Construction Project Insurance Checklist for Owners, Developers and GCs

Underwriters price the project, so start with what describes it. Missing entity information is the most common reason a project policy needs to be endorsed after binding.

• Legal names of every ownership, development and land-holding entity, including any single-purpose entity
• Site address or legal description, parcel numbers and any off-site improvement areas
• Scope, phasing plan and construction schedule with the expected substantial completion date
• Construction value and, for builders risk, completed value and soft cost budget
• Delivery method: design-bid-build, design-build, CM at risk or owner-builder
• Geotechnical report and site history, including any prior uses that suggest contamination
• Intended use after completion: for-sale residential, rental, commercial or owner-occupied

The insurance exhibit in the owner-GC agreement sets the limits, endorsements and durations each party must carry. Read it as a list of obligations and mark which ones your current program already meets.

Check the indemnity clause against state law before relying on it. California, Texas, Arizona and Nevada each limit construction indemnity, and Texas Insurance Code §151.104 also limits additional insured requirements to the same extent.

• Required limits, aggregates and whether the aggregate must apply per project
• Additional insured requirements for ongoing and completed operations, and their duration
• Waiver of subrogation and primary and noncontributory requirements by line
• Completed operations period the contract requires after turnover
• Who buys builders risk, who pays the deductible and who is a named insured on it
• Notice of cancellation terms and the certificate holder

Construction lenders usually attach their own insurance requirements to the loan agreement, and they can be stricter than the construction contract. Common points of conflict are the builders risk valuation basis, the deductible, loss payee and mortgagee wording, and whether the lender must be named on liability policies. Collect the exhibit before the contract is final so the two documents can be reconciled.

• Loan agreement insurance exhibit and any separate insurance consultant's checklist
• Required mortgagee, loss payee and additional insured wording
• Builders risk valuation, soft cost and delay requirements
• Carrier financial rating requirements stated by the lender

Decide early whether each contractor will rely on its own annual policy, whether the owner or GC will buy a project-specific policy or whether a wrap-up will enroll the contractors. Each choice changes the bid: under a wrap-up, contractors are typically asked to remove their own insurance cost from their price.

Texas defines a consolidated insurance program in Insurance Code §151.001 as one where a principal provides general liability, workers' compensation or both for a construction project, and the definition of a construction project there excludes single-family houses, townhouses, duplexes and related land development.

• Size of the project relative to each contractor's annual volume
• Whether residential or condominium work is excluded on contractors' annual forms
• Who will administer enrollment, payroll reporting and safety if a wrap-up is used
• How long completed operations limits must remain available after turnover

Builders risk typically insures the project's physical work while it is under construction, subject to the form and its exclusions. Confirm who buys it before pricing, because a GC that assumes the owner is buying it and an owner that assumes the reverse leave the structure uninsured.

• Completed value or reporting basis and how change orders adjust it
• Existing structures, renovations or tie-ins to occupied buildings
• Off-site storage, transit and materials stored before delivery
• Soft costs, delay in completion and testing or commissioning
• Partial occupancy plans that may end coverage for part of the project
• Earth movement, flood and water damage terms for the site

Surety bonds are not insurance. A bond protects the obligee, and the contractor or developer that is the principal owes the surety indemnity for any loss. Many bond requirements come from statute. In California, Civil Code §9550 requires a direct contractor on a public works contract over $25,000 to give a payment bond before work starts. Texas Government Code §2253.021 requires a performance bond on public work contracts over $100,000 and a payment bond over $25,000, or over $50,000 for municipalities. California's Subdivision Map Act, at Government Code §66499.3, sets improvement security for performance and for payment at 50 to 100 percent of the estimated improvement cost each, plus warranty security for one year after acceptance.

Surety underwriting looks at financial statements, work in progress and backlog, so start that conversation before the bid date.

• Bid bond or bid security requirement and the bid date
• Performance and payment bond forms the obligee requires
• Subdivision improvement agreement and security amounts for public improvements
• Warranty or maintenance bond terms after acceptance
• Latest fiscal year-end financial statement and current work-in-progress schedule