves, as many assume this is where most people will try to secure their valuables. Whenever possible, take the computer with you or leave it in a more secure locked location.
4. Make sure that your laptop will be secure during breaks if you’re at an off-site meeting. Ask if the various entrances and exits will be locked during breaks and then observe to make sure the room is indeed secure before leaving your laptop. If any question, then carry your laptop with you.
5. Avoid checking your laptop as luggage during flights. There’s too much opportunity for it to be stolen or damaged. Remove the laptop from its carrying case and give it to the guard before you go through the airport security metal detectors.
6. Write down the serial number, make, and model of your laptop and keep this information separate from your laptop.
7. Even in your own office, you need to make sure that you store your laptop in a secure location when you aren’t using it, take lunch, or need to run to another area of the building. A good rule is to lock up your computer if you can’t directly see it from your location.
8. Of course, the physical computer isn’t the only loss you can suffer. Keep a regular data backup schedule to prevent lost data due to equipment failure. It’s also prudent to minimize how much intellectual property or proprietary data is stored in the hard drive.
9. Have a password system (preferably two-tiers) or a data encryption feature to protect your data.
10. Lastly, you might consider asking your employer to arm your laptop with a tracking device as a last line of defense. Tracking devices for computers operate much like a LoJack system does on your car. Once the software is installed on the computer, it will run in the background without you even knowing it’s there. Meanwhile, the program routinely reports the IP address your computer is using and who logged into it to the security company. In the event you report your laptop stolen, the security company can remotely change how frequently the above information is fed to them. Unbeknownst to the thief, the security company is tracking his/her location every time the computer goes online.

While a construction project is underway, who should be responsible for the Property insurance on it — the project owner or the general contractor? Often, the contract puts this responsibility on the owner. However, some courts have decided that the contractor actually bears the risk of damage to the property before the owner accepts the completed project. The owner’s policy might not cover some significant perils, such as flood and earth movement, leaving the contractor uninsured for losses they cause. It therefore makes sense for the contractor to obtain builders risk insurance with the broadest coverage possible.

Many contractors carry Master Builders Risk policies that provide automatic coverage for all their projects. The insurance company bases the premium on the values of the projects the policy covers. For the contractor, this has several benefits. The master policy can act as a viable alternative to the owner’s policy, making the contractor’s services more attractive to potential clients. Also, the contractor’s policy might be broader than the owner’s coverage. It might include “Differences in Conditions” coverage to fill in gaps left by the owner’s policy. For example, the contractor’s policy might cover losses from floods and earth movements such as mudflows. Finally, buying one policy to cover all projects might be more cost-effective than buying individual policies for each job.

Common features of Master Builders Risk policies include:

• Coverage for all projects that begin during the policy term, even if they continue past the term’s end. Depending on the policy, coverage could extend for up to 36 months past expiration.
• The contractor must report the values of all jobs in progress periodically during the policy term. Reports may be due semi-annually, quarterly or monthly. The insurance company calculates the final premium based on the average of the values reported.
• The company might offer the contractor a variety of premium rates, coverages, deductibles, and limits for certain coverages. The company bases these choices on several factors, including the type of construction (wood, steel, concrete, etc.), the fire protection in each project’s location, the intended use of the building (manufacturing, retail, office, etc.), exposure to flood and earthquake, and others.
• Coverage options such as insurance for systems testing, extra expenses and project delays, and reduced deductibles.

Although the policy might automatically insure most projects, the insurance company may reserve the right to approve some projects before it will provide coverage. For example, the policy might automatically cover all projects with values of $10 million or less and require pre-approval for more expensive jobs. It might require pre-approval of jobs above a certain limit based on the type of construction — for example, all wood frame structures with values exceeding $5 million. It might also require pre-approval for Flood coverage for all projects located in special flood hazard areas or earth movement coverage for jobs in locations susceptible to earthquakes. In addition, pre-approval might be required at different times of the year for jobs in certain locations, such as projects in the southeast during hurricane season.

If a project owner is going to rely on the contractor’s Builders Risk policy, they should review it in advance to ensure that the terms and coverages meet their needs. The contractor should work with an insurance agent to answer any questions about the coverage and to address any deficiencies. Should the owner decide to accept the contractor’s policy, each side must adjust to new responsibilities for things like premium payments, amending the construction contract, providing acceptable evidence of coverage, and reporting values. If handled properly, this arrangement can be advantageous and cost-effective for both owner and contractor.