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5 minute read

Key coverages before starting a residential construction project

By: Sovereign Insurance | Featuring: Steve Irwin

Every residential construction project is as unique as its design, but what they all have in common is a lot of moving parts. A typical project involves everything from surveying and purchasing land; to hiring architects, engineers and designers; to lining up tradespeople and materials; to scheduling what work gets done when and ensuring the project is delivered on time. 

“Builders and developers contend with not only finding the right land, the right materials and the right people to get the job done, they also have to hope the weather cooperates,” says Steve Irwin, Manager, Residential Surety at Sovereign Insurance. “So, building a residential construction project takes a lot of planning, coordination, courage and quite frankly, a bit of luck.” 

While no one can control the weather, builders and developers can reduce the risks inherent in construction projects. Common risks include unknown site conditions, labour shortages, safety hazards, shipment delays, damage or theft of equipment, and more. “Making sure businesses have the right insurance coverages is critical right out of the gate,” says Steve. 

Construction insurance (a broad categorization of insurance policies) is designed to protect businesses in the event of losses to a building or structure during construction, as well as protect against third-party exposures. When the right insurance solution is in place, builders and developers are laying a solid foundation for their project’s success. 

Here’s a look at a few key coverages to consider before starting a residential construction project: 

General Liability: While safety is job-number one, construction sites pose a number of risks for workers, including falls, accidents and heavy equipment malfunctions. General liability is essential, as it is designed to protect construction businesses against third-party claims including personal injury and bodily harm, as well as property damage. 

Professional Liability/Errors and Omissions: Professional liability insurance (also known as errors and omissions) protects businesses against claims of inadequate work, mistakes or failure to deliver a service. “Typically as a developer, you want to ensure all your consultants have suitable errors and omissions coverage,” says Steve. “If an architect makes an error in a wall design, for example, that’s a significant error that needs to be fixed and there are costs associated with that. Errors and omissions coverage protects against that.” 

Builder’s Risk: A builder’s risk policy provides protection for damage to the building or materials during construction. Generally, a policy provides coverage for damages to construction projects caused by fires, flooding, and weather-related damage, as well as acts of vandalism and theft on the construction site. “One loss trend is theft of copper wire because this metal is very expensive and can be sold by thieves quickly,” says Steve. “Builder’s risk insurance helps cover these losses.” 

Technology and Cyber: Builders and developers rely on technology in virtually all aspects of their residential construction projects. While cyber security isn’t always top of mind for those in the construction sector, they’re not immune to data breaches and cyber-attacks, which can result in financial losses and reputational harm. Businesses can protect themselves by developing security and cyber breach plans, as well as through a technology and cyber insurance policy. 

Surety: Though they’re related, there is a difference between surety and insurance. While an insurance policy is a contract between two parties: the insured and the insurance company, a surety bond involves three: the person doing the work (principal), the person requiring the work (obligee), and the company providing the bond (surety). A surety bond is a financial guarantee that a project will be completed, protecting the construction project owner in the event of a breach of contract. “For example, if ABC Drywall can’t complete the drywall as promised, a surety would provide the funds to bring in XYZ Drywall to finish the project,” says Steve. 

On a final note, Steve says a well-rounded solution with insurance coverages and surety will help builders and developers protect their businesses and keep their projects on track. “Having the right broker, insurance, and surety specialists on your team can make all the difference in a client’s project…and help take some of the ‘luck” out of the process.”

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