New Developments & Construction Insurance

Ground-up projects carry a different risk profile than an existing building. Here is how the property and liability sides of a construction insurance program fit together, and how to choose the right structure for your project.

A well-built construction insurance program protects the project on two fronts.

Property Coverage: Builders Risk

Builders risk insurance protects the project against physical loss or damage during construction or renovation. Once a building is complete and occupied, it generally moves to a standard commercial property policy.

What it typically covers

• The structure under construction, including permanent fixtures

• Building materials and supplies on site, in transit, or stored off site (often sublimited)

• Temporary structures such as scaffolding, fencing, and site offices

• Fire, wind, hail, theft, vandalism, and collapse under a special (all-risk) form

Optional coverages worth discussing

• Soft costs: additional interest, fees, permits, and professional costs incurred because of a covered loss

• Delay in completion / delayed start-up: lost rental income or revenue when a covered loss pushes back opening

• Testing and commissioning: damage that occurs while systems are being tested

• Equipment breakdown, flood, and earthquake: often excluded or sublimited unless specifically addressed

Watch for these details: the policy must be written for the full completed value of the project (including change orders), the policy period needs enough runway for schedule delays, and lenders will typically require being named as loss payee or mortgagee. Water damage and faulty workmanship or design are common problem areas, so review exclusions carefully.

Builders risk is a property policy only. It does not respond to injury or third-party claims, which is where the liability structures below come in.

Liability Structures: Four Ways to Insure the Project

What Matters Most on New Developments

• Completed operations and construction defect. Claims on new residential and condominium projects can surface years after completion. Wrap-up programs and project-specific policies are often structured to keep this coverage in place for a long period.

• Who gets excluded: Wrap-ups usually exclude certain parties and exposures, such as small subcontractors, off-site work, professional liability, and pollution, unless addressed separately.

• Bid pricing: Under a wrap-up, contractors should remove their own insurance costs from bids. Confirm that credits are actually passed through.

• Lender and contract requirements: Loan documents and construction contracts often dictate minimum limits, additional insured wording, max deductibles, and the form of the program.

• Coordination: Builders risk, liability, professional liability, and pollution coverage should be designed together so there are no gaps or overlaps. 

• Discussion around perm placement: Your broker should be discussing the transition from construction to perm coverage. There are various ways to do this, depending on location, perm program, turnover schedule, etc. You shoud always strive to obtain "permission to occupy" on your Builders Risk policy. This will allow you to move residents into certain units, while the final project does not have the CO yet. (It's very typical especially for garden style or multiple building projects. Ex. at a 20 building complex, 10 of the buildings are 100% completed but 10 are still finishing final touch-ups or inspections. Some towns or municipalities will only issue a TCO and may cause major delays in CO. Without permission to occupy, you may not be able to move in residents and have actual coverage...as most builders risk policys exclude perm proeprty with residents living on site. 

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