What Is Construction Insurance and What Does It Cover?

Construction insurance refers to a specialized category of policies designed to protect businesses and individuals involved in building projects from various financial risks. These risks can range from unexpected property damage and bodily injury claims to losses from equipment damage or professional errors. Obtaining appropriate construction insurance is important for mitigating unforeseen costs and maintaining project continuity, supporting financial stability. It is not a single policy but rather a combination of coverages tailored to the specific needs of a project or business.

Coverage for Project-Related Liabilities

Commercial General Liability (CGL) insurance is a foundational policy for construction businesses, providing protection against third-party bodily injury or property damage that may occur during construction operations or on a job site. This coverage addresses claims from individuals who are not employees, such as a visitor who trips and falls on site, or instances where construction activities accidentally damage adjacent property. CGL policies cover associated legal fees, medical payments, and settlement costs. It excludes coverage for damage to the work itself, injuries to employees, or professional errors.

Builder’s Risk insurance, also known as Course of Construction (COC) insurance, provides property coverage specifically for the physical structure and materials of a construction project while it is underway. This policy protects the project against various perils such as fire, theft, vandalism, and severe weather events like windstorms or hail. Coverage extends to materials and equipment located on the construction site, those in transit to the site, or even at temporary storage locations. It can also cover “soft costs” like architectural fees or loan interest if a covered loss delays the project.

Commercial General Liability insurance focuses on external liabilities, shielding the contractor from claims of bodily injury or property damage caused to others. In contrast, Builder’s Risk insurance safeguards the physical integrity of the construction project itself, including the structure and materials, from direct physical loss or damage during the building phase. Both are important for comprehensive protection, as they address different categories of risk in the construction industry.

Insurance for Your Workforce

Workers’ Compensation insurance is required for most construction businesses that employ individuals, providing a system for managing workplace injuries and illnesses. This insurance offers wage replacement and medical benefits to employees who sustain injuries or develop illnesses in the course of their employment. The dual purpose of Workers’ Compensation is to provide financial support to injured workers without requiring them to prove fault, while simultaneously protecting employers from direct lawsuits related to these workplace injuries or illnesses.

Most jurisdictions across the United States mandate Workers’ Compensation coverage for employers with a certain number of employees, though specific requirements can vary by state. This system ensures employees receive necessary medical care and a portion of their lost wages.

Protecting Business Assets and Operations

Commercial Auto insurance is necessary for construction businesses that utilize vehicles for work purposes, such as transporting tools, materials, or personnel to and from job sites. This policy covers vehicles owned by the business, providing liability protection for accidents, coverage for damage to the company’s vehicles, and medical payments. It is designed for vehicles used in business operations, distinguishing it from personal auto insurance, which excludes coverage for business-related activities.

It also extends to physical damage to the vehicle itself, whether from a collision, vandalism, theft, or weather-related incidents. For construction companies, where vehicles are frequently exposed to higher risks due to their use in transporting heavy equipment and operating in varied conditions, this coverage protects a key business asset.

Equipment Floater insurance, often categorized under Inland Marine insurance, provides coverage for valuable tools, machinery, and equipment that are frequently moved between job sites or stored. This coverage protects against loss or damage due to theft, fire, vandalism, and other perils, regardless of whether the equipment is on a job site, in transit, or in storage. It covers a wide range of items, from small hand tools to heavy machinery like excavators and forklifts, and can include both owned and rented equipment. Standard commercial property insurance often has limitations on coverage for mobile equipment, making an Equipment Floater policy important for protecting these assets.

Additional Specialized Coverage

Professional Liability insurance, also known as Errors & Omissions (E&O) insurance, protects construction businesses against claims of negligence, errors, or omissions in the professional services they provide. This is particularly relevant for firms offering design-build services, construction management, consulting, or engineering, where professional advice or design flaws could lead to financial loss or property damage. It covers legal defense costs, settlements, and judgments that may arise from such claims, which are excluded from general liability policies.

Commercial Umbrella insurance provides an additional layer of liability coverage that extends beyond the limits of primary policies, such as Commercial General Liability and Commercial Auto insurance. Its purpose is to offer broader protection and increased limits in the event of a catastrophic claim that exhausts the coverage provided by underlying policies. This supplementary coverage helps construction businesses cover legal costs, medical bills, or property damage judgments that exceed primary policy limits.