What Kind of Insurance Does the Project Need?
Every business requires comprehensive insurance coverage to protect its assets and income. Property owners and developers need to consider more than just general liability, workers’ compensation and business interruption policies, though. Here’s a quick overview of what else may be available and needed.
Professional liability insurance
Real estate development projects often span months or even years, with numerous officers, directors and employees pitching in. All of these people could incur some type of professional liability along the way. For real estate developments, a professional liability policy provides coverage for legal defense costs and damages incurred from wrongful acts committed in the course of development.
The term “wrongful act” typically refers to actual or alleged neglect, tortious act, error, omission or breach of duty committed in the performance of real estate development activities. Such activities include:
- Preparation, transmittal and awarding of design and construction bid packages,
- The process of obtaining permits, variances, consents, easements and other rights,
- Management and supervision of design and construction, and
- Interactions with real estate agents, title companies and property managers.
The policies usually include a detailed list of exclusions for such situations as fraud, bodily injury, property damages and unlawful employment practices.
Environmental liability insurance
Developers increasingly target former industrial properties when they rejuvenate urban areas. The properties may have been designated by the Environmental Protection Agency as “brownfields” that contain hazardous substances, pollutants or contaminants.
Development of these properties may unearth environmental contamination that could:
- Require cleanup,
- Cause inadvertent release of contaminants, or
- Lead to liability for damage to natural resources.
Cost overruns and missed deadlines could easily occur in these circumstances.
Environmental liability insurance is essential for projects involving potentially contaminated areas, even for those developers that carry excess or umbrella policies. Such policies usually contain pollution exclusions that could leave a developer without coverage.
Owner-controlled insurance program
Under an owner-controlled insurance program (OCIP), the owner purchases insurance for all of a project’s contractors and subcontractors — including workers’ compensation, general liability, and employers professional liability coverage. An OCIP (also known as wrap-up insurance) can be job-specific or cover multiple projects within a fixed period of time.
OCIPs provide broader insurance coverage and higher limits, giving owners more protection. They can also provide substantial cost savings in the form of volume discounts, improved safety and risk management programs, and streamlined claims handling.
Builders risk insurance
This type of insurance applies to property in the course of construction and includes property on the construction site, at off-site locations and in transit. It can cover the owner(s), general contractor and subcontractors. By facilitating a quick resolution to property claims that occur during construction, builders risk insurance minimizes costly delays.
This insurance typically covers damage done by fire, wind, theft, lightning, hail, explosion, vandalism and vehicles. It generally contains several exclusions, as well, such as damage caused by earthquake, employee theft, water, war or government action.
Do your research
Every project is different and may require different combinations of insurance coverage. Regardless of the policies you decide to purchase, always pay close attention to the details. Know the parties covered, liability limits, exclusions, deductibles and coverage dates before signing on the dotted line.