Construction projects come with unique risks that can range from property damage to third-party injuries. Without the right protection, these unexpected events can lead to costly claims that disrupt timelines and impact your bottom line. General liability insurance helps to safeguard construction businesses by providing coverage for common risks on and around a job site.
Whether you’re a contractor, builder or developer, understanding how this coverage works can help you manage liability concerns and keep your projects moving forward. There are four common general liability policies for businesses involved in construction: an owner/developer occurrence policy, owners interest policy, owner/general contractor project-specific policy or project policy for owner, general contractor and all subcontractors.
General Liability Occurrence Policy for Owner/Developer
With this type of general liability (GL) policy, all parties of a construction contract (owner/developer, general contractor and subcontractors) are insured on their own separate policies.
Pros
One of the key advantages of a GL occurrence policy is its perceived cost-effectiveness. This option is often viewed as the least expensive route since many owners and developers prefer to avoid purchasing separate coverage.
Additionally, both the owner/developer and the general contractor (GC) typically have separate yearly practice policies in place, which provides a layer of existing protection. In many cases, the owner or developer can even be named on the GC’s practice policy.
Cons
While relying on a GL occurrence policy may seem like a cost-effective solution, it comes with several potential drawbacks. Coverage is not guaranteed from year to year and can be restricted upon renewal, which could leave owners and developers with uncertainty.
Additionally, owners and developers have limited access to the GC’s policy coverage forms, which can make it difficult to fully understand the extent of protection. Coverage limits can change without the owner’s or developer’s knowledge, and residential exclusions are common.
The additional insured status is not as comprehensive as it once was, and limits are often shared across multiple projects, which can reduce available coverage.
Once a project is completed, owners and developers have no control over the policy and must rely on continued renewals for completed operations coverage. If they are not affiliated, they may need to purchase an alternate line of coverage to help protect their interests.
Owners Interest (OI) Policy
This project-specific general liability insurance covers only the interest of the owner/ developer for the duration of the construction project, plus the statute of repose.
Pros
Opting for a dedicated policy gives owners and developers greater control and certainty over their coverage. With dedicated limits specifically for the project, they do not have to share coverage with other jobs, which can provide more financial protection.
Additionally, completed operations coverage extends through the statute of repose, helping to ensure long-term protection even after the project is finished. This approach also helps to safeguard the owner or developer if the general contractor’s policy lapses, fails to respond or exhausts its limits.
With a dedicated policy, owners and developers can have greater confidence in both the quality and quantity of their coverage, helping to reduce potential gaps and unexpected liabilities.
Cons
One of the main drawbacks of securing an OI policy for a construction project is the cost. When combined with GC insurance expenses, this is typically the most expensive option.
Because of this, owners and developers should consult their insurance advisor to weigh the added financial investment against the benefits of dedicated coverage.
Project-Specific Policy for Owner and GC
Project-specific GL insurance covers only the interest of the owner/developer and the general contractor for the duration of the project, plus the completed operations through the statute of repose.
Pros
Choosing a dedicated policy for both the owner/developer and the GC can offer several advantages in managing construction risks. With dedicated coverage limits specific to the project, both parties have greater certainty in the quality and quantity of their protection. Additionally, extended completed operations coverage remains in place through the statute of repose, helping to safeguard against future claims.
This policy option may be more cost-effective than purchasing an OI policy in addition to the GC’s coverage, and the premium is a budgeted item for the project rather than a recurring cost that must be recalculated each year.
It also helps to eliminate disputes during claims by providing clearer liability coverage, potentially allowing all parties to avoid the conflict that can arise when multiple policies are involved.
Cons
When compared to a yearly traditional policy, this policy option may be more expensive. However, the higher cost reflects stronger coverage and dedicated limits that are not typically available with standard policies.
Owners and developers must consider whether the added investment aligns with their risk management priorities, as the level of protection and financial security provided by a dedicated policy may outweigh the additional cost in the long run.
Project Policy for Owner, GC and Subcontractors (OCIP-GL Only)
Project-specific GL insurance covers the interests of the owner/developer, the general contractor and all on-site subcontractors for the duration of the construction project, plus the statute of repose. Oftentimes, this type of coverage makes financial sense for larger projects.
Pros
A wrap-up insurance program, such as an Owner-Controlled Insurance Program (OCIP), offers comprehensive protection by providing dedicated coverage and limits for the owner/developer, general contractor (GC) and all enrolled subcontractors. This approach helps to ensure certainty in coverage for all parties.
With completed operations coverage extending through the statute of repose, the policy continues to offer protection even after the project is finished. Additionally, by including subcontractors in the OCIP, their bid deductions often help to offset the incremental cost, particularly for large construction projects exceeding $50,000.
A single program structure also helps to streamline claims and reduce disputes by eliminating the need to deal with multiple insurers or policies. It also protects subcontractors performing warranty work and provides coverage for subcontractors who may have inadequate insurance on their own.
Finally, under this type of policy, insurers may be willing to broaden coverage language, which can help enhance protection for all stakeholders.
Cons
While an Owner-Controlled Insurance Program (OCIP) has the potential to offer significant benefits, it is typically not a viable option for projects below the $35,000 threshold.
Additionally, there is a common misconception that OCIPs come with a heavy administrative burden. However, OCIP administrative reviews can help streamline the process and ensure efficient policy management.
Securing General Liability Insurance for Contractors
Managing risk is a critical part of any construction project, and general liability insurance helps to provide a layer of protection against the unexpected. By securing the right coverage, contractors, developers and builders can focus on completing projects with confidence, knowing they have support in case of accidents, property damage or other claims.
With the right approach to insurance and risk management, you can keep your projects on track and protect your business for the long haul. Higginbotham offers comprehensive business insurance and risk management solutions that are tailored to meet the needs of your operation. To learn more or to request a customized quote, get in touch with one of our construction insurance specialists.
