What construction insurance includes
A construction project needs several policies working together. Builder's risk covers the works under construction. Contractors' general liability covers injury and property damage to third parties, including after the job is finished. Contractor's equipment (an inland marine floater) covers tools and machinery. Workers' compensation, commercial auto, professional liability for design-build firms and surety bonds complete the program. Outside the US, the same needs are usually met with Contractors' All Risks (CAR) and Erection All Risks (EAR) policies.
Builder's risk: who and what is covered
Builder's risk is property insurance for a building or structure while it is being built or renovated. Despite the name, the insured parties can include the owner, the general contractor, subcontractors and the lender, so the policy should name everyone with an insurable interest. Typical cover includes:
- The structure itself and materials, fixtures and equipment intended to become part of it.
- Materials stored off site or in transit to the site, usually with sublimits.
- Temporary works such as scaffolding and formwork, if scheduled.
- Optional soft costs: extra interest, financing, permits and lost rental income caused by a covered delay.
Cover usually ends when the project is completed, occupied or put to its intended use, whichever comes first, so extensions must be arranged before the policy expires.
CAR and EAR for international projects
CAR policies cover civil works such as buildings, roads and bridges; EAR policies cover the installation of machinery and plant, including testing and commissioning. Both normally combine material damage with a third-party liability section and can add a maintenance period after handover. Lenders on large projects often require delay in start-up (DSU), also called advance loss of profits, which pays lost revenue or debt service if a covered loss delays completion. Defects cover is often defined by the London Engineering Group (LEG) clauses, which range from excluding all defect-related damage to paying for improvement costs.
Common exclusions
- Faulty workmanship, materials or design itself, although resulting damage is often covered.
- Wear and tear, rust, mechanical breakdown of existing property and gradual deterioration.
- Contractors' tools and equipment that will not become part of the works.
- Penalties for late completion and pure financial loss unless DSU is bought.
- Flood, earthquake and named windstorm, often subject to sublimits or separate deductibles.
Liability, wrap-ups and surety bonds
Construction contracts usually require each contractor to name the owner and others as additional insureds, waive subrogation and carry completed operations coverage. On large projects the owner or general contractor may buy a wrap-up, an owner-controlled (OCIP) or contractor-controlled (CCIP) program covering all parties' site liability and workers' compensation. Surety bonds guarantee performance and payment. Under the federal Miller Act, implemented in FAR 28.102-1, performance and payment bonds are required for federal construction contracts above $150,000, and most states have similar laws for public works. Unlike insurance, a bond expects the contractor to repay the surety for any claim it pays.
What drives the price
- Completed value, project duration and type of construction (wood frame versus noncombustible).
- Location and exposure to wind, flood, wildfire and earthquake.
- Site security, fire protection and water leak controls during construction.
- The contractor's experience, safety record and loss history.
- Deductibles, sublimits and optional soft costs or DSU.
How claims work
Report losses quickly, protect the site from further damage, photograph everything and keep damaged materials until the adjuster has seen them. Builder's risk claims are often complex because several parties share an interest, so the policy's loss payee clause and the contract determine who is paid. Track repair costs separately from the original budget.
How to choose a construction program
Begin with the insurance clauses of your contract, such as AIA or ConsensusDocs forms, which set who buys builder's risk, the limits and waivers. Then get an estimate with our construction insurance calculator and coordinate it with general liability and workers' compensation. Polis Re helps you compare insurers and request quotes for builder's risk, CAR/EAR and contractors' coverage in one request.
