In the construction industry, your insurance policy spares you from significant financial risk. With proper coverage, you can protect yourself from a wide variety of perils and threats. Unfortunately, many construction business leaders fail to adequately comprehend their own policies.
What strategies can you employ to review these policies more thoroughly?
Important Tips for Reviewing Insurance Policies in Construction
Insurance policies are notoriously dense. With all the legalese, exceptions, and fine print, it’s easy to miss something important, especially when construction projects are moving fast and your focus is on the job-site.
That’s why regularly reviewing your insurance coverage is so essential – and it’s much more effective when you follow these tips:
1. Make sure the policy matches the work being done. Not all construction insurance is created equal. Different projects carry different levels of risk, and your coverage should be tailored to the scope and scale of the job. For example, a policy that worked for a residential build may fall short on a commercial project with more complex liability concerns. Start by comparing the project’s contract requirements with your policy. Are the limits high enough? Are all the right coverages in place? If your policy is based on older, smaller jobs, it might be time to upgrade or supplement your coverage. This is especially important when entering joint ventures or multi-tiered subcontracting situations, where exposures and responsibilities can shift quickly.
2. Pay close attention to exclusions. The exclusions section is where insurance policies often reveal their true limitations. These are the scenarios, activities, or damages that aren’t covered, and they’re usually buried deep in the document. Common exclusions in construction policies include faulty workmanship, certain types of water damage, contractual liability, and pollution. Some policies also limit coverage for subcontractor work, leaving you exposed if something goes wrong down the chain. Take the time to read (or have your legal team read) the exclusions carefully. A missing clause or misunderstood exclusion could leave you on the hook for massive damages, even if you thought you were fully insured.
3. Confirm additional insured and waiver of subrogation provisions. Most construction contracts require you to name the project owner, general contractor, or other parties as additional insureds on your policy. This gives them some of the same protections you have under your coverage. If your policy doesn’t allow for that (or if it limits how that coverage works) you could be in breach of contract. Similarly, waiver of subrogation clauses are common. These prevent your insurance provider from going after another party involved in the project (like the GC or architect) in the event of a claim. Your policy needs to explicitly permit this, or you could end up in a messy legal situation.
4. Understand your deductibles and who’s responsible. In the event of a claim, your deductible is the amount you have to pay before insurance kicks in. On paper, that’s a simple concept to understand. But on a job-site involving multiple parties, things get trickier. For example, who pays the deductible if it’s a joint claim? Does your subcontractor’s policy require a separate deductible? What happens if damage occurs on a shared job-site but wasn’t caused by your crew? Understanding these financial details ahead of time ensures you won’t be blindsided during a dispute. It also helps you budget more accurately and identify whether any risks are worth transferring or retaining.
5. Check that coverage spans the full project timeline. Insurance gaps and mistakes aren’t always about types of coverage; sometimes they’re about timing. Construction projects often stretch beyond their original schedule, and your policy needs to account for that. Builder’s risk insurance, for instance, typically covers the construction period, but may expire after a set number of months or once substantial completion is reached. If the job hits a delay, make sure your policy is extended or renewed accordingly. Similarly, look at how your liability coverage applies to ongoing operations versus completed operations.
6. Review policies annually (or more often on large projects). Insurance isn’t something you can set and forget. At minimum, you should be reviewing your policies annually, and ideally before your renewal date, to ensure everything still aligns with your current business structure, project scope, and contract obligations. For large or multi-year projects, it’s smart to review your policies even more frequently. Don’t hesitate to bring in a specialized construction insurance broker or risk consultant. Their job is to help you understand what you’re paying for — and whether it actually fits your business.
Mastering the Art of Insurance Coverage
Insurance might not be the most exciting part of the construction world, but when something goes wrong, it’s one of the most important. A solid policy can mean the difference between a contained issue and a company-threatening crisis. Take your time in reviewing your construction insurance policies – and review them regularly to avoid a financial disaster.
